SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-23251
--------------------------------
SFORZA ENTERPRISES INC.
(Name of small business issuer in its charter)
FLORIDA 65-0705377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
222 CLEMATIS ST, SUITE 202, WEST PALM BEACH, FLORIDA 33401 (561) 366-0027
(Address and telephone number of principal executive offices)
--------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
period that the Registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
1
<PAGE>
The Registrant's revenues for its most recent fiscal year totaled
$ 3,774,366.
The aggregate market value of Common Stock held by non-affiliates based upon the
closing bid price on April 13, 1999, as reported by the Over the Counter
Electronic Bulletin Board(R), was approximately $ 438,000.
As of April 13, 1999 there were 1,710,000 shares of Sforza Enterprises Inc.
Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Sforza Enterprises Inc. (the "Company") owns and operates, through two
wholly-owned subsidiaries, two upscale, moderately priced restaurants located in
West Palm Beach, Florida (the "West Palm Beach Restaurants"). On December 30,
1997, the Company consummated its planned acquisition of 51% of the equity
interests in four entities, each of which owns or is developing one restaurant
using the Max's Grille Restaurant concept (the "Max's Grille Restaurants"). As
of December 31, 1998, the two West Palm Beach Restaurants and three of the Max's
Grille Restaurants are open. All of the Max's Grille Restaurants are managed by
Unique Restaurant Concepts, Inc. ("URC"), a company controlled by and affiliated
with the owners of the remaining 49% of the equity interests in the Max's Grille
Restaurants. The investments in the entities which own the Max's Grille
Restaurants are accounted for using the equity method.
HISTORY
Castle Room, Inc. was incorporated in May 1995 by Company directors
Dale J. Brisson and Joseph C. Visconti to develop Sforza Ristorante, one of the
West Palm Beach restaurants. Clematis Bistro Corporation was incorporated in
April 1996 by Mr. Visconti to develop My Martini Grille, the other West Palm
Beach restaurant. Sushi Enterprises, Inc. was incorporated in July 1996 by
Messrs. Brisson and Visconti to develop a sushi restaurant. The Company was
incorporated in July 1996 as a holding company for the three corporations.
Messrs. Brisson and Visconti exchanged their founders' shares in Castle Room,
Inc. for founders' shares in the Company, and the Company capitalized Clematis
Bistro Corporation and Sushi Enterprises, Inc. with proceeds of private
securities offerings. Management determined to postpone the development of the
sushi restaurant until they decide that the competitive conditions are more
favorable.
2
<PAGE>
THE WEST PALM BEACH RESTAURANTS
Sforza Ristorante. The Company owns a full-service, mid-priced, casual
dining northern Italian restaurant named "Sforza Ristorante." Sforza Ristorante
offers an extensive menu featuring a wide variety of seafood, chicken and pasta
dishes, appetizers, salads and desserts. The restaurant offers full bar service.
Since its February 1996 opening, food and alcoholic beverages have accounted for
approximately 57% and 43% of restaurant sales, respectively. The restaurant
offers generous portions at moderate prices while providing friendly and
efficient service in a high-energy casual atmosphere intended to appeal to a
broad customer base, particularly young upscale adults. As a result, the Company
believes that the restaurant has generated a high level of repeat business and
customer loyalty. Sforza Ristorante offers dinner entrees between $8 and $18,
with an average dinner entree price of $14. The Company believes that by
emphasizing casual dining, high quality, large portions and moderate prices,
Sforza Ristorante will remain popular with consumers.
Sforza Ristorante reflects an elegant yet casual European concept
featuring a plush red and gold decor. The eclectic design blends the ambiance of
renaissance Tuscany with the energy of a rejuvenated urban area, using period
fabric drapery treatments, which are enhanced by unique hand faux finished
walls. Contemporary styled sconces and pendants illuminate the dining and bar
areas with soft, inviting light, enhancing the casual upscale dining experience
and establishing a distinct identity for the restaurant. The Company believes
that the decor presents a unique identity for the restaurant.
My Martini Grille. The Company owns a full-service upscale grill named
"My Martini Grille." My Martini Grille, which opened in February 1997, was
designed to serve a sophisticated clientele, including business diners. The My
Martini Grille concept embraces an elegant and timeless early twentieth century
motif, with an art nouveau theme. This sleek art nouveau restaurant and bar
recaptures the sophisticated allure of the martini culture. Cocktails are
complemented with deep mahogany walls and rich purple and golds. Stylish
stainless steel accents mix with unique Italian light fixtures to create a
relaxed ambiance. All of the elements enhance the dining experience and
establish a distinct identity for My Martini Grille.
