<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997
REGISTRATION NO. 333-9009
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 3
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
KATMANDU ENTERTAINMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<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>
<CAPTION>
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) 1,150,000 $6.00 $6,900,000 $2,090.91
- -------------------------------------------------------------------------------------------------
Representative's Warrants .... 100,000 -- $1 (3)
- -------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Representative's
Warrants (4) ................ 100,000 $7.20 $720,000 $218.18
- -------------------------------------------------------------------------------------------------
Total Registration Fee ....................................................... $2,309.09
================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Includes 150,000 shares of Common Stock issuable upon exercise of the
Representative's Over-Allotment Option.
(3) No registration fee required pursuant to Rule 457 under the Securities
Act.
(4) Pursuant to Rule 416 of the Securities Act, there are also being
registered hereby such additional indeterminate number of shares of
Common Stock as may become issuable pursuant to the anti-dilution
provisions of 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; 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; 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>
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 JANUARY 16, 1997
PROSPECTUS
LOGO
1,000,000 SHARES OF COMMON STOCK
------
This Prospectus relates to the offering (the "Offering") of 1,000,000
shares (the "Shares") of common stock, $0.001 par value per share (the
"Common Stock") by KatManDu Entertainment Corp., a Delaware Corporation (the
"Company").
Prior to this Offering, there has been no public market for the Common
Stock, 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 price per Share
will be $6.00. For information regarding the factors considered in
determining the initial public offering price of the Shares, see "Risk
Factors" and "Underwriting." Application has been made to list the Common
Stock on the Nasdaq SmallCap Market under the symbol KATX.
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 ................. $ $ $
- --------------------------------------------------------------------------------
Total(3) ................. $ $ $
================================================================================
(1) Does not include additional compensation payable to H.J. Meyers & Co.,
Inc., the representative (the "Representative") of the several
underwriters (the "Underwriters"), 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 $600,000 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 150,000 additional shares of Common Stock 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 H.J. Meyers & Co., Inc., 1895 Mt. Hope
Avenue, Rochester, New York 14620-4596, on or about , 1997.
H.J. MEYERS & CO., INC.
The date of this Prospectus is , 1997
<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!"]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. 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") which will be effected
prior to or simultaneous with the consummation of this Offering and assumes
no exercise of 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
second 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. KatManDu-Trenton will be an indoor/outdoor
KatManDu restaurant/nightclub which will operate year round. In addition, the
Company has commenced lease negotiations with respect to a third
restaurant/nightclub to be located in the Baltimore, Maryland inner harbor
district ("KatManDu-Baltimore"). No assurance can be given that such
negotiations will result in the execution of a lease.
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 complete the development and commence the
operation of KatManDu-Trenton and KatManDu-Baltimore and develop one or two
additional 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, Los Angeles, Las Vegas, 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
<TABLE>
<CAPTION>
<S> <C>
Securities offered hereby ..................... 1,000,000 shares of Common Stock.
Outstanding Securities before this Offering:
Common Stock (1) (2) ........................ 1,000,000 shares of Common Stock.
Outstanding Securities after this Offering:
Common Stock (1) ............................ 2,000,000 shares of Common Stock.
Proposed NASDAQ SmallCap Market Symbol
Common Stock ................................ KATX
Use of Proceeds ............................... The net proceeds to the Company from the sale of the Shares offered
hereby are expected to be approximately $4.62 million (assuming
an initial public offering price of $6.00 per Share). Such net
proceeds will be used to finance the development and opening of
KatManDu-Trenton and KatManDu-Baltimore and one or two additional
KatManDu restaurant/nightclubs in 1998, to repay a portion of 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 the Shares offered
hereby will experience immediate and substantial dilution with
respect to their investment. See "Risk Factors."
</TABLE>
- ------
(1) Excludes 500,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which 50,000 shares are issuable
upon exercise of outstanding options granted to certain officers,
directors, employees of and consultants to the Company, at an exercise
price equal to the initial public offering price per share. See
"Management" and "Principal Stockholders."
(2) Includes 110,784 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."
4
<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 Nine Months
December 31, ended September 30,
1994 1995 1995 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statements of Income Data:
Net revenue(2) ........................................... $2,773,042 $2,865,751 $2,859,624 $2,740,235
Food and beverage, promotional
merchandise ............................................. 633,117 620,099 593,868 619,806
General and administrative, rent expense to related party 1,723,594 1,742,898 1,635,641 1,610,049
Corporate overhead ....................................... 122,038 164,628 141,777 230,332
Compensation expense(3) .................................. -- -- -- 135,168
Amortization of deferred financing costs ................. -- -- -- 86,700
Interest expense net ..................................... 67,119 65,612 43,190 39,678
------------ ------------ ------------ ------------
Income before minority interest .......................... $ 227,174 $ 272,514 $ 445,148 $ 18,502
Minority interests(4) .................................... (22,717) (27,251) (44,515) (1,496)
------------ ------------ ------------ ------------
Net income ............................................... $ 204,457 $ 245,263 $ 400,633 $ 17,006
============ ============ ============ ============
Net income per common share .............................. $ .20 $ .25 $ .40 $ .02
============ ============ ============ ============
Weighted average number of shares
outstanding(5) .......................................... 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
Pro forma provision for income taxes(6) .................. $ 83,100 $ 99,600 $ 172,000 $ 6,800
------------ ------------ ------------ ------------
Pro forma net income before
cumulative effect of accounting change(6) ............... $ 121,357 $ 145,663 $ 228,633 $ 10,206
Cumulative effect of accounting change for income taxes(6) (22,100) -- -- --
------------ ------------ ------------ ------------
Pro forma net income (6) ................................. $ 143,457 $ 145,663 $ 228,633 $ 10,206
============ ============ ============ ============
Pro forma net income per common share(6) ................. $ .14 $ .15 $ .23 $ .01
============ ============ ============ ============
Pro forma weighted average number of shares outstanding(5) 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1996
(Unaudited)
-------------------------------
Balance Sheet Data(7): As
Actual Adjusted(8)
------------- ------------
<S> <C> <C>
Cash and cash equivalents ............... $ 285,886 $4,042,917
Property and equipment, net ............. 459,487 459,487
Total assets ............................ 2,938,715 5,633,948
Loans payable -- June 1996 Financing
Notes .................................. 1,100,000 550,000
Loan payable, related parties ........... 125,000 --
Loan payable, other ..................... 104,969 --
Total current liabilities ............... 1,550,579 759,610
Stockholders' equity .................... 801,408 4,287,610
Working capital (deficiency) ............ (1,241,707) 3,378,293
</TABLE>
<PAGE>
- ------
(1) The Summary Financial Information gives effect to the Reorganization
described under "Reorganization" 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, T-Kat Corp. ("T-Kat"), a New
Jersey corporation formed in 1995 and T-Kat Urban Renewal Corporation
("Urban Renewal"), a New Jersey corporation formed in 1996. See "The
Company" and "Reorganization".
(2) KatManDu-Philadelphia is only open from mid-April through mid-September
and, generally, has no revenues for the Company's first and fourth
calendar quarters. See "Risk Factors -- Quarterly Fluctuations in Results
of Operations; Seasonality" and "Management's Discussion and Analysis of
Financial Condition and Plan of Operation."
(3) The Company has issued an aggregate of 47,000 shares of Common Stock to
certain 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 $135,168 in the first quarter of 1996. See note 11(f) to 5
the Consolidated Financial Statements.
5
<PAGE>
(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
110,784 shares in connection with the June 1996 Financing described in
note 7 below. See "Reorganization."
(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., T-Kat
and Urban Renewal 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 note 7 to the Consolidated Financial Statements.
(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 1,000,000 Shares offered by the
Company hereby at an assumed initial public offering price of $6.00 per
Share and the initial application of the proceeds therefrom, after
deducting estimated expenses of this Offering, (ii) the deferred offering
expenses of approximately $925,364 relating to this Offering, (iii) the
repayment of approximately $780,000 of loans (including a portion of the
June 1996 Financing) and (iv) a charge to earnings in the amount of
approximately $209,000 representing the unamortized original issue
discount attributable to the 39,950 shares of Common Stock issued with
respect to the June 1996 Financing Notes which are being repaid out of
the proceeds of this Offering. See "Management Discussion and Analysis of
Financial Condition and Plan of Operation - Liquidity and Capital
Resources" and "Certain Transactions."
6
<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. Urban Renewal
was formed in 1996 to lease the site to be occupied by 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,
T-Kat and Urban Renewal. Accordingly, the three entities are presented as
wholly-owned subsidiaries. See "Reorganization."
Unless the context otherwise requires, as used herein the "Company" refers
to KatManDu Entertainment Corp., its predecessors and affiliates.
REORGANIZATION
Immediately prior to the consummation of this Offering, Messrs. Silver and
Harting, as the sole stockholders of Kat Corp., T-Kat, Urban Renewal and
Chinatown, and as the trustees of the trusts which are the sole limited
partners of KIP, will transfer their ownership interests in those entities to
the Company in a tax-free exchange pursuant to which they will receive an
additional 682,216 shares of Common Stock of the Company. Immediately
thereafter, KIP and Chinatown will be liquidated and Kat Corp., T-Kat and
Urban Renewal 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"). In addition,
in a separate transaction Messrs. Silver and Harting will transfer an
aggregate of 66,666 shares of Common Stock which they own personally to
Cherry Associates ("Cherry") in connection with a personal obligation to
Cherry. See "Principal Stockholders."
7
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RISK FACTORS
An investment in the Shares 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 Shares 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, historically the Company has not generated any 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. As of December 31, 1994, December 31, 1995 and September
30, 1996, the Company had negative working capital of approximately $865,000,
$900,000 and $1,241,000, respectively. With respect to the negative working
capital as of September 30, 1996, $550,000 represents the aggregate principal
amount of the June 1996 Financing Notes which will be repaid out of the
proceeds of this Offering. The Company will amortize $664,704 of original
issue discount attributable to the 110,784 shares of Common Stock issued to
the purchasers of the June 1996 Financing Notes over the stated term of such
Notes, resulting in a non-cash charge to earnings of approximately $86,700
per quarter. In the first quarter of 1997, the Company expects to incur an
additional charge to earnings in the amount of $208,434 representing the
balance of the original issue discount attributable to the 39,950 shares of
Common Stock issued to the holders of the June 1996 Financing Notes which
will be repaid out of the proceeds of this Offering. Finally, 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.
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 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 the second quarter of 1997 when KatManDu-Trenton is
expected to become operational and the new season for KatManDu-Philadelphia
begins. 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 will 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 fluc-
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tuate 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."
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 complete the development of
KatManDu-Trenton and one additional KatManDu restaurant/nightclub (i.e.,
KatManDu-Baltimore) in 1997 and one or two additional restaurant/nightclubs
in 1998. However, there can be no assurance that the net proceeds of this
Offering, together with cash flow from operations and site specific financing
will be sufficient or will be available on such terms to 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.
See "Business -- Expansion Plans and Site Selection."
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. Nevertheless, the Company may be required to give each
potential lender a lien on all of its assets 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
obtained a $2.5 million construction loan (the "Construction Loan") from
Equity National Bank to fund the development of KatManDu-Trenton. The
Construction Loan is 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. 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.
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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.
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 such 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 before KATMANDU 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 "Island
KatManDu" 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."
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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, located immediately
adjacent to KatManDu-Philadelphia, 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. T-Kat
will lease the premises to be occupied by KatManDu-Trenton from Urban Renewal
which, in turn, leases such premises from the Mercer County Improvement
Authority. The terms of the lease between Urban Renewal and T-Kat are
identical to the terms of the lease between Urban Renewal and the Mercer
Country Improvement Authority. Upon consummation of the Reorganization ,
Urban Renewal will be a wholly-owned subsidiary of the Company. Finally, the
Company is indebted to Messrs. Silver and Harting to the extent of $90,000.
See "Business -- Properties" and "Certain Transactions."
Although the Company believes that all of the leases and loans with
related parties are at market rates, there can be no assurance that the
leases and loans with affiliated persons described above are on terms no less
favorable to the Company as those that could have been obtained from
unaffiliated third parties since negotiations were not conducted at arm's
length. In addition, such relationships may create conflicting legal and
business obligations for Messrs. Silver and Harting with respect to the
interpretation and/or enforcement of the terms of such leases and loans. The
Company has adopted a policy that all future transactions with related
parties must be for valid business reasons, must be approved by a majority of
the Company's disinterested directors and must be on terms which are no less
favorable to the Company as those that could be obtained from unaffiliated
third parties.
Potential Conflicts of Interest. 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
could potentially have a conflict of interest if the Company were to expand
into Miami. The Company has adopted a policy that all future transactions
with related parties must be for valid business reasons, must be approved by
a majority of the Company's disinterested directors and must be on terms
which are no less favorable to the Company as those that could be obtained
from unaffiliated third parties.
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."
Acceptance of KatManDu Theme in New Markets. Although the Company intends
future restaurant/nightclubs to have characteristics similar to
KatManDu-Philadelphia, the KatManDu prototype
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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
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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 competitors include Hard Rock Cafe(R), Planet
Hollywood(R),House of Blues(R), Motown Cafe(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 similar 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. Upon completion of this Offering, Messrs.
Silver and Harting will own and/or control an aggregate of 715,550 shares of
Common Stock. Such stock represents approximately 35.78% of the voting power
of the Common Stock (33.28% assuming the Over-Allotment Option is exercised).
Pursuant to a shareholder's agreement, Messrs. Silver and Harting have the
right to vote an additional 5.35% of the voting power of the Company's Common
Stock (4.98% if the Over-Allotment Option is exercised in full) owned by
employees of, and certain consultants to, the Company. 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).
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. Although KatManDu-Philadelphia and KatManDu-Trenton are
designed to satisfy the requirements of the Disabilities Act, 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 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
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Co-President, and Stuart N. Harting, Co-President and Secretary. 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."
Past Due Taxes. As of September 30, 1996 the Company has taxes payable,
other than income taxes, of approximately $330,000. These taxes are owned to
the City of Philadelphia and the State of Pennsylvania and relate primarily
to business privilege and liquor consumption taxes. As of December 31, 1996,
a portion of such taxes were delinquent. The Company estimates that upon the
consummation of this Offering it will owe approximately $220,000 in taxes,
interest and penalties. See "Use of Proceeds."
Substantial Dilution. Purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution in net tangible book value of
$4.10 per share of Common Stock from the initial public offering price or
approximately 68%. See "Dilution."
Absence of Dividends. The Company 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. In 1994 and 1995, respectively, the
Company made cash distributions of $485,000 and $400,000 even though its
profits in such years were approximately $204,500 and $245,000. In addition,
in June 1996, the Company repaid loans due to affiliates of Messrs. Silver
and Harting of approximately $368,000. Messrs. Silver and Harting immediately
recontributed their share of such loan proceeds, $321,000, to the Company.
See "Dividend Policy."
Broad Discretion In Application of Proceeds. Approximately $2.27 million
(49.1%) of the estimated net proceeds from this Offering has been allocated
to expansion and $1.28 million (27.7%) to 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" and "Certain Transactions."
Substantial Use of Proceeds for Repayment of Debt and Other Pre-Existing
Obligations and to Benefit Related Parties. The Company intends to use
approximately $780,000 (16.9%) of the estimated net proceeds of this Offering
to repay indebtedness (including accrued interest thereon) and satisfy
pre-existing obligations of the Company and, therefore, such funds will be
unavailable to fund future growth. Included in the indebtedness to be repaid
are June 1996 Financing Notes having an aggregate principal amount of
$550,000, $125,000 payable to 1809 Chestnut Associates ("1809 Chestnut"), an
affiliate of Messrs. Silver and Harting, and $105,000 payable to Cherry. In
addition, the Company intends to use approximately $220,000 (4.8%) of the
estimated net proceeds of this Offering to pay back taxes owed by the
Company. In the event the Company does not pay such taxes, Messrs. Silver and
Harting may have personal liability for all or a portion of such taxes. See
"Use of Proceeds" and "Certain Transactions."
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; Nasdaq Maintenance Requirements; Determination of
Offering Price; Volatility of Prices of the Securities. Prior to this
Offering, there has been no public market for the Common Stock. Although the
Company has applied for listing of the Common Stock on the Nasdaq SmallCap
Market under the symbol KATX, there can be no assurance that it will be
quoted on such system or under such symbol or that an active public market
for the Common Stock will be developed or be sustained after this Offering.
Nasdaq has recently proposed new maintenance criteria which, if implemented,
would require, among other things, $2 mil-
14
<PAGE>
lion in net tangible assets, $1 million market value of the public float and
adherance to certain corporate governance provisions. The failure to meet
these maintenance criteria in the future may result in a delisting of the
Common Stock from Nasdaq. The offering price of the Shares 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 Common Stock 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
factors. 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 the Common
Stock. See "Underwriting."
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 25,000,000 shares are designated as Common Stock
and 5,000,000 shares are designated as Preferred 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 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. 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 Common Stock
and may impair the Company's ability to raise additional capital by the sale
of its equity securities. Of the 2,000,000 shares of Common Stock to be
outstanding upon completion of this Offering, the 1,000,000 Shares offered
hereby (1,150,000 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 1,000,000
Common Stock 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. Except as otherwise provided herein,
all officers and directors and 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 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 24 months from the date of
this Prospectus; provided however, after
15
<PAGE>
the expiration of the first 12 months of such 24 month period, the
Representative may release any such holder from his or her Lock-Up Agreement.
Holders of 177,450 shares of Common Stock, including the holders of the June
1996 Financing Notes, have executed firm Lock-Up Agreements, which will
terminate after 12 months. In connection, therewith, the Company has granted
a demand registration right, exercisable one year from the date of this
Prospectus, with respect to 137,500 shares of Common Stock. Accordingly,
taking into consideration the restrictions of Rule 144 and the Lock-Up
Agreements, 177,450 of the restricted shares of Common Stock will become
eligible for sale beginning in __________ 1997 and 822,550 of the restricted
shares will become eligible for sale beginning in __________ 1998. In
addition, upon completion of this Offering, options to purchase an aggregate
of 50,000 shares of Common Stock will have been granted. Such shares will
also be subject to a Lock-Up Agreement providing for a 24 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 Common Stock 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 Common Stock. See
"Shares Eligible for Future Sale."
For a period of 12 months from the date of this Prospectus, the Company
has agreed that it will not sell or otherwise dispose of any securities
without the prior written consent of the Representative, which consent shall
not be unreasonably withheld. In addition, for a period of 24 months after
the date of this Prospectus, the Company will not issue or sell any
securities pursuant to Regulation S under the Securities Act without the
prior written consent of the Representative. See "Underwriting" and "Shares
Eligible for Future Sale."
Representative's Potential Influence on the Market. A significant number
of the Shares offered hereby may be sold to customers of the Representative.
Such customers may engage in transactions for the sale or purchase of such
Shares through or with the Representative. Although it has no obligation to
do so, the Representative intends to make a market in the Common Stock 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 Common Stock. Such market-making activity may be discontinued at any
time. Moreover, if the Representative sells the Common Stock issuable upon
exercise of the Representative's Warrants (as defined) 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 Common Stock may be significantly affected by the degree, it
any, of the Representative's participation in such market. See
"Underwriting."
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability
of Securities. The Securities and Exchange Commission (the "Commission") has
adopted regulations which generally define "penny stock" to be any equity
security that has a market price (as defined) of less than $5.00 per share,
subject to certain exceptions. In the event of authorization of the Shares
offered hereby for quotation on the Nasdaq SmallCap Market, such securities
will initially be exempt from the definition of "penny stock." If the Shares
offered hereby are removed from listing on the Nasdaq SmallCap Market at any
time following the date of this Prospectus, such Shares may become subject to
rules that impose additional sales practice requirements on broker-dealers
who sell such Shares to persons other than established and accredited
investors (generally, those persons with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase. Additionally, for any transaction
involving a "penny stock", unless exempt, the rules require the delivery,
prior to the transaction, of a risk disclosure document mandated by the
Commission relating to the penny stock market. The broker-dealer also must
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-market. Finally,
monthly statements must be sent disclosing recent price information for the
"penny stock" held in the account and information on the limited market in
"penny stocks." Consequently, the "penny stock" rules may restrict the
ability of broker-dealers to sell the Common Stock and may affect the ability
of purchasers in the Offering to sell shares of Common Stock in the secondary
market.
In the event that the Company were not able to qualify the Shares for
listing on the Nasdaq SmallCap Market, the Company would attempt to have the
shares traded in over-the-counter market via the Electronic Bulletin Board or
the "pink sheets." In such event, holders of Common Stock may encounter
substantially greater difficulty in disposing of their shares and/or in
obtaining accurate quotations as to the prices of the shares.
16
<PAGE>
Administrative Proceedings Involving Representative. On July 16, 1996, the
National Association of Securities Dealers, Inc. ("NASD") issued a notice of
Acceptance, Waiver, and Consent (the "AWC") whereby the Representative was
censured and ordered to pay fines and restitution to retail customers in the
amount of $250,000 and approximately $1.025 million, respectively. The AWC
was issued in connection with the claims by the NASD that the Representative
charged excessive markups and markdowns in connection with the trading of
four certain securities originally underwritten by the Representative. The
activities in question occurred during the periods between December 1990 and
October 1993. The Representative has informed the Company that the fines and
refunds will not have a material adverse effect on the Representative's
operations and that the Representative has effected remedial measures to help
ensure that the subject conduct does not recur. As of the date of this
Prospectus, all fines and restitution associated with such activities have
been paid. In the event that the foregoing activities materially adversely
affect the Representative's ability to act as a market maker for the Common
Stock, and other market makers do not continue to make a market in the Common
Stock, a market for and liquidity of the said shares may be adversely
affected. 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.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $4.62 million (or
approximately $5.4 million if the Over-Allotment Option is exercised in
full). The Company intends to apply the net proceeds approximately as
follows:
<TABLE>
<CAPTION>
Amount Percentage
------------ ------------
<S> <C> <C>
Development of KatManDu restaurant/nightclubs:
Additional 2-3 KatManDu restaurant/nightclubs $1,518,000 32.9%
KatManDu-Trenton ............................. 750,000 16.2%
Repayment of Debt:
June 1996 Financing .......................... 550,000 11.9%
Loans from Affiliates ........................ 125,000 2.7%
Loans from Non-Affiliates .................... 105,000 2.3%
Payment of Delinquent Taxes .................... 220,000 4.8%
Consulting Fee Due Representative .............. 72,000 1.5%
Working Capital ................................ 1,280,000 27.7%
------------ ------------
Total ...................................... $4,620,000 100.0%
============ ============
</TABLE>
In addition to KatManDu-Trenton, the Company plans to develop one
additional restaurant/nightclub in 1997 (i.e., KatManDu-Baltimore) and one or
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 $3.4 million to the development of such
restaurant/nightclubs. 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 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. 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 second quarter of 1997. The Company is allocating
approximately $750,000 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 $540,000 of such expenses, of which
approximately $490,000 has been paid. Of such amount, approximately $400,000
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.
18
<PAGE>
The Company will use $550,000 of the net proceeds from this Offering to
repay the portion of the June 1996 Financing due upon the consummation of
this Offering. The balance of the June 1996 Financing is due one year from
the date of this Offering. The proceeds of the June 1996 Financing, $1.1
million in the aggregate, 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 $400,000 of such
proceeds to pay expenses relating to the development of KatManDu-Trenton.
The Company will use approximately $125,000 of the net proceeds of this
Offering to repay a short-term loan borrowed from 1809 Chestnut 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.
The Company will use approximately $220,000 of the net proceeds of this
Offering to pay delinquent taxes owed to the City of Philadelphia and the
State of Pennsylvania.
The Company has agreed to pay the Representative $72,000 out of the net
proceeds of this Offering in consideration for advisory and consulting
services to be provided by the Representative during the one year period
following this Offering.
Working capital includes funds to be used for funding the anticipated
increase in inventories, for general and administration expenses, 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 (i.e., KatManDu-Baltimore). 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, will be added
to working capital.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis giving effect to the Reorganization
and (ii) as adjusted, to give effect to the receipt of the estimated net
proceeds from the sale by the Company of the Shares offered hereby and the
initial application thereof and the recognition of unamortized original issue
discount of approximately $208,434 related to the portion of the June 1996
Financing being repaid out of the net proceeds of this Offering. The table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------
Actual(2) As Adjusted(3)
----------- --------------
(Unaudited)
<S> <C> <C>
Short term debt:
Loan Payable -- June 1996 Financing Notes $ 550,000 $ --
Loan Payable to related party ........... 125,000 --
Loan Payable -- other ................... 104,969 --
----------- --------------
Total short-term debt ................... $ 779,969 $ --
=========== ==============
Long term debt:
Loan Payable -- June 1996 Financing Notes $ 550,000 $ 550,000
Stockholders' equity (deficit):
Preferred Stock, par value $.001;
5,000,000 shares authorized; no shares
issued
and outstanding ....................... $ -- $ --
Common Stock, par value $.001;
25,000,000 shares authorized; 1,000,000
shares issued and outstanding --
actual;
2,000,000 shares issued and outstanding
--
as adjusted(1) ........................ 1,000 2,000
Additional paid-in capital .............. 1,522,003 5,248,639
Accumulated deficit ..................... (721,595) (963,029)
----------- --------------
Total stockholders' equity .............. 801,408 4,287,610
----------- --------------
Total capitalization .................... 1,351,408 4,837,610
=========== ==============
</TABLE>
- ------
(1) Excludes (i) 500,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Option Plan of which 50,000 shares are issuable
upon exercise of outstanding options granted to certain officers,
employees, directors of and consultants to the Company, at an exercise
price equal to the initial public offering price per Share, and (ii)
100,000 shares of Common Stock issuable upon exercise of 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 110,784 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; (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; and (v) amortization of $86,700 of
original issue discount attributable to 110,784 shares of Common Stock
issued in connection with the June 1996 Financing. 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 1,000,000 Shares pursuant to this Offering at an assumed
price of $6.00 per Share; (ii) the deferred offering expenses of
approximately $925,364 relating to this Offering; (iii) the repayment of
approximately $780,000 of loans including the repayment $550,000
principal amount of the June 1996 Financing Notes; and (iv) a charge to
earnings in the amount of $208,434 representing the unamortized original
issue discount attributable to the 39,950 shares of Common Stock issued
with respect to the June 1996 Financing Notes which are being repaid out
of the proceeds of this Offering. See "Certain Transactions."
20
<PAGE>
DILUTION
The negative net tangible book value of the Common Stock at September 30,
1996 was approximately $829,608 or $.83 per share. Net tangible book value
per share equals the Company's total stockholders' equity, less the Company's
intangible assets of $1,631,016, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the
Shares offered hereby (and after deducting the underwriting discount and the
estimated offering expenses and assumes the Over-Allotment Option is not
exercised), the pro forma net tangible book value at September 30, 1996 would
have been $3,790,392, or $1.90 per share. This represents an immediate
increase in pro forma net tangible book value of $2.73 per share to current
stockholders and an immediate dilution of $4.10 (approximately 68%) 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>
Initial public offering price of one Share ....................... $6.00
Net tangible book value per share before this Offering(1) .... ($ .83)
Increase per share attributable to new investors ............. $2.73
--------
Pro forma net tangible book value per share after this Offering (2) $1.90
-------
Dilution per Share to new investors ............................... $4.10
=======
</TABLE>
- ------
(1) Net tangible book value reflects receipt of the proceeds of the June 1996
Financing and the related issuance of 110,784 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 $540,000 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 $4,573,392 and dilution per Share to new investors would
be $3.87 (64.5%). The above table assumes no exercise of outstanding
options or warrants.
The following table sets forth as of September 30, 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) 1,000,000 50% $1,523,003 20% $1.52
Public Investors ........ 1,000,000 50% $6,000,000 80% $6.00
----------- --------- ------------ --------- -----------
Total .............. 2,000,000 100% $7,523,003 100%
</TABLE>
- ------
(1) Includes a capital contribution of approximately $321,700 made by certain
stockholders in June and July 1996 and original issue discount of
approximately $664,700 attributable to the issuance of 110,784 shares of
Common Stock in connection with the June 1996 Financing.
21
<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 September 30, 1996, the Company has
distributed approximately $358,000, in the aggregate, to its shareholders.
The Board of Directors does not intend to pay out any 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/nightclubs. 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.
22
<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 nine months ended
September 30, 1996, 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 nine months ended September 30, 1995 and September 30, 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 Nine
For the Years ended Months ended
December 31, September 30,
---------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue(2) ............................. $2,773,042 $2,865,751 $2,859,624 $2,740,235
Food and beverage, promotional merchandise . 633,117 620,099 593,868 619,806
General and administrative, rent expense to
related party ............................. 1,723,594 1,742,898 1,635,641 1,610,049
Corporate overhead(3) ...................... 122,038 164,628 141,777 230,332
Compensation expense(4) .................... -- -- -- 135,168
Amortization of deferred financing costs ... -- -- -- 86,700
Interest expense, net ...................... 67,119 65,612 43,190 39,678
------------ ------------ ------------ ------------
Income before minority interest ............ $ 227,174 $ 272,514 $ 445,148 $ 18,502
Minority interests(5) ...................... (22,717) (27,251) (44,515) (1,496)
------------ ------------ ------------ ------------
Net income ................................. $ 204,457 $ 245,263 $ 400,633 $ 17,006
============ ============ ============ ============
Net income per common share ................ $ .20 $ .25 $ .40 $ .02
============ ============ ============ ============
Weighted average number of shares
outstanding(6) ............................ 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
Pro forma provision for income taxes(7) .... $ 83,100 $ 99,600 $ 172,000 $ 6,800
------------ ------------ ------------ ------------
Pro forma net income before cumulative
effect of accounting change (7) ........... $ 121,357 $ 145,663 $ 228,633 $ 10,206
Cumulative effect of accounting change for
income taxes(7) ........................... (22,100) -- -- --
------------ ------------ ------------ ------------
Pro forma net income (7) ................... $ 143,457 $ 145,663 $ 228,633 $ 10,206
============ ============ ============ ============
Pro forma net income per share (7) ......... $ .14 $ .15 $ .23 $ .01
============ ============ ============ ============
Pro forma weighted average number of shares
outstanding(6) ............................ 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
</TABLE>
23
<PAGE>
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents ............... $ 92,838 $ 19,768 $ 285,886
Property and equipment, net ............. 628,972 515,835 459,487
Total assets ............................ 797,212 664,919 2,938,715
Loans payable -- June 1996 Financing
Notes .................................. -- -- 1,100,000
Loan payable, related parties ........... 559,010 405,158 125,000
Loan payable, other ..................... -- -- 104,969
Total current liabilities ............... 989,148 985,838 1,550,579
Stockholders (deficit) equity ........... (204,071) (357,647) 801,408
Working capital (deficiency) ............ (864,927) (921,523) (1,241,707)
</TABLE>
- ------
(1) The Selected Financial Data gives effect to the Reorganization and sets
forth on a combined basis the operations of KIP, Kat Corp., T-Kat and
Urban Renewal. See "The Company" and "Reorganization."
(2) KatManDu-Philadelphia is only open from mid-April through mid-September.
Accordingly, the Company historically has had no revenues for the first
and fourth calendar quarters. See "Risk Factors -- Quarterly Fluctuations
In Results of Operations; Seasonality" and "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
$100,000 cash for the first year following the consummation of this
Offering and to $150,000 in each of the two years thereafter. In
addition, Messrs. Silver and Harting can each earn an additional $50,000
in the first year of their employment agreements if the Company operates
three restaurant/nightclubs by the end of such year. Thereafter, their
respective base salaries will increase to $150,000 per annum provided the
Company is operating 3 restaurant/nightclubs. See "Management."
(4) The Company issued an aggregate of 47,000 shares of Common Stock to
certain 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 $135,168 in the first quarter of 1996. See 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
110,784 shares of Common Stock in connection with the June 1996 Financing
of which 39,950 shares were issued to holders of the June 1996 Financing
Note, which are being repaid out of the proceeds of this Offering. See
"Reorganization" and "Certain Transactions."
(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. See note 7 to the Consolidated Financial
Statements.
24
<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 second 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 September 30, 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
$540,000, of which $490,000 has been paid.
Plan of Operation. Immediately following this Offering the Company will
not generate any revenue until the second quarter of 1997 when
KatManDu-Trenton is expected to commence operations and KatManDu-
Philadelphia commences its 1997 season. 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 (i.e., KatManDu-Baltimore). 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.
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
25
<PAGE>
mortgage financing) should be sufficient to develop one additional
restaurant/nightclub in 1997 (i.e. KatManDu-Baltimore) and one or two
additional restaurant/nightclubs 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 and ended on September 21st. In 1995 the season began on April
20th and ended on September 21st. KatManDu-Trenton will operate year-round
and is expected to commence operations in the second 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.
26
<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 the second quarter of 1997 when
KatManDu-Trenton is expected to commence operations and the new season begins
for KatManDu-Philadelphia. 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
General. For the nine months ended September 30, 1996, the Company had a
net profit of $17,006 on gross revenues of $2,805,601 compared to a net
profit of $400,633 on gross revenues of $2,947,174 for the period ending
September 30, 1995. The reduction in net profits of $383,627 is primarily
attributable to a non- cash charge to earnings of $135,168 relating to stock
issued to certain employees of the Company for services rendered, of $86,700
relating to amortization of original issue discount incurred in connection
with the June 1996 Financing and lower sales due 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 76% and 77% for the nine months ended September 30, 1996 and
September 30, 1995, respectively. On an operating basis, the Company earned
$238,874 for the nine months ended September 30, 1996, representing
approximately a 40% 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.
Revenues. Net revenues (which represents gross revenues less promotional
beverage and meal disallowances) was $2,740,235 for the nine months ended
September 30, 1996 compared to $2,859,624 for the nine months ended September
30, 1995. Gross revenues by category for the nine months ended September 30,
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 Period Ending
September 30, Percentage of September 30, Percentage of Percentage Increase
1996 Gross Revenue 1995 Gross Revenue (Decrease)
--------------- --------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Food ......... $ 672,600 24% $ 712,549 24% (6%)
Beverage ..... 1,502,994 54% 1,621,353 55% (7%)
Gate ......... 338,565 12% 396,123 13% (15%)
Banquet ...... 219,584 7% 147,951 5% 48%
Merchandise .. 59,003 2% 45,513 2% 30%
Miscellaneous 12,855 1% 23,685 1% (46%)
--------------- --------------- --------------- --------------- -------------------
Total ........ $2,805,601 100% $2,947,174 100% (5%)
</TABLE>
The decrease in gross revenues for the period ended September 30, 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 15% due to the impact of these adverse
weather conditions.
27
<PAGE>
Costs and Expenses. Total costs and expenses (excluding non-cash
compensation expenses) for the nine months ended September 30, 1996 were
$2,460,187 compared to $2,371,286 for the nine months ended September 30,
1995. As a percentage of gross revenues, total costs and expenses (excluding
non-cash compensation expenses) for the periods ended September 30, 1996 and
1995 were 88% and 80%, 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 24% of the related
revenue during the first nine months of fiscal 1996 from 23% in the first
nine months of fiscal 1995. Food costs increased to 31% of food sales for the
nine month period ended September 30, 1996 from 29% for the nine month period
ended September 30, 1995. Liquor costs decreased to 19% of liquor sales for
the nine month period ended September 30, 1996 from 20% for the nine month
period ended September 30, 1995. Merchandise costs were 75% of merchandise
sales for the nine month period ended September 30, 1996 compared to 77% 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 $1,610,049 for the nine months ended September 30, 1996 compared to
$1,635,641 for the nine months ended September 30, 1995, and as a percentage
of gross revenues, increased to 57% in the first nine months of fiscal 1996
from 55% in the first nine months of 1995. Such increase was primarily due to
lower revenues in 1996. Total payroll (excluding employee benefits) for the
period increased to $640,814 from $567,001 in the prior period, or by 13%.
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, increased to $230,332 through September 30, 1996
from $141,777 through September 30, 1995. As a percent of gross revenues,
corporate overhead expenses increased to 8% of gross revenues from 5% for the
periods in question. Commencing on the day this Offering is consummated, the
annual salaries of each of Messers. Silver and Harting will increase to
$100,000 for the first year following the consummation of this Offering. In
addition, Messrs. Silver and Harting can each earn an additional $50,000 in
the first year following this Offering if the Company operates three
restaurant/nightclubs by the end of the first year following the closing of
this Offering. Thereafter, their respective base salaries will increase to
$150,000 per annum provided the Company is operating 3 restaurant/nightclubs.
Interest Income (Expense), Net. Interest income was negligible during the
respective nine months ended September 30, 1996 and 1995. Net interest
expense decreased to $39,678 through September 30, 1996 from $43,190 through
September 30, 1995 due primarily to decreases in the principal indebtedness
of the Company. However, the majority of such loans had been repaid as of
September 30, 1996.
Net Income After Taxes (Pro Forma). Pro forma net income after taxes for
the nine months ended September 30, 1996 was $10,206 compared to $228,633 for
the nine months ended September 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% 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
28
<PAGE>
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 September 30, 1996, cash and cash equivalents on hand was
$285,886, the working capital deficiency was $1,241,707 and total liabilities
were $2,137,307 of which $125,000 was owed to related parties. Such amounts
include the aggregate principal amount of the June 1996 Financing Notes, one
half of which will be repaid upon the successful completion of this Offering
and the balance of which is due one year from the consummation of this
Offering. If this Offering is not completed, none of such Notes are 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 second
quarter of 1997.
As of September 30, 1996, the Company has incurred approximately $540,000
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 has obtained a
$2.5 million Construction Loan from Equity National Bank to develop
KatManDu-Trenton. In addition, through September 30, 1996, the Company has
paid approximately $490,000 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 110,784
shares of Common Stock to the purchasers of the June 1996 Financing Notes.
One-half of the aggregate principal amount of the June 1996 Financing Notes
will be due upon the completion of this Offering and the balance will be due
one year from such date. If this Offering is not completed all of such Notes
are due 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 all 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,
29
<PAGE>
approximately $400,000 has been used to pay expenses related to the
development of KatManDu-Trenton and approximately $215,000 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
repayment of the June 1996 Financing Notes will result in a non-recurring,
non-cash charge to equity of approximately $664,700, representing original
issue discount attributable to the issuance of 110,784 shares of Common Stock
to the purchasers of the June 1996 Financing Notes. Such amount will be
amortized over the stated term of such Notes resulting in an earnings charge
of $86,700 per quarter. The Company expects an additional earnings charge of
$208,434 in the first quarter of 1997 when June 1996 Financing Notes, having
an aggregate principal balance of $550,000 are repaid upon consummation of
this Offering. See "Use of Proceeds" and "Certain Transactions."
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 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.
Management believes that the net proceeds of this Offering and cash flow
from operations will be sufficient to meet the Company's working capital
requirements for the next 12 months. 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
second 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 has commenced lease negotiations for a site in the Baltimore,
Maryland inner harbor district. In addition, the Company is considering other
sites in New York City, Atlantic City, Los Angeles, Las Vegas, Orlando and
Miami. No assurance can be made, however, that the Company will lease or
acquire sites in any of these cities.
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 other KatManDu restaurant/nightclub in 1997 (i.e.,
KatManDu-Baltimore) and one or 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
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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 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 items 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 after
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 talent base, 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 island paradise
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 has entered into lease
negotiations for a site in the Baltimore, Maryland inner harbor district. The
Company expects to develop one other KatManDu restaurant/nightclub in 1997
(i.e., KatManDu-Baltimore), and one or 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, Los Angeles,
California, Las Vegas, Nevada, 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/nighclubs 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 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
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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-
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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),
House of Blues(R), Motown Cafe(R) and Rainforest Cafe(R), 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 and Las Vegas. 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 and
KatManDu-Trenton comply with the requirements of the Disabilities Act;
however, the Company may 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 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. See "Certain
Transactions."
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
37
<PAGE>
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" before "KatManDu". 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. City of
Philadelphia 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.
38
<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 .. 54 Co-Chairman, Chief Executive Officer, Co-President and
Director
Stuart N. Harting.. 54 Co-Chairman, Co-President, Secretary and Director
Dennis Mehigan ... 31 Chief Financial Officer and Treasurer
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 .... 49 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 and as
Secretary since December 1996. 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.
DENNIS MEHIGAN, a certified public accountant, was hired as the Company's
Chief Financial Officer and Treasurer in December 1996. He has been
associated with Yampolsky, Mandeloff, Silver & Co., P.C., an accounting firm
located in Philadelphia, Pennsylvania, since 1987 and has been an officer and
stockholder thereof since January 1993. Mr. Mehigan has been the chief
accountant for the Company since 1991. Mr. Mehigan received a BS in Finance
from Juniata College in May 1987.
39
<PAGE>
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 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 stockholders 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.
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.
40
<PAGE>
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 be paid $100,000 for the first year following the
consummation of this Offering. In addition, Messrs. Silver and Harting
can each earn an additional $50,000 in the first year of their employment
agreements if the Company operates 3 restaurant/nightclubs by the end of
such year. Thereafter, their respective base salaries will increase to
$150,000 per annum provided the Company is operating 3
restaurant/nightclubs.
EMPLOYMENT AGREEMENTS
In December 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 co-President of the Company and Mr. Harting will serve as
co-President and Secretary of the Company. Messrs. Silver and Harting will
each be paid $100,000 for the first year following the consummation of this
Offering. In addition, Messrs. Silver and Harting can each earn an additional
$50,000 in the first year of their employment agreements if the Company
operates 3 restaurant/nightclubs by the end of such year. Thereafter, their
respective base salaries will increase to $150,000 per annum provided the
Company is operating 3 restaurant/nightclubs. In addition, they will 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.
41
<PAGE>
As of the date hereof, the Company has granted incentive stock options to 3
of its officers for an aggregate of 23,966 shares and 16,034 incentive stock
options to 1 other employee. Such options are exercisable at a price of $6.00
per share over a five-year period. 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 additional one-quarter of the shares covered thereby
each year thereafter. In addition, 5,000 shares exercisable at a price of
$6.00 per share will be granted to each of the Company's 2 outside directors
upon their taking office immediately following the closing of this Offering.
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
of 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.
42
<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, (ii) each director of the
Company, and (iii) all officers and directors as a group as of the date of
this Prospectus and the percentage ownership of the Common Stock for each
named person prior to and after consummation of this Offering.
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------ -----------------------------
Shares Shares
Name and Address(1) of Beneficial Beneficially Benefically
Owner(2) Owned Percentage Owned Percentage
------------------------------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Stuart N. Harting(3)(5)(6) .......... 391,108 39.11% 357,775 17.89%
S. Lance Silver(4)(5)(6) ............ 391,108 39.11% 357,775 17.89%
Bruce Waugh(5)(6) ................... 18,840 1.88% 18,840 *
David Wallack(7) .................... 1,816 * 4,316 *
Jill R. Felix(7) .................... -- -- 2,500 *
All directors and officers as a group
(8 persons)(5) ..................... 812,192 81.22% 755,526 37.69%
</TABLE>
- ------
* Represents less than one percent.
(1) The addresses of the persons named in this table are: Messrs. Silver,
Harting, 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 set forth
opposite his name.
(3) Includes shares of Common Stock which 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
50,000 shares of Common Stock which are pledged as additional security
for his indebtedness to Cherry. Simultaneously with the Reorganization
Mr. Harting transferred 33,333 shares of Common Stock to Cherry in
connection with a personal obligation to Cherry.
(4) Includes shares of Common Stock which 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 50,000
shares of Common Stock which are pledged as additional security for his
indebtedness to Cherry. Simultaneously with the Reorganization Mr. Silver
transferred 33,333 shares of Common Stock to Cherry in connection with a
personal obligation to Cherry.
(5) Holders of 107,000 shares of Common Stock, including Mr. Waugh, 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.
(6) Mr. Waugh has entered into a restricted stock agreement with the
Company, pursuant to which the shares of Common Stock which he owns (i)
may not be sold or otherwise transferred prior to April 1, 2001 and (ii)
will be forfeited if his 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 on each of April
1, 1998, 1999, 2000 and 2001.
(7) Shares owned after the Offering includes 2,500 shares of Common Stock
issuable upon exercise of stock options granted under the Option Plan
exerciseable within 60 days of the effective date this Offering.
43
<PAGE>
CERTAIN TRANSACTIONS
Immediately prior to this Offering, the Company will effect the
Reorganization pursuant to which it will issue 682,216 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." In addition, upon formation of the Company, an aggregate of
107,000 shares of Common Stock was issued to various officers and employees
of and consultants to the Company. Finally, in June 1996, the Company issued
110,784 shares of Common Stock to the purchasers of the June 1996 Financing
Notes including 1,816 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
Associates, a Pennsylvania partnership ("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 Associates 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 approximately $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 consummated the June 1996 Financing pursuant to
which it sold the June 1996 Notes in the aggregate principal amount of $1.1
million and 110,784 shares of Common Stock for a total consideration of $1.1
million. One half of such amount, $550,000, will be paid out of the net
proceeds of this Offering and the balance, $550,000, is due one year from the
date of this Prospectus. The purchasers of the June 1996 Financing Notes who
are being repaid out of the proceeds of this Offering were issued 39,950
shares of Common Stock and the purchasers of the June 1996 Financing Notes
which are due one year from the date of this Prospectus were issued 70,934
shares of Common Stock.
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 is used for
the Company's executive offices. See "Business -- Properties." T-Kat will
sublease the KatManDu-Trenton restaurant from Urban Renewal which leases the
premises from the Mercer County Improvement Authority. The terms of the
sublease between T-Kat and Urban Renewal are identical to the terms of the
over-lease between the Mercer County Improvement Authority and Urban Renewal.
Upon consummation of the Reorganization, Urban Renewal will become a
wholly-owned subsidiary of the Company.
In addition, the Company was a lessee under two leases with Powerhouse
pursuant to which it leased storage space in a building owned by Powerhouse
and had the right to display a KatManDu sign on such building. By mutual
consent of the parties such leases have been terminated and no consideration
was paid for such termination.
44
<PAGE>
T-Kat has obtained the Construction Loan from Equity National Bank. The
Construction Loan is 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 is for a term of 12 months and bears 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.
In December 1996, the Company granted a demand registration right,
exercisable one year from the date of this Prospectus, to Cherry and to
certain holders of June 1996 Financing Notes, to register the 137,500 shares
of Common Stock which they own. Also, in December 1996 the Company borrowed
an aggregate of $90,000 from Messrs. Silver and Harting. Such amount must be
repaid by March 15, 1998 and bears interest at 12% per annum. These funds
were used to pay certain expenses of the Company relating to this Offering.
In addition, in January 1997, the Company obtained a $125,000 line of credit.
Messrs. Silver and Harting have guaranteed this loan.
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.
45
<PAGE>
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 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 2,000,000
shares of Common Stock (2,150,000 shares of Common Stock if the
Representative's Over-Allotment Option is exercised in full). None of the
Preferred Stock is issued and outstanding.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result
in a dilution of the interest of the existing stockholders 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 Board of Directors has no present plan to establish any such
additional class or series. See "Risk Factors -- Delaware Anti-Takeover
Statute; Issuance of Preferred Stock; Barriers to Takeover." Holders of the
Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors out of assets legally available therefor, and to share
ratably in the assets of the Company available upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. According,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions, such as
amendments to the certificate of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of
a majority of the shares present or represented by proxy at the particular
stockholders' meeting. Prior to the completion of this Offering, the
Company's directors and officers as a group beneficially own approximately
81.22% of the outstanding Common Stock of the Company. Upon completion of
this Offering, such persons will beneficially own approximately 37.69% of the
Common Stock (35.89% if the Representative's Over-Allotment Option is
exercised in full). See "Principal Stockholders." Accordingly, such persons
will continue to exert substantial control over the Company's affairs,
including without limitations, the sale of equity or debt securities of the
Company, the appointment of officers, the determination of officers'
compensation, mergers and acquisitions and a determination concerning the
sale of all or substantially all of the Company's assets.
There are 24 holders of record of the Company's Common Stock as of the
date of this Prospectus.
The Company has applied for the listing of the shares of Common Stock on
the Nasdaq SmallCap Market under the symbol "KATX". There can be no assurance
that the Common Stock will be quoted on such system or under such symbol.
There currently is no established market for the Common Stock, and there can
be 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 stockholders) 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 stockholder
46
<PAGE>
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.
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.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock 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 in the public market could adversely
affect prevailing market prices for the Common Stock and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, there will be 2,000,000 Common Shares
issued and outstanding (2,150,000, if the Representative'2s Over-Allotment
Option is exercised in full). The Shares purchased in this Offering, will be
freely tradable without registration or other restriction under 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 1,000,000 shares of Common Stock 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.
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.
Except as otherwise described herein, holders of the Restricted Shares
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 24 months following the date of this Prospectus;
provided, however, the Representative may release any such holder from the
Lock-Up Agreement after the first 12 months of such period. The purchasers of
the June 1996 Financing Notes and Cherry, will be able to sell the shares of
Common Stock 12 months after the date of this Prospectus. In addition, Cherry
and certain holders of June 1996 Financing Notes, owning an aggregate of
137,500 shares of Common Stock, have been granted a demand registration right
as against the Company exercisable one year from the date of this Prospectus.
Accordingly, approximately 177,450 shares of Common Stock will become
eligible for sale in ------1997 and 822,550 shares will become eligible for
sale in ------1998.
For a period of 12 months from the date of this Prospectus, the Company
has agreed that it will not sell any securities without the prior written
consent of the Representative, which consent may not be unreasonably
withheld. During the 3 year period from the closing of the Offering, the
Representative has a right of first refusal to act as underwriter or agent
for any public or private offering or sale of the securities of the Company
or any successor to the Company or any of the officers or directors of the
Company or shareholders owning beneficially at least five percent (5%) of the
Company's Common Stock. In addition, for a period of 24 months after the date
of this Prospectus, the Company will not issue or sell any securities
pursuant to Regulation S under the Securities Act without the prior written
consent of the Representative.
48
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom H.J. Meyers &
Co., Inc. 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 set forth opposite their
names:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
--------------------------- -------------
<S> <C>
H.J. Meyers & Co., Inc. ...................................
-------------
Total ................................................. 1,000,000
=============
</TABLE>
The Underwriters are committed to purchase all the Shares of Common Stock
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 Shares 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.
Such dealers may reallow a concession not in excess of $ per Share 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 intend to
sell any of the Shares offered hereby to accounts for which they exercise
discretionary authority.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 3% of the gross proceeds derived from the sale of
the Shares.
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 150,000 shares of Common Stock at
the initial public offering price per Share 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 Shares 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
Shares proportionate to its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative and/or its designees, for nominal consideration, warrants to
purchase from the Company up to 100,000 shares of Common Stock (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] 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 will contain anti-dilution provisions
providing for adjustment in the event of any stock dividend, stock split,
recapitalization, reclassification or similar transaction.
The Representative's Warrants and the securities thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, upon written request by a holder
or holders of 50% or more of the Representative's Warrants which is made
during the exercise period
49
<PAGE>
of the Representative's Warrants, the Company will, on two separate
occasions, register the Representative's Warrants and any of the securities
issuable upon exercise thereof. The initial such registration will be at the
Company's expense and the second such registration will be at the expense of
the holder(s) of the Representative's Warrants.
For the period during which the Representative's Warrants is exercisable,
the holder or holders will have the opportunity to profit form the rise in
the market value of the Common Stock, with a resulting dilution in the
interest of the other stockholders of the Company. The holder or holders of
the Representative's Warrants can be expected to exercise it at a time when
the Company would, in all likelihood, be able to obtain any needed capital
from an offering of its unissued Common Stock on terms more favorable to the
Company than those provided for in the Representative's Warrants. Such fact
may adversely affect the terms on which the Company can obtain additional
financing. To the extent that the Representative realizes any gain from the
resale of the Representative's Warrants or the securities issuable
thereunder, such gain may be deemed additional underwriting compensation
under the Securities Act.
The Company has agreed to enter into a one-year consulting agreement with
the Representative, pursuant to which the Representative will act as a
financial consultant to the Company, commencing on the closing date of this
Offering. Under the terms of this agreement, the Representative, to the
extent reasonably required in the conduct of the business of the Company, and
at the prior written request of the principal executive officer of the
Company, has agreed to consult with the Company relating to corporate
financing and other financial service matters. The non-refundable consulting
fee of $72,000 will be payable, in full, on the closing date of this
Offering.
All officers, directors and holders of the Company's outstanding capital
stock prior to the consummation of the Offering have agreed that they will
not sell any shares of Common Stock owned by them (or subsequently acquired
under any option, warrant or convertible security owned prior to this
Offering) for a period of twenty-four (24) months following the date of this
Prospectus; provided, however, after the expiration of the 12 month period
following the date of this Prospectus they may sell but only with the
Representative's prior written consent. An appropriate legend shall be marked
on the face of certificates representing all such securities.
The Company has agreed that for a period of 12 months from the date of
this Prospectus, it will not sell any securities (with the exception of the
shares of Common Stock issued upon exercise of currently outstanding options
or warrants) without the prior written consent of the Representative. During
the 3 year period from the closing of the Offering, the Representative has a
right of first refusal to act as underwriter or agent for any public or
private offering or sale of the securities of the Company or any successor to
the Company or any of the officers or directors of the Company or
shareholders owning beneficially at least five percent (5%) of the Company's
Common Stock. In addition, for a period of 24 months after the date of this
Prospectus, the Company will not issue or sell any securities pursuant to
Regulation S under the Securities Act without the prior written consent of
the Representative.
The Company has also agreed that, for a period of 2 years from the closing
of this Offering, if it participates in any merger, consolidation or other
transaction which the Representative has brought to the Company (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), if any such
transaction is consummated within 3 years of the closing of this Offering,
then it will pay for the Representative's services an amount equal to 5% of
the first $3,000,000 of value paid or received in the transaction, 3 1/2 % of
any consideration paid over $3,000,000 and not greater than $5,000,000 and 2%
of all such value above $5,000,000 and will reimburse the Representative for
its out-of-pocket and incidental expenses, including fees and expenses of
its legal counsel and any other advisor retained by the Representative
(subject to prior approval by the Company). The Company has also agreed that
if, during this 2 year period, someone other than the Representative renders
advice in connection therewith, then upon consummation of the transaction the
Company will pay to the Representative as a fee the appropriate amount as set
forth above or as otherwise agreed to between the Company and the
Representative.
The Company has agreed that, for a period of 3 years from the date of this
Prospectus, the Representative may designate one nominee for election to the
Company's Board of Directors or act as an observer to attend all meetings of
the Board of Directors. Such Board member or observer shall be reimbursed for
all out-of-pocket expenses incurred in connection with attending such
meetings and such observer shall have no voting rights.
50
<PAGE>
For a period of 3 years from the date of this Prospectus, the Company has
also agreed to obtain the written consent of the Representative prior to
issuing any shares of undesignated preferred stock.
On July 16, 1996, the NASD issued a notice of acceptance of the AWC
whereby the Representative was censured, and ordered to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that the Representative charged excessive markups and markdowns in
connection with the trading of four certain securities originally
underwritten by the Representative. The activities in question occurred
during periods between December 1, 1990 and October 1993. The Representative
has informed the Company that the fines and refunds will not have a material
adverse effect on the Representative's operations and that the Representative
has effected remedial measures to help ensure that the subject conduct does
not recur. As of the date of this Prospectus, all fines and restitution
associated with such AWC have been paid.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering prices of the Shares 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 and the market for initial public offerings and certain
other factors as were deemed relevant.
Prior to this Offering the Company had entered into a letter of intent
with National Securities Corporation ("National") with respect to a possible
public offering. The Company and National have agreed to terminate their
respective obligations under such letter of intent and the Company has no
further obligations to National under such letter of intent.
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 is filed as an exhibit 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 50,000 shares of
Common Stock. Orrick, Herrington & Sutcliffe LLP, New York, New York has
acted as counsel to the Underwriters.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
51
<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 Securities Act with
the Commission with respect to the Shares 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 Shares 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.
Registration statements transmitted through the Commission's Electronic Data
Gathering. Analysis and Retrieval System are also publicly available through
the Commission's Internet site on the World Wide Web (http://www.sec.gov).
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 on the Nasdaq SmallCap Market. 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.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants.
52
<PAGE>
KATMANDU ENTERTAINMENT CORP.
INDEX
DECEMBER 31, 1995
AND SEPTEMBER 30, 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 SEPTEMBER
30, 1996 (UNAUDITED) ............................................ F - 3 - 4
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
1996 (UNAUDITED) ................................................ F - 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1995, FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED) .................................. F - 6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER
31, 1994 AND 1995, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND 1996 (UNAUDITED) ............................................ F - 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......................... F - 8 - 14
</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
(except with respect to the matters
discussed in Note 11, as to which
the date is January 10, 1997)
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 SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................... $ 19,768 $ 285,886
Inventories ......................................... 7,294 20,015
Prepaid expenses .................................... 10,270 --
Loan receivable, related parties .................... 26,983 2,971
-------------- ---------------
Total Current Assets ........................... 64,315 308,872
-------------- ---------------
PROPERTY AND EQUIPMENT, AT COST .......................
Furniture ........................................... 75,950 75,950
Leasehold improvements .............................. 582,558 603,703
Machinery and equipment ............................. 467,211 467,211
-------------- ---------------
1,125,719 1,146,864
Less: Accumulated depreciation ...................... 609,884 687,377
-------------- ---------------
Net Property and Equipment ..................... 515,835 459,487
-------------- ---------------
OTHER ASSETS
Liquor license ...................................... 23,000 23,000
Intangible assets, net of accumulated amortization of
$46,555 at December 31, 1995, $47,294 at September
30, 1996 (Unaudited) ............................. 7,103 6,364
Deferred financing cost, net of accumulated
amortization of $86,700 at September 30, 1996
(Unaudited) ...................................... -- 578,004
Deferred offering expenses .......................... -- 925,364
Construction in progress ............................ 54,666 539,340
Purchase of Minority Interest ....................... -- 98,284
-------------- ---------------
Total Other Assets ............................. 84,769 2,170,356
-------------- ---------------
TOTAL ASSETS .......................................... $ 664,919 $2,938,715
============== ===============
</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 SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses ........................ $ 380,174 $ 419,194
Accounts payable to a related party .......................... 17,711 --
Loan payable, June 1996 Financing Notes (Note 11(b)) .......... -- 550,000
Taxes payable, other than on income .......................... 110,855 328,078
Interest payable to related parties .......................... 32,554 --
Loan payable to related parties .............................. 405,158 125,000
Loan payable, other .......................................... -- 104,969
Minority interest ............................................ 39,386 --
Other current liabilities .................................... -- 23,338
-------------- ---------------
Total Current Liabilities ............................... 985,838 1,550,579
-------------- ---------------
LONG-TERM DEBT (Note 11(b)) ........................................ -- 550,000
OTHER LIABILITIES
Deferred rent ................................................ 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
September 30, 1996 (Unaudited) ............................. -- --
Common stock, $.001 par value; 25,000,000 shares authorized,
782,216 shares issued and outstanding as of December 31,
1995; and 1,000,000 shares issued and outstanding as of
September 30, 1996 (Unaudited) ............................. 782 1,000
Additional paid in capital ................................... 22,218 1,522,003
Accumulated deficit .......................................... (380,647) (721,595)
-------------- ---------------
Total Stockholders' (Deficit) Equity .................... (357,647) 801,408
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY ................................................ $ 664,919 $2,938,715
============== ===============
</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 NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
------------------------------ -------------------------------
1994 1995 1995 1996
------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Food and beverage ............. $2,451,992 $2,487,085 $2,481,853 $2,395,178
Gate charges .................. 355,597 396,123 396,123 338,565
Promotional merchandise ....... 36,713 45,793 45,513 59,003
Miscellaneous ................. 15,921 24,300 23,685 12,855
------------- ------------- ------------- ------------
Gross revenue ................. 2,860,223 2,953,301 2,947,174 2,805,601
Promotional disallowance ...... (87,181) (87,550) (87,550) (65,366)
------------- ------------- ------------- ------------
Net revenue ........................ $2,773,042 $2,865,751 $2,859,624 $2,740,235
------------- ------------- ------------- ------------
Cost and expenses
Food and beverage ............. 612,395 585,115 558,884 575,523
Promotional merchandise ....... 20,722 34,984 34,984 44,283
General administrative
expenses, rent expense to
related party ............... 1,723,594 1,742,898 1,635,641 1,610,049
Corporate overhead ............ 122,038 164,628 141,777 230,332
Compensation expense (Note 11f) -- -- -- 135,168
------------- ------------- ------------- ------------
Total Cost and Expenses .. 2,478,749 2,527,625 2,371,286 2,595,355
------------- ------------- ------------- ------------
Operating income ................... 294,293 338,126 488,338 144,880
Amortization of deferred financing
costs ............................ -- -- -- 86,700
Interest income .................... 2,264 2,009 1,610 3,040
Interest expense ................... (69,383) (67,621) (44,800) (42,718)
------------- ------------- ------------- ------------
Income before minority interest .... 227,174 272,514 445,148 18,502
Minority interests ................. (22,717) (27,251) (44,515) (1,496)
------------- ------------- ------------- ------------
Net income .................... $ 204,457 $ 245,263 $ 400,633 $ 17,006
============= ============= ============= ============
Net income per common share ........ $ .20 $ .25 $ .40 $ .02
============= ============= ============= ============
Weighted average number of shares
outstanding ...................... 1,000,000 1,000,000 1,000,000 1,000,000
============= ============= ============= ============
Pro forma provision for income taxes
(Note 7) ......................... 83,100 99,600 172,000 6,800
------------- ------------- ------------- ------------
Pro forma net income before
cumulative effect of accounting
change ........................... $ 121,357 $ 145,663 $ 228,633 $ 10,206
Cumulative effect of accounting
change for income taxes (Note 7) . (22,100) -- -- --
------------- ------------- ------------- ------------
Pro forma net income ............... $ 143,457 $ 145,663 $ 228,633 $ 10,206
============= ============= ============= ============
Pro forma net income per common
share ............................ $ .14 $ .15 $ .23 $ .01
============= ============= ============= ============
Pro forma weighted average number of
shares outstanding ............... 1,000,000 1,000,000 1,000,000 1,000,000
============= ============= ============= ============
</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 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- ------------------------ Additional
No. of No. of Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------- -------- ----------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ..... -- $ -- 782,216 $ 782 $ 22,218 $ 24,784 $ 47,784
Net income ..................... 204,457 204,457
Distributions .................. -- -- -- -- -- (456,312) (456,312)
-------- -------- ----------- --------- ------------ ------------- ------------
Balance, December 31, 1994 ..... -- -- 782,216 $ 782 $ 22,218 ($ 227,071) ($ 204,071)
Net income ..................... -- -- -- -- -- 245,263 245,263
Distributions .................. -- -- -- -- -- (398,839) (398,839)
-------- -------- ----------- --------- ------------ ------------- ------------
Balance, December 31, 1995 ..... -- $ -- 782,216 $ 782 $ 22,218 ($ 380,647) ($ 357,647)
======== ======== =========== ========= ============ ============= ============
Net income ..................... 17,006 17,006
Distributions .................. -- -- -- -- -- (357,954) (357,954)
Issuance of common stock ....... -- -- 107,000 107 513,493 -- 513,600
Issuance of common stock,
June 1996 Financing Notes ..... -- -- 110,784 111 664,593 -- 664,704
Contributions from stockholders . -- -- -- -- 321,699 -- 321,699
-------- -------- ----------- --------- ------------ ------------- ------------
Balance, September 30, 1996 .... -- $ -- 1,000,000 $1,000 $1,522,003 ($ 721,595) $ 801,408
======== ======== =========== ========= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
KATMANDU ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 204,457 $ 245,263 $ 400,633 $ 17,006
----------- ----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation ............... 138,545 129,735 87,305 78,232
Amortization of deferred financing costs .... -- -- -- 86,700
Minority interest ........................... 22,717 27,251 44,515 1,496
Non-cash compensation ....................... -- -- -- 135,168
Changes in operating assets and liabilities:
Inventories ............................... (4,600) (2,694) (2,695) (12,721)
Prepaid expenses .......................... (300) (9,970) (29,173) 10,270
Accounts payable, related party, trade and
accrued expenses ....................... 58,208 216,811 120,905 44,647
Taxes payable, other than on income ....... (29,670) (15,460) 25,567 217,223
Deferred rent ............................. (3,704) (3,704) -- --
Interest payable to related party ......... 28,955 (67,474) (59,302) (32,554)
----------- ----------- ----------- -----------
Total Adjustments ...................... 210,151 274,495 187,122 528,461
----------- ----------- ----------- -----------
Net Cash Provided By Operating Activities 414,608 519,758 587,755 545,467
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance proceeds ............................. 129,435 -- -- --
Purchase of property and equipment ............. -- (7,682) (7,682) (21,145)
Construction in progress ....................... (5,000) (49,666) (20,128) (484,674)
----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Investing
Activities ........................... 124,435 (57,348) (27,810) (505,819)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering expenses ..................... -- -- -- (546,932)
Purchase of minority interest .................. -- -- -- (139,166)
Loan payable, June 1996 Financing Notes ........ -- -- -- 1,100,000
Loan payable, related parties, net ............. 10,442 (136,641) (264,238) (256,146)
Loan payable, other ............................ -- -- -- 104,969
Contributions from stockholders ................ -- -- -- 321,699
Distributions .................................. (485,204) (398,839) (270,365) (357,954)
----------- ----------- ----------- -----------
Net Cash (Used In) Provided By Financing
Activities ........................... (474,762) (535,480) (534,603) 226,470
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,281 (73,070) 25,342 266,118
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ... 28,557 92,838 92,838 19,768
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......... $ 92,838 $ 19,768 $ 118,180 $ 285,886
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest .......................... $ 40,428 $ 135,095 $ 104,102 $ 64,272
=========== =========== =========== ===========
NON CASH OPERATING
ACTIVITIES:
Bartered services ............................... $ 21,497 $ 29,080 $ 29,080 $ 30,640
=========== =========== =========== ===========
Compensation .................................... $ -- $ -- $ -- $ 135,168
=========== =========== =========== ===========
NON CASH FINANCING ACTIVITIES:
Issuance of Common Stock ....................... $ -- $ -- $ -- $1,043,136
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<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 Commonwealth 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 Corporation, 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
CASH AND CASH EQUIVALENTS: For the purpose of the statement of cash flows,
all highly liquid investments with an original maturity of 3 months or less
are considered cash equivalents.