My Martini Grille offers dinner entrees between $16 and $30, with an average
dinner entree price of $20.
THE MAX'S GRILLE RESTAURANTS
On December 30, 1997, the Company acquired 51% of the limited
partnership interests in the entities that own the Max's Grille Restaurant
located at 17 South Atlantic Boulevard in Fort Lauderdale ("Beach Place") 300
Southwest First Avenue ("Las Olas Riverfront") in Fort Lauderdale, Florida, and
2210 Weston Road, in Weston, Florida ("Weston"), plus the entity that will own
3
<PAGE>
the next Max's Grille to be developed, the location of which is to be
determined. Each of the Max's Grille Restaurants will replicate the Max's Grille
Restaurant in Boca Raton, Florida. Beach Place opened in May 1997. Las Olas
Riverfront opened in June 1998, and Weston opened in October 1998. The Company
designated the majority of the directors of the corporations serving as general
partners of the Max's Grille Restaurants.
The Las Olas Riverfront, a new 270,000 square foot shopping center on
the New River, the main water thoroughfare dissecting downtown Fort Lauderdale,
is anchored by a 24 screen stadium-seating movie theater and an 80,000 square
foot amusement center. The Max's Grille Restaurant located at the Las Olas
Riverfront is 6,500 square feet, seating 200 inside and 40 on an outside patio.
In Weston, the Max's Grille Restaurant co-anchors the new 200,000
square foot Waterway Shoppes. It is 6,500 square feet, seating 200 inside and 40
on an outside lakefront patio.
Each of the Max's Grille Restaurants is owned by a distinct Florida
limited partnership formed exclusively to own, develop and operate one
restaurant. The sole general partner of each limited partnership is a Florida
corporation owned by Company directors Daniel Catalfumo, Dennis Max (and his
wife, Patti Max) and Burt Rapoport. URC manages every restaurant in which
Messrs. Catalfumo, Max and Rapoport have an interest.
The typical setting for a Max's Grille Restaurant is a high-profile
upscale community, where an average food and beverage check of $25 could foster
repeat visits by patrons. Young professional and prosperous active "golden
agers" the demographic group that according to the National Restaurant
Association spends more money dining out than any other age group - comprises
Max's Grille's regular clientele.
Max's Grille in Boca Raton, Florida, which is not owned by the Company
but which served as the model for the Max's Grille Restaurants in which the
Company has an ownership interest, incorporates casual dining, moderate prices
and a cosmopolitan ambiance in a comfortable relaxed atmosphere. Opened in 1991,
the 225-seat restaurant has been serving a mix of new American and Continental
cuisine with a wide variety of wines and a full-service bar. The decor features
a free-standing mahogany bar, high ceilings with star chandeliers and floating
window treatments. The restaurant specializes in its fresh, simply-prepared
cuisine, with an emphasis on the cooking of Florida, California, New Orleans,
Europe and the Pacific. The future Max's Grille restaurants are expected to use
the same theme.
The Max's Grille concept was first replicated in 1995 in Celebration,
Florida, The Walt Disney Co.'s planned community near Orlando, Florida. URC
successfully competed against restaurant companies from across the nation for
the right to open a restaurant in that community. The Max's Grille Restaurant in
4
<PAGE>
Celebration is owned by The Celebration Company, an unaffiliated third party,
and managed by Unique Orlando Inc., a Florida corporation owned by Company
directors Messrs. Catalfumo, Max (and his wife) and Rapoport.
RESTAURANT MANAGEMENT
URC, the restaurant Management Company owned by Company directors
Messrs. Catalfumo, Max (and Mrs. Max) and Rapoport operate all of the Max's
Grille Restaurants, as well as their nine other existing restaurants. The West
Palm Beach restaurants were managed by URCI through October 31, 1998.
On December 30, 1997, each of entities owning a Max's Grille Restaurant
entered into a management agreement with URC, pursuant to which URC will manage
the Max's Grille Restaurants. This agreement is terminable for any reason by any
party with ninety days prior written notice, or immediately by the Companies
under certain circumstances specified in the agreement.
The staff of each Company restaurant (including the Max's Grille
Restaurants) consists of a general manager, a chef and between 20 and 70 other
employees. Restaurant managers are entitled to participate in an annual
discretionary bonus program based upon the financial and operational results of
their particular restaurant.
The Company believes that achieving customer satisfaction by providing
knowledgeable, friendly, efficient service is critical to the restaurants'
long-term success. During the training program, restaurant managers are taught
to promote the Company's team-oriented atmosphere among restaurant employees,
with emphasis on preparing and serving food in accordance with strict standards
and providing friendly, courteous and attentive service. The Company believes
that the quality and training of its restaurant managers and staff results in
friendly, courteous, efficient service which contributes to a casual and
pleasurable dining experience for the customer.