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 lesser 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-8
<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-9
<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 nine months ended September 30, 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 nine month period ended September 30, 1996 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:
<TABLE>
<CAPTION>
<S> <C>
Accounts payable ............................................... $348,726
Accrued expenses ................................................ 19,448
Accrued bonus ... .............................................. 12,000
-----------
Total ........................................................ $380,174
===========
</TABLE>
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-10
<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:
<TABLE>
<CAPTION>
For the Year Ended
---------------------------------
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The pro forma provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
For the Year Ended
----------------------
1994 1995
--------- ---------
<S> <C> <C>
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%
</TABLE>
NOTE 8 -- NOTE PAYABLE TO RELATED PARTIES
The Company is indebted to various parties related through common
ownership and control and various limited partners.
<TABLE>
<CAPTION>
1995
----------
<S> <C>
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
=========
</TABLE>
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-11
<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.
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:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
1996 .................................................. $ 50,000
1997 .................................................. 50,000
1998 .................................................. 50,000
1999 .................................................. 50,000
2000 .................................................. 50,000
Thereafter ............................................ 245,833
----------
$495,833
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F-12
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 11 -- SUBSEQUENT EVENTS
a) Proposed Initial Public Offering
The Company entered into a letter of intent to offer 1,000,000 shares of
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 an
aggregate of 110,784 shares of Common Stock to the purchasers of such Notes.
If the proposed initial public offering is consummated, the June 1996
Financing Notes having an aggregate principal amount of $550,000 are due the
day following the day of closing with respect to the Company's proposed
public offering and the balance will be due one year following such closing.
If such proposed initial public offering is not consummated, all of the June
1996 Financing Notes will be due May 31, 1998. In the event the initial
public 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 $664,700.
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
$321,700, 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. The $125,000 loan is bearing
interest at an imputed rate and is due on demand. The $105,000 loan bears
interest at 12% per annum. The principle and accrued interest are due April,
2000. The proceeds of the loans 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 December 1996, the Company
borrowed an aggregate of $90,000 from its principal stockholders. Such
indebtedness bears interest at 12% per annum and is due March 15, 1998. In
January 1997, the Company obtained a $125,000 line of credit bearing interest
at 18% per annum from an unrelated party which is due March 15, 1998 and
which is guaranteed by the principal stockholders of the Company. The
proceeds of such loans were used to pay expenses relating to the proposed
initial public 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 50,000 shares exercisable at a price of $6.00 per
share, and vest for a period of approximately 2 to 5 years.
e) Katmandu-Trenton ("T-Kat")
In July 1996 the Company obtained 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.
F-13
<PAGE>
KATMANDU ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 1995
NOTE 11 -- SUBSEQUENT EVENTS - (Continued)
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
Common Stock and Preferred Stock are 25,000,000 and 5,000,000, respectively.
Immediately prior to the consummation of the offering, the shareholders of
Chinatown, Kat Corporation, T-Kat and T-Kat Urban Renewal Corporation, an
entity formed in 1996 and which is inactive, 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
782,216 shares of Common Stock of the Company. Of such shares, 66,666 shares
of Common Stock were transferred in connection with a loan payable. In
addition, in connection with the June 1996 Financing, the Company issued
110,784 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 107,000 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 $135,168 in the first quarter of 1996,
in connection with the shares issued to the employees, and a deferred asset
of $378,432 was recorded in connection with the shares issued to the
consultants, as their services were related to the initial public offering.
By September 30, 1996, the Company paid and/or accrued an additional $546,932
in offering costs. Such cost are included in the balance sheet as deferred
offering expenses.
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.
h) Taxes, Payable other than on income (Unaudited)
As of September 30, 1996, the Company had taxes payable other than on
income of approximately $330,000. This amount is primarily related to amounts
due for business privilege taxes and liquor consumption taxes. As of December
1996, a portion of such taxes were delinquent and therefore the Company may
be subject to penalties and interest with respect to such taxes. The Company
has estimated the amount of the potential additional liability and
accordingly, has recorded an accrual in the September 30, 1996 interim
financial statements.
F-14
<PAGE>
[This page contains five graphics. In the top left corner is a picture of
patrons dining under umbrella 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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ........................... 3
The Company .................................. 7
Reorganization ............................... 7
Risk Factors ................................. 8
Use of Proceeds .............................. 18
Capitalization ............................... 20
Dilution ..................................... 21
Dividend Policy .............................. 22
Selected Financial Data ...................... 23
Management's Discussion and Analysis of
Financial Condition and Plan of Operations .. 25
Business ..................................... 31
Management ................................... 39
Principal Stockholders ....................... 43
Certain Transactions ......................... 44
Description of Securities .................... 46
Shares Eligible for Future Sale .............. 48
Underwriting ................................. 49
Legal Matters ................................ 51
Experts ...................................... 51
Available Information ........................ 52
Index to Financial Statements ................ F-1
</TABLE>
------
Until , 1997 (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
1,000,000 SHARES OF COMMON STOCK
------
PROSPECTUS
------
H.J. MEYERS &
CO., INC.
, 1997
=============================================================================
<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.
<TABLE>
<CAPTION>
<S> <C>
Registration fee ................................................ $ 2,500
NASD fee ........................................................ 3,500
Printing expenses ............................................... 125,000
Accounting fees and expenses .................................... 150,000
Legal fees and expenses ......................................... 250,000
State securities law fees and expenses .......................... 50,000
Transfer agent and registrar fees and expenses ................... 2,500
Miscellaneous ................................................... 16,500
---------
Total ........................................................... $600,000
</TABLE>
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 47,000 shares of
Common Stock to James R. Bergman, Bruce Waugh, Jack Gromacki and Diane
Thomsen; and an aggregate of 60,000 shares were issued to outside
consultants, including 50,000 to Morse, Zelnick, Rose & Lander, LLP. In
addition, the Company issued 50,000 shares of Common Stock to each of S.
Lance Silver and Stuart N. Harting. These transactions were exempt pursuant
to Section 4(2) of the Securities Act of 1933.
B. On June 19, 1996, the Company issued 110,784 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 1,816 shares issued to David Wallack, a Director
of the Company. These transactions were exempt pursuant to Section 4(2) of
the Securities Act of 1933 and also by reason of Rules 505 and 506 of
Regulation D. The Company relied upon the sophistication of such investors.
II-2
<PAGE>
C. Immediately prior to this Offering, a holding company structure will be
formalized when the Company issues 682,216 shares of Common Stock to the
owners of the operating KatManDu entities, KatManDu Investment Partners,
KatManDu Corporation, T-Kat Corp., T-Kat Urban Renewal Corporation and
Chinatown Convention Center Hotel Corporation, in exchange for their
ownership interest in such entities. This transaction will be exempt pursuant
to Section 4(2) of the Securities Act of 1933.
None of the transactions described above involved public offerings of the
Registrant's securities. 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(2)
1.2 Form of Exchange and Reorganization Agreement(2)
3.1 Certificate of Incorporation of the Company(2)
3.1a Certificate of Amendment of Certificate of Incorporation of the Company(2)
3.2 Form of By-Laws of the Company(2)
4.1 Specimen Stock Certificate(2)
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(2)
10.1 1996 Stock Option Plan(2)
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, InterEquity Capital Partners, LP and Morse,
Zelnick, Rose & Lander, LLP(2)
10.3 Form of Employment Agreement between the Company and S. Lance Silver
10.4 Form of Employment Agreement between the Company and Stuart N. Harting
10.5 Form of Financial Consulting Agreement between the Company and the
Representative(1)
10.6 Form of Representative's Warrant(1)
10.7 Lease for KatManDu-Philadelphia(2)
10.8 Lease for KatManDu-Trenton(2)
10.8a Addendum to Trenton Lease
10.9 Lease with Elizabeth Restaurant Partners(2)
10.10 Form of Note Purchase Agreement with respect to June 1996 Financing; Form of June 1996
Financing Note; Agreement modifying the terms thereof(2)
10.11 Form of Documents Relating to Construction Loan
10.12 Commitment Letters from New Jersey Economic Development Authority(1)
21.1 List of Subsidiaries of the Registrant(2)
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(2)
24 Power of Attorney (included in signature page hereof)
</TABLE>
- ------
(1) To be filed by amendment.
(2) Previously filed.
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. 3 to the Registration Statement to be signed on its behalf
by the undersigned, in the City of Philadelphia, State of Pennsylvania on
January 16, 1997.
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. 3 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, January 16, 1997
------------------------ Co-President and Director
S. Lance Silver
/s/ Stuart N. Harting Co-Chairman, Co-President, Secretary January 16, 1997
------------------------ and Director
Stuart N. Harting
/s/ Dennis Mehigan Chief Financial Officer and Treasurer January 16, 1997
------------------------
Dennis Mehigan
/s/ Bruce Waugh Executive Vice President-Operations January 16, 1997
------------------------ and Director
Bruce Waugh
/s/ David Wallack Director January 16, 1997
------------------------
David Wallack
/s/ Jill R. Felix Director January 16, 1997
------------------------
Jill R. Felix
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
----------- ------------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement(2)
1.2 Form of Exchange and Reorganization Agreement(2)
3.1 Certificate of Incorporation of the Company(2)
3.1a Certificate of Amendment of Certificate of Incorporation of the Company(2)
3.2 Form of By-Laws of the Company(2)
4.1 Specimen Stock Certificate(2)
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(2)
10.1 1996 Stock Option Plan(2)
10.2 Form of Shareholders Agreement among S. Lance Silver, Stuart N. Harting, James R. Bergman,
Bruce Waugh, Jack Gromacki, Diane Thomsen, InterEquity Capital Partners, LP and Morse,
Zelnick, Rose & Lander, LLP(2)
10.3 Form of Employment Agreement between the Company and S. Lance Silver
10.4 Form of Employment Agreement between the Company and Stuart N. Harting
10.5 Form of Financial Consulting Agreement between the Company and the
Representative(1)
10.6 Form of Representative's Warrant(1)
10.7 Lease for KatManDu-Philadelphia(2)
10.8 Lease for KatManDu-Trenton(2)
10.8a Addendum to Trenton Lease
10.9 Lease with Elizabeth Restaurant Partners(2)
10.10 Form of Note Purchase Agreement with respect to June 1996 Financing; Form of June 1996
Financing Note; Agreement modifying the terms thereof(2)
10.11 Form of Documents Relating to Construction Loan
10.12 Commitment Letters from New Jersey Economic Development Authority(1)
21.1 List of Subsidiaries of the Registrant(2)
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(2)
24 Power of Attorney (included in signature page hereof)
</TABLE>
- ------
(1) To be filed by amendment.
(2) Previously filed.
<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
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<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 and Bonuses. For services rendered
by the Executive during the first year of the Initial Term, the Company shall
pay to the Executive a salary of $100,000 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.
Thereafter, the Company shall pay to the Executive an annual salary 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 annual salary to be paid to the Executive
in each of the three years during the term of this Agreement is hereinafter
referred to as "Base Compensation." If on the first anniversary of the Effective
Date the Company is operating three restaurant, bar and night-club units, then
the Executive shall be entitled to a bonus of $50,000, to be paid to the
Executive within 14 days after the first anniversary of the Effective Date.
Thereafter, the Executive shall be entitled to increases in Base Compensation
and bonuses in each of the two remaining years during the term of this
Agreement, to be determined by the
-2-
<PAGE>
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 (based on the amount of Base Compensation the
Executive is to receive for services rendered during the second and third years
of the term of this Agreement), 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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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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(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
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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 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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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:
______________________ _________________________________
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 and Secretary 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 and Secretary 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 and Bonuses. For services rendered
by the Executive during the first year of the Initial Term, the Company shall
pay to the Executive a salary of $100,000 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.
Thereafter, the Company shall pay to the Executive an annual salary 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 annual salary to be paid to the Executive
in each of the three years during the term of this Agreement is hereinafter
referred to as "Base Compensation." If on the first anniversary of the Effective
Date the Company is operating three restaurant, bar and night-club units, then
the Executive shall be entitled to a bonus of $50,000, to be paid to the
Executive within 14 days after the first anniversary of the Effective Date.
Thereafter, the Executive shall be entitled to increases in Base Compensation
and bonuses in each of the two remaining years during the term of this
Agreement, to be determined by the
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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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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 (based on the amount of Base Compensation the
Executive is to receive for services rendered during the second and third years
of the term of this Agreement), 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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(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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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 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:
Stuart N. Harting
, New Jersey
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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:
______________________ ________________________________
Stuart N. Harting
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NOTE
$2,500,000.00 Marlton, New Jersey
December 18, 1996
1. FOR VALUE RECEIVED, T-KAT Corp., a New Jersey Corporation with an
office at 41-417 N. Columbus Blvd., Philadelphia, PA 19123 (hereinafter referred
to as "Maker") hereby promises to pay to the order of Equity National Bank with
an office at The Corporate Center at Sagemore, Suite 8101, 8000 Sagemore Drive,
Marlton, New Jersey 08053 ("Payee") the principal sum of $2,500,000.00 (or so
much thereof as may be advanced to or for Maker by Payee pursuant to the terms
of an unrecorded Construction Loan Agreement (the "Loan Agreement") bearing even
date herewith between Maker and Payee) together with interest from the date
hereof or dates of disbursement or several partial disbursements, as the case
may be, on the outstanding balance thereof at a variable per annum rate which is
one (1%) percent in excess of the Prime Rate known as the "New York Prime Rate"
(defined below), until the "Amortization Commencement Date" (defined below);
commencing on the Amortization Commencement Date, the outstanding principal
balance shall bear interest at the "Fixed Rate" (hereafter defined). The Fixed
Rate shall be adjusted every five (5) years and shall be (i) nine and one
quarter of one (9 1/4%) percent from the Amortization Commencement Date through
and including the month in which the fifth anniversary of the Amortization
Commencement Date occurs; and (ii) 300 basis points in excess of the yield on
five (5) year United States Treasury Securities as published by the Federal
Reserve on the fifth and tenth anniversaries respectively of the Amortization
Commencement Date. For purposes of this Note "prime rate" or "New York Prime
Rate" shall mean the then existing highest "Prime Rate" as reported in the
"Money Rates" section of the WALL STREET JOURNAL from time to time. The
determination and publication of prime rate by Bank shall not in any way
preclude or limit the Bank from lending to others from time to time at a rate of
interest less than the Bank's announced prime rate. Maker acknowledges that the
term "prime rate" is not intended to imply that it is, nor is it necessarily,
the lowest rate of interest charged by Payee for loans secured by real property,
whether such real property is similar to or different from the "Mortgaged
Property" (as defined below). When the Wall Street Journal announces a change in
its prime rate on a day other than the first day of a calendar month, interest
for the month in which such change (or changes) are made shall be computed on a
per diem basis at the several rates in effect for that month.
2. Principal and interest shall be payable, in lawful money of the
United States, at the aforesaid office of Payee or such other place as the
holder of this Note may designate, in the following manner:
(a) Commencing January 1, 1997, and on the first day of each
month thereafter, to and including the first day of the month in which the
"Amortization Commencement Date"
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(defined below) occurs, Maker shall pay interest alone (calculated on the basis
of a 360 day year but charged for the actual number of days in any year or part
thereof), at the aforesaid variable rate payable pursuant to Paragraph 1 of this
Note, on the outstanding principal balance.
(b) On the "Amortization Commencement Date", Maker shall pay
to the Payee the amount by which the outstanding principal balance exceeds
$1,500,000 together with accrued but unpaid interest thereon.
(c) Commencing on the Amortization Commencement Date, and on
the first day of each calendar month thereafter, through and including the fifth
(5th) anniversary of the Amortization Commencement Date, Maker shall make sixty
(60) successive monthly combined payments of principal and interest in the
amount of $15,437.88, each. Commencing on the first day of the month following
the fifth (5th) anniversary of the Amortization Commencement Date and on the
first day of each month thereafter for sixty (60) months, Maker shall make sixty
(60) successive monthly combined payments of principal and interest in an
amount, determined on the fifth (5th) anniversary of the Amortization
Commencement Date, necessary to amortize the outstanding principal balance as of
such date over a ten (10) year period at the Fixed Rate then in effect.
Commencing on the first day of the month following the tenth (10th) anniversary
of the Amortization Commencement Date and on the first day of each month
thereafter through and including the month in which the "Payment Date" (defined
below) occurs, Maker shall make successive combined payments of principal and
interest in amount, determined on the tenth (10th) anniversary of the
Amortization Commencement Date, necessary to amortize the outstanding principal
balance as of such date over a five (5) year period at the Fixed Rate then in
effect. All payments shall be applied first to interest accrued to the due date
thereof (at the Fixed Rate then in effect) and the balance on account of
principal. A final payment in the full amount of the entire outstanding balance
of principal plus all interest accrued thereon and all other sums owed by Maker
to Payee shall be due and payable on the tenth (10th) anniversary of the
Amortization Commencement Date (the "Payment Date").
For purposes hereof, the "Amortization Commencement
Date" shall be the earlier of (i) 12 months from the date hereof or (ii) the
first day of the calendar month next following the calendar month during which
the "Improvements" (defined in the Loan Agreement) have been fully completed in
accordance with the"Plans and Specifications" (defined in the Loan Agreement")
as evidenced by the issuance of a Certificate of Occupancy by the local, county
and state governmental agencies having jurisdiction over the Improvements.
3. (a) Maker shall have the privilege without premium or penalty,
at any time and from time to time, of prepaying this Note in whole or in part,
provided that each prepayment shall be accompanied by accrued interest on the
amount prepaid.
(b) Any partial payments shall be applied to installments of
principal last falling due. No partial prepayment shall postpone or interrupt
payments of interest or the payment of the remaining principal balance, all of
which shall continue to be due and payable at the time and the manner set forth
above.
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(c) Maker acknowledges that the failure of Maker to make any
payment of principal or interest, including the payment due at maturity, within
10 days after the same is due and payable will cause Payee to incur additional
expense in servicing the indebtedness evidenced by this Note and will deprive
Payee of the use of the monies so due to Payee, the precise measure of which
expenses and loss is not susceptible to exact determination. Accordingly, Maker
agrees that in the event any payment, including the payment due upon maturity,
shall be overdue for a period in excess of 10 days, Maker shall pay to Payee a
late charge of five cents for each dollar so overdue, which Maker acknowledges
is a reasonable basis on which to compensate Payee for the additional expense
incident to such delinquency. This shall not be construed to obligate Payee to
accept any overdue installment nor to limit Payee's rights and remedies for
Maker's default, as hereinafter set forth.
4. This Note is secured by certain security documents (the "Security
Documents"), including a mortgage (the "Mortgage") and an Assignment of Rents,
Leases and Profits, both of even date, covering certain premises (the "Mortgaged
Property") situate in Mercer County, New Jersey as well as personal guarantees,
security interests and other collateral.
5. Maker agrees that if Maker shall, without in each instance obtaining
the prior written consent of Payee, sell, transfer or convey (herein all called
"transfer") the Mortgaged Property or any interest therein (other than leases of
portions of the Mortgaged Property in the ordinary course of Maker's business),
whether voluntarily or by operation of law, then, at the option of Payee, the
maturity of this Note shall be advanced to the date of such sale, transfer or
conveyance, whereupon the obligations of Maker evidenced by this Note shall
immediately be due and payable. For purposes of this paragraph, if Maker is a
corporation, the sale or transfer of any stock of Maker or the issuance of
additional stock of Maker without notice to Payee which results in a transfer of
control of Maker to a person unrelated or unaffiliated with Maker shall
constitute a transfer of the Mortgaged Property; if Maker is a partnership, the
sale or transfer of any partnership interest in Maker shall constitute a
transfer of the Mortgaged Property.
6. If (i) Maker shall fail to pay any sum when due within 10 days after
the same becomes due or (ii) Maker shall be in default hereunder in any other
manner than through the non-payment of money and such other manner of default
continues for 30 days following written notice thereof from Payee or (iii) any
certification, warranty or representation made or hereafter made by Maker to
Payee should prove to be materially false when made, or (iv) there exists any
"Event of Default" as defined in the Mortgage any of the Security Documents or
the Loan Agreement (each of the foregoing circumstances or events being for
purposes of this Note an "Event of Default"), then the entire unpaid principal
balance of this Note, together with interest accrued thereon and with all other
sums due or owed by Maker hereunder or under the terms of the Security Documents
Mortgage and the Loan Agreement shall at the option of Payee and without further
notice to Maker become due and payable immediately with interest (after such
default and acceleration and until Maker's indebtedness to Payee is paid in
full, including the period following entry of any judgment) at a rate which is
4% per annum in excess of the rate hereinabove specified, together with
reasonable attorney's fee for collection, and the cost of any title search
incurred by Payee in connection with such proceedings; and payment of the same
may be enforced and recovered by the entry of judgment on this Note and the
issuance of execution thereon.
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Delivery of notice of default under this Note or under the Mortgage or any
Security Document shall constitute sufficient notice of such default under the
Mortgage, all of the Security Documents and this Note, it being intended that
the notice and grace periods required by this Note and the Mortgage and all
Security Documents shall run concurrently and not successively. Time is the
essence of this Note.
7. The remedies of Payee provided herein and in the Mortgage, the
Security Documents and the Loan Agreement or otherwise available to Payee at law
or in equity shall be cumulative and concurrent, and may be pursued singly,
successively and together at the sole discretion of Payee, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.
8. Maker hereby releases Payee from all procedural errors in issuing
any process or instituting any proceedings relating thereto and hereby waives
all benefit that might accrue to Maker by virtue of any present or future laws
exempting the Mortgaged Property, or any other property, real or personal, or
any part of the proceeds arising from any sale of any such property, from
attachment, levy or sale under execution, or providing for any stay of
execution, exemption from civil process or extension of time, and agrees that
such property may be sold to satisfy any judgment entered on this Note, the
Security Documents or the Mortgage, in whole or in part and in any order as may
be desired by Payee.
9. Maker (and all endorsers, sureties and guarantors) waive presentment
for payment, demand, notice of demand, notice of nonpayment or dishonor, protest
and notice of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note; liability hereunder shall be unconditional and shall not be affected
in any manner by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by Payee.
10. Maker shall pay the cost of any revenue, tax or other stamps now or
hereafter required by law at any time to be affixed to this Note, the Security
Documents or the Mortgage; and if any taxes shall be imposed with respect to
debts secured by the Security Documents or the Mortgage or with respect to notes
evidencing debts so secured, Maker agrees to pay or to reimburse Payee upon
demand the amount of such taxes, and if Maker fails or refuses or is not legally
permitted to do so, Payee may at its option accelerate this Note to maturity as
in the case of default by Maker.
11. The words "Payee" and "Maker" whenever occurring herein shall be
deemed and construed to include the respective heirs, personal representatives,
successors and assigns of Payee and Maker. The obligation of the persons named
as Maker shall be joint and several.
12. This instrument shall be construed according to and governed by the
laws of the State of New Jersey.
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13. Notwithstanding any provision contained herein, Maker's liability
for the payment of interest shall not exceed the limits now imposed by the
applicable usury law. If any provision of this Note requires interest payments
in excess of the highest rate permitted by law, the provision in question shall
be deemed to require only the highest such payment permitted by law. Any amounts
theretofore received by Payee hereunder in excess of the maximum amount of
interest so permitted to be collected by Payee shall be applied by Payee in
reduction of the outstanding principal balance or, if this Note shall have
theretofore been paid in full, the amount of such excess shall be promptly
returned by Payee to the Maker.
IN WITNESS WHEREOF, Maker has duly executed this Mortgage Note under
seal the day and year first above mentioned.
T-KAT Corp., a New Jersey corporation
By:_______________________________
(Vice) President
Corporate Seal
Attest:___________________________
(Assistant) Secretary
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LEASEHOLD AND FEE MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE made the ________ day of ________, 1996,
between Mercer County Improvement Authority, a public body corporate and politic
duly organized and validly existing under the laws of the State of New Jersey,
with primary offices located at 210 River View Executive Park, Trenton ("MCIA"),
New Jersey 08611T-KAT Corp., a New Jersey Corporation, with an office at 41-417
N. Columbus Blvd., Philadelphia, Pennsylvania, 19123 ("T-Kat"), and T-Kat Urban
Renewal Corporation, a New Jersey Corporation, with an office at 41-417 N.
Columbus Blvd., Philadelphia, PA 19123 ("T-Kat Urban") (T-Kat and T-Kat Urban
are sometimes collectively referred to herein as the "Mortgagor") and Equity
National Bank with an office at The Corporate Center at Sagemore, Suite 8101,
8000 Sagemore Drive, Marlton, New Jersey 08053 ("Mortgagee"),
W I T N E S S E T H
THAT T-Kat has executed and delivered to Mortgagee its Note
(the "Note") bearing even date herewith, wherein Mortgagor promises to pay to
Mortgagee the principal sum of Two Million Five Hundred Thousand Dollars
($2,500,000), lawful money of the United States of America, advanced or to be
advanced by Mortgagee to Mortgagor, with interest thereon at the rate and times,
in the manner, and according to the terms and conditions specified in the Note,
all of which are incorporated herein by reference;
THAT MCIA is the owner of all that certain real estate
described in Exhibit "A" attached hereto;
THAT MCIA, as lessor, and T-Kat Urban, as lessee, have
entered into a Lease Agreement (the "Lease") dated ____________ with respect to
said real estate and certain improvements constructed or to be constructed by
Mortgagor, a memorandum of which Lease is recorded in the office of the Recorder
of Deeds in and for Mercer County, New Jersey in Book ________ Page ________;
THAT T-Kat Urban as sublessor and T-Kat, as sublesse have
entered into a certain Sublease Agreement dated _____________ (the "Sublease"),
pursuant to the provisions of which T-Kat Urban sublet the Mortgaged Property
(defined below) to T-Kat, which sublease is or shall be recorded in the office
of the Recorder of Deeds in and for Mercer County, New Jersey in Book _____
Page_____;
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NOW, THEREFORE, in consideration of the indebtedness, and as
security for payment to Mortgagee of the principal, with interest, and all other
sums provided for in the Note and in this Mortgage, according to their
respective terms and conditions, and for performance of the agreements,
conditions, covenants, provisions and stipulations contained herein, in an
unrecorded Construction Loan Agreement between T-Kat and Mortgagee bearing even
date (the "Loan Agreement"), and in the Note, and in any renewals, extensions,
amendments and modifications hereof or thereof, Mortgagor and MCIA each hereby
grant, convey and mortgage unto the Mortgagee all of their respective right,
title and interest in, to and under all that certain real estate (the "Real
Estate") described in Exhibit "A" attached hereto and made a part hereof, and
Mortgagor and MCIA each hereby grant, convey and mortgage unto the Mortgagee all
of its respective right, title and interest in and to the Sublease.
TOGETHER WITH:
(1) any and all buildings and improvements erected or
hereafter erected on the Real Estate;
(2) any and all fixtures, appliances, machinery and
equipment of any nature whatsoever, and other articles of personal property at
any time now or hereafter installed in, attached to or situated in or upon the
Real Estate or the buildings and improvements to be erected thereon, or used or
intended to be used in connection with the Real Estate, or in the operation of
the buildings and improvements, plant, business or dwelling situate on the Real
Estate, whether or not the personal property is or shall be affixed thereto;
(3) all building materials, fixtures, building machinery and
building equipment delivered on site to the Real Estate during the course of, or
in connection with, construction of any buildings and improvements;
(4) any and all tenements, hereditaments and appurtenances
belonging to the Real Estate or any part thereof hereby mortgaged or intended so
to be, or in any way appertaining thereto, and all streets, alleys, passages,
ways, water courses and all easements and covenants now existing or hereafter
created for the benefit of the Mortgagor or any subsequent owner or tenant of
the Real Estate over ground adjoining the Real Estate and all rights to enforce
the maintenance thereof, and all other rights, liberties and privileges of
whatsoever kind or character, and the reversions and remainders, income, rents,
issues and profits arising therefrom (collectively, the "Rents"), and all the
estate, right, title, interest, property, possession, claim and demand
whatsoever, at law or in equity, of the Mortgagor in and to the Real Estate or
any part thereof;
(5) the proceeds (including, without limitation, insurance
proceeds) or replacements of any of the foregoing;
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(6) all building permits and other municipal permits and
approvals heretofore or hereafter issued by any governmental authority with
respect to all or any portion of the Real Estate or any building or improvement
now or hereafter located thereon;
(7) all plans, drawings, renderings and specifications now
or hereafter existing with respect to the Real Estate and any improvements
constructed or to be constructed thereon.
(All of the above-mentioned real estate, improvements,
personal property, Rents and other property and interests are sometimes
collectively referred to herein as the "Mortgaged Property".)
ALSO TOGETHER WITH any and all awards heretofore and
hereafter made to the present and all subsequent owners of the Mortgaged
Property by any governmental or other lawful authorities for taking or damaging
by eminent domain (i) the whole or any part of the Mortgaged Property or (ii)
any easement affecting the Mortgaged Property or any part thereof, including any
awards for any changes of grade of streets, all of which awards are hereby
assigned to the Mortgagee, who is hereby authorized to collect and receive the
proceeds of any such awards from such authorities and to give proper receipts
and acquittances therefor, and to apply the same (after deducting any attorney's
fees and other costs of collecting the funds) toward the payment of the amount
owing on account of this Mortgage and the Note, notwithstanding the amount owing
thereon may not then be due and payable. Mortgagor hereby agrees, upon request,
to make, execute and deliver any and all assignments and other instruments
sufficient for the purpose of assigning the aforesaid awards to Mortgagee, free,
clear and discharged of any and all encumbrances of any kind or nature
whatsoever. Mortgagor further agrees to give Mortgagee immediate notice of the
actual or threatened commencement of any proceedings in the nature of eminent
domain affecting all or any part of the Mortgaged Pro perty and to deliver
promptly to Mortgagee copies of all papers served upon Mortgagor in connection
with any such proceedings. No settlement for the damages sustained shall be made
by Mortgagor without Mortgagee's prior written approval, which approval shall
not be unreasonably withheld.
TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed
or mentioned and intended so to be, unto Mortgagee, to its own use forever.
PROVIDED ALWAYS, and this instrument is upon the express
condition that, if Mortgagor pays to Mortgagee the principal sum mentioned in
the Note, the interest thereon and all other sums payable by Mortgagor to
Mortgagee as are secured hereby, in accordance with the provisions of the Note
and this Mortgage, at the times and in the manner specified, without deduction,
fraud or delay, and if Mortgagor performs and complies with all the agreements,
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conditions, covenants, provisions and stipulations contained herein, and in the
Note and in the Loan Agreement, then this Mortgage and the estate hereby granted
shall cease and become void.
MORTGAGOR COVENANTS with the Mortgagee that until the
indebtedness secured hereby is fully repaid:
1. Payment and Performance.
Mortgagor shall pay to Mortgagee, in accordance with the
terms of the Note and this Mortgage, the principal and interest and other sums
therein set forth; and shall perform and comply with all the agreements,
conditions, covenants, provisions and stipulations of the Note, and this
Mortgage, and the Loan Agreement.
2. Maintenance of Mortgaged Property.
Mortgagor shall abstain from and shall not permit the
commission of waste in or about the Mortgaged Property; shall not remove,
demolish, or alter the structural character of any building erected at any time
on the Mortgaged Property, without the prior written consent of Mortgagee; shall
not permit the Mortgaged Property to become vacant, deserted or unguarded, and
shall maintain the Mortgaged Property in good condition and repair, reasonable
wear and tear excepted, making, as and when necessary, all repairs of every
nature.
3. Insurance.
(a) Mortgagor, at its sole cost and expense, shall insure
and keep insured the Mortgaged Property against such perils and hazards, and in
such amounts and with such limits, as Mortgagee may from time to time require,
and, in any event, including:
(i) Insurance against loss to the Mortgaged Property
on an "all risk" policy form, covering insurance risks no less broad than those
covered under a Standard Multi Peril (SMP) policy form, which contains a 1987
Commercial ISO "Causes of Loss-Special Form," and such other risks as Mortgagee
may reasonably require, including, but not limited to, insurance covering the
cost of demolition of undamaged portions of any portion of the Mortgaged
Property when required by code or ordinance and the increased cost of
reconstruction to conform with current code or ordinance requirements, in
amounts equal to the full replacement cost of the Mortgaged Property (other than
the Real Estate), including fixtures and equipment, mortgagor's interest in
leasehold improvements, and the cost of debris removal, with an agreed amount
endorsement, inflation guard endorsement and deductibles of not more than
$5,000;
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(ii) Business interruption/extra expense insurance
(if the Mortgaged Property is owner occupied) in amounts sufficient to pay
during any period in which the Mortgaged Property may be damaged or destroyed,
on a gross income basis for a period of twelve (12) months or such greater time
as Mortgagee may deem appropriate (x) all business income derived from the
Mortgaged Property and (y) all amounts (including, but not limited to, all
taxes, assessments, utility charges and insurance premiums) required to be paid
by Mortgagor;
(iii) Broad form boiler and machinery insurance
including business interruption/extra expense and rent and rental value
insurance, on all equipment and objects customarily covered by such insurance
and/or involved in the heating, cooling, electrical and mechanical systems of
the Mortgaged Property (if any are located at the Mortgaged Property), providing
for full repair and replacement cost coverage, and other insurance of the types
and in amounts as Mortgagee may reasonably require, but in no event less than
that customarily carried by persons owning or operating like properties;
(iv) During the making of any alterations or
improvements to the Mortgaged Property, (x) insurance covering claims based on
the owner's or employer's contingent liability not covered by the insurance
provided in subsection (viii) below and (y) workers' compensation insurance
covering all persons engaged in such alterations or improvements;
(v) Insurance against loss or damage by flood or mud
slide in compliance with the Flood Disaster Protection Act of 1973, as amended
from time to time, if the Mortgaged Property is now, or at any time while the
indebtedness secured by this Mortgage remains outstanding shall be, situated in
any area which an appropriate governmental authority designates as a special
flood hazard area, in amounts equal to the full replacement value of all above
grade structures on the Mortgaged Property;
(vi) Insurance against loss or damage by earthquake,
if the Mortgaged Property is now, or at any time while the indebtedness secured
by this Mortgage remains outstanding shall be, situated in any area which is
classified as a Major Damage Zone, Zones 3 and 4, by the International
Conference of Building Officials, in an amount equal to the probable maximum
loss for the Mortgaged Property, plus the cost of debris removal;
(vii) Commercial general public liability insurance,
with the location of the Mortgaged Property designated thereon, against death,
bodily injury and property damage arising on, about or in connection with the
Mortgaged Property, with Mortgagor listed as the named insured, with such limits
as Mortgagee may reasonably require (but in no event less than $1,000,000 and
written on a 1986 Standard "ISO" occurrence basis form or equivalent form,
excess umbrella liability coverage with such limits as the Mortgagee may
reasonably require but in no event less than $5,000,000, and, if any
construction of new improvements occurs after
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execution of this Mortgage, completed operations coverage for a period of one
year after construction of the improvements has been completed; and
(viii) Such other insurance relating to the Mortgaged
Property and the uses and operation thereof as Mortgagee may, from time to time,
reasonably require, including, but not limited to, dramshop, products liability
and workers' compensation insurance.
All insurance shall: (i) be carried in companies with a Rating of A or better
and a Financial Size Category of Class VII or higher, as set forth in the most
recently published Best's Key Rating Guide, or otherwise acceptable to
Mortgagee; (ii) in form and content acceptable to Mortgagee; (iii) provide
thirty (30) days' advance written notice to Mortgagee before any cancellation,
material modification or notice of non-renewal; and (iv) provide that no claims
shall be paid thereunder without ten (10) days' advance written notice to
Mortgagee. All physical damage policies and renewals shall contain a mortgage
clause acceptable to Mortgagee naming Mortgagee as mortgagee, which clause shall
expressly state that any breach of any condition or warranty by Mortgagor shall
not prejudice the rights of Mortgagee under such insurance, and a loss payable
clause in favor of Mortgagee for personal property, contents, inventory,
equipment, loss of rents and business interruption. All liability policies and
renewals shall name Mortgagee as an additional insured. No additional parties
shall appear in the mortgage or loss payable clause without Mortgagee's prior
written consent. All deductibles shall be in amounts acceptable to Mortgagee. In
the event of the foreclosure of this Mortgage or any other transfer of title to
the Mortgaged Property in full or partial satisfaction of the indebtedness
secured hereby, all right, title and interest of Mortgagor in and to all
insurance policies and renewals thereof then in force shall pass to such
purchaser or grantee. If the insurance, or any part thereof, shall expire, or be
withdrawn, or become void or unsafe by reason of Mortgagor's breach of any
condition thereof, or become void or unsafe by reason of the value or impairment
of the capital of any company in which the insurance may then be carried, or if
for any reason whatever the insurance shall be unsatisfactory to Mortgagee,
Mortgagor shall place new insurance that satisfies the requirements of this
Article 3.
(b) Any notice pertaining to insurance and required
pursuant to this Article 3 shall be given in the manner provided in Article 14
at Mortgagee's address stated above. The insurance shall be evidenced by the
original policy or a true and certified copy of the original policy, or in the
case of liability insurance, Evidence of Insurance. Mortgagor shall use its best
efforts to deliver originals of all policies and renewals (or certificates
evidencing the same), marked "paid," to Mortgagee at least thirty (30) days
before the expiration of existing policies and in any event, Mortgagor shall
deliver originals of such policies or certificates to Mortgagee at least fifteen
(15) days before the expiration of existing policies. If Mortgagee has not
received satisfactory evidence of such renewal or substitute insurance in the
time frame specified herein, Mortgagee shall have the right, but not the
obligation, to purchase such insurance for Mortgagee's interest only. Any
amounts so disbursed by Mortgagee pursuant to
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this Article 3 shall be a part of the indebtedness secured hereby, shall be
immediately payable by Mortgagor to Mortgagee and shall bear interest at a rate
(the "Default Rate") of four percent (4%) per annum higher than the rate of
interest specified in the Note. Nothing contained in this Article 3 shall
require Mortgagee to incur any expense or take any action hereunder, and
inaction by Mortgagee shall never be considered a waiver of any right accruing
to Mortgagee on account of this Article 3.
(c) At Mortgagee's option, but not more often than
annually, Mortgagor shall provide Mortgagee with a report from an independent
insurance consultant of regional or national prominence acceptable to Mortgagee,
certifying that Mortgagor's insurance is in compliance with this Article 3.
(d) Mortgagor shall not carry any separate insurance
on the Mortgaged Property concurrent in kind or form with any insurance required
hereunder or contributing in the event of loss without Mortgagee's prior written
consent and any such policy shall have attached a standard non-contributing
mortgagee clause, with loss payable to Mortgagee, and shall meet all other
requirements set forth herein.
(e) Mortgagor shall give immediate notice of any loss
to Mortgagee. In case of loss covered by any of such policies, Mortgagee is
authorized to adjust, collect and compromise in its discretion all claims
thereunder and in such case Mortgagor agrees to sign upon demand, or Mortgagee
may sign or endorse on Mortgagor's behalf, all necessary proofs of loss,
receipts, releases and other papers required by the insurance companies to be
signed by Mortgagor. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact for the purposes set forth in the preceding sentence. Each
insurance company is hereby authorized and directed (which direction is hereby
declared to be irrevocable until the Note is paid in full and marked satisfied
by Mortgagee) to make payment of 100% of all such losses directly to Mortgagee
alone. After deducting from such insurance proceeds any expenses incurred by
Mortgagee in the collection and settlement thereof, including without limitation
attorneys' and adjusters' fees and charges, Mortgagee shall apply the net
proceeds, at its election to reduction of the indebtedness secured hereby or to
restoration or repair of the property damaged. If Mortgagee becomes the owner of
the Mortgaged Property or any part thereof by foreclosure or otherwise, such
policies, including all right, title and interest of the Mortgagor thereunder,
shall become the absolute property of Mortgagee. Mortgagee shall not be
responsible for any failure to collect any insurance proceeds due under the
terms of any policy regardless of the cause of such failure.
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4. Taxes and Other Charges.
Mortgagor shall pay when due and payable, and before
interest or penalties are due thereon, all taxes, assessments, water and sewer
rents and all other charges or claims which may be assessed, levied, or filed at
any time against Mortgagor, the Mortgaged Property or any part thereof or
against the interest of Mortgagee therein, or which by any present or future law
may have priority over the indebtedness secured hereby either in lien or in
distribution out of the proceeds of any judicial sale. Mortgagor shall produce
to Mortgagee not later than such dates receipts for the payment thereof;
provided that if the Mortgagor in good faith and by appropriate legal action
shall contest the validity of any such item, or the amount thereof, and shall
have established on its books or by deposit of cash with Mortgagee, as Mortgagee
may elect, a reserve for the payment thereof in such amount as Mortgagee may
require, then Mortgagor shall not be required to pay the item or to produce the
required receipts while the reserve is maintained and so long as the contest
operates to prevent collection, is maintained and prosecuted with diligence, and
shall not have been terminated or discontinued adversely to Mortgagor.
5. Installments for Insurance, Taxes and Other Charges.
Without limitation of anything else herein contained,
Mortgagor, upon written request by Mortgagee and in any event after the
"Amortization Commencement Date" (as defined in the Note), shall pay to
Mortgagee monthly at the time when the monthly installment of principal and
interest is payable, an amount equal to one-twelfth (1/12) of the annual
insurance required pursuant to subparagraph 3(a)(i) above and the annual real
estate taxes, water and sewer rents, any special assessments, charges or claims
and any other item which at any time may be or become a lien upon the Mortgaged
Property prior to the lien of this Mortgage; and on demand from time to time
Mortgagor shall pay to Mortgagee any additional sums necessary to pay such taxes
and other items, all as estimated by Mortgagee. The amounts so paid shall be
security for payment of such taxes and other items and shall be used in payment
thereof if Mortgagor is not otherwise in default hereunder. No amount so paid
shall be deemed to be trust funds but may be commingled with general funds of
Mortgagee, and no interest shall be payable thereon. If, pursuant to any
provision of this Mortgage, the whole amount of the unpaid principal debt
becomes due and payable, Mortgagee shall have the right, at its election, to
apply any amount so held against the entire indebtedness secured hereby. At
Mortgagee's option, Mortgagee from time to time may waive and after any such
waiver may reinstate the provisions of this paragraph requiring the monthly
payments.
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6. Security Agreement.
This Mortgage constitutes a security agreement under
the Uniform Commercial Code and creates a security interest in the personal
property included in the Mortgaged Property including the interests conveyed to
Mortgagee pursuant to a certain Assignment of Rents, Leases and Profits with
respect to the Mortgaged Property, of even date, given by Mortgagor to Mortgagee
as further security for the Note. Mortgagor shall execute, deliver, file and
refile any financing statements or other security agreements Mortgagee may
require from time to time to confirm the lien of this Mortgage with respect to
such property and shall pay all costs of filing. Without limiting the foregoing,
Mortgagor hereby irrevocably appoints Mortgagee attorney-in-fact for Mortgagor
to execute, deliver and file such instruments for and on behalf of Mortgagor.
7. Compliance with Law and Regulations.
Mortgagor shall comply with all laws, ordinances,
regulations and orders of all Federal, State, municipal and other governmental
authorities relating to the Mortgaged Property.
Mortgagor warrants and represents that to the best of
its knowledge, information and belief (i) no hazardous substance, pollutant or
contaminant (as defined in Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), 42 U.S.C. ss.9601, as amended
by the Superfund Amendments and Re-authorization Act of 1986 (Pub. L. No.
99-499, 100 Stat. 1613 (1986) (SARA) or 40 CFR Part 261, whichever is
applicable) is present on the Mortgaged Property, (ii) the primary operations of
any business being conducted on the Mortgaged Property do not involve any
hazardous substance or waste within the meaning of the New Jersey Environmental
Cleanup Responsibility Act, N.J.S.A. 13:K-6 et seq. and do not have the SIC
number among those specified in such Act, and (iii) Mortgagor has not been
identified in any litigation, administrative proceedings or investigation as a
responsible party for any liability under the above referenced laws. Mortgagor
(x) covenants that he will not use, generate, treat, store, dispose of, or
otherwise introduce any hazardous substances, pollutants, contaminants,
hazardous waste, residual waste, solid waste or substance (as used or defined in
clauses (i), (ii) or (iii) above) into or on the Mortgaged Property and will not
cause, suffer, allow, or permit anyone else to do so, in violation of any
applicable statute, law, ordinance rule or regulation and (ii) hereby
indemnifies and agrees to hold Mortgagee harmless from and against all loss,
liability, damage, expense and costs arising out of Mortgagor's breach of the
representations and covenants of this Article, including any such loss,
liability, damage, expense or cost suffered by Mortgagee and arising following
the occurrence of any Event of Default hereunder and Mortgagee's exercise of any
remedy provided herein. The foregoing indemnification shall survive foreclosure
or satisfaction of this Mortgage, the acceptance by Mortgagee of a deed in lieu
of foreclosure or the conveyance of the Mortgaged
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Property to Mortgagee, its successors or assigns pursuant to a judicial sale in
execution of any judgment obtained on the Note.
8. Inspection.
Mortgagee and any persons authorized by Mortgagee shall
have the right at any time, (i) upon reasonable notice to Mortgagor (which
notice may be written or telephonic) to enter the Mortgaged Property at a
reasonable hour to inspect and photograph its condition and state of repair and
to perform such tests as Mortgagee may reasonably determine to be appropriate in
order to determine whether there exists any breach of the warranties,
representations and covenants of Mortgagor contained in Article 7 above and (ii)
upon three (3) business days' notice to Mortgagor (which notice may be written
or telephonic) to inspect and copy all books, records, contracts, and other
documents relating to the Mortgaged Property and its operation, which books,
records, contracts and other documents, shall be made available for Mortgagee's
inspection at the Mortgaged Property.
9. Declaration of No Set-Off.
Within one (1) week after being requested to do so by
Mortgagee, Mortgagor shall certify to Mortgagee or to any proposed assignee of
this Mortgage, and in a form that is provided by Mortgagee and that is duly
acknowledged by Mortgagor, the amount of principal, interest and other charges
then owing on the obligation secured by this Mortgage and whether there are any
set-offs or defenses against it.
10. Right to Remedy Defaults.
In the event that Mortgagor should (a) fail to pay
taxes, assessments, water and sewer charges or other lienable claims (except in
case of contest as aforesaid) or insurance premiums, (b) fail to make necessary
repairs, (c) permit waste, or (d) otherwise fail to comply with its obligations
hereunder or under the Note or any other document executed in connection with
this Mortgage, then Mortgagee, at its election and without notice to Mortgagor
other than as may be specifically required herein, shall have the right to make
any payment or expenditure which Mortgagor should have made, or which Mortgagee
deems advisable to protect the security of this Mortgage or the Mortgaged
Property, without prejudice to any of Mortgagee's rights or remedies available
hereunder or otherwise, at law or in equity. All such sums, as well as costs,
advanced by Mortgagee pursuant to this Mortgage shall be due immediately from
Mortgagor to Mortgagee, shall be secured hereby and shall bear interest at the
Default Rate from the date of payment by Mortgagee until the date of repayment.
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11. Events of Default.
Any one or more of the following shall constitute an
"Event of Default" hereunder:
(a) Failure of Mortgagor to pay any installment of
principal or interest, or any other sum, on the date when it is due under the
Note (subject to any applicable notice and opportunity to cure provisions
contained therein) or this Mortgage.
(b) The occurrence of any "Event of Default" under the
terms of the Note, the Loan Agreement or any other document executed by
Mortgagor in connection with this Mortgage.
(c) Mortgagor's nonperformance of or noncompliance with
any of the other agreements, conditions, covenants, provisions or stipulations
contained in this Mortgage within 20 days after written notice thereof.
(d) The entry of a decree or order for relief by a court
having jurisdiction in the Mortgaged Property in respect of Mortgagor in an
involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or under any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of Mortgagor or for any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days.
(e) The commencement by Mortgagor of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or
under any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by Mortgagor to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of Mortgagor or for any substantial part of its
property, or the making by Mortgagor of any assignment for the benefit of
creditors, or the failure of Mortgagor generally to pay its debts as such debts
become due.
(f) If a final judgment for the payment of money shall
be rendered against Mortgagor and, within sixty (60) days after the entry
thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within sixty (60) days after the expiration of any
such stay, such judgment shall not have been discharged.
Whenever a state of facts exists that, upon delivery of
notice and/or expiration of an applicable cure period, constitutes an Event of
Default hereunder or an Event of Default under the Note, the Loan Agreement or
any other document executed in connection with
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the debt secured hereby, notice to Mortgagor of such state of facts under any of
such documents shall constitute notice under this Mortgage and all such
documents, and the cure periods, if any, afforded to Mortgagor under this
Mortgage and all such documents with respect to such state of facts shall run
concurrently, not consecutively.
Notwithstanding the provisions of Paragraph (c) of this
Article, a breach by Mortgagor of the provisions of Article 23 below shall
constitute an immediate Event of Default.
For purposes of paragraphs (d), (e) and (f) of this
Article, the word "Mortgagor" shall mean the party named as Mortgagor on Page 1
hereof and all its guarantors, or some or any of them.
12. Remedies.
(a) Upon the happening of any Event of Default, the
entire unpaid balance of principal, accrued interest and all other sums secured
by this Mortgage shall become immediately due and payable, at the option of
Mortgagee, without further notice or demand.
(b) When the entire indebtedness shall become due and
payable, either because of maturity or because of the occurrence of any Event of
Default, or otherwise, then forthwith:
(i) Foreclosure: Mortgagee may institute an action
of mortgage foreclosure, or take such other action at law or in equity for the
enforcement of this Mortgage and realization on the mortgage security or any
other security herein or elsewhere provided for, as the law may allow, and may
proceed therein to final judgment and execution for the entire unpaid balance of
the principal debt, with interest at the rate(s) stipulated in the Note,
together with all other sums due from Mortgagor in accordance with the
provisions of the Note and this Mortgage, including all sums which may have been
loaned by Mortgagee to Mortgagor after the date of this Mortgage, all sums which
may have been advanced by Mortgagee for taxes, water or sewer rents, other
lienable charges or claims, insurance or repairs or maintenance, and all costs
of suit, including counsel fees. Mortgagor authorizes Mortgagee at its option to
foreclose this Mortgage subject to the rights of any tenants of the Mortgaged
Property, and the failure to make any such tenants parties defendant to any such
foreclosure proceedings and to foreclose their rights will not be asserted by
Mortgagor as a defense to any proceedings instituted by Mortgagee to recover the
indebtedness secured hereby or any deficiency remaining unpaid after the
foreclosure sale of the Mortgaged Property; however, nothing herein contained
shall prevent Mortgagor from asserting in any proceedings disputing the amount
of the deficiency or the sufficiency of any bid at such foreclosure sale that
any such tenants adversely affect the value of the Mortgaged Property.
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(ii) Possession: Mortgagee may enter into possession
of the Mortgaged Property, with or without legal action, and by force if
necessary or, in the alternative, Mortgagee shall be entitled as of right to
appointment of a receiver without regard to the solvency of Mortgagor or any
other person liable for the debt secured hereby, and regardless of whether
Mortgagee has an adequate remedy at law. Either Mortgagee or a receiver, as the
case may be, may rent the Mortgaged Property, or any part thereof, for such term
or terms and on such other terms and conditions as Mortgagee or such receiver
may see fit, collect all Rents (which term shall also include sums payable for
use and occupation) and, after deducting all costs of collection and
administration expense, apply the net Rents to the payment of taxes, water and
sewer rents, other lienable charges and claims, insurance premiums and all other
carrying charges, and to the maintenance, repair or restoration of the Mortgaged
Property, or in reduction of the principal or interest, or both, hereby secured,
in such order and amounts as Mortgagee or said receiver may elect and for that
purpose Mortgagor hereby assigns to Mortgagee all rentals due and to become due
under any existing or future lease or leases or rights to use and occupation of
the Mortgaged Property, as well as all rights and remedies provided in such
lease or leases or at law or in equity for the collection of the rentals. Any
lease or leases entered into by Mortgagee or a receiver pursuant to this
paragraph shall survive foreclosure of the Mortgage and/or repayment of the
debt, except to the extent any applicable lease may provide otherwise.
(c) Mortgagee shall have the right, from time to time,
to bring an appropriate action to recover any sums required to be paid by
Mortgagor under the terms of this Mortgage, as they become due, without regard
to whether the principal indebtedness or any other sums secured by the Note and
this Mortgage shall be due, and without prejudice to the right of Mortgagee
thereafter to bring an action to foreclose this Mortgage or take any other
action for any default by Mortgagor existing at the time the earlier action was
commenced.
(d) Any real estate sold to satisfy the indebtedness
secured by this Mortgage may be sold in one parcel, as an entirety, or in such
parcels and in such manner or order as Mortgagee, in its sole discretion, may
elect.
(e) Neither the Mortgagor nor any other person now or
hereafter obligated for payment of all or any part of the sums now or hereafter
secured by this Mortgage shall be relieved of such obligation by reason of the
failure of Mortgagee to comply with any request of Mortgagor or of any other
person so obligated to take action to foreclose on this Mortgage or otherwise
enforce any provisions of the Mortgage or the Note, or by reason of the release,
regardless of consideration, of all or any part of the security held for the
indebtedness secured by this Mortgage, or by reason of any agreement or
stipulation between any subsequent owner of the Mortgaged Property and Mortgagee
extending the time of payment or modifying the terms of the Mortgage or Note
without first having obtained the consent of Mortgagor or such other person; and
in the latter event the Mortgagor and all such other persons shall continue to
be
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liable to make payments according to the terms of any such extension or
modification agreement, unless expressly released and discharged in writing by
Mortgagee. No release of all or any part of the security as aforesaid shall in
any way impair or affect the lien of this Mortgage or its priority over any
subordinate lien.
(f) With respect to the personal property in which a
security interest is herein granted, Mortgagee may exercise any or all of the
rights accruing to a secured party under this Mortgage, the Uniform Commercial
Code as applicable in the jurisdiction in which the Mortgaged Property is
located and any other applicable law. Mortgagor shall, if Mortgagee requests,
assemble all such personal property and make it available to Mortgagee at a
place or places to be designated by Mortgagee, which shall be reasonably
convenient to Mortgagor and Mortgagee. Any notice required to be given by
Mortgagee of a public or private sale, lease or other disposition of the
personal property or any other intended action by Mortgagee may be personally
delivered to Mortgagor or may be deposited in the United States mail with
postage prepaid, duly addressed to Mortgagor at the address of Mortgagor last
known to Mortgagee, at least five (5) business days prior to such proposed
action, and such shall constitute reasonable and fair notice to Mortgagor of any
such action.
(g) Mortgagee shall receive the proceeds of any sale of
the Mortgaged Property and shall apply such proceeds of sale in the following
order:
(i) to all costs, fees, charges and expenses
incurred by Mortgagee in connection with any Event of Default hereunder, the
exercise of any of the rights and remedies of Mortgagee hereunder, and any such
sale, including, but without limiting the generality of the foregoing,
reasonable attorneys' fees, costs and disbursements, receiver's fees, all
expenses of such sale (including sheriff's costs and title search charges),
title insurance premiums, realty transfer or similar taxes and recording fees
and charges;
(ii) to the payment of all sums advanced by
Mortgagee to preserve its security in the Mortgaged Property or the lien of this
Mortgage;
(iii) to the payment of accrued interest and unpaid
principal due under the Note (to be allocated between principal in such manner
as Mortgagee may in its absolute discretion determine); and
(iv) the balance, if any, to the persons legally
entitled thereto.
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13. Counsel Fees.
If Mortgagee (a) becomes a party to any suit or
proceeding affecting the Mortgaged Property, title to the Mortgaged Property,
the lien created by this Mortgage or Mortgagee's interest therein (including any
proceeding in the nature of eminent domain), (b) engages counsel to collect any
of the indebtedness or to enforce performance of the agreements, conditions,
covenants, provisions or stipulations of this Mortgage or the Note or (c)
engages counsel on behalf of Mortgagee in connection with any bankruptcy,
insolvency, reorganization proceeding or other similar proceeding involving
Mortgagor, or (d) engages counsel for any other purpose pertaining to the
indebtedness that is secured by this Mortgage, then all of Mortgagee's costs,
expenses and reasonable counsel fees, whether or not suit is instituted, shall
be paid to Mortgagee by Mortgagor, on demand, with interest at the Default Rate
and until paid such amounts shall be deemed to be part of the indebtedness
evidenced by the Note and secured by this Mortgage.
14. Notices.
All notices permitted or required under this Mortgage or
the Note shall be in writing, and shall be (a) personally served or (b)
delivered by an independent courier service against a signed receipt or (c) sent
by registered or certified U.S. Postal Service mail, postage prepaid. All
notices permitted or required under this Mortgage shall be addressed to the
addressee at the address set forth on the first page of this Mortgage or in the
Note, or at such other address as the addressee may designate by written notice
as aforesaid. Such notices shall be deemed to have been received by the
addressee upon the first to occur of (i) actual receipt thereof or (ii) the date
on which delivery thereof by a method described in clauses (b) or (c) of this
Article is first attempted.
15. Amendment.
This Mortgage cannot be changed or amended except by an
agreement in writing signed by the party against whom enforcement of the change
is sought.
16. Parties Bound.
This Mortgage shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. For
purposes of this Mortgage, the neuter shall include the masculine and the
feminine and the singular shall include the plural and the plural the singular,
as the context may require.
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17. Interest Rate.
Notwithstanding any provision contained in this Mortgage
or in the Note secured hereby, Mortgagor's liability for interest shall not
exceed the limits now imposed by the applicable usury law. If any clause in the
Note or this Mortgage requires interest payments in excess of the highest rate
permitted by the applicable usury law, the clause in question shall be deemed to
require such payment at the highest interest rate allowed by the applicable
usury law.
18. Captions.
The captions preceding the text of the paragraphs or
subparagraphs of this Mortgage are inserted only for convenience of reference
and shall not constitute a part of this Mortgage, nor shall they in any way
affect its meaning, construction or effect.
19. Leasehold Mortgage
(a) The Mortgagor covenants that as lessee under and
pursuant to the provisions of the Lease, Mortgagor (i) will diligently perform
and observe all of the terms, covenants and conditions of the Lease required to
be performed and observed by The Mortgagor as lessee, to the end that all things
shall be done which are necessary to keep unimpaired the Mortgagor's rights as
lessee under the Lease; (ii) will promptly advise Mortgagee in writing of the
giving of any notice by the MCIA to Mortgagor of any default by Mortgagor, as
such lessee, in the performance or observance of any of the terms, covenants or
conditions or the ease on the part of Mortgagor, as lessee thereunder, to be
performed or observed and deliver to Mortgagee a true copy of each such notice.
(b) If Mortgagor shall fail to pay any installments of rent
or other charges payable under the Lease, or to make any other payment required
to be paid by Mortgagor under the Lease at the time and in the manner provided
therein; or if Mortgagor shall fail to perform or observe any other term,
covenant, condition or obligation required to be performed or observed by
Mortgagor in the Lease, then without limiting the generality of any other
provisions of this Mortgage, and without waiving or releasing Mortgagor from any
of its obligations hereunder, Mortgagee shall have the right, but shall be under
no obligation, to pay any such installment of rent, or other payment, and may
perform any other act, to take such action as may be appropriate to cause such
other term, covenant, condition or obligation under the Lease to be promptly
performed or observed on behalf of Mortgagor, to the end that Mortgagor's right
in, to and under the Lease shall be kept unimpaired and free from default. Upon
receipt by Mortgagee from the MCIA under the Lease of any written notice of
default by the lessee thereunder, Mortgagee may rely thereon and take any action
as aforesaid to cure such default even though the existence of such default or
the nature thereof be questioned or denied by Mortgagor or by any party on
behalf of Mortgagor. Mortgagee and any person designated by Mortgagee shall
have, and is
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hereby granted, the right to enter upon the Mortgaged Property at any time and
from time to time for the purpose of taking any such action, and all monies
expended by Mortgagee in connection therewith (including, but not limited to,
legal expenses and disbursements), together with interest thereon at the rate
then provided for in the Note secured hereby from the date of each expenditure,
shall be paid by Mortgagor to Mortgagee forthwith upon demand by Mortgagee, and
shall be secured by this Mortgage. Mortgagee shall have, in addition to any
other right or remedy, the same rights and remedies in the event of default or
non-payment under the Lease or any such mortgage as in the case of a default by
Mortgagor in the payment of any installment of principal or interest due and
payable hereunder.
(c) Mortgagor further covenants and agrees:
(i) that it will not surrender its leasehold estate
and interest, nor terminate or cancel the Lease, and that it will not without
the express written consent of the Mortgagee modify, change, supplement, alter
or amend the Lease either orally or in writing, and as a further security for
the repayment of the indebtedness secured hereby and for the performance of the
covenants herein and in the Lease contained, Mortgagor hereby assigns to
Mortgagee all of its rights, privileges and prerogatives as tenant under the
Lease to terminate, cancel, modify, change, supplement, alter or amend the
Lease, and any such termination, cancellation, modification, change, supplement,
alteration or amendment of the Lease without the prior written consent thereto
by Mortgagee shall be void and of no force and effect. So long as there is no
breach of or default under any of the covenants or agreements herein contained
to be performed by Mortgagor, or in the performance by Mortgagor of any of the
terms, covenants and conditions in the Lease contained, Mortgagee shall have no
right to terminate, cancel, modify, change, supplement, alter or amend the
Lease;
(ii) that no release or forbearance of any of
Mortgagor's obligations under the Lease, pursuant to the Lease or otherwise,
shall release Mortgagor from any of it obligations under this Mortgage,
including its obligations with respect to the payment of rent as provided for in
the Lease and the performance of all of the terms, provisions, covenants,
conditions and agreements contained in the Lease, to be kept, performed and
complied with by the tenant therein; and
(iii) that unless Mortgagee shall otherwise
expressly consent in writing, the fee title to the property demised by the Lease
and the leasehold estate shall not merge but shall always remain separate and
distinct, notwithstanding the union of said estates either in the lessor or in
the lessee, or in a third party.
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20. Other Financing.
Mortgagor will not create or permit to exist any other
lien on, or security interest in, any portion of the Mortgaged Property
(including any furniture, fixtures, machinery and equipment used in connection
therewith); will not lease any such furniture, fixtures, machinery and
equipment; and will not incur any indebtedness to purchase any such furniture,
fixtures, machinery and equipment, except as contemplated hereby, without the
prior written consent of Mortgagee.
Mortgagor shall have no right to permit the holder of
any subordinate mortgage or other subordinate lien, whether or not consented to
by Mortgagee, to terminate any lease of all or a portion of the Mortgaged
Property whether or not such lease is subordinate (whether by law or the terms
of such lease or a separate agreement) to the lien of this Mortgage without
first obtaining the prior written consent of Mortgagee. The holder of any
subordinate mortgage or other subordinate lien shall have no such right, whether
by foreclosure of its mortgage or lien or otherwise, to terminate any such
lease, whether or not permitted to do so by Mortgagor or as a matter of law, and
any such attempt to terminate any such lease shall be ineffective and void.
21. Conveyance.
Without the prior written consent of Mortgagee,
Mortgagor will abstain from and will not cause or permit any sale, exchange,
transfer, lease or conveyance (herein all called "transfer") of the Mortgaged
Property or any part thereof, or any interest therein, voluntarily or by
operation of law. If Mortgagor is a corporation, any change in the ownership of
the corporate stock of Mortgagor or the issuance of additional stock which would
result in the transfer of control and management of Mortgagor shall be deemed to
be a transfer of the Mortgaged Property within the meaning of this Article. If
Mortgagor is a partnership, any change in the ownership of partnership interests
of Mortgagor shall be deemed to be a transfer of the Mortgaged Property within
the meaning of this Article.
22. Financial Information.
(a) As long as the debt secured hereby remains unpaid in
whole or in part, Mortgagor covenants to furnish each year to Mortgagee,
financial statements prepared by a certified public accountant satisfactory to
Mortgagee and in such detail as Mortgagee may reasonably require, showing the
annual income and expenses relating to the Mortgaged Property, annual sources
and uses of funds and a balance sheet for Mortgagor. Each such annual report
shall be certified by an officer of Mortgagor as being true, correct and
complete. Each of such annual reports shall be due on or before the first day of
each April, and shall be accompanied by
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a copy of Mortgagor's Federal income tax return for the most recently concluded
tax year of Mortgagor.
(b) Mortgagor shall cause each person or entity
guaranteeing the obligations of Mortgagor to furnish to Mortgagee, on or before
April 1 of each year while such guaranty is in effect, current financial
statements and a copy of such guarantor's Federal income tax return for the most
recently concluded tax year. Such statements shall include a balance sheet and
an income and expense statement for the preceding calendar year, shall be
prepared by a certified public accountant satisfactory to Mortgagee and be
certified as true and correct by an officer of the guarantor or the guarantor,
as the case may be.
(c) Mortgagor shall deliver to Mortgagee, at the time
each annual report is required pursuant to paragraph (a) of this Article, and at
such other times as Mortgagee may request, a current rent-roll for the Mortgaged
Property and a statement of identifying all persons who have an ownership
interest in Mortgagor and the percentage interest held by each person. Such
rent-rolls and statements shall be certified to Mortgagee as being true and
correct by an officer of Mortgagor.
(d) Mortgagor and, by their execution of any guaranty,
the guarantors of Mortgagor's obligations, consent to the delivery by Mortgagee
of copies of all financial information heretofore or hereafter provided to
Mortgagee by them, or any of them, to any financial institution (which term
shall include, without limitation, any bank, savings and loan association,
pension fund, insurance company, real estate investment trust or similar
investor in mortgage loans) with whom Mortgagee may negotiate for the sale by
Mortgagee of a participation interest in the loan secured by this Mortgage.
23. Advance Money Mortgage.
(a) This Mortgage secures future advances made pursuant
to this Mortgage or pursuant to the Loan Agreement
24. Business Purpose
Mortgagor warrants that this Mortgage is delivered in
connection with a business or commercial loan transaction.
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<PAGE>
25. Construction.
This Mortgage shall be construed in accordance with the
laws of the state in which the Mortgaged Property is located.
26. Severability.
Any provision of this Mortgage which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability but shall not invalidate or render unenforceable any other
provision in this document and the remaining provisions shall stay in full force
and effect.