COMMITMENT AND CUSTOMER SATISFACTION
The Company's commitment to customer satisfaction is underscored by the
employee training program, which is required for all Company personnel. SEI has
refined its training program , producing manuals on policies and procedures and
an employee handbook. The Company's restaurant employees spend a full week
training, from orientation on cultures and standards to classroom lessons to
hands-on instruction. Tests are given each day to monitor retention. Food
tasting is included. The final step is a three-day mock service for family,
friends and vendors.
5
<PAGE>
Through the use of comment cards and table visits, Company management
receives valuable customer feedback and, through prompt responses, demonstrate a
continuing devotion to customer satisfaction.
QUALITY CONTROL
The Company maintains a continuous inspection program for all its food
purchases. Each shipment of food is inspected upon receipt for quality and
conformance to the Company's specifications. In addition, fresh fish is
inspected by kitchen staff at the time of delivery. The restaurant's employees
are educated as to the correct handling and proper physical characteristics of
each product.
The Company's general managers are all responsible for properly
training hourly employees and ensuring that the Company's restaurants are
operated in accordance with strict health and quality standards. The Company
believes that its inspection procedures and its employee training practices help
the Company to maintain a high standard of quality for the food and service it
provides.
PURCHASING
Obtaining a reliable supply of quality food at competitive prices is
critical to the Company's success. By affiliating with URC, the Company is part
of a group that purchases over $14 million of food and other products and
services for 13 restaurants. Food and supplies are shipped directly to the
Company's restaurants. The Company does not maintain a central product warehouse
or commissary. The Company believes its diverse menu selection reduces the risk
and minimizes the effect of the shortage of any food products. To date, the
Company generally has not experienced any significant delays in receiving its
foods and beverage inventories, restaurant supplies or equipment.
ADVERTISING AND MARKETING
Advertising and marketing expenditures were approximately 2% of sales
during 1997 and 1998. The Company sponsored charitable events, participated in
cooking competitions (regional and national), advertised in local magazines and
newspapers and gave away drinks and meals at tables.
MANAGEMENT INFORMATION
The Company maintains financial and accounting controls for each
restaurant through a central management information system. Sales data is
collected daily, and managers are provided with daily sales and cash information
for their respective restaurants. A point-of-sale accounting and cash management
system enables the Company to access each restaurant's sales, inventory, costs
6
<PAGE>
and other financial data on a real-time basis. The point-of-sale accounting and
cash management system enables both restaurant management and Company management
to react quickly to changing sales trends, better manage food, beverage and
labor costs, minimize theft and improve the quality and efficiency of accounting
and audit procedures. Software programs enable the Company to forecast and
schedule labor requirements.
COMPETITION
Competition in the restaurant casual fine dining segment is intense.
The industry, particularly the full-service casual dining segment, is likely to
attract a significant number of new entrants. The Company also expects to face
competition from a broad range of other restaurants and food service
establishments, including national chain restaurants, which specialize in a
variety of cuisines. In addition, the full-service restaurant industry is
characterized by the frequent introduction of new food products accompanied by
substantial promotional campaigns. In recent years, numerous companies in the
full-service restaurant industry have introduced products intended to capitalize
on growing consumer preference for food products which are, or are perceived to
be, healthy, nutritious, low in calories and low in fat content. It can be
expected that the Company will be subject to increasing competition from
companies whose products or marketing strategies address these consumer
preferences.
The Company competes with other restaurants on the basis of price,
atmosphere, decor and service.
GOVERNMENT REGULATION
The Company is subject to extensive state and local government
regulation by various governmental agencies, including state and local
licensing, zoning, land use, construction and environmental regulations and
various regulations relating to the sale of food and alcoholic beverages,
sanitation, disposal of refuse and waste products, public health, safety and
fire standards. The Company's restaurants are subject to periodic inspections by
governmental agencies to ensure conformity with such regulations. The Company
believes it complies with all applicable government regulations.
The Company is also subject to laws governing its relations with
employees, including wage and hour laws, and laws and regulations relating to
working and safety conditions and citizenship or immigration status.
SERVICEMARKS AND PROPRIETARY INFORMATION
The Company has registered the servicemarks "Sforza" and "My Martini"
with the Secretary of State of Florida. The Company believes that its
7
<PAGE>
servicemarks have significant value and are essential to its ability to create
demand for and awareness of its restaurants.