27. Joinder. MCIA, by executing and delivering this
Mortgage, hereby consents to and joins in the encumbrance of both the leasehold
interest by the Mortgagor created hereby, and the encumbrance of the fee
interest in the Mortgaged Property of MCIA, and confirms and agrees that
Mortgagee may, in addition to any other remedies available hereunder, after the
occurrence of an Event of Default hereunder, foreclose upon MCIA's fee interest
in the Mortgaged Property as provided hereby.
IN WITNESS WHEREOF, this Mortgage has been duly executed as
of the day and year first above written.
T-KAT Corp., a New Jersey Corporation
By:__________________________________
(Vice) President
(Corporate Seal)
Attest:______________________________
T-Kat Urban Renewal Corporation, a New
Jersey Corporation
By:__________________________________
(Vice) President
(Corporate Seal)
Attest:______________________________
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<PAGE>
MERCER COUNTY IMPROVEMENT
AUTHORITY
By:__________________________________
21
<PAGE>
NEW JERSEY
CORPORATE ACKNOWLEDGMENT
STATE OF :
COUNTY OF :
Be it remembered, that on this ____ day of ___________ 1996,
before me, the subscriber, in and for said county, personally appeared
_________________________________________________________ of T-Kat Corp. who I
am satisfied is the person who signed the within instrument, and he/she
acknowledged that he/she signed, sealed with the corporate seal and delivered
the same as such officer aforesaid, and that the within instrument is the
voluntary act and deed of such corporation, made by virtue of a Resolution of
its Board of Directors. And said __________________________ did further certify
and acknowledge that he/she received a true, correct and complete copy of the
within Mortgage and the Mortgage Note secured thereby.
Witnesseth my hand and seal.
-----------------------------
Notary Public
My Commission Expires:
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<PAGE>
NEW JERSEY
CORPORATE ACKNOWLEDGMENT
STATE OF :
COUNTY OF :
Be it remembered, that on this ____ day of ___________ 1996,
before me, the subscriber, in and for said county, personally appeared
_________________________________________________________ of T-Kat Corp. Urban
Renewal Corporation, who I am satisfied is the person who signed the within
instrument, and he/she acknowledged that he/she signed, sealed with the
corporate seal and delivered the same as such officer aforesaid, and that the
within instrument is the voluntary act and deed of such corporation, made by
virtue of a Resolution of its Board of Directors. And said
__________________________ did further certify and acknowledge that he/she
received a true, correct and complete copy of the within Mortgage and the
Mortgage Note secured thereby.
Witnesseth my hand and seal.
-----------------------------
Notary Public
My Commission Expires:
23
<PAGE>
STATE OF :
: SS.
COUNTY OF :
BE IT REMEMBERED that on this day of , 1995,
before me, the undersigned authority, personally appeared , of
, a Corporation, who, I am satisfied, is the individual who signed the
within Instrument, sealed with the corporate seal and delivered the same as such
officer aforesaid, and he acknowledged that he signed the same and that the
within Instrument is the voluntary act and deed of such Corporation, made by
virtue of a Resolution of its Board of Directors.
-------------------------------
24
<PAGE>
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
This Environmental Indemnification Agreement is made this _____ day of
___________, 1996 by and between T-KAT Corp. (hereinafter referred to as
"Borrower"), and EQUITY NATIONAL BANK (hereinafter referred to as "Lender"), in
connection with and in consideration of a certain construction mortgage loan
made by Lender to Borrower of even date herewith (hereinafter referred to as
"Loan").
1. The Borrower represents and warrants to Lender:
A. Neither the Borrower, nor to the best of Borrower's
knowledge, any prior owner of the premises covered by
the mortgage securing, or to secure, the Loan (the
"Premises") or any other person has caused or permitted
any "Hazardous Waste" "hazardous substance" or "Toxic
Substance" as such terms are defined in any State,
federal, or municipal statute, law, ordinance, rule or
regulation, (hereinafter referred to as "Hazardous
Material") to be discharged, dispersed, released,
stored, treated, generated, disposed of, or allowed to
escape on, under or at the Premises, nor have the
Premises, or any part thereof ever been used by the
Borrower, or, to the best of Borrower's knowledge, any
prior owner of the Premises or any other person, as a
dump, storage or disposal site for any Hazardous
Material.
B. To the best of Borrower's knowledge, no asbestos or
asbestos-containing materials have been installed,
used, incorporated into, or disposed of on the
Premises.
C. To the best of Borrower's knowledge, no polychlorinated
bipheyls ("PCBs") are located on or in the Premises, in
the form of electrical transformers, fluorescent light
fixtures with ballasts, cooling oils, or any other
device or form.
D. To the best of Borrower's knowledge, no underground
storage tanks are located on the Premises or were
located on the Premises and subsequently removed or
filled.
E. The Borrower (a) has received no notice of any release
or threatened release of any Hazardous Materials in,
under or upon the Premises or of any violation of any
environmental or ecological protection laws or
regulations with respect to the Premises, and (b) know
of no basis for any such notice or violation with
respect to the Premises.
<PAGE>
F. The Premises is not currently being used, and has not
since 1983 been used for any purpose which would
constitute an "Industrial Establishment" under the
Industrial Site Recovery Act, N.J.S.A. 13:K-6 et seq.
("ISRA").
2. Borrower hereby agree to indemnify Lender and to hold Lender
harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
paid, incurred or suffered by, or asserted against, Lender for, with
respect to, or as a direct or indirect result of (i) the presence on
or under, or the escape, seepage, leakage, spillage, discharge,
emission, discharging or release from the Premises of Hazardous
Material, including without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims, asserted or arising
under the Federal Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. 9601 et seq. ("CERCLA"), ISRA or
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing
liability or standards of conduct concerning, any Hazardous Material,
the costs of any required or necessary cleanup or detoxification of
the Premises, the costs of preparation of any cleanup or closure plans
and reasonable attorney's fees and costs, or (ii) the presence of any
asbestos on the Premises (including without limitation, the cost of
removal) regardless of whether or not caused by, or within the control
of, Borrowers, which occurs prior to the sale of the Property or
applicable portion thereof or the vesting of title in the Property or
applicable portion thereof in Bank or third party pursuant to a
foreclosure or deed in lieu thereof or otherwise or such earlier date
on which Bank or such third party take affirmative control of the
Property.
3. Borrower hereby agree that the representations, warranties and
covenants herein shall survive the payment of the indebtedness to
Lender and the satisfaction and release of any mortgage and shall not
be affected by Lender's acquisition of any interest in the Property,
whether by foreclosure or otherwise.
4. Any representation, warranty or certification of Borrower herein
which is made "to the best of the Borrower's knowledge" or "to
Borrower's knowledge" shall mean the Borrower's actual knowledge
without independent verification thereof, and shall specifically
exclude any information contained in the environmental screening
report prepared for the benefit of the Bank in
2
<PAGE>
connection with this loan.
T-KAT Corp.
By:___________________________
(Vice)President
(Corporate Seal)
Attest:________________________
3
<PAGE>
POST CLOSING COMPLIANCE
RE: Loan from EQUITY NATIONAL BANK
to T-Kat Corp.
$2,500,000
In consideration of the above loan by EQUITY NATIONAL BANK and as a material
inducement to make the loan, the undersigned Borrower hereby covenants and
represents to and for the benefit of EQUITY NATIONAL BANK, its successors and
assigns ("Lender") as follows:
1. Borrower agrees to execute and re-execute and deliver to Lender any
document or instrument signed in connection with the Loan which was
incorrectly drafted and/or signed, as well as any document or instrument
which should have been signed at or prior to the closing of the Loan, but
which was not so signed and delivered.
2. Borrower agrees to comply with any written request by Lender pursuant to
Paragraph 1 within ten (10) days after its receipt of such request. Failure
by Borrower to so comply shall, at the option of Lender, upon notice of
Borrower, constitute an event of default under the Loan.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Agreement to be
duly executed and delivered on this ________ day of __________, 1996.
T-KAT Corp.
By:___________________________________
(Vice) President
(Corporate Seal)
Attest: ______________________________
Signed, sealed and delivered
in the presence of:
_______________________
Cynthia S. Ciuffo, Assistant Vice President
<PAGE>
ASSIGNMENT OF CONSTRUCTION CONTRACT
KNOW ALL MEN BY THESE PRESENTS THAT T-KAT Corp., a New
Jersey corporation (hereinafter collectively called "Assignor"), in
consideration of One Dollar ($1.00) paid by Equity National Bank (hereinafter
called "Assignee"), hereby assigns, transfers and conveys unto Assignee, its
successors and assigns, all the rights, interest and privileges of Assignor in
and to a certain Standard Form of Agreement between Owner and Contractor dated
November 19, 1996 (hereinafter called the "Contract") between Assignor and R.
Berman Development Co., L.L.C. (hereinafter called the "Contractor") for the
erection and completion of certain improvements upon the property described in
Exhibit "A" attached hereto and hereby made a part hereof (hereinafter called
the "Premises") and situate in Mercer County, New Jersey, together with all
rights and privileges of any nature thereunder accruing to Assignor. The
Contract calls for work to be performed by Contractor (the "Work") pursuant to
plans and specifications enumerated in the listing entitled "'R.Berman
Development Co., L.L.C., KatManDu at Cooper Ironworks, Trenton, NJ, dated
7/15/96' consisting of three pages, a copy of which is attached hereto and made
a part hereof as Exhibit "B" (hereinafter called the "Plans and Specifications")
and other plans and specifications to be prepared hereafter.
This Assignment is made as additional security for the
payment and performance of a Note and Mortgage of even date herewith
(hereinafter collectively called the "Mortgage"), and all extensions and
modifications thereof, made by Assignor to Assignee in the sum of $2,500,000.00,
with interest, which Mortgage is intended to be recorded forthwith in the Office
of the Recorder of Deeds in and for Mercer County, New Jersey.
1. Assignor covenants, represents, warrants, and agrees
that:
(a) (i) Assignor has not executed or made any prior
assignment of any of its rights under the Contract;
(ii) Assignor has not done anything which might
prevent Assignee from complying with, or limit Assignee in operating under, any
of the provisions hereof;
(iii) Additional plans and specifications necessary
for the completion of the improvements contemplated shall be prepared by Clarke
Caton Hintz and delivered to Lender for its approval, together with cost
estimates of the Work for the completed project based upon such additional plans
and specifications and the Plans and Specifications. (At such time as such
additional plans and specifications are received and approved by Lender, they
shall be deemed to be part of the Plans and Specifications.)
1
<PAGE>
(iv) In the event that petroleum products or
hazardous substances, including asbestos and polychlorinated byphenyls (PCB's),
are discovered in or on the Premises during construction, Assignor shall advise
Assignee promptly of the existence of such substances, and Assignor shall
promptly take any necessary steps to remove or render harmless such substances;
(v) In the event of a dispute between the Assignor
and the Contractor, the architect may be joined in any proceeding to resolve
such dispute;
(vi) Builder's risk insurance is on an occurrence a
claims made basis;
(vii) Assignor will promptly, upon written request
therefore, supply Assignee with a copy of notes or minutes of job meetings with
respect to the Project;
(viii) Assignor shall apply for draws under the
construction loan evidenced by the Note on the form AIA Documents G702 and G703.
(b) (i) The Contract is unmodified and is in full
force and effect.
(ii) The Plans and Specifications existing as of the
date hereof describe the Work to be done pursuant to the Contract, subject to
the qualification that (i) actual costs in excess of allowances, (ii) actual
costs in excess of current low bids (for work and materials not yet under
contract), (iii) actual costs in excess of current contract amounts may affect
the guaranteed maximum price nature of the Contract;
(iii) The Contract requires completion of the Work
no later than 12 months from the date hereof. Payment due on completion of the
Work requires, as a precondition, a certificate by the project architect
confirming completion of the Work in accordance with Plans and Specifications.
(iv) Payments due Contractor under the Contract are
due twice each month. Contractor's vouchers to Assignor are due by the 10th day
and the 25th day of each month, and Assignor's payments to Contractor are due 5
days after submission of each of Contractor's vouchers.
(c) Assignee will not be obligated to perform or
discharge any obligation under the Contract or under or by reason of this
Assignment, and Assignor hereby agrees to indemnify Assignee against and hold
Assignee harmless from any and all liability, loss or damage which Assignee may
or might incur under the Contract or under or by reason of this Assignment and
of and from any and all claims and demands whatsoever which may be asserted
against Assignee by reason of any alleged obligation or undertaking on
Assignee's part to perform or discharge any of
2
<PAGE>
the covenants, obligations and conditions of the Contract. If Assignee should
incur any such liability, loss or damage under the Contract or under or by
reason of this Assignment, or in defense against any such claims or demands, the
amount thereof, including costs, expenses and reasonable attorneys' fees,
together with interest thereon at the rate applicable to such charges in
accordance with the terms of the Mortgage Agreement, shall be payable by
Assignor to Assignee immediately upon Assignee's demand.
2. This Assignment shall inure to the benefit of and shall
be binding upon the parties hereto and their respective heirs, administrators,
executors, successors and assigns.
3. This Assignment shall be governed by and construed
according to the laws of the State of New Jerey.
IN WITNESS WHEREOF, Assignor, intending to be jointly and
severally legally bound, has duly executed this Assignment the _______ day of
___________, 19__.
T-KAT Corp., a ________ corporation
By:________________________________
(Vice) President
(Corporate Seal)
Attest:____________________________
(Assistant) Secretary
3
<PAGE>
PREMISES
EXHIBIT "A"
4
<PAGE>
EXHIBIT "B"
PLANS AND SPECIFICATIONS
SPECIFICATIONS AND ADDENDA
Date of Number
Titles Last Revision Prepared By of Pages
- ------ ------------- ----------- --------
PLANS:
Date of
Title Last Revision Prepared By
- ----- ------------- -----------
5
<PAGE>
CONTRACTOR'S ACKNOWLEDGMENT AND CONSENT
AND ASSIGNMENT OF SUBCONTRACTS
R. Berman Development Co., L.L.C., a New Jersey Limited
Liability Company ("Contractor") does hereby acknowledge receipt of notice of
the above-mentioned Assignment of Construction Contract; covenants that Section
1(b) thereof is true and correct; approves such Assignment; covenants that it
has no knowledge of any prior assignment of the Contract by the above-mentioned
Assignor; agrees to give the above-mentioned Assignee written notice at the
address indicated therein of any defaults by Assignor under the Contract and
that Assignee, at the sole option of Assignee, has the right to cure any
defaults by Assignor under the Contract within fifteen (15) days after receipt
by Assignee of notice of such default; covenants that Contractor will not assign
its rights and obligations under the Contract without the prior written consent
of Assignee; agrees to pay and discharge all liens or claims for labor and
materials furnished in connection with the construction and erection of the
improvements or municipal improvements necessary therefor, provided the
Contractor has been so paid; agrees to complete fully the improvements on or
before the completion date specified in the Contract, subject to any permitted
delays as set forth in the Contract, and subject to the provisions of the
Contract; agrees that Contractor shall give Assignor notice of any change in the
Plans and Specifications; agrees that in the event any of the loan proceeds are
disbursed directly to Contractor, Contractor will receive such advances as a
trust fund for the purpose of paying the costs of the improvements on the
premises and Contractor will apply the advances first to such payment before
using any part of such advances for any other purpose; agrees that Contractor
shall apply for payment periodically from Assignor on the forms identified in
the above mentioned Assignment of Construction Contract; agrees that Assignee
shall have no liability to Contractor either under the Contract, the foregoing
Assignment, or otherwise for any act or omission occurring prior to such time as
Assignee elects to assume the future obligations of Assignor under the Contract;
and agrees, upon the request of Assignee, to complete construction of the work
described in the Contract in strict accordance with the terms of such Contract,
for the benefit of Assignee, its successors or assigns, provided that Assignee
pays to Contractor the amount due to Contractor under the Contract, including,
without limitation, Contractor's invoices for work previously preformed.
The officer executing this instrument on behalf of
Contractor hereby personally certifies that Contractor has full authority under
all state and local laws and regulations to perform all of its obligations under
the Contract.
Contractor, intending to be legally bound hereby, does
hereby collaterally assign, transfer and convey unto Assignee, its successors
and assigns, all the rights, interest and privileges
1
<PAGE>
of Contractor in and to each and every subcontract which Contractor has entered
into or shall hereafter enter into with respect to the aforementioned Work.
Contractor covenants and agrees that it has not and will not execute or make any
assignment of its rights under such subcontracts to anyone other than Assignee.
This Assignment is made to secure Contractor's obligations to Assignee under
this Acknowledgment and Consent and Assignment of Subcontracts, including,
without limitation, Contractor's obligation to complete construction of the work
described in the Contract in accordance with the terms of such Contract, for the
benefit of Assignee, its successors or assigns upon the request of Assignee.
Assignee shall not be obligated to perform or discharge any obligation of
Contractor in connection with any of such subcontracts unless and until
Assignee, following a default by Contractor hereunder or under the Contract,
expressly assumes in writing any such subcontract.
IN WITNESS WHEREOF, Contractor has caused this
Acknowledgment, Consent and Assignment to be duly executed and sealed this
_______ day of __________, 19__.
By:____________________________
[Corporate Seal] President
Attest:________________________
Secretary
2
<PAGE>
ASSIGNMENT OF RENTS, LEASES, PROFITS AND AGREEMENTS
AFFECTING REAL ESTATE
THIS ASSIGNMENT, made this ______ day of ______, 1996, by
T-Kat Corp. a New Jersey corporation with an office at 41-417 N. Columbus Blvd.,
Philadelphia, Pennsylvania, 19123 ("Assignor") and Equity National Bank with an
office at The Corporate Center at Sagemore, Suite 8101, 8000 Sagemore Drive,
Marlton, New Jersey 08053 ("Assignee")
W I T N E S S E T H:
A. Assignor has executed, acknowledged and delivered to
Assignee Assignor's note bearing even date herewith in the amount of $2,500,000
(the "Note") performance of which is secured by a mortgage bearing even date
herewith (the "Mortgage") covering certain real estate located in Mercer County,
New Jersey (the "Property"), more fully described in Exhibit "A" attached hereto
and hereby made a part hereof.
B. As additional security for performance of Assignor's
obligations under the Note and Mortgage (and any extensions and/or modifications
thereof), Assignor has agreed to assign to Assignee all of Assignor's rights
under various leases and agreements affecting the Property, on the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, and other good and valuable consideration, receipt
of which is hereby acknowledged, Assignor agrees as follows:
1. Assignment of Leases and Agreements. (a) Assignor hereby
assigns and transfers to Assignee all of Assignor's rights, interest, and
privileges in all leases now or hereafter in existence with respect to the
Property or any part thereof, together with any extension or renewal of any such
lease (hereinafter referred to individually as a "lease" and collectively as the
"leases"). This Assignment includes:
(i) All rents, income and profits due or to become due
under the leases, or any of them;
(ii) any sums to which Assignor may become entitled in any
court proceeding involving the bankruptcy, insolvency
or reorganization of any tenant; and
1
<PAGE>
(iii) any payments made by any tenant in lieu of rent.
Assignor agrees that it will, immediately upon request of Assignee, execute,
acknowledge and deliver specific separate assignments of any leases now or
hereafter affecting the Property or any part thereof.
(b) Assignor hereby assigns and transfers to the Assignee
all of Assignor's rights, interest, and privileges in the "Agreements" (as
defined below). For purposes hereof the term Agreements shall mean any and all
agreements affecting the Property, and the improvements to be constructed
thereon, including but not limited to:
(i) All licenses, permits, approvals, plans,
specifications, drawings or renderings, certificates and agreements with or form
all boards, agencies, departments, governmental or quasi-governmental, relating
directly or indirectly to the use, operation and maintenance of the Property,
the Improvements (as defined in the Construction Loan Agreement between Assignor
and Assignee of even date herewith), whether heretofore or hereafter issued or
executed (collectively the "Licenses");
(ii) All contracts, subcontracts, agreements, service
contracts, rights, warranties and purchase orders, audits, surveys and studies
relating to the Property which have heretofore been or will hereinafter be
executed by or on behalf of Assignor, or which have been or will hereafter be
assigned to Assignor, as well as all promotional and marketing material,
products or documents in connection with or relating to t he development,
construction, or improvement of the Property or to the use, access, operation,
sale and maintenance of the Property (the "Contracts")
2. Limitations On Assignment.
(a) This Assignment is given for the purpose of securing
performance by Assignor of all of its obligations under the Note and Mortgage
and accordingly, upon payment in full of all indebtedness evidenced by the Note,
and discharge of all Assignor's other obligations under the Note and Mortgage,
as evidenced by the recording of an instrument of satisfaction of the Mortgage
(without the recording of another mortgage in favor of Assignee affecting the
Property), this Assignment shall automatically become null and void.
(b) So long as Assignor is not in default in any respect
under the Note or the Mortgage or this Assignment, Assignor shall have the right
to collect all rents, issues and profits from the Property and to retain, use
and enjoy the same and to use and enjoy the benefits of the Agreements;
provided, Assignor agrees that it will not under any circumstances collect or
accept any rent more than 30 days prior to accrual.
2
<PAGE>
(c) Notwithstanding any provision herein to the contrary,
this Assignment is intended to be an absolute assignment from Assignor to
Assignee and not merely the passing of a security interest. The rents, leases
and profits and Agreements are hereby assigned absolutely by Assignor to
Assignee contingent only upon the occurrence of a default. This Assignment
includes an assignment of any and all guarantees of the lessees' obligations
under leases covered hereby.
3. Assignor's Obligations. Assignor agrees that it will
perform all of its obligations as landlord under the leases and enforce the
performance by the tenants of all their respective obligations under the leases.
Assignor will perform all of its obligations under each of the Agreements.
Assignor will not (other than in the normal course of Assignor's business)
terminate the leases, the Agreement or any of them, or accept surrender of
possession of any premises covered by a lease, or modify any lease or Agreement,
or release any tenant or any guarantor or surety of any tenant's obligations
without the prior written consent of Assignee.
4. Cross Default. Any default by Assignor under the Note or
Mortgage shall be considered a default under this Assignment, and any default
under this Assignment shall be considered a default under the Note and the
Mortgage, and in any such event, Assignee shall be entitled to exercise all or
some or any of its remedies under the Note, the Mortgage or under this
Assignment, or as may otherwise be available to Assignee at law or in equity, in
such order as Assignee may elect.
5. Assignee Not Bound To Perform Under Leases.
Notwithstanding any legal presumption to the contrary, Assignee shall not be
obligated by reason of acceptance of this Assignment to perform any obligation
of Assignor as landlord under the leases, or any of them, or any Agreement and
Assignor hereby agrees to indemnify Assignee and save it harmless from and
against any loss, liability or damage arising from any claim by any tenant or
any other party arising under or in connection with the leases, the Agreements
or any of them, or this Assignment. However, Assignee may, at its option, and
without releasing Assignor from any obligation hereunder, discharge any
obligation which Assignor fails to discharge, including without limitation,
defending any legal action, and Assignor agrees to pay immediately upon demand
all sums expended by Assignee in connection therewith, including counsel fees,
together with interest thereon at the rate provided for in the Note, and the
same shall be added to the indebtedness evidenced by the Note and secured by the
Mortgage and this Assignment.
6. Warranties of Assignor. Assignor hereby represents and
warrants to Assignee, as a material inducement to Assignee to accept this
Assignment, that:
(a) Assignor has not executed any prior assignment of any
of its rights under the leases, the Agreements or any of them.
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<PAGE>
(b) Assignor has not done anything which might prevent
Assignee from or limit Assignee in operating under any of the provisions hereof.
(c) Assignor has not accepted, and shall not accept, rent
under any lease more than 30 days in advance of accrual.
(d) Assignor has not executed or entered into any written
or oral leases affecting the Property.
7. Possession.
(a) Effective immediately upon Assignor's default under
the Note, the Mortgage or this Assignment or any lease or Agreement, Assignor
authorizes Assignee, at its option, to enter and take possession of the
Property, or any part thereof, and to manage and operate the same, to collect
rents (and, in connection therewith, to endorse Assignor's name to all checks
made payable to Assignor and to deposit such checks in Assignee's account), to
let or re-let the Property or any part thereof, to cancel and modify leases, and
the Agreements, to evict tenants, to bring or defend any suits in connection
with possession of the Property in its own name or Assignor's name, to make such
repairs, alterations and improvements as Assignee deems appropriate, to exercise
any of Assignor's rights under any of the Agreements, to perform any of
Assignor's obligations under any of the Agreements and to perform any other acts
in connection with management and operation of the Property as Assignee, in its
discretion, may deem appropriate.
(b) Any income derived from the Property pursuant to
subparagraph (a) above shall be applied, in such order and amounts as Assignee
may elect, to the following: costs of operation and maintenance of the Property,
including without limitation, management fees and professional fees, taxes,
water and sewer charges, insurance, maintenance, repairs and the like; interest
due on the indebtedness secured hereby; any other amounts necessary to meet the
obligations of Assignor under the Note, the Mortgage and leases and Agreements
(other than payment of the principal indebtedness); and the principal
indebtedness.
(c) Notwithstanding the foregoing, this Assignment shall
not place responsibility on Assignee for the control, care, management or repair
of the Property or make Assignee responsible or liable for any injury or death
to any person or property arising from any negligence in the management,
operation, upkeep, repair or control of the Property.
(d) Exercise by Assignee of its rights under subparagraph
(a) above shall not waive or cure any default under the Note or the Mortgage nor
affect any proceedings or any sale pursuant thereto.
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<PAGE>
8. Notice to Tenants and Parties to the Agreements. Assignor
hereby authorizes Assignee to give written notice of this Assignment at any time
after default by Assignor to the tenants under the leases, or some or any of
them and to any party to any of the Agreements. All tenants are authorized and
directed to pay rent directly to Assignee upon receipt from Assignee of a
statement that Assignor is in default hereunder or under the Note and Mortgage,
accompanied by a demand for such payment, without any further proof of
Assignor's default. All parties to the Agreements are authorized and directed to
perform the obligations under the Agreements to Assignee upon receipt from
Assignee of a statement that Assignor is in default hereunder or under the Note
and the Mortgage.
9. Benefits and Burdens. This Assignment shall be binding
upon Assignor and successors and assigns, including any subsequent owner of the
Property, and shall inure to the benefit of Assignee and its successors and
assigns, including any assignee of the Note and the Mortgage.
10. Personal Liability. Upon the occurrence of any "Event of
Default" under the Mortgage, Note or this Assignment, Assignor shall apply the
rents and profits thereafter received by Assignor with respect to the Property
directly towards the expenses of maintaining the Property and towards payment of
the Note and Mortgage. Assignor shall be personally liable for the proper
application of such rents and profits as aforesaid and the lien of any judgment
obtained to recover such costs shall, to the extent of any such rents and
profits not so applied by Assignor extend to any property now or hereafter owned
by Assignor.
11. Notices. All notices or demands hereunder must be served
by personal service, or by certified or registered mail, addressed to Assignor
or Assignee, as the case may be, at the addresses set forth at the beginning of
this Assignment, or to such other address as the party to be charged with such
notice shall have specified by written notice to the other.
IN WITNESS WHEREOF, the Assignor has duly executed this
Assignment the day and year first above written.
T-KAT Corp.
By:___________________________
(Vice) President
(Corporate Seal)
5
<PAGE>
Attest:________________________
6
<PAGE>
NEW JERSEY
CORPORATE ACKNOWLEDGMENT
STATE OF :
COUNTY OF :
Be it remembered, that on this ____ day of ___________ 1996,
before me, the subscriber, in and for said county, personally appeared
_________________________________________________________ of T-Kat Corp. who I
am satisfied is the person who signed the within instrument, and he/she
acknowledged that he/she signed, sealed with the corporate seal and delivered
the same as such officer aforesaid, and that the within instrument is the
voluntary act and deed of such corporation, made by virtue of a Resolution of
its Board of Directors. And said __________________________ did further certify
and acknowledge that he/she received a true, correct and complete copy of the
within Mortgage and the Mortgage Note secured thereby.
Witnesseth my hand and seal.
-----------------------------
Notary Public
My Commission Expires:
7
<PAGE>
CONSTRUCTION LOAN AGREEMENT
THIS AGREEMENT, made the ___ day of ____________, 1996 by
and between Equity National Bank, with an office at The Corporate Center at
Sagemore, Suite 8101, 8000 Sagemore Drive, Marlton, New Jersey 08053 ("Lender")
and T-KAT CORP. , a New Jersey Corporation, t/a KatManDu, with an office at
41-417 North Columbus Blvd., Philadelphia, Pa 19123 ("Borrower").
W I T N E S S E T H :
A. Borrower is or is about to become the owner of certain of
a leasehold interest in real estate located in Mercer County, New Jersey,
pursuant to a sublease dated even date herewith, with T-Kat Urban Renewal Corp.,
the Lessor under an Agreement of Lease (the "Lease") dated June 18, 1996, by and
between Mercer County Improvement Authority ( the "Landlord") and T-Kat Urban
Renewal Corp. (the "Real Estate"). The Real Estate is more fully described in
the mortgage referred to in Section 2 hereof.
B. Borrower desires to construct or cause to be constructed,
within the time hereinafter set forth, certain renovations of the former Cooper
Iron Work Building into a theme restaurant, nightclub and evening entertainment
establishment (the "Improvements") on the Real Estate, in accordance with
certain plans and specifications (the "Plans and Specifications"), copies of
which, initialed by Borrower for identification purposes, have been deposited
with Lender.
C. Borrower has applied to Lender for a loan to finance the
cost of construction of the Improvements and related costs, and to provide
permanent financing after completion of construction of the Improvements.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Loan.
Subject to the terms and conditions herein set forth,
Lender agrees to lend, and Borrower agrees to borrow, a sum aggregating not in
excess of $2,500,000 (the "Loan"). Upon completion of the Improvements in
accordance with the provisions of this Agreement, Borrower shall repay to Lender
the amount by which the then outstanding principal balance of the Loan exceeds
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$1,500,000.00, and Borrower shall repay the remaining outstanding principal
balance of the Loan together with interest thereon in accordance with the
provisions of the Note (defined below).
2. Security.
(a) The Loan shall be advanced by Lender in installments
as hereinafter provided, and shall be evidenced by Borrower's note (the "Note")
executed simultaneously herewith.
(b) As security for the Loan and for the obligations of
Borrower hereunder, Borrower shall deliver to Lender the following:
(1) A mortgage and security agreement (the
"Mortgage") covering the Real Estate, all easements appurtenant to or
benefitting the Real Estate, the Improvements and all fixtures, machinery and
equipment necessary or incidental to the general operation and maintenance
thereof and all renewals and replacements thereof or additions thereto, all as
more specifically described in the Mortgage. (All of the foregoing are sometimes
hereinafter collectively referred to as the "Mortgaged Property".) The Mortgage
shall be a continuing first lien in the full amount of the Loan, on the
Borrower's leasehold interest in the Real Estate, free and clear of all prior
liens (including mechanics' liens, filed or unfiled), restrictions, easements
and other encumbrances and title objections other than the Lease, that are not
approved by Lender, and shall be insured as a first lien on the Mortgaged
Property at Borrower's expense by a reputable title insurance company
satisfactory to Lender.
(2) Such additional security agreements, financing
statements and other security instruments, creating a valid first lien upon the
aforesaid fixtures, machinery, equipment and other property now or hereafter
located upon the Real Estate as the Lender may reasonably require.
(3) Joint and several personal guarantees and
suretyship agreements signed by Stuart N. Harting, S. Lance Silver, KatManDu
Corporation and KatManDu Investment Partners, LP (the "Guarantors").
(4) A collateral assignment of leases with respect
to the Mortgaged Property and of the rents, issues and profits therefrom.
(5) An assignment of Borrower's rights in, to and
under a general contract for the construction of the Improvements with T.R.I.
Berman Development Corp., L.L.C. (the "General Contractor").
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(6) An assignment of Borrower's rights in, to and
under a contract for architectural services with Clarke, Caton Hintz (the
"Architect").
The documents referred to above shall be in form and
substance satisfactory to Lender.
3. Construction.
(a) Borrower shall commence construction according to
the Plans and Specifications, through a general contractor approved by Lender,
promptly after signing this Agreement and thereafter proceed diligently,
employing sufficient workmen and supplying sufficient materials so that the
Improvements shall be fully completed and ready for normal use thereof not later
than the earlier to occur of (i) twelve (12) months from the date hereof (ii)
the outside completion date set forth in the Lease and (iii) the outside
completion date set forth in the Permanent Commitment (as hereafter defined).
(b) Borrower further agrees that:
(1) The construction shall be performed strictly in
accordance with the Plans and Specifications, and all applicable statutes, laws
and ordinances, the requirements of the Lease, the Permanent Commitment, all
governmental authorities having jurisdiction, and the requirements of the Board
of Fire Underwriters (or any other body now or hereafter constituted exercising
similar functions) in and for the locality in which the Real Estate is situated.
(2) The Improvements when erected will be wholly on
the Real Estate within applicable building restriction lines and will not
violate applicable use or other restrictions, whether established in prior
conveyances, zoning laws or regulations or elsewhere. Borrower will, upon
request, furnish evidence with respect thereto, together with a foundation
survey by a licensed surveyor or engineer, showing that the construction is
entirely on the Real Estate and free from such violations and that there are no
encroachments by or on the Real Estate.
(3) No amendment shall be made to the Plans or
Specifications, the Lease, or the construction contract between the Borrower and
R. Berman Development Co., L.L.C. (the "Construction Contract") without the
written approval of the Lender, the "Permanent Lender" (as defined below) and,
of any governmental authority having jurisdiction.
(4) Borrower will not engage or continue to employ
any contractor, subcontractor or materialman (collectively the "Subcontractors")
who may be objectionable to Lender in the exercise of reasonable business
judgment. Nothing herein shall require the Lender's pre-approval of the
Subcontractors.
<PAGE>
(5) Immediately after receiving notice from Lender
or any governmental authority, Borrower will remove from the Real Estate all
materials and all portions of the construction which Lender or any governmental
authority may condemn as failing in a substantial way to conform with the Plans
and Specifications or applicable laws and will make good all portions of the
construction damaged by such removal.
(6) Borrower will provide to Lender a physical
location for the inspection of the Mortgaged Property and afford full and free
access to all plans, drawings and records with respect to the construction.
(7) Not less than 10% of the Subcontractors will be
minority contractors pursuant to Minority and Female Subcontractor Participation
in State Construction Contracts (N.J.A.C. 17:14-1.1 et seq.)
(c) Lender may at any time after a default, place a
superintendent or inspector on the job, whose duties shall be to require that
the Improvements are constructed in accordance with the Plans and
Specifications. Such superintendent or inspector shall be paid an amount
specified by Lender which shall be disbursed hereunder and shall be evidenced by
the Note and secured by the Mortgage. Nothing contained herein shall be deemed
to limit or otherwise alter the right of the Lender to make inspections of the
Property and the Improvements in connection with any request for an advance.
(d) Although Lender may inspect and approve the Plans
and Specifications, cost estimates, actual construction, and other matters
pertaining to construction of the Improvements or exercise its rights under
paragraph (c) above, such inspections or exercise of rights are solely for the
protection of Lender, and Borrower understands that Lender is not making and
will not make any warranties or representations as to any matters pertaining to
the Im provements (including, without limiting the generality hereof, the
sufficiency of the construction funds, the adequacy of the Plans and
Specifications or proper performance by any contractor or subcontractor).
4. Advances.
(a) The Loan shall be allocated in accordance with the
budget set forth in Exhibit "A" attached hereto and hereby made a part hereof
(the "Loan Budget"), but Lender may at its option reallocate the Loan, or any
part thereof, among the categories set forth in Exhibit "A" at any time and from
time to time. After an initial advance at settlement, Borrower will request
advances periodically, but not more frequently twice monthly, (pursuant to the
provisions of the Construction Contract) as the work progresses, such request to
be on Lender's customary form, signed by Lance Silver, Stuart Harting or James
Bergman.
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(b) Advances may be made (directly or through a title
insurer) to Borrower, any prime contractor(s), subcontractor(s), materialman and
others who have furnished goods or services in connection with the project, or
some or any of them, as Lender may elect from time to time.
(c) Applications for advances for direct construction
costs shall also be signed by the General Contractor and shall be for amounts
not exceeding 90% of the cost of the completed construction and materials
incorporated in the Improvements for which payment is requested. After the
construction of the Improvements shall be 50% completed, as determined by
Lender's inspecting architect, no additional funds shall be withheld by Lender
from subsequent advances. The remaining 10% will not be advanced until the
Improvements have been fully completed in accordance with the Plans and
Specifications and Borrower has obtained a valid final certificate of occupancy
and such other evidence as Lender may reasonably require that the Improvements
comply with the requirements of subparagraphs 3(b)(1) and 3(b)(2) of this
Agreement. Payment of each such application will be subject to the certification
of Lender's inspecting architect, and submission of certified Applications or
payment on AIA form G702/G703, and shall be based on a physical inspection, that
the work for which payment is requested has been completed in accordance with
the Plans and Specifications, that the cost thereof is as set forth in the
application, that the work is progressing rapidly enough to meet the completion
date set forth in Section 3 of this Agreement, and that there are no liens
encumbering the Real Estate. However, approval and/or payment of any application
shall not constitute a waiver of Lender's rights as to any work or material
which may be defective or which may fail to comply with the Plans and
Specifications or with the requirements of Section 3 of this Agreement. All lien
searches and Lender inspection fees shall be paid by the Borrower.
(d) Applications for advances for indirect construction
costs (such as interest, brokerage fees, insurance premiums and settlement
expenses) may be signed by or on behalf of Borrower alone, will include such
supporting information as Lender may reasonably require and will not be subject
to the aforesaid 10% holdback, together with evidence satisfactory to Lender
that Borrower has paid the "Borrower's Equity Contribution" for such item, as
set forth on the Loan Budget prior to any advance for such item by the Lender.
If the Loan Budget includes an "interest reserve", Borrower shall establish such
"interest reserve" with the Lender, Lender may make disbursements for interest
due Lender during construction without further authorization from Borrower, but
Lender agrees to send notice of such disbursement to Borrower. Borrower
acknowledges that the "interest reserve" in the Loan Budget may not be
sufficient to pay interest on the Loan throughout the entire term thereof, and
in such event Borrower will be responsible to make payments for interest on the
Loan out of funds other than the proceeds of the Loan.
(e) Notwithstanding anything else herein contained,
Lender shall have the right to apply any funds which it agrees to advance
hereunder to bring about the completion of the
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Improvements and to payment of any settlement costs, taxes, special assessments
or any other charges which could be a lien on the Real Estate, or any interest
on the Loan, or any premium on any insurance policy affecting the Mortgaged
Property.
(f) If at any time Lender, in the good faith exercise of
business judgment, determines that the funds hereby agreed to be advanced (or
the undisbursed balance thereof) are insufficient for the purpose of completing
the Improvements or of paying any of the aforesaid charges, or any other charge
or expense which may have been incurred or may be assumed by Lender in
connection with this Agreement, Borrower agrees to pay to Lender the amount of
any such deficiency promptly on demand. No amounts so paid to Lender pursuant to
this subparagraph shall be deemed to be trust funds, and no interest shall be
payable thereon. Any such amounts may be commingled with Lender's other funds
and shall be disbursed for the purposes set forth herein before any
disbursements are made out of the undisbursed portion of the Loan. In the event
that Lender exercises its rights under this Section 4(f), and the Borrower
objects to Lender's determination, Borrower may, at Borrower's expense, engage
an independent construction engineer reasonably acceptable to the Lender (other
than Richard Bernidini or Klauder & Nunno), to inspect the Project, and the
costs required to complete the Improvements. If such independent construction
engineer in the good faith exercise of business judgment, determines that the
undisbursed balance of the Loan is sufficient to complete the Improvements, and
all outstanding accounts payable in connection therewith, in accordance with the
Plans and Specifications, then, the Lender shall not, at that time, be entitled
to exercise the rights under this Section 4(f), provided that nothing contained
herein shall prevent Lender from exercising the rights contained herein at any
other time and from time to time.
(g) No advance shall be made unless Lender's title
insurer has endorsed Lender's policy of title insurance to insure the Mortgage
as a first lien on the Mortgaged Property in the amount of the aggregate of such
advance and all prior advances.
(h) Lender shall have no obligation to make any advance
hereunder during the occurrence and continuance of any uncured default
hereunder, under the Lease or under the Permanent Commitment.
5. Hazard and Liability Insurance.
Borrower shall furnish and maintain insurance as
required by the Mortgage. So long as this Agreement is in force the policies of
fire insurance shall be in the "Builder's Risk Completed Value Non-Reporting"
form. If the fire insurance policies shall be in the "Builder's Risk" form, no
portion of the Improvements may be occupied unless Borrower's insurer
acknowledges to Lender in writing that such insurance shall remain in effect,
notwithstanding the occupancy of the Improvements. In addition to the foregoing,
Borrower shall furnish Lender with certificates of
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comprehensive public liability insurance and worker's compensation insurance,
covering Borrower and the General Contractor, if any, in such amounts and form
and with such companies as may be satisfactory to Lender in the exercise of
reasonable business judgment.
6. Borrower's Warranties.
Borrower, as a material inducement to Lender to make the
Loan, represents and warrants that:
(a) There is no litigation pending or threatened which
would in any way affect any of the following: title to the Mortgaged Property or
any part thereof; the validity or priority of the lien of the Mortgage; issuance
or validity of any zoning variance or other zoning or subdivision approval
affecting the Mortgaged Property; any building permit or certificate of
occupancy which has been or is to be issued in connection with the Mortgaged
Property or any part thereof.
(b) Borrower has obtained a validly issued building
permit and such other permits as may be required by law for construction of the
Improvements and all appeal periods allowed with respect thereto have expired
without any appeal having been filed by any person; the Plans and Specifications
are identical in all respects to those on which a building permit has been
issued; and the Mortgaged Property now complies, and upon completion of the
Improvements will comply, in all respects with all requirements of law including
those relating to building, zoning, subdivision and environmental protection.
(c) No part of the Mortgaged Property has been damaged
or taken by, or is under cloud of, eminent domain proceedings.
(d) The Mortgaged Property is not now damaged or injured
as a result of any fire, explosion, accident, flood or other casualty.
(e) There has been no material adverse change in the
financial condition of Borrower or any Guarantor since the date of the loan
application previously submitted to Lender.
(f) The Loan does not violate any other contractual
obligation of Borrower or any Guarantor.
(g) The Mortgaged Property has unqualified access to and
from a public road.
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(h) Electricity, potable water and sewerage facilities
and, if shown on the Plans and Specifications, natural gas service are available
at the Mortgaged Property and are of sufficient capacity to service the
Improvements.
(i) Borrower has not executed any agreement or contract
with any municipal or quasi-municipal body or authority or supplier of any
public utility service pursuant to which Borrower is obligated to construct any
municipal improvements or utility lines or pipes or similar facilities with
respect to the development of the Mortgaged Property.
(i) Borrower has delivered to Lender true, correct and
complete copies of the Lease (including all riders, amendments, addenda and
supplements thereto) which presently affect the Real Estate and the
Improvements. The Lease remains in full force and effect in accordance with its
terms.
(j) To the best of Borrower's knowledge, information and
belief (i) no hazardous substance pollutant or contaminant (as defined in
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), 42 U.S.C. ss.9601, as amended by the Superfund
Amendments and Reauthorization Act of 1986, Pub.L.No. 99-499, 100 Stat. 1613
(1986), is present on the Mortgaged Property, (iii) the primary operations of
the business being conducted on the Mortgaged Property do not involve hazardous
substance or waste within the meaning of the New Jersey Environmental Cleanup
Responsibility Act, N.J.S.A. 13:K-6 et. seq. and does not have an SIC number
among those specified in such Act; and (iv) Borrower has not been identified in
any litigation, administrative proceedings or investigation as a responsible
party for any liability under the above referenced laws. Borrower will not use,
generate, treat, store, dispose of, or otherwise introduce any hazardous
substances, hazardous waste, residual waste or solid waste (as defined above)
pollutant, contaminant hazardous waste, residual waste or solid waste (as
defined above) into or on the Mortgaged Property in violation of any applicable
statute, law, ordinance rule or regulation and will not cause, suffer, allow, or
permit anyone else to do so.
(k) Borrower has invested into the Project an amount at
least equal to the Equity Contribution set forth on the attached Budget.
Each request for an advance of proceeds of the Loan
hereafter made by Borrower shall constitute Borrower's representation and
warranty that (i) the representations and warranties contained in this Article
are true and correct as of the date such request for an advance is made and (ii)
all proceeds of the Loan theretofore disbursed by Lender to pay for labor and
materials have been applied and paid in strict accordance with all prior
requests for advances.
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7. Fees and Expenses.
At or before the time of the first advance on account of
the Loan, Borrower will pay Lender $40,000 as a construction loan/permanent loan
fee to defray the costs involved in processing and administering the Loan. No
portion of said fee or of any commitment fee heretofore paid to Lender shall be
refundable if the maturity date of the Note is accelerated or if Borrower makes
any voluntary prepayment of the Loan In addition, Borrower will pay or cause to
be paid all other fees and charges incurred in the procuring and making of the
Loan, including, without limitation, fees and expenses relating to examination
of title, title insurance premiums, surveys, recording charges, appraisal fee of
$8,000, any applicable documentary, transfer, recording or other similar taxes,
and Lender's counsel fees for the preparation of Loan documentation and the
closing of the Loan and inspection fees to Lender's inspecting architect in the
amount of $5,000.
8. No Third Party Beneficiaries.
The parties do not intend the benefits of this Agreement
to inure to any third party. Notwithstanding anything contained herein or in the
Mortgage, Note or any other document executed in connection with this
transaction, or any conduct or course of conduct by either or both of the
parties hereto, or their respective affiliated companies, agents or employees,
before or after signing this Agreement or any of the other aforesaid documents,
this Agreement shall not be construed as creating any rights, claims or causes
of action against Lender, or any of its officers, agents or employees in favor
of any prime contractor or any other contractor, subcontractor, supplier of
labor or materials or any of their respective creditors, or any other person or
entity other than Borrower. Without limiting the generality of the foregoing,
advances made directly to any prime contractor or any other contractor,
subcontractor or supplier of labor and materials, shall not be deemed a
recognition by the Lender of a third-party beneficiary status of any such person
or entity.
9. Mechanics' Liens.
If any mechanic's lien or security interest shall be
filed against the Mortgaged Property or any part thereof, or any interest
therein, by reason of work, labor, services or materials supplied or claimed to
have been supplied, or any municipal lien or other lien or encumbrance, other
than the Mortgage, is recorded or filed and is not discharged (or if security
therefor satisfactory to Lender has not been deposited with Lender) within
thirty (30) days after the filing or recording thereof, then Lender may, at its
option, pay and discharge said lien or encumbrance, in which case the sum which
Lender shall have so paid shall be considered as part of the advances then due
or thereafter to become due, as Lender may elect.
<PAGE>
10. Default.
The occurrence of any one or more of the following
shall, at the option of Lender, and upon written notice from Lender to Borrower,
constitute an "Event of Default" hereunder:
(a) A petition shall have been filed by Borrower under
any of the provisions of the Federal Bankruptcy Code, as amended, or any other
Federal or state insolvency or similar law; or such petition shall have been
filed against Borrower or a receiver shall have been appointed in a debtor's
proceeding for Borrower, or any part of its property or assets, or for the
Mortgaged Property or any part thereof, and such petition or receivership shall
continue unstayed and in effect for a period of thirty (30) days; (b) Borrower
shall have made an assignment for the benefit of its creditors; (c) any
execution shall have been levied against the Mortgaged Property or against any
other property of Borrower and shall continue unstayed and in effect for a
period of ten (10) days; (d) work in the construction of the Improvements shall
have been discontinued for five consecutive business days for any reason
whatsoever, except strikes, weather, Acts of God or similar elements of force
majeure; (e) Borrower shall have created any security interest in favor of any
party other than Lender in any fixtures, machinery or equipment used or to be
used in connection with the Improvements, or purchased any of the aforesaid
items on any conditional sale basis, unless same is a part of the scheduled
leased equipment; (f) Borrower shall have failed to comply with any requirements
of any governmental authority concerning the Improvements within such period as
may be allowed by such governmental authority, after notice in writing of such
requirements shall have been given to Borrower but such failure shall not
constitute an Event of Default if Borrower shall have filed a timely appeal from
such requirement and diligently pursues such appeal and if enforcement against
the Mortgaged Property is stayed during the pendency of such appeal, provided
that in Lender's reasonable judgment a subsequent denial of such appeal
following continued construction during the pendency of the appeal will not
materially adversely affect Borrower's ability to complete the Improvements as
required by this Agreement; (g) Borrower shall have failed to disclose to
Lender, upon written demand, the names of all persons with whom Borrower has
contracted or intends to contract in connection with the construction of the
Improvements or the furnishing of any labor, materials or services in connection
therewith; (h) Borrower shall have made any amendment in any contract with any
general contractor or architect engaged by Borrower or failed to pursue promptly
any remedy under any such contract in the event of any material default by the
other party thereto; (i) Borrower shall have failed to observe and perform each
and every one of the terms, covenants, promises and agreements on its part to be
observed and performed under this Agreement or under the Note, Mortgage or any
of the other documents delivered to Lender in connection with the Loan or any
representation or warranty made by Borrower shall appear to have been false or
incorrect in any material respect when made; (j) Borrower or any Guarantor shall
have defaulted in any respect under the Lease, any note, mortgage, loan
agreement or any collateral document executed by Borrower or any such Guarantor
under or in connection with any loan transaction between Borrower and Lender
other than the Loan which is the subject of this
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Agreement, whether such other loan transaction(s) or any of them, has been
entered into prior to the date hereof or is entered into after the date hereof
(k) either Permanent Lender shall have failed to consummate the transactions
contemplated by the Permanent Commitments; (l) There shall exist any Event of
Default under either loan made pursuant to the Permanent Commitments.
For purposes of clauses (a), (b) and (c) above, the word
"Borrower" shall include Borrower and each Guarantor.
11. Remedies.
(a) Upon the occurrence of any Event of Default, Lender
may exercise any or all of the following rights and remedies as it may deem
necessary or appropriate:
(i) Declare immediately due and payable all sums
advanced under the Note which are then unpaid, with all accrued interest.
(ii) Take possession of the Mortgaged Property and
all materials, supplies, tools, equipment and construction facilities and
appliances located thereon, and proceed either in the name of Lender or in the
name of Borrower as Lender shall elect, to complete the Improvements at the cost
and expense of Borrower (subject to Lender's right to discontinue work at any
time). If Lender elects to complete or cause the Improvements to be so
completed, Lender will not assume any liability or be liable to Borrower or to
any other person for completing the Improvements or for the manner or quality of
construction, and Borrower expressly waives any such liability. If Lender elects
to complete or cause the Improvements to be so completed, it may do so according
to the Plans and Specifications or according to such changes, alterations or
modifications in and to the Plans and Specifications as Lender may deem
expedient or necessary, and Lender may enforce or cancel all existing contracts
pertaining to the construction or make other contracts which in Lender's opinion
may seem advisable, and Borrower shall pay or cause to be paid Lender upon
demand any amount or amounts expended by Lender for such performance, together
with any other costs, charges or expenses incident thereto or otherwise incurred
or expended by Lender in connection with the Improvements, and the amount so
expended shall bear interest at the applicable rate provided in the Note and
shall be considered part of the indebtedness evidenced by the Note and secured
by the Mortgage, regardless of whether such expenditures cause Borrower's
indebtedness to Lender to exceed the face amount of the Note. For the purpose of
securing Borrower's obligations hereunder, Borrower hereby assigns, transfers
and sets over to Lender all of Borrower's right, title and interest in, to and
under (i) the Plans and Specifications, (ii) all building and other permits
issued by any municipal authority with respect to the Improvements (whether
heretofore or hereafter issued) provided that Lender shall not exercise its
rights under the aforesaid assignment until default by Borrower hereunder.
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(iii) Refrain from making any one or more
disbursements of Loan proceeds which Borrower would otherwise be entitled to
have made hereunder.
(b) In any action or proceeding for recovery of any sums
expended by Lender in connection with the completion of the Improvements, a
statement of such expenditures, verified by the affidavit of an officer of
Lender, shall be prima facie evidence of the amounts so expended and of the
propriety of and necessity for such expenditures, and the burden of proving the
contrary shall be upon Borrower.
(c) The remedies provided in this Agreement shall be in
addition to and not in substitution for the rights and remedies which would
otherwise be vested in Lender under the Note and Mortgage or otherwise at law or
in equity, all of which rights and remedies are specifically reserved by Lender.
Failure of Lender to exercise any remedy shall not constitute a waiver of
Lender's rights for that default nor for any further or future default.
(d) Borrower agrees that all property of Borrower which
may hereafter be deposited with or come into the possession of Lender shall be
applicable to secure the payment of the indebtedness evidenced by the Note, and
for this purpose Lender is hereby given a lien on and a security interest in all
thereof, and for such purpose this Agreement shall constitute a security
agreement under the Uniform Commercial Code.
12. Notices.
All notices to be given by either party to the other
hereunder shall be in writing, shall be addressed to Borrower at its offices, as
hereinabove set forth, and to Lender at its office, as hereinabove set forth and
shall be delivered by either an independent courier service that obtains a
receipt for delivery or certified or registered U.S. Postal Service mail, return
receipt requested. Either party may change its address for notices by written
notice to the other party as aforesaid.
13. Indemnity.
Borrower agrees to protect, indemnify, defend and save
harmless Lender and its directors, officers, agents and employees from and
against any and all loss, liability, and expense (including reasonable counsel
fees) arising out of disputes between Borrower and its general contractor, if
any, or between any contractor and any subcontractor, materialman or supplier,
or between Borrower or any contractor or any subcontractor and any municipal or
public authority, or between Borrower and any broker pertaining to this
transaction.
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14. Permanent Loan.
Borrower represents and warrants to Lender that Borrower
has obtained a commitment from the Local Development Financing Fund in an amount
equal to $1,000,000 dated October 22, 1996 with respect to long-term financing
of the Mortgaged Property and that Borrower has delivered a true, correct and
complete copy of the Permanent Commitment to Lender. Lender shall subject to the
provisions of this Agreement, provide permanent financing in an amount equal to
$1,500,000. Borrower has obtained a commitment from the New Jersey Economic
Development Authority to guaranty ninety (90%) of the permanent financing to be
provided by Lender. The New Jersey Economic Development Authority and the Local
Development Financing Fund are collectively referred to herein as the "Permanent
Lender". The commitment letters of the two Permanent Lenders are referred to
herein as the "Permanent Commitment". Borrower represents and warrants to the
Lender, that all conditions precedent to the funding of the loan referred to in
the Permanent Commitment, except for the timely completion of the Improvements,
have been satisfied in full. Borrower understands that Lender has agreed to make
the Loan in reliance upon the Permanent Commitment, and Borrower agrees to take
all steps necessary to keep the Permanent Commitment in force and unmodified
throughout the term of the Loan. Borrower further agrees that at the time of
closing pursuant to the Permanent Commitment, Borrower will execute such
agreements and other documents and take such other action as may be required by
Lender or the Permanent Lender to comply with the provisions of the Permanent
Commitment; in the event Borrower fails or refuses to do so, Lender may do so on
Borrower's behalf, and Borrower hereby irrevocably appoints Lender or any
officer of Lender its attorney-in-fact for this purpose. Lender's obligations to
provide permanent financing in accordance with the Note are expressly
conditioned upon the consummation of all the transactions contemplated by each
of the Permanent Commitments, and there being no default hereunder as of the
Amortization Commencement Date (as defined in the Note).
15. Conflicts Between Instruments.
In the event of any conflict between the provisions of
this Construction Loan Agreement and the provisions of the Note, Mortgage or any
other document executed and/or delivered in connection with the Loan (including,
without limitation any provisions with respect to the delivery of notice of
default and the granting of any opportunity to cure) the provisions of this
Agreement shall prevail, notwithstanding any provision in any other document to
the effect that such other document shall be deemed controlling. Any default by
Borrower hereunder shall, after the granting of such notice and expiration of
any grace period as may be herein contained, constitute an event of default
under the Note and Mortgage, without regard for any requirement for notice or
opportunity to cure contained in the Note or Mortgage.
13
<PAGE>
16. Parties Bound - Assignment.
This Agreement shall be binding upon the parties hereto
and upon their respective successors and assigns, and shall inure to the benefit
of the successors and assigns of Lender; provided, Borrower shall not
voluntarily, involuntarily, or by operation of law assign or transfer any
interest which it may have under this Agreement.
17. Number and Gender.
For purposes of this Agreement the neuter shall be
deemed to include the masculine and the feminine, and the singular shall be
deemed to include the plural and the plural the singular, as the context may
require.
18. Captions.
The captions contained herein are not a part of this
Agreement. They are only for the convenience of the parties and do not in any
way modify, amplify, or give full notice of any of the terms, covenants or
conditions of this Agreement.
19. Termination.
Upon the payment of the sums due under the Note and
Mortgage by Lender, and the closing of the permanent loan with the Permanent
Lender, this Agreement shall automatically terminate and be of no further force
or effect, except for the indemnification of Lender contained in Section 13
above, which shall remain in full force and effect.
20. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey and Borrower agrees that the
courts of New Jersey or the United States District Court for the District of New
Jersey shall have exclusive jurisdiction for all disputes arising with respect
to the Loan.
21. Waiver of Jury Trial.
Borrower and Lender, after consultation with their
respective counsel, each hereby waive any right which they may have to a jury
trial in connection with any suit commenced by or against them in connection
with this Agreement or with any document executed in connection with this
Agreement or the Loan, or in any way pertaining to the Loan.
14
<PAGE>
22. Time of the Essence.
Time shall be the essence of this Agreement.
23. Relationship of Parties.
The relationship between Borrower and Lender shall at
all times be that of debtor and creditor. Under no circumstances shall such
relationship be construed as creating a partnership or joint venture between
Borrower and Lender.
24. Severability.
Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability but shall not invalidate or render unenforceable any other
provision of this document and the remaining provisions shall stay in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set
their respective hands and seals the day and year first above written.
Equity National Bank
By:____________________________
,Vice President
(Corporate Seal)
T-KAT Corp.
By:____________________________
(Vice) President
(Corporate Seal)
Attest:________________________
(Assistant) Secretary
15
<PAGE>
COLLATERAL ASSIGNMENT OF
COMMITMENT LETTER
THIS ASSIGNMENT, made this ___ day of ____________, 1996,
1988, from T-KAT Corp., a ____________ corporation (hereinafter "Borrower") to
Equity National Bank, with an office at The Corporate Center at Sagemore, Suite
8101, 8000 Sagemore Drive, Marlton, New Jersey 08053 (hereinafter called
"Bank").
W I T N E S S E T H:
Bank has agreed to advance up to TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000) (the "Loan") to Borrower pursuant to a certain
Construction Loan Agreement of even date herewith by and between Borrower and
Bank ("Loan Agreement"). The Loan is evidenced by a promissory note of Borrower
(the "Note") and is or will be secured by, inter alia, a Mortgage of even date
herewith ("Mortgage") from Borrower to Bank upon certain real property
("Premises") located in Mercer County, New Jersey as more particularly described
in the Mortgage. The Loan is further evidenced and secured by other collateral
documents by and between Bank and Borrower. The Loan Agreement, Note, Mortgage
and other collateral documents described in or accompanying the Loan Agreement
are hereinafter sometimes collectively referred to as the "Loan Documents".
As a condition to the Bank making the Loan, the Borrower was
required to obtain a commitment for permanent financing from the New Jersey
Economic Development Authority and the Local Development Financing Fund (the
"Permanent Lender"), and the Borrower has obtained such permanent commitment, a
true and correct copy of which is attached hereto as Exhibit "A" (the "Permanent
Commitment"). As an additional condition to granting the Loan, Bank has required
Borrower to execute and deliver this Assignment of the Permanent Commitment.
NOW, THEREFORE, in consideration of the Loan, and intending
to be legally bound, Borrower does hereby covenant, agree, warrant, represent,
assign, set over and transfer with and to Bank as set forth herein:
1. Borrower hereby assigns, transfers and sets over unto
Bank all of Borrower's right, title, privileges and interest in and to the
Permanent Commitment as security for the full, timely and faithful repayment by
Borrower of the Loan and performance by
1
<PAGE>
Borrower of all of its obligations under the Loan Documents to the fullest
extent permitted by law and by the terms of the Permanent Commitment.
2. Until the occurrence of an Event of Default or a default
hereunder or under the Loan Documents as defined therein ("an Event of
Default"), Borrower may retain, use and enjoy Borrower's benefits of the
Permanent Commitment. After the occurrence of an Event of Default as aforesaid
Bank may enforce this Assignment immediately following notice to Borrower, and
Bank may close on the Permanent Commitment, and perform all of the obligations
of the Borrower under the Permanent Commitment. The affidavit or written
statement of an officer, agent or attorney of Bank stating that there has been
an Event of Default shall constitute sufficient evidence thereof.
3. Borrower agrees faithfully to observe and perform all of
the obligations and agreements imposed upon it under the Permanent Commitment.
From and after the date hereof, the Permanent Commitment may not be materially
altered, amended or cancelled, except by its terms or upon a default thereunder
by a party other than Borrower, except with the prior written approval of Bank.
4. Bank will not be deemed in any manner to have assumed the
Permanent Commitment nor shall Bank be liable to the Permanent Lender thereunder
by reason of any default by any party under the Permanent Commitment unless and
until Bank expressly in writing assumes the obligation. Borrower agrees to
indemnify and to hold Bank harmless of and from any and all liability, loss or
damage which it may or might incur by reason of any claims or demands against
Bank based on Bank's alleged assumption of Borrower's duties or obligations to
perform and discharge the terms, covenants and agreements in the Permanent
Commitment.
5. After the occurrence of an Event of Default, Bank may
elect to exercise any and all of the rights and remedies of Borrower under the
Permanent Commitment without any interference or objection from Borrower, and
Borrower shall cooperate in causing the Seller thereunder to comply with all the
terms and conditions of the Permanent Commitment.
6. All of the foregoing powers herein granted Bank shall be
liberally construed. Bank need not expend its own funds in the exercise of
power, but if it does, such amounts shall be considered as Advances for and on
behalf of Borrower evidenced and secured by the Note, Mortgage and other Loan
Documents. Any amounts so advanced shall bear interest at the Default Rate
prescribed in the Note.
(2)
<PAGE>
7. Nothing herein contained shall be construed as a waiver
or suspension by Bank of its right to enforce payment of the debts under the
terms of the Loan Documents. Bank is not the agent, partner, or joint venturer
of the Borrower.
8. This Assignment may be enforced from time to time by Bank
in its discretion, with or without order of any court and with or without
appointment of a receiver, as Bank shall determine provided an Event of Default
has occurred. Bank may also at any time cease to enforce this Assignment. Any
failure on the part of Bank promptly to exercise any option hereby given or
reserved shall not prevent the exercise of such option at any time thereafter.
Bank may pursue and enforce any remedy or remedies accorded it herein
independently of, in conjunction or concurrently with, or subsequent to its
pursuit and enforcement of any remedy or remedies which it may have under the
Loan Documents.
9. It shall be an Event of Default hereunder if: (a)
Borrower shall default in the performance of any of its covenants or agreements
hereunder after Bank has given notice in writing of such default to the
defaulting party and the defaulting party has failed to cure such default within
fifteen (15) days of such notice; (b) Borrower has made or hereafter makes a
material misrepresentation under this Agreement; or (c) there shall be an Event
of Default under any of the Loan Documents. Any Event of Default hereunder shall
constitute an Event of Default under the Loan Documents.
10. Borrower warrants and represents:
(a) that it has the right to execute and deliver this
Assignment;
(b) that it has made no prior assignments of the
Permanent Commitment;
(c) that the Permanent Commitment is in full force and
effect on the date hereof, subject to no defenses, setoffs or counterclaim
whatsoever; and
(d) as of the date hereof, there exists no event,
condition or occurrence which constitutes or which with notice and/or the
passage of time would constitute, a breach of or default under any term or
condition of the Permanent Commitment. Borrower also hereby covenants and agrees
not to do any act which would destroy or impair the security to the Bank of this
Assignment.
11. This Assignment shall be governed by and construed in
accordance with the laws of the State of New Jersey. Wherever possible, each
provision of this Assignment
(3)
<PAGE>
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Assignment shall be prohibited by
or invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Assignment.
12. This Assignment and Bank's rights and the liabilities,
duties and disabilities of Borrower hereunder shall be governed and construed in
accordance with the laws of the State of New Jersey. Borrower consents to the
jurisdiction of the courts of New Jersey or of the United States District Court
for the District of New Jersey in any action brought to enforce any of the
rights granted to Bank hereunder. Borrower waives both the right to trial by
jury and the right to interpose counterclaims in any litigation in which Bank
and Borrower are adverse parties. Borrower agrees that service of process in any
such action or proceeding may be duly effected upon it by service at the address
set forth herein by United States Certified or Registered Mail, Return Receipt
Requested, postage prepaid.
14. This Assignment shall terminate and be null and void
without further actions upon satisfaction of the obligation evidenced by
Borrower's Note to Bank.
IN WITNESS WHEREOF, Borrower has caused this Assignment to
be executed on the day and year first above written.
T-KAT Corp.
Attest:__________________ By:___________________________
Secretary President
(Corporation Seal)
(4)
<PAGE>
PERMANENT LENDER'S ACKNOWLEDGMENT AND CONSENT
New Jersey Economic Development Authority and Local
Development Financing Fund (the "Permanent Lender") do hereby acknowledge
receipt of notice of the above-mentioned Assignment of Permanent Commitment;
approves such Assignment; covenants that it has no knowledge of any prior
assignment of the Permanent Commitment by the above-mentioned Assignor; agrees
to give the above-mentioned Assignee written notice at the address indicated
therein of any defaults by Assignor under the Permanent Commitment and that
Assignee, at the sole option of Assignee, has the right to cure any defaults by
Assignor under the Permanent Commitment within fifteen (15) days after receipt
by Assignee of notice of such default; agrees that Assignee shall have no
liability to Permanent Lender either under the Permanent Commitment, the
foregoing Assignment, or otherwise for any act or omission occurring prior to
such time as Assignee elects to assume the future obligations of Assignor under
the Permanent Commitment.
The officer executing this instrument on behalf of
Contractor hereby personally certifies that Contractor has full authority under
all state and local laws and regulations to perform all of its obligations under
the Contract.
IN WITNESS WHEREOF, Permanent Lender has caused this
Acknowledgment and Consent to be duly executed and sealed this _______ day of
__________, 19__.
[Corporate Seal]
By:___________________________
President
Attest:_______________________
Secretary
(1)
<PAGE>
ASSIGNMENT OF SUBLEASE
THIS ASSIGNMENT, made this ____ day of December, 1996, by
T-Kat Urban Renewal Corp., a New Jersey corporation, with an office at 41-417
North Columbus Blvd., Philadelphia, PA 19123 ("Assignor") and Equity National
Bank with an office at The Corporate Center at Sagemore, Suite 8101, 8000
Sagemore Drive, Marlton, New Jersey 08053 ("Assignee").
W I T N E S S E T H:
A. T-Kat Corp., a New Jersey corporation, an entity
affiliated with the Assignor ("Borrower") has executed, acknowledged and
delivered to Assignee note bearing even date herewith in the amount of
$2,500,000 (the "Note") performance of which is secured by a mortgage bearing
even date herewith (the "Mortgage") covering (i) the leasehold interest of the
Assignor pursuant to a certain lease dated June 18, 1996 as amended by and
between Mercer County Improvement Authority and Assignor, a memorandum of which
is recorded in the office of the Recorder of Deeds and Mortgages in and for
Mercer County, New Jersey (the "Lease") and (ii) the subleasehold interest of
the Borrower pursuant to a certain Sublease dated December 18, 1996 and recorded
in the Office of the Recorder of Deeds and Mortgages in and for Mercer County,
New Jersey (the "Sublease"), and (iii) the fee interest of Mercer County
Improvement Authority in certain real estate located in Trenton, Mercer County,
New Jersey (the "Property"), more fully described in Exhibit "A" attached hereto
and hereby made a part hereof.
B. As additional security for performance of Borrower's
obligations under the Note and Mortgage (and any extensions and/or modifications
thereof), Assignor has agreed to assign to Assignee all of Assignor's rights
under Sublease on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, and other good and valuable con-
<PAGE>
sideration, receipt of which is hereby acknowledged, Assignor agrees as follows:
1. Assignment of Leases. Assignor hereby assigns and
transfers to Assignee all of Assignor's rights, interest, and privileges in the
Sublease, together with any extension or renewal thereof. This Assignment
includes:
(a) All rents, income and profits due or to become due
under the Sublease;
(b) any sums to which Assignor may become entitled in
any court proceeding involving the bank ruptcy,
insolvency or reorganization of any tenant; and
(c) any payments made by Borrower in lieu of rent.
2. Limitations On Assignment.
(a) This Assignment is given for the purpose of securing
performance by Borrower of all of its obligations under the Note and Mortgage
and accordingly, upon payment in full of all indebtedness evidenced by the Note,
and discharge of all Borrower's other obligations under the Note and Mortgage,
as evidenced by the recording of an instrument of satisfaction of the Mortgage
(without the recording of another mortgage in favor of Assignee affecting the
Property), this Assignment shall automatically become null and void.
(b) So long as Assignor is not in default in any respect
under the Note or the Mortgage or this Assignment, Assignor shall have the right
to collect all rents, issues and profits from the Property and to retain, use
and enjoy the same; provided, Assignor agrees that it will not under any
circumstances collect or accept any rent more than 30 days prior to accrual.
(c) Notwithstanding any provision herein to the
contrary, this Assignment is intended to be an absolute assignment from Assignor
to Assignee and not merely the passing of a security interest. The rents, leases
and profits are hereby assigned absolutely by Assignor to Assignee contingent
only upon the
<PAGE>
occurrence of a default. This Assignment includes an assignment of any and all
guarantees of the obligations under the Sublease covered hereby.
3. Assignor's Obligations. Assignor agrees that it will
perform all of its obligations as landlord under the Sublease and the Lease.
Assignor will not (other than in the normal course of Assignor's business)
terminate the Lease or the Sublease, or accept surrender of possession of any
premises covered by the Lease or the Sublease or modify the Lease or the
Sublease without the prior written consent of Assignee.
4. Cross Default. Any default by Borrower under the Note or
Mortgage or Assignor under the Lease shall be considered a default under this
Assignment, and any default under this Assignment shall be considered a default
under the Note and the Mortgage, and in any such event, Assignee shall be
entitled to exercise all or some or any of its remedies under the Note, the
Mortgage or under this Assignment, or as may otherwise be available to Assignee
at law or in equity, in such order as Assignee may elect.
5. Assignee Not Bound To Perform Under Leases. Not
withstanding any legal presumption to the contrary, Assignee shall not be
obligated by reason of acceptance of this Assignment to perform any obligation
of Assignor as landlord under the Sublease, and Assignor hereby agrees to
indemnify Assignee and save it harmless from and against any loss, liability or
damage arising from any claim by any tenant or any other party arising under or
in connection with the leases, or any of them, or this Assignment. However,
Assignee may, at its option, and without releasing Assignor from any obligation
hereunder, discharge any obligation which Assignor fails to discharge, including
without limitation, defending any legal action, and Assignor agrees to pay
immediately upon demand all sums expended by Assignee in connection therewith,
including counsel fees, together with interest thereon at the rate provided for
in the Note, and the same shall be added to the indebtedness evidenced by the
Note and secured by the Mortgage and this Assignment.
<PAGE>
6. Warranties of Assignor. Assignor hereby represents and
warrants to Assignee, as a material inducement to Assignee to accept this
Assignment, that:
(a) Assignor has not executed any prior assignment of
any of its rights under the Sublease.
(b) Assignor has not done anything which might prevent
Assignee from or limit Assignee in operating under any of the provisions hereof.
(c) Assignor has not accepted, and shall not accept,
rent under the Sublease more than 30 days in advance of accrual.
(d) Assignor has not executed or entered into any
written or oral leases affecting the Property except the Sublease.
(e) So far as Assignor knows, there is no present
default under the Lease or the Sublease.
(f) The Sublease is in full force and effect and
unmodified.
(g) Assignor has delivered to Assignee a true, correct
and complete copy of the Sublease
7. Possession.
(a) Effective immediately upon Assignor's default under
the Note, the Mortgage or this Assignment or the Lease or the Sublease, Assignor
authorizes Assignee, at its option, to enter and take possession of the
Property, or any part thereof, and to manage and operate the same, to collect
rents (and, in connection therewith, to endorse Assignor's name to all checks
made payable to Assignor and to deposit such checks in Assignee's account), to
let or re-let the Property or any part thereof, to cancel and modify leases, to
evict tenants, to bring or defend any suits in connection with possession of the
Property in its own name or Assignor's name, to make such repairs, alterations
and improvements as Assignee deems appropriate, and to perform any other acts in
<PAGE>
connection with management and operation of the Property as Assignee, in its
discretion, may deem appropriate.
(b) Any income derived from the Property pursuant to
subparagraph (a) above shall be applied, in such order and amounts as Assignee
may elect, to the following: costs of operation and maintenance of the
Property, including without limitation, management fees and professional fees,
taxes, water and sewer charges, insurance, maintenance, repairs and the like;
interest due on the indebtedness secured hereby; any other amounts necessary to
meet the obligations of Assignor under the Note, the Mortgage and leases (other
than payment of the principal indebtedness) and the principal indebtedness.
(c) Notwithstanding the foregoing, this Assignment shall
not place responsibility on Assignee for the control, care, management or repair
of the Property or make Assignee responsible or liable for any injury or death
to any person or property arising from any negligence in the management,
operation, upkeep, repair or control of the Property.
(d) Exercise by Assignee of its rights under
subparagraph (a) above shall not waive or cure any default under the Note or the
Mortgage nor affect any proceedings or any sale pursuant thereto.
8. Benefits and Burdens. This Assignment shall be binding
upon Assignor and its successors and assigns, including any subsequent owner of
the Property, and shall inure to the benefit of Assignee and its successors and
assigns, including any assignee of the Note and the Mortgage.
9. Personal Liability. Upon the occurrence of any "Event of
Default" under the Mortgage, Note or this Assignment, Assignor shall apply the
rents and profits thereafter received by Assignor with respect to the Property
directly towards the expenses of maintaining the Property and towards payment of
the Note and Mortgage. Assignor shall be personally liable for the proper
application of such rents and profits as aforesaid and the lien of any judgment
obtained to recover such costs shall, to the extent of any such rents and
profits not so applied by Assignor extend to any property now or hereafter owned
by Assignor.
<PAGE>
10. Notices. All notices or demands hereunder must be served
by personal service, or by certified or registered mail, addressed to Assignor
or Assignee, as the case may be, at the addresses set forth at the beginning of
this Assignment, or to such other address as the party to be charged with such
notice shall
<PAGE>
have specified by written notice to the other.
IN WITNESS WHEREOF, the Assignor has duly executed this
Assignment the day and year first above written.
Witness: T-Kat Urban Renewal Corp.
______________________________ By:_________________________(SEAL)
,Vice President
<PAGE>
NEW JERSEY
CORPORATE ACKNOWLEDGMENT
STATE OF :
COUNTY OF :
Be it remembered, that on this ____ day of ___________ 1996,
before me, the subscriber, in and for said county, personally appeared
_________________________________________________________ of T-Kat Corp. who I
am satisfied is the person who signed the within instrument, and he/she
acknowledged that he/she signed, sealed with the corporate seal and delivered
the same as such officer aforesaid, and that the within instrument is the
voluntary act and deed of such corporation, made by virtue of a Resolution of
its Board of Directors. And said __________________________ did further certify
and acknowledge that he/she received a true, correct and complete copy of the
within Mortgage and the Mortgage Note secured thereby.
Witnesseth my hand and seal.
-----------------------------
Notary Public
My Commission Expires:
<PAGE>
PLEDGE AGREEMENT
AGREEMENT made this _____ day of ______________, 1996 by
LANCE SILVER AND STUART HARTING (collectively, the "Pledgor") in
favor of EQUITY NATIONAL BANK ("Lender").
BACKGROUND
A. Lender and T-KAT Corp., a New Jersey corporation
("Borrower") have entered into a certain Construction Loan Agreement dated even
date herewith (the "Loan Agreement"), pursuant to the provisions of which the
Lender has agreed to make a loan to the Borrower in the principal amount of up
to $2,500,000.00 (the "Loan") in order to finance certain improvements to be
made to the the Borrower's leasehold interest in certain real estate situate,
lying and being in Mercer County, New Jersey.
B. The Pledgors have guarantied all of the Borrower's
obligations under the Loan pursuant to their Guaranty and Surety Agreement each
executed simultaneously herewith (each a "Guaranty"); and to secure the
performance by Pledgors of their respective obligations under the Guaranty each
Pledgor has agreed to pledge the Stock to Lender as provided herein.
NOW, THEREFORE, in order to induce Lender to enter into the
Loan Agreement and to accept the Guaranty, Pledgors, intending to be legally
bound hereby, agree as follows:
1.1 As security for the full and prompt performance of the
Loan Agreement, the Guaranty and this Pledge Agreement (hereinafter collectively
called the "Obligations"), Pledgor hereby pledges with Lender and grants to
Lender a security interest in (i) the capital stock (the "Stock") in the
Borrower described as follows:
Registered Owner Certific No. Number of Shares
---------------- ------------ ----------------
Lance Silver
Stuart Harting
all of which Shares are registered in the name of Pledgor and all are
accompanied by executed stock powers or transfer documents in negotiable form,
and (ii) in any and all stock and liquidating dividends thereon, any and all
shares of stock or fractions thereof issued pursuant to any stock split thereon,
any and all distributions of capital made on any of such securities, and any and
all shares of stock, obligations or other property distributed pursuant to a
recapitalization or reclassification of the capital of the issuer of such
securities or pursuant to
<PAGE>
the dissolution, liquidation (in whole or in part), bankruptcy or reorganization
of such issuer, or to the merger or consolidation of such issuer with or into
another corporation or entity, at any time arising or existing, and all proceeds
thereof (all of which are referred to as the "Pledged Securities").
1.2 In the event of any default with respect to any of the
Obligations, Lender may (i) retain the Pledged Securities in satisfaction of the
Obligations, or (ii) sell, upon ten (10) days prior written notice to Pledgors,
(which notice shall include the price, if known, of the Pledged Securities), the
Pledged Securities at public or private sale to herself or to any one else, the
net proceeds thereof (after deducting all costs or expenses paid or incurred in
connection with such sale including, but not limited to, legal fees and
expenses) to be applied against the Obligations. Further, in the event of such
default, Lender shall have, in addition to all other rights and remedies, all of
the rights of a secured party under the Uniform Commercial Code (the "UCC") in
effect in the State of New Jersey with respect to the Pledged Securities.
Pledgor recognizes that Lender may be unable to effect a public or private sale
of all or a part of the Pledged Securities by reason of certain prohibitions
contained in the securities laws of the United States ("Securities Laws"), but
may be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Pledged Securities for their own account for investment and not with a view to
the distribution or resale thereof. Pledgor agrees that any such private sales
may be at prices and other terms less favorable to the seller than if such
Pledged Securities were sold at public sales, and that Lender shall have no
obligation to delay sale of any Pledged Securities for the period of time
necessary to permit the issuer of the Pledged Securities for public sale under
the Securities Laws. Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner. The remedies provided herein and in the UCC in favor of Lender shall not
be deemed exclusive, but shall be cumulative and shall be in addition to all
other remedies in favor of Lender existing at law or in equity.
2. Pledgor represents and warrants to Lender that:
(a) Pledgor is the owner of and has good and marketable
title to the Pledged Securities, free and clear of liens, encumbrances, or
claims of any third party, with full right and authority to execute the pledge
provided for herein and to pledge the Pledged Securities;
(b) The Pledged Securities have been validly issued, are
fully paid and non-assessable, and are registered in Pledgor's name; and
(c) So long as the Obligations remain outstanding,
Pledgor will not sell, pledge, encumber or otherwise dispose of the Pledged
Securities.
2
<PAGE>
3. Until a default shall occur with respect to the
Obligations, none of the Pledged Securities shall be transferred of record, and
Pledgor shall retain all rights of ownership with respect thereto, including,
without limitation, the right to vote the same, provided, however that effective
upon the occurrence of a default, Pledgor hereby authorizes and directs the
respective issuer or its transfer agent, to transfer the Pledged Securities to
Lender on the books of the Corporation or issuer.
4. Upon the performance and satisfaction in full of all of
the Obligations, Lender shall immediately reassign and deliver to Pledgor the
Pledged Securities.
5. Pledgor agrees to execute and deliver such additional
instruments, assignments, stock powers and other documents as may reasonably be
necessary or convenient to carry out the terms of this Pledge Agreement.
6. No delay or failure to exercise any right or power
hereunder by Lender shall constitute a waiver of or impair any rights or powers
given to Lender hereunder. No single or partial exercise of any power or right
given to Lender hereunder shall preclude any further exercise of the same or any
other power or right given hereunder.
7. All notices or other communications required or permitted
hereunder shall be deemed to have been given or made when personally delivered
or when deposited in the mail, postage prepaid, or in the case of telegraphic
notice, when delivered to the telegraph company, charges prepaid, addressed as
set forth in the Consulting Agreement or in accordance with the latest unrevoked
written direction from any party to the other parties hereto.
8. This Agreement, made in the Commonwealth of Pennsylvania,
shall be deemed a contract under the internal laws of the State of New Jersey
and for all purposes shall be construed in
3
<PAGE>
accordance with the laws of such State.
IN WITNESS WHEREOF, Pledgor has executed this Pledge
Agreement the day and year first aforesaid.
-----------------------------
LANCE SILVER
-----------------------------
STUART HARTING
4
<PAGE>
SECURITY AGREEMENT
THIS AGREEMENT made this _____ day of ________________,
1996, by and between T-Kat Corp. a New Jersey corporation (the "Borrower"); and
Equity National Bank, a national banking association (the "Bank").
BACKGROUND
A. Borrower has entered into a Construction Loan Agreement
with Lender dated even date herewith, pursuant to the provisions of which the
Lender has agreed to loan to the Borrower up to $2,500,000 in connection with
the construction of certain improvements on the Borrower's leasehold estate
located in Mercer County, New Jersey, which sum shall be reduced to $1,500,000
upon completion of the improvements (the "Loan").
B. To induce Bank to extend the Loan and to secure the
repayment thereof: Borrower has agreed to grant to Bank a first lien on all of
Borrower's accounts receivable, contract rights, general intangibles, plant
furniture, fixtures, equipment, inventory and all tangible personal property,
together with all cash and non-cash proceeds thereof now owned, or hereinafter
acquired as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants set forth herein, the parties hereto, intending to be legally
bound, agree as follows:
1.1 Defined Terms. Each of the terms listed below shall have
the meaning herein ascribed to it for the purposes hereof and for each of the
Collateral Documents.
1.1.1 "Collateral Documents" means any and all
documents, agreements, assignments, notes, mortgages, certificates, opinions or
other instruments required to be given by or for Borrower pursuant to the terms
hereof or in connection with the Loan, other than this Agreement and the Note.
1.1.2 "Financing Statements" means any and all financing
statements, amendments and/or continuation statements required to perfect and
keep perfected any security interest created hereby or under any Collateral
Document pursuant to the Uniform Commercial Code as adopted in any state having
jurisdiction over the Collateral.
1.1.3 "Note" means the term note of Borrower in favor of
Bank to evidence Borrower's repayment obligations under this Agreement.
1.1.4 "Sites" means those geographical locations upon
which either of the Borrower' inventory is located as identified in Exhibit
1.1.14 hereof; and any future locations upon which the Borrower's inventory may
be located.
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2.1 Simultaneously herewith, Borrower has executed and
delivered the Note and a Construction Loan Agreement, evidencing and governing
the Loan.
3.1 Security.
A. As security for the payment of the Note and for the
payment, performance and discharge of all other indebtedness and other
obligations or undertakings now or hereafter owing or made by Borrower to or for
the benefit of Bank under this Agreement, the Note, and the Loan Agreement, or
under any other agreement, promissory note or undertakings now existing or
hereinafter entered into by Borrower and Bank (all such obligations,
indebtedness and undertakings being sometimes hereinafter referred to as the
"Indebtedness"), Borrower hereby grants to Bank a first lien and security
interest in all of Borrower's accounts receivable, contract rights, chattel
paper, general intangibles, plant, furniture, fixtures, inventory, equipment,
machinery, all other tangible personal property, and insurance policies and
insurance proceeds in connection therewith, together with all cash and non-cash
proceeds thereof, and all contract rights of Borrower.
Such liens and security interests shall be created and by
this Agreement and perfected by any and all Financing Statements required to
perfect and keep perfected any security interest created under this Agreement or
under any Collateral Document and under the Uniform Commercial Code as adopted
in any state having jurisdiction over the Collateral.
3.2 Collateral. All property in which Bank will receive a
security interest and all cash and non-cash proceeds of the foregoing, shall be
the "Collateral" for the purposes hereof.
3.3 Security Agreement. The parties hereto hereby
acknowledge and agree that the provisions of this Agreement are intended to
constitute a security agreement under the New Jersey Uniform Commercial Code.
3.4 Reimbursement of Expenses. At its option Bank may pay
and discharge taxes, liens, security interests, other encumbrances, or any sum
due or to become due from Borrower hereunder, and may pay for the repair of any
damage to the Collateral, the maintenance and preservation thereof and for
insurance thereon. Borrower agrees to reimburse Bank, on demand, for any payment
so made and until such reimbursement, the amount of any such payment shall be
added to the principal balance of the Note.
4.1 Borrower represents and warrants to Bank as follows:
4.1.1 Good Standing. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey; has the corporate power and authority to own and operate its
properties and to carry on its businesses where and as contemplated; and the
Borrower employs no fictitious trade names except as listed on Exhibit 4.1.1
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hereof. Also listed on Exhibit 4.1.1 is a true and correct description of each
location where Borrower has conducted its business during the last five years,
including the location of the Borrower's records concerning the Collateral.
4.1.2 Power and Authority. The making, execution,
issuance and performance by the Borrower, of this Agreement, the Note, and all
other documents executed in connection therewith, have been duly authorized by
all necessary corporate action and will not violate any provision of law or
regulation or of charter or by-laws, will not violate any agreement, trust or
other indenture or instrument to which the Borrower is a party or by which the
Borrower or its property is bound, so that this Agreement, the Note and the
Collateral Documents when executed, issued and funded, will be valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms.
4.1.3 Priority of Liens; Location and Condition of
Collateral. The Collateral is owned absolutely by the Borrower, free and clear
of all liens, encumbrances, security interests or other rights of third parties,
excepting only the rights and interests granted Bank herein and in the
Collateral Documents, and upon perfection of such interests, Bank will have and
obtain a first priority security interest in the Collateral.
4.1.4 Financial Condition. The balance sheet of the
Borrower dated as of __________________ together with the income and surplus
statements for the fiscal period then ended, heretofore furnished to Bank, are
complete and correct in all material respects, have been prepared in accordance
with generally accepted accounting principles consistently applied, and fairly
present the financial condition of the Borrower as of said dates and the results
of their respective operations for the periods then ended.
4.1.5 No Litigation. There are no suits or proceedings
pending, or, to the knowledge of the Borrower threatened against or affecting
the Borrower and the Borrower is not in default in the performance of any
agreement to which it is a party or by which it is bound or with respect to any
order, writ, injunction, or any decree of any court, or any federal, state,
municipal or other government agency or instrumentality, domestic or foreign.
4.1.6 Compliance. The Borrower has all governmental
approvals necessary for the conduct of its businesses, and the conduct of its
businesses is not and has not been in violation of any such approvals or any
applicable federal, state or local law, rule or regulation. The Borrower
requires no governmental approvals to enter into, or perform under, this
Agreement, the Note, or any other Collateral Document.
4.2 Accuracy of Representations; No Default. The information
set forth herein on each of the Exhibits hereto, or any other Collateral
Document, and each document previously delivered to the Bank in connection
herewith, is complete and accurate and contains full and true disclosure of
pertinent financial and other information in connection with the Loan. None of
the
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foregoing contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the information contained herein or
therein not misleading or incomplete. No Event of Default hereunder, or under
the Note, or any other Collateral Document, or an event which with the passage
of time or notice would constitute an event of default thereunder, has occurred.
5.1 Covenants of the Borrower. As long as any portion of the
Indebtedness remains outstanding and unpaid, the Borrower covenants and agrees
that, in the absence of prior written consent of Bank, the Borrower will:
5.1.1 Establish and maintain the Bank as its main Bank
account for deposits and other Banking services.
5.1.2 Promptly pay and discharge all taxes, governmental
charges and assessments levied and assessed or imposed upon the Collateral or
any portion thereof, or upon the purchase, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof, or upon the
rentals, receipts or earnings therefrom, or upon or with respect to this
Agreement, the Note or the Collateral Documents, and pay all other claims which,
if unpaid, might become liens or charges upon the Collateral.
5.1.3 Provide Bank at any time or from time to time on
request with such Financing Statements and such additional instruments or
documents as Bank may, in Bank's sole discretion, deem necessary in order to
perfect, protect and maintain the security interests and mortgages granted to
Bank pursuant to the terms hereof.
5.1.4 Immediately notify the Bank in writing of the
establishment of any new Sites and maintain, or cause to be maintained,
insurance consistent with the provisions of this Agreement with respect to the
inventory located thereon, other than with respect to those Sites set forth on
Exhibit 1.1.4 hereof.
5.1.5 Cooperate with the Bank, the Bank's agents,
servants and employees in the performance of audits performed by or on behalf of
the Bank of the Borrower's books and records, and in connection therewith,
Borrower shall reimburse the Bank for the Bank's expenses, provided that so long
as there in no Event of Default hereunder, such audits shall not occur more
frequently than one time each fiscal quarter.
5.1.6 Maintain Borrower's corporate existence and all
necessary foreign qualifications in good standing; continue to comply with all
applicable statutes, rules and regula tions with respect to the conduct of its
business and maintain such necessary licenses and permits required for the
conduct of its business.
5.1.7 Insurance.
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5.1.7.1 Maintain public liability and workers'
compensation insurance and maintain or cause to be maintained fire and other
casualty insurance with respect to Borrower's businesses and assets in such
amounts, against such hazards and liabilities, and with such companies as may be
satisfactory to Bank; and all such policies covering the Collateral to insure
Bank as its interest may appear and to contain, as appropriate, mortgagee and
breach of warranty clauses and thirty (30) day notice of cancellation or
material change endorsements in favor of Bank.
5.1.7.2 With respect to insurance proceeds, if any,
resulting from a casualty, Bank acknowledges that Borrower will be permitted to
use such proceeds to replace the item or items which were the subject of the
casualty giving rise to such proceeds; provided: (i) no Event of Default has
occurred and is continuing at the time such proceeds are paid by the insurance
carrier; (ii) Borrower uses the proceeds only to replace said item or items with
a substantially similar item or items; and (iii) Borrower provides Bank, in
Bank's sole and absolute discretion reasonable assurance that Borrower will
fulfill Borrower's obligations under this Agreement including but not limited to
requiring the deposit of said proceeds with the Bank.
5.1.8 Promptly defend all actions, proceedings or claims
affecting it or its business property and promptly notify Bank of the
institution of, or any change in, any such action, proceeding or claim.
5.1.9 Maintain, preserve, protect and keep in good order
and condition all Collateral and all other property used or useful in the
conduct of its business and, from time to time, make all necessary or
appropriate repairs, replacements and improvements thereto.
5.1.10 Promptly give written notice to the Bank of the
occurrence or imminent occurrence of any event which causes or would imminently
cause any representation or warranty in this Agreement or any Collateral
Document to be untrue at any time or which would cause it to be in default
hereunder, under the Note or any Collateral Document for any other reason, or of
any material casualty to any of the Collateral or other property of the
Borrower.
5.2 Indemnification. The Borrower shall indemnify, protect,
defend, and hold harmless Bank and Bank's directors, officers, employees,
agents, attorneys and shareholders from and against any and all losses, damages,
expenses or liabilities of any kind or nature and from any suits, claims, or
demands, including all reasonable counsel fees incurred in investigating,
evaluating or defending such claim, suffered by any of them and caused by,
relating to, arising out of, resulting from, or in any way connected with this
Agreement, the Note, or any other Collateral Document, and any transaction
contemplated herein or therein (other than actions arising out of the willful
misconduct or gross recklessness of Bank or actions brought in good faith by the
Borrower against Bank). If the Borrower shall have knowledge of any claim or
liability hereby indemnified against, each shall give prompt written notice
thereof to Bank. THIS COVENANT SHALL SURVIVE PAYMENT OF THE INDEBTEDNESS.
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5.2.1 Bank shall give Borrower prompt notice of all
suits or actions instituted against Bank with respect to which Borrower have
indemnified Bank, and Borrower shall have the right to participate in any such
suit or action. Bank shall also have the right, at the
expense of the Borrower to participate in or, at Bank's election, assume the
defense or prosecution of such suit, action, or proceeding, and in the latter
event the Borrower may employ counsel and participate therein. Bank shall have
the right to adjust, settle, or compromise any claim, suit, or judgment after
notice to Borrower, unless the Borrower desire to litigate such claim, defend
such suit, or appeal such judgment and simultaneously therewith deposits with
the Bank additional collateral security sufficient to pay any judgment rendered,
with interest, costs, and expenses; and the right of Bank to indemnification
under this Agreement shall extend to any money paid by the Bank in settlement or
compromise of any such claims, suits, and judgments in good faith, after notice
to the Borrower.
5.2.2 If any suit, action, or other proceeding is
brought by Bank against either of the Borrower for breach of its covenant of
indemnity herein contained, separate suits may be brought as causes of action
accrue, without prejudice or bar to the bringing of subsequent suits on any
other cause or causes of action, whether theretofore or thereafter accruing.
6.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default" hereunder, under the
Note and under each of the Collateral Documents:
6.1.1 Failure by Borrower to pay any Indebtedness or any
portion thereof as the same becomes due.
6.1.2 Failure by Borrower to observe or perform any
agreement, condition, undertaking or covenant in this Agreement, the Note, or
any other Collateral Document, or in any other agreement by or between Borrower
and Bank, or any material agreement, lease, mortgage, note or other obligation
to which the Borrower is a party or by which the Borrower is bound.
6.1.3. A determination by Bank that any representation
or warranty made in this Agreement, the Note, or any other Collateral Document
furnished by either of the Borrower in connection with making of this Agreement
or the making of the Loan hereunder or in compliance with the provisions hereof
shall have been materially false or erroneous in any respect when made.
6.1.4 Borrower shall become insolvent or unable to pay
its debts as they mature, or files a voluntary petition or suffers any
involuntary petition to be filed against the Borrower under any provision of any
state or Federal Bankruptcy or insolvency statute, or makes an assignment or any
other transfer of assets for the benefit of their respective creditors, or
applies for or consents to the appointment of a receiver for their respective
assets, or suffers the filing against their respective property of any
attachment or garnishment.
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6.2 Remedies on Default. Upon the occurrence of any Event of
Default, Bank may at its election, forthwith declare all Indebtedness to be
immediately due and payable, without protest, demand or other notice (which are
hereby expressly waived by both Borrower) and, in addition to the rights
specifically granted hereunder or now or hereafter existing in equity or at law
by virtue of statute or otherwise (each of which rights may be exercised at any
time and from time to time), may exercise its rights and remedies available to
it at law or in equity or under this Agreement, the Note, or any other
Collateral Document, or any other agreement between the Borrower and Bank and
the Bank, in accordance with the respective provisions thereof.
6.3 Assembly of Collateral, etc. Bank may require Borrower,
at Borrower's expense, to assemble the non-real estate Collateral and make it
available to Bank at the place or places to be designated by Bank. Bank shall
have the right to sell such Collateral at public or private sale(s) in one or
more lots or parcels. Borrower will pay, as part of the Indebtedness and
obligations hereby secured, all amounts (including but not limited to Bank's
reasonable attorneys' fees, where permitted by applicable law) paid by Bank: (i)
for taxes, levies, and insurance on, or maintenance of, such Collateral; and
(ii) in taking possession of, disposing of, or preserving such Collateral, with
interest on all of same at the Interest Rate following demand for the payment
thereof until paid. The requirement of reasonable notice of the time and place
of disposition of such Collateral by Bank shall be conclusively met if such
notice is personally delivered or mailed, postage prepaid, to Borrower's address
as specified in this Agreement at least ten (10) days before the time of the
sale or disposition. Bank may bid upon and purchase any or all of such
Collateral at any public sale thereof. Bank may dispose of all or any part of
such Collateral in one or more lots or parcels and at one or more times and from
time to time, and upon such terms and conditions, including a credit sale, as it
determines in its sole discretion. Bank shall apply the net proceeds of any such
disposition of such Collateral or any part thereof, after deducting all costs of
Bank incurred in connection therewith, or incidental to the holding, preparing
for sale, in whole or part, of the Collateral, including attorneys' fees, and
with interest thereon at the Interest Rate, in such order as Bank may elect, to
the Indebtedness and obligations secured hereunder, subject to the provisions of
this Agreement, whereupon the remaining proceeds shall be paid to Borrower or
any other party entitled thereto.
6.5 Set-Off Rights Upon Default. Upon and during the
continuance of any Event of Default, Bank in addition to any remedies set forth
above, shall have the right at any time and from time to time without notice to
the Borrower (any such notice being expressly waived by the Borrower) and to the
fullest extent permitted by applicable Rules, to set off, to exercise any
Banker's lien or any right of attachment or garnishment and apply any and all
balances, credits, deposits (general or special, time or demand, provisional or
final), accounts or monies at any time held by Bank and other indebtedness at
any time owing by Bank to or for the account of the Borrower, against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement, the Note, or any other Collateral Document, whether or not Bank shall
have made any demand hereunder or thereunder.
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6.6 Singular or Multiple Exercise; Non-Waiver. The remedies
provided herein, in the Note, and in the Collateral Documents or otherwise
available to Bank at law or in equity shall be cumulative and concurrent, and
may be pursued singly, successively or together at the sole discretion of Bank,
and may be exercised as often as occasion therefor shall occur; and the failure
to exercise any such right or remedy shall in no event be construed as a waiver
or release of the same.
MISCELLANEOUS
7.1 Integration. This Agreement, the Note and the Collateral
Documents contain all the agreements of the parties hereto with respect to the
subject matter of each thereof and supersede all prior or contemporaneous
agreements with respect to such subject matter.
7.2 Modification. Modifications, waivers or amendments of or
to the provisions of this Agreement, the Note or any Collateral Document shall
be effective only if set forth in a written instrument signed by both the Bank
and the Borrower.
7.3 Costs. Borrower shall pay all out-of-pocket costs and
expenses incurred by Bank in connection with the preparation, execution,
delivery and performance of this Agreement, the Note, the Collateral Documents,
and any waivers thereof or supplements or amendments thereto, or in connection
with obtaining appraisals of the Collateral, or in connection with the
collection of the Indebtedness or any part thereof or the perfection,
protection, maintenance or termination of Bank's interest in any Collateral.
7.4 Notices. Any notice of other communication by one party
hereto to the other shall be in writing and shall be deemed to have been validly
given if delivered or mailed, first class mail, postage prepaid, addressed as
follows:
If to the Borrower:
T-Kat Corp.
41-417 Columbus Boulevard
Philadelphia, PA 19123
All with a copy to:
Philip B. Seaton, Esq
Kozlov, Seaton, Romanini & Brooks
1940 Route 70 East
Cherry Hill, New Jersey 08003
If to the Bank:
Equity National Bank
8000 Sagemore Corporate Center
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Route 73 and Marlton Parkway
Marlton, New Jersey 08053
With a copy to:
Robert E. Schwartz, Esquire
4300 Haddonfield Rd
Suite 311
Pennsuaken, NJ 08109
7.5 Survival. The terms of this Agreement and all
agreements, representations, warranties and covenants made by the Borrower, in
the Note or in any Collateral Document shall survive the issuance and payment of
the Note and shall continue as long as any portion of the Indebtedness shall
remain outstanding and unpaid, unless a specific provision or covenant of this
Agreement provides that such provision or covenant survives the repayment of the
Indebtedness. The Borrower hereby acknowledges that Bank has relied upon the
foregoing in making the Loan.
7.6 Successors and Assigns; Governing Law. This Agreement
shall be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto; provided, however that neither of the Borrower
shall assign this Agreement, or any rights or duties arising hereunder, without
the express prior written consent of Bank. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of New Jersey.
7.7 Jurisdiction; Waiver of Jury Trial. Any and all and
actions at law or in equity relating to this Agreement and the Indebtedness
shall be brought, and jurisdiction shall be had exclusively, in the courts of
Camden County, New Jersey, or the Federal District Court for the District of New
Jersey. The Borrower expressly waives any right to trial by jury.
7.9 Participation. Bank may in its sole discretion enter
into a participation arrangement with respect to any loan made under this
Agreement and may provide all information in its possession relating to the
Borrower to any other prospective or current participating lender.
7.10 Partial Invalidity. If any provision of this Agreement
shall for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
7.11 Compliance with Rules. Bank shall not be required by
operation or effect of any provision of this Agreement to violate any statute or
regulation under state or federal law, including all Rules.
7.12 Headings. The heading of any Article, Section or
Paragraph contained in this Agreement is for convenience of reference only and
shall not be deemed to amplify, limit,
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modify or give full notice of the provisions thereof.
IN WITNESS WHEREOF, the Borrower and have executed this
Agreement under seal, intending to be legally bound hereby, as of the day and
year first above written.
Bank: Equity National Bank
By:____________________________
Borrower: T-Kat Corp.
Attest:
_________________________ By:__________________(SEAL)
[Corporate Seal]
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Exhibit 1.1.4
Sites
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Exhibit 4.1.1
Fictitious Names and Locations of Borrower' Business During Last Five Years
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GUARANTY AND SURETY AGREEMENT
THIS GUARANTY, made this __________ day of ___________,
1996, by KatManDu Investment Partners, LP a Pennsylvania Limited Partnership
("Guarantor") in favor of Equity National Bank
("Lender").
W I T N E S S E T H:
A. T-KAT Corp., t/a KatManDu (hereinafter called the
"Borrower") is the owner of a leasehold interest of certain real estate in
Mercer County, New Jersey (the "Real Estate"). The Guarantor is wholly owned by
all of the shareholders of the Borrower, and the Guarantor will derive
substantial benefit, economic and otherwise, from the making of the loan to the
Borrower
B. The Borrower has entered into a construction loan
agreement (the "Construction Loan Agreement") bearing even date herewith with
Lender whereby the Borrower will borrow monies from Lender to finance
construction of certain improvements on the Real Estate, and Lender will
finance, on a fifteen (15) year term, $1,500,000.00.
C. Pursuant to the Construction Loan Agreement, Borrower has
executed and delivered to Lender a Note in the amount of $2,500,000 secured by,
among other things, a Mortgage on the Real Estate, both dated the date hereof,
together with certain other documents evidencing and securing the loan, as more
fully set forth in the Construction Loan Agreement.
D. Lender is willing to make the aforesaid loan to Borrower
and has signed the Construction Loan Agreement in consideration, among other
things, of the covenants and obligations made and assumed by Guarantor as herein
set forth.
NOW, THEREFORE, for good and valuable consideration,
intending to be legally bound hereby, Guarantor agrees as follows:
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1. Guarantor hereby guarantees, as unconditional
surety, the punctual performance of all of the Borrower's obligations,
including, without limitation thereto, payment of money pursuant to the terms of
the Construction Loan Agreement, Note and Mortgage. Guarantor further agrees to
pay all expenses, legal or otherwise (including court costs and attorneys'
fees), paid or incurred by Lender in endeavoring to enforce this Guaranty.
2. The amount of Guarantor's liability hereunder
shall be unlimited.
3. Guarantor hereby waives all notices of any
character whatsoever with respect to this Guaranty and the Borrower's
obligations to Lender, including but not being limited to, notice of the
acceptance hereof and reliance hereon and notice of any defaults of Borrower
pursuant to the Construction Loan Agreement, Note and/or the Mortgage.
4. Guarantor hereby consents to the taking of, or
failure to take, from time to time, without notice to Guarantor, any action of
any nature whatsoever with respect to the Borrower's obligations to Lender and
with respect to any rights against any person or persons (including the Borrower
and any of the persons guarantying the Loan) or on any property, including but
not being limited to, any renewals, extensions, modifications, waivers,
surrenders, exchanges and releases, and Guarantor will remain fully liable
hereunder notwithstanding any of the foregoing; provided, however, that the
granting of a release of the liability of less than all of the persons
guarantying the Loan shall be effective with respect to the liability hereunder
of the one or more who are specifically so released but shall in no way affect
the liability of the Guarantor hereunder. The death, incapacity, or dissolution
of any one or more of the persons Guarantying the Loan shall in no way affect
the liability hereunder of Guarantor.
5. The Guarantor waives all rights to stay of
execution and exemption of property in any action to enforce the liability of
the Guarantor under this Guaranty. Guarantor further waives the benefit of all
laws now or hereafter in effect in any way limiting or restricting the liability
of Guarantor under this Guaranty, including without limitation and Guarantor
expressly
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waives the right to assert any defenses, set-offs or counterclaims
notwithstanding the occurrence of any of the following:
a. The obligations guaranteed by this Guaranty
may be or hereafter become invalid or otherwise unenforceable for any reason
whatever;
b. Lender fails or delays to perfect or continue
the perfection of any security interest in any property which secures the
obligations of Borrower or any other guarantor or to protect the property
covered by such security interest;
c. Lender fails to give notice of any
disposition of any collateral in a commercially reasonable manner.
6. Guarantor unconditionally and irrevocably agrees
that (i) Guarantor will not at any time assert against Borrower (or Borrower's
estate in the event that Borrower becomes bankrupt or becomes the subject of any
case or proceeding under the bankruptcy laws of the United States of America)
any right or claim to indemnification, reimbursement, contribution or payment
for or with respect to any and all amounts Guarantor may pay or be obligated to
pay Lender, including, without limitation all of the obligations with which
Guarantor may perform, satisfy or discharge, under or with respect to this
Guaranty and (ii) Guarantor, jointly and severally, waives and releases all such
rights and claims to indemnification, reimbursement, contribution or payment
which Guarantor, or any of them, may have now or at any time against Borrower
(or Borrower's estate in the event that Borrower becomes bankrupt or becomes the
subject of any case or proceeding under the bankruptcy laws of the United States
of America). Guarantor further unconditionally and irrevocably agrees that they
shall have no right of subrogation, and Guarantor (i) waives any right to
enforce any remedy which Lender now has or may hereafter have against Borrower,
(ii) any benefit of, and any right to participate in, any security now or
hereafter held by Lender, (iii) any defense based upon an election of remedies
by Lender which destroys or otherwise impairs any subrogation rights of
Guarantor or the right of Guarantor to proceed against Borrower for
reimbursement or both. Guarantor hereby waives any benefit of any right to
participate in the Mortgage or any other loan document now or hereafter held by
Lender.
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7. This shall be an agreement of suretyship as well
as of guaranty and Lender, without being required to proceed first against the
Borrower or any other person or entity, their properties or estates, or any
collateral, security, property, liens or other rights or remedies whatsoever,
may at any time and from time to time proceed directly against Guarantor (or
some or any of them) whenever the Borrower fails to make any payment when due or
otherwise fails to perform any obligation owed or hereafter owed to Lender.
Guarantor's liability under this Guaranty is primary, absolute and unconditional
without regard to the liability of any other party.
8. In the case of the death, incompetency,
dissolution, liquidation or insolvency of, or the institution of bankruptcy or
receivership proceedings against, Borrower, all of Guarantor's obligations under
this Guaranty shall, at Lender's option, immediately become due and payable.
9. This Guaranty shall automatically become null and
void if, as and when the loan has been purchased and/or paid for by the
Permanent Lender (as such term is defined in the Construction Loan Agreement)
pursuant to its commitment to the Borrower, as more fully referred to in the
Construction Loan Agreement.
10. This Agreement shall be binding upon Guarantor
and his their heirs and personal representatives, its successors and shall inure
to the benefit of Lender and its successors and assigns. Lender may, without
notice to Guarantor, sell, assign or transfer the Note and all of the documents
executed in connection with the Note or any part of the Note, and in the event
of such sale, assignment or transfer, such assignee, transferee or holder shall
have the right to enforce this Guaranty, by suit or otherwise, as fully as if
such assignee, transferee or holder were specifically given such rights, powers
and benefits.
11. The obligations and liabilities hereunder of the
persons collectively referred to as "Guarantor" shall be joint and several and
the word "Guarantor" shall mean all or some or any of them. For purposes of this
instrument the singular shall be deemed to include the plural, and the neuter
shall be
<PAGE>
deemed to include the masculine and feminine, as the context may require.
12. This Guaranty shall be construed in accordance
with the internal laws of the State of New Jersey (without regard to provisions
governing conflicts of law). If any provision of this Guaranty shall for any
reason be held to be invalid or unen forceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Guaranty
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
13. Any notice which may hereafter be given by or to
Guarantor or Lender with respect to this Guaranty must be in writing and shall
be sufficiently given if delivered with a written receipt therefor or if
deposited in the U.S. mail, by certified mail, return receipt requested, postage
prepaid, addressed:
To the Guarantor at: 41-417 North Columbus
Boulevard
Philadelphia, PA 19123
To Lender at: The Corporate Center at
Sagemore, Suite 8101, 8000
Sagemore Drive, Marlton,
New Jersey 08053
(or to such other place as the Guarantor or Lender, by written notice as
aforesaid, shall advise the other). Guarantor agrees to give Lender prompt
written notice of each change of Guarantor's address.
14. Notwithstanding receipt by Lender of payment of
all or any part of the obligations to Lender set forth in this Guaranty,
Guarantor's obligations under this Guaranty shall be continuing to the full
extent of the obligations set forth in this Guaranty to Lender, and this
Guaranty shall remain in effect for a period not less than one (1) year and one
(1) day following the date the last payment by Borrower is received and
collected by Lender ("Last Payment"). If during the one (1) year and one (1) day
period immediately following the date of the Last Payment a voluntary or
involuntary petition for relief is filed by or against Borrower under any
provision of the Federal Bankruptcy Code, as amended, or any
<PAGE>
successor statute (collectively, the "Code"), then this Guaranty shall remain in
effect until the earliest to occur of (1) entry by a court of appropriate
jurisdiction of an order ratifying the payment or payments to Lender by Borrower
of Borrower's liabilities as not being in violation of any provision of the Code
or as not being recoverable, avoidable or void for the benefit of the bankruptcy
estate of the Borrower, or (2) the bankruptcy case of the Borrower being closed
or dismissed or (3) two years elapsing after the appointment of a Trustee (as
defined in the Code) under any provision of the Code without the commencement of
an action or proceeding under the Code to recover, avoid, void or declare the
payments to the Lender in violation of the Code. In the event that the Trustee
of the Borrower's estate seeks to recover, avoid, void or declare in violation
of the Code any payment or payments or any portion thereof made to Lender for
the bankruptcy estate of the Borrower under any provision of the Code, Guarantor
will protect, defend and hold Lender harmless with respect to such attempted
action or proceeding against Lender by the Trustee and Guarantor further
consents to Lender joining Guarantor as an additional defendant in such action
or proceeding. In the event that the Trustee does recover, avoid, void or
declare in violation of the Code any such payment or payments or portion thereof
under the Code, then and in that event Guarantor will remain liable under this
Guaranty to Lender for all sums so recovered, voided, avoided or declared in
violation of the Code and for all related costs of collection and all costs
incurred by Lender, including reasonable attorney's fees. Guarantor expressly
agrees that it will not seek to recover, avoid, void or declare in violation
<PAGE>
of the Code any payments made to Lender by Guarantor or Borrower in the event
that Borrower or Guarantor files a petition for relief under any provision Code.
IN WITNESS WHEREOF, Guarantor has executed and sealed this
Guaranty the day and year first above written.
KatManDu Investors LP, a
Pennsylvania Limited
Partnership,
By: Chinatown Convention Center
Hotel Corp., a Pennsylvania
corporation, general partner
By:____________________(SEAL)
,President
<PAGE>
GUARANTY AND SURETY AGREEMENT
THIS GUARANTY, made this __________ day of ___________,
1996, by KatManDu Corp., a Pennsylvania Corporation ("Guarantor") in favor of
Equity National Bank ("Lender").
W I T N E S S E T H:
A. T-KAT Corp., t/a KatManDu (hereinafter called the
"Borrower") is the owner of a leasehold interest of certain real estate in
Mercer County, New Jersey (the "Real Estate"). The Guarantor is wholly owned by
all of the shareholders of the Borrower, and the Guarantor will derive
substantial benefit, economic and otherwise, from the making of the loan to the
Borrower
B. The Borrower has entered into a construction loan
agreement (the "Construction Loan Agreement") bearing even date herewith with
Lender whereby the Borrower will borrow monies from Lender to finance
construction of certain improvements on the Real Estate, and Lender will
finance, on a fifteen (15) year term, $1,500,000.00.
C. Pursuant to the Construction Loan Agreement, Borrower has
executed and delivered to Lender a Note in the amount of $2,500,000 secured by,
among other things, a Mortgage on the Real Estate, both dated the date hereof,
together with certain other documents evidencing and securing the loan, as more
fully set forth in the Construction Loan Agreement.
D. Lender is willing to make the aforesaid loan to Borrower
and has signed the Construction Loan Agreement in consideration, among other
things, of the covenants and obligations made and assumed by Guarantor as herein
set forth.
NOW, THEREFORE, for good and valuable consideration,
intending to be legally bound hereby, Guarantor agrees as follows:
<PAGE>
1. Guarantor hereby guarantees, as unconditional
surety, the punctual performance of all of the Borrower's obligations,
including, without limitation thereto, payment of money pursuant to the terms of
the Construction Loan Agreement, Note and Mortgage. Guarantor further agrees to
pay all expenses, legal or otherwise (including court costs and attorneys'
fees), paid or incurred by Lender in endeavoring to enforce this Guaranty.
2. The amount of Guarantor's liability hereunder
shall be unlimited.
3. Guarantor hereby waives all notices of any
character whatsoever with respect to this Guaranty and the Borrower's
obligations to Lender, including but not being limited to, notice of the
acceptance hereof and reliance hereon and notice of any defaults of Borrower
pursuant to the Construction Loan Agreement, Note and/or the Mortgage.
4. Guarantor hereby consents to the taking of, or
failure to take, from time to time, without notice to Guarantor, any action of
any nature whatsoever with respect to the Borrower's obligations to Lender and
with respect to any rights against any person or persons (including the Borrower
and any of the persons guarantying the Loan) or on any property, including but
not being limited to, any renewals, extensions, modifications, waivers,
surrenders, exchanges and releases, and Guarantor will remain fully liable
hereunder notwithstanding any of the foregoing; provided, however, that the
granting of a release of the liability of less than all of the persons
guarantying the Loan shall be effective with respect to the liability hereunder
of the one or more who are specifically so released but shall in no way affect
the liability of the Guarantor hereunder. The death, incapacity, or dissolution
of any one or more of the persons Guarantying the Loan shall in no way affect
the liability hereunder of Guarantor.
5. The Guarantor waives all rights to stay of
execution and exemption of property in any action to enforce the liability of
the Guarantor under this Guaranty. Guarantor further waives the benefit of all
laws now or hereafter in effect in any way limiting or restricting the liability
of Guarantor under this Guaranty, including without limitation and Guarantor
expressly
<PAGE>
waives the right to assert any defenses, set-offs or counterclaims
notwithstanding the occurrence of any of the following:
a. The obligations guaranteed by this Guaranty
may be or hereafter become invalid or otherwise unenforceable for any reason
whatever;
b. Lender fails or delays to perfect or continue
the perfection of any security interest in any property which secures the
obligations of Borrower or any other guarantor or to protect the property
covered by such security interest;
c. Lender fails to give notice of any
disposition of any collateral in a commercially reasonable manner.
6. Guarantor unconditionally and irrevocably agrees
that (i) Guarantor will not at any time assert against Borrower (or Borrower's
estate in the event that Borrower becomes bankrupt or becomes the subject of any
case or proceeding under the bankruptcy laws of the United States of America)
any right or claim to indemnification, reimbursement, contribution or payment
for or with respect to any and all amounts Guarantor may pay or be obligated to
pay Lender, including, without limitation all of the obligations with which
Guarantor may perform, satisfy or discharge, under or with respect to this
Guaranty and (ii) Guarantor, jointly and severally, waives and releases all such
rights and claims to indemnification, reimbursement, contribution or payment
which Guarantor, or any of them, may have now or at any time against Borrower
(or Borrower's estate in the event that Borrower becomes bankrupt or becomes the
subject of any case or proceeding under the bankruptcy laws of the United States
of America). Guarantor further unconditionally and irrevocably agrees that they
shall have no right of subrogation, and Guarantor (i) waives any right to
enforce any remedy which Lender now has or may hereafter have against Borrower,
(ii) any benefit of, and any right to participate in, any security now or
hereafter held by Lender, (iii) any defense based upon an election of remedies
by Lender which destroys or otherwise impairs any subrogation rights of
Guarantor or the right of Guarantor to proceed against Borrower for
reimbursement or both. Guarantor hereby waives any benefit of any right to
participate in the Mortgage or any other loan document now or hereafter held by
Lender.
<PAGE>
7. This shall be an agreement of suretyship as well
as of guaranty and Lender, without being required to proceed first against the
Borrower or any other person or entity, their properties or estates, or any
collateral, security, property, liens or other rights or remedies whatsoever,
may at any time and from time to time proceed directly against Guarantor (or
some or any of them) whenever the Borrower fails to make any payment when due or
otherwise fails to perform any obligation owed or hereafter owed to Lender.
Guarantor's liability under this Guaranty is primary, absolute and unconditional
without regard to the liability of any other party.
8. In the case of the death, incompetency,
dissolution, liquidation or insolvency of, or the institution of bankruptcy or
receivership proceedings against, Borrower, all of Guarantor's obligations under
this Guaranty shall, at Lender's option, immediately become due and payable.
9. This Guaranty shall automatically become null and
void if, as and when the loan has been purchased and/or paid for by the
Permanent Lender (as such term is defined in the Construction Loan Agreement)
pursuant to its commitment to the Borrower, as more fully referred to in the
Construction Loan Agreement.
10. This Agreement shall be binding upon Guarantor
and his their heirs and personal representatives, its successors and shall inure
to the benefit of Lender and its successors and assigns. Lender may, without
notice to Guarantor, sell, assign or transfer the Note and all of the documents
executed in connection with the Note or any part of the Note, and in the event
of such sale, assignment or transfer, such assignee, transferee or holder shall
have the right to enforce this Guaranty, by suit or otherwise, as fully as if
such assignee, transferee or holder were specifically given such rights, powers
and benefits.
11. The obligations and liabilities hereunder of the
persons collectively referred to as "Guarantor" shall be joint and several and
the word "Guarantor" shall mean all or some or any of them. For purposes of this
instrument the singular shall be
<PAGE>
deemed to include the plural, and the neuter shall be deemed to include the
masculine and feminine, as the context may require.
12. This Guaranty shall be construed in accordance
with the internal laws of the State of New Jersey (without regard to provisions
governing conflicts of law). If any provision of this Guaranty shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Guaranty
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
13. Any notice which may hereafter be given by or to
Guarantor or Lender with respect to this Guaranty must be in writing and shall
be sufficiently given if delivered with a written receipt therefor or if
deposited in the U.S. mail, by certified mail, return receipt requested, postage
prepaid, addressed:
To the Guarantor at: 41-417 North Columbus Boulevard
Philadelphia, PA 19123
To Lender at: The Corporate Center at
Sagemore, Suite 8101, 8000
Sagemore Drive, Marlton,
New Jersey 08053
(or to such other place as the Guarantor or Lender, by written notice as
aforesaid, shall advise the other). Guarantor agrees to give Lender prompt
written notice of each change of Guarantor's address.
14. Notwithstanding receipt by Lender of payment of
all or any part of the obligations to Lender set forth in this Guaranty,
Guarantor's obligations under this Guaranty shall be continuing to the full
extent of the obligations set forth in this
<PAGE>
Guaranty to Lender, and this Guaranty shall remain in effect for a period not
less than one (1) year and one (1) day following the date the last payment by
Borrower is received and collected by Lender ("Last Payment"). If during the one
(1) year and one (1) day period immediately following the date of the Last
Payment a voluntary or involuntary petition for relief is filed by or against
Borrower under any provision of the Federal Bankruptcy Code, as amended, or any
successor statute (collectively, the "Code"), then this Guaranty shall remain in
effect until the earliest to occur of (1) entry by a court of appropriate
jurisdiction of an order ratifying the payment or payments to Lender by Borrower
of Borrower's liabilities as not being in violation of any provision of the Code
or as not being recoverable, avoidable or void for the benefit of the bankruptcy
estate of the Borrower, or (2) the bankruptcy case of the Borrower being closed
or dismissed or (3) two years elapsing after the appointment of a Trustee (as
defined in the Code) under any provision of the Code without the commencement of
an action or proceeding under the Code to recover, avoid, void or declare the
payments to the Lender in violation of the Code. In the event that the Trustee
of the Borrower's estate seeks to recover, avoid, void or declare in violation
of the Code any payment or payments or any portion thereof made to Lender for
the bankruptcy estate of the Borrower under any provision of the Code, Guarantor
will protect, defend and hold Lender harmless with respect to such attempted
action or proceeding against Lender by the Trustee and Guarantor further
consents to Lender joining Guarantor as an additional defendant in such action
or proceeding. In the event that the Trustee does recover, avoid, void or
declare in violation of the Code any such payment or payments or portion thereof
under the Code, then and in that event Guarantor will remain liable under this
Guaranty to Lender for all sums so recovered, voided, avoided or declared in
violation of the Code and for all related costs of collection and all costs
incurred by Lender, including reasonable attorney's fees. Guarantor expressly
agrees that it will not seek to recover, avoid, void or declare in violation
<PAGE>
of the Code any payments made to Lender by Guarantor or Borrower in the event
that Borrower or Guarantor files a petition for relief under any provision Code.
IN WITNESS WHEREOF, Guarantor has executed and sealed this
Guaranty the day and year first above written.
KatManDu Corp., a Pennsylvania
Corporation
By:____________________(SEAL)
Vice President
<PAGE>
GUARANTY AND SURETY AGREEMENT
THIS GUARANTY, made this __________ day of ___________,
1996, by Stuart N. Harting ("Guarantor") in favor of Equity National Bank
("Lender").
W I T N E S S E T H:
A. T-KAT Corp., t/a KatManDu (hereinafter called the
"Borrower") is the owner of a leasehold interest of certain real estate in
Mercer County, New Jersey (the "Real Estate").
B. The Borrower has entered into a construction loan
agreement (the "Construction Loan Agreement") bearing even date herewith with
Lender whereby the Borrower will borrow monies from Lender to finance
construction of certain improvements on the Real Estate, and Lender will
finance, on a fifteen (15) year term, $1,500,000.00.
C. Pursuant to the Construction Loan Agreement, Borrower has
executed and delivered to Lender a Note in the amount of $2,500,000 secured by,
among other things, a Mortgage on the Real Estate, both dated the date hereof,
together with certain other documents evidencing and securing the loan, as more
fully set forth in the Construction Loan Agreement.
D. Lender is willing to make the aforesaid loan to Borrower
and has signed the Construction Loan Agreement in consideration, among other
things, of the covenants and obligations made and assumed by Guarantor as herein
set forth.
NOW, THEREFORE, for good and valuable consideration,
intending to be legally bound hereby, Guarantor agrees as follows:
1. Guarantor hereby guarantees, as unconditional surety,
the punctual performance of all of the Borrower's obligations, including,
without limitation thereto, payment of money pursuant to the terms of the
Construction Loan Agreement, Note and
<PAGE>
Mortgage. Guarantor further agrees to pay all expenses, legal or otherwise
(including court costs and attorneys' fees), paid or incurred by Lender in
endeavoring to enforce this Guaranty.
2. The amount of Guarantor's liability hereunder shall
be unlimited.
3. Guarantor hereby waives all notices of any character
whatsoever with respect to this Guaranty and the Borrower's obligations to
Lender, including but not being limited to, notice of the acceptance hereof and
reliance hereon and notice of any defaults of Borrower pursuant to the
Construction Loan Agreement, Note and/or the Mortgage.
4. Guarantor hereby consents to the taking of, or
failure to take, from time to time, without notice to Guarantor, any action of
any nature whatsoever with respect to the Borrower's obligations to Lender and
with respect to any rights against any person or persons (including the Borrower
and any of the persons guarantying the Loan) or on any property, including but
not being limited to, any renewals, extensions, modifications, waivers,
surrenders, exchanges and releases, and Guarantor will remain fully liable
hereunder notwithstanding any of the foregoing; provided, however, that the
granting of a release of the liability of less than all of the persons
guarantying the Loan shall be effective with respect to the liability hereunder
of the one or more who are specifically so released but shall in no way affect
the liability of the Guarantor hereunder. The death, incapacity, or dissolution
of any one or more of the persons Guarantying the Loan shall in no way affect
the liability hereunder of Guarantor.
5. The Guarantor waives all rights to stay of execution
and exemption of property in any action to enforce the liability of the
Guarantor under this Guaranty. Guarantor further waives the benefit of all laws
now or hereafter in effect in any way limiting or restricting the liability of
Guarantor under this Guaranty, including without limitation and Guarantor
expressly waives the right to assert any defenses, set-offs or counterclaims
notwithstanding the occurrence of any of the following:
<PAGE>
a. The obligations guaranteed by this Guaranty may
be or hereafter become invalid or otherwise unenforceable for any reason
whatever;
b. Lender fails or delays to perfect or continue the
perfection of any security interest in any property which secures the
obligations of Borrower or any other guarantor or to protect the property
covered by such security interest;
c. Lender fails to give notice of any disposition of
any collateral in a commercially reasonable manner.
6. Guarantor unconditionally and irrevocably agrees that
(i) Guarantor will not at any time assert against Borrower (or Borrower's estate
in the event that Borrower becomes bankrupt or becomes the subject of any case
or proceeding under the bankruptcy laws of the United States of America) any
right or claim to indemnification, reimbursement, contribution or payment for or
with respect to any and all amounts Guarantor may pay or be obligated to pay
Lender, including, without limitation all of the obligations with which
Guarantor may perform, satisfy or discharge, under or with respect to this
Guaranty and (ii) Guarantor, jointly and severally, waives and releases all such
rights and claims to indemnification, reimbursement, contribution or payment
which Guarantor, or any of them, may have now or at any time against Borrower
(or Borrower's estate in the event that Borrower becomes bankrupt or becomes the
subject of any case or proceeding under the bankruptcy laws of the United States
of America). Guarantor further unconditionally and irrevocably agrees that they
shall have no right of subrogation, and Guarantor (i) waives any right to
enforce any remedy which Lender now has or may hereafter have against Borrower,
(ii) any benefit of, and any right to participate in, any security now or
hereafter held by Lender, (iii) any defense based upon an election of remedies
by Lender which destroys or otherwise impairs any subrogation rights of
Guarantor or the right of Guarantor to proceed against Borrower for
reimbursement or both. Guarantor hereby waives any benefit of any right to
participate in the Mortgage or any other loan document now or hereafter held by
Lender.
7. This shall be an agreement of suretyship as well as
of guaranty and Lender, without being required to proceed
<PAGE>
first against the Borrower or any other person or entity, their properties or
estates, or any collateral, security, property, liens or other rights or
remedies whatsoever, may at any time and from time to time proceed directly
against Guarantor (or some or any of them) whenever the Borrower fails to make
any payment when due or otherwise fails to perform any obligation owed or
hereafter owed to Lender. Guarantor's liability under this Guaranty is primary,
absolute and unconditional without regard to the liability of any other party.
8. In the case of the death, incompetency, dissolution,
liquidation or insolvency of, or the institution of bankruptcy or receivership
proceedings against, Borrower, all of Guarantor's obligations under this
Guaranty shall, at Lender's option, immediately become due and payable.
9. This Guaranty shall automatically become null and
void if, as and when the loan has been purchased and/or paid for by the
Permanent Lender (as such term is defined in the Construction Loan Agreement)
pursuant to its commitment to the Borrower, as more fully referred to in the
Construction Loan Agreement.
10. This Agreement shall be binding upon Guarantor and
his their heirs and personal representatives, its successors and shall inure to
the benefit of Lender and its successors and assigns. Lender may, without notice
to Guarantor, sell, assign or transfer the Note and all of the documents
executed in connection with the Note or any part of the Note, and in the event
of such sale, assignment or transfer, such assignee, transferee or holder shall
have the right to enforce this Guaranty, by suit or otherwise, as fully as if
such assignee, transferee or holder were specifically given such rights, powers
and benefits.
11. The obligations and liabilities hereunder of the
persons collectively referred to as "Guarantor" shall be joint and several and
the word "Guarantor" shall mean all or some or any of them. For purposes of this
instrument the singular shall be deemed to include the plural, and the neuter
shall be deemed to include the masculine and feminine, as the context may
require.
<PAGE>
12. This Guaranty shall be construed in accordance with
the internal laws of the State of New Jersey (without regard to provisions
governing conflicts of law). If any provision of this Guaranty shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Guaranty
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
13. Any notice which may hereafter be given by or to
Guarantor or Lender with respect to this Guaranty must be in writing and shall
be sufficiently given if delivered with a written receipt therefor or if
deposited in the U.S. mail, by certified mail, return receipt requested, postage
prepaid, addressed:
To the Guarantor at: 41-417 North Columbus Boulevard
Philadelphia, Pennsylvania
19123
To Lender at: The Corporate Center at
Sagemore, Suite 8101, 8000
Sagemore Drive, Marlton,
New Jersey 08053
(or to such other place as the Guarantor or Lender, by written notice as
aforesaid, shall advise the other). Guarantor agrees to give Lender prompt
written notice of each change of Guarantor's address.
14. Notwithstanding receipt by Lender of payment of all
or any part of the obligations to Lender set forth in this Guaranty, Guarantor's
obligations under this Guaranty shall be continuing to the full extent of the
obligations set forth in this Guaranty to Lender, and this Guaranty shall remain
in effect for a period not less than one (1) year and one (1) day following the
date the last payment by Borrower is received and collected by Lender ("Last
Payment"). If during the one (1) year and one (1) day period immediately
following the date of the Last Payment a voluntary or involuntary petition for
relief is filed by or against Borrower under any provision of the Federal
Bankruptcy Code, as amended, or any successor statute (collectively, the
"Code"), then this Guaranty shall remain in effect until the earliest to occur
of (1) entry by a
<PAGE>
court of appropriate jurisdiction of an order ratifying the payment or payments
to Lender by Borrower of Borrower's liabilities as not being in violation of any
provision of the Code or as not being recoverable, avoidable or void for the
benefit of the bankruptcy estate of the Borrower, or (2) the bankruptcy case of
the Borrower being closed or dismissed or (3) two years elapsing after the
appointment of a Trustee (as defined in the Code) under any provision of the
Code without the commencement of an action or proceeding under the Code to
recover, avoid, void or declare the payments to the Lender in violation of the
Code. In the event that the Trustee of the Borrower's estate seeks to recover,
avoid, void or declare in violation of the Code any payment or payments or any
portion thereof made to Lender for the bankruptcy estate of the Borrower under
any provision of the Code, Guarantor will protect, defend and hold Lender
harmless with respect to such attempted action or proceeding against Lender by
the Trustee and Guarantor further consents to Lender joining Guarantor as an
additional defendant in such action or proceeding. In the event that the Trustee
does recover, avoid, void or declare in violation of the Code any such payment
or payments or portion thereof under the Code, then and in that event Guarantor
will remain liable under this Guaranty to Lender for all sums so recovered,
voided, avoided or declared in violation of the Code and for all related costs
of collection and all costs incurred by Lender, including reasonable attorney's
fees. Guarantor expressly agrees that it will not seek to recover, avoid, void
or declare in violation of the Code any payments made to Lender by Guarantor or
Borrower in the event that Borrower or Guarantor files a petition for relief
under any provision Code.
IN WITNESS WHEREOF, Guarantor has executed and sealed this
Guaranty the day and year first above written.
WITNESS:
___________________________ ________________________(SEAL)
STUART N. HARTING
<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
Amendment No. 3 to Form SB-2 Registration Statement No. 333-9009.
/s/ Arthur Andersen LLP
New York, New York
January 13, 1997