EMPLOYEES
The Company (excluding the Max's Grille Restaurant employees) employs
approximately 145 people, of whom 10 are management or administrative personnel
and the rest are employed in non-management restaurant positions. Approximately
130 of these individuals are employed by the Company on a full-time basis. All
management and administrative personnel are salaried and non-management
personnel are on an hourly basis. The Company considers its employee relations
to be good. None of the Company employees is covered by a collective bargaining
agreement.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently occupies approximately 800 square feet for its
offices located in West Palm Beach, Florida. The office is directly across the
street from the My Martini Grille and Sforza Ristorante restaurants. The Company
pays $1550 per month in rent. The lease expires October 31, 1999.
Sforza Ristorante and My Martini Grille are each housed in adjacent
storefronts leased from Clematis Development Group, L.C., a real estate holding
company. Each restaurant lease provides that the tenant pay rent plus the cost
of insurance, taxes and a portion of the landlord's operating costs to maintain
common areas. The leases have initial terms of 10 years with renewal options.
The Company leases properties with 2,500 to 5,500 square feet total space and
seating capacity for 90 to 220 persons. All facilities are in good condition and
are adequate for the Company's use. The premises that had been contemplated for
the sushi restaurant remain vacant.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any material threatened or pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
8
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Warrants (the "Units") are traded on the OTC
Bulletin Board(R) service under the symbol "SFZAU." Units are traded together.
The range of high and low bid information for the Units for the period
beginning November 13, 1997 (the date of the Company's initial public offering)
and for each quarterly period during the 1998 calander year as follows:
PERIOD HIGH BID LOW BID
--------------------- --------- ----------
11/13/97 - 12/31/97 $7.95 $7.00
1/1/98 - 3/31/98 6.50 4.75
4/1/98 - 6/30/98 6.32 4.56
7/1/98 - 9/30/98 6.00 3.50
10/1/98 - 12/31/98 4.75 .75
These quotations reflect interdealer prices, without retail markup, markdown,
or commission and may not represent actual transactions.
As of April 13, 1999 there were approximately 55 stockholders of record.
On April 13, 1998, the closing bid price for each Unit was $ .60
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Certain statements contained herein are not based on historical facts,
but are forward-looking statements that are based upon assumptions about future
conditions that may not occur. Among many factors that could cause actual
results to differ materially are the following: the Company's ability to manage
expected rapid growth; competition in the restaurant industries; the Company's
ongoing relationship with its vendors; dependence upon key personnel;
governmental regulation of the restaurant industry; the Company's ability to
maintain, operate and upgrade its information systems and network; and the
Company's success in the offering of other enhanced service products.
9
<PAGE>
Actual events, transactions and results may materially differ from the
anticipated events, transactions or results described in such statements. The
Company's ability to consummate such transactions and achieve such results is
subject to certain risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the existence of demand for and acceptance of
the Company's products and services, regulatory approvals and developments,
economic conditions, the impact of competition and pricing results of financing
efforts and other factors affecting the Company's business that are beyond the
Company's control. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
Sforza Enterprises Inc. and subsidiaries (the "Company") operate Sforza
Ristorante, a full-service northern Italian restaurant, which opened in February
1996, and My Martini Grille, a full-service up-scale grill which opened in
February 1997. Both restaurants are located in downtown West Palm Beach,
Florida.
On December 30, 1997, the Company acquired 51% limited partnership
interests in each of four limited partnerships which operate or are planned to
operate Max's Grille Restaurants in separate South Florida locations for
$3,000,000. The first Max's Grille Restaurant began operations in May 1997, the
second opened in June 1998 and the third in October 1998. The remaining Max's
Grille location has not been determined. The investments are accounted for using
the equity method.
This management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto presented elsewhere
herein.
RESULTS OF OPERATIONS
The following table sets forth selected historical consolidated
operating results for the Company as a percentage of net sales.
Year Ended December 31,
1998 1997
---- ----
Net sales 100.0% 100.0%
----- -----
Cost and expenses:
Cost of sales 50.0 56.2
Operating expenses 57.6 53.5
Interest expense .3 .8
----- -----
Total cost and expenses 107.9 110.5
----- -----
10
<PAGE>
Operating loss (7.9) (10.5)
Other income, net .3 .5
Compensatory stock options
granted - (4.9)
Dividends to preferred
shareholders - (5.3)
Equity in loss of
unconsolidated affiliates (11.9) -
----- -----
Loss before income taxes (19.5) (20.2)
Income tax benefit - .2
----- -----
Net loss (19.5)% (20.0)%
===== =====
NET SALES
The Company's net sales consist of the food and beverage sales realized
by the restaurants it operates. The first restaurant, Sforza Ristorante, opened
in February 1996 and the second restaurant, My Martini Grille, opened in
February 1997. The restaurants are in adjacent locations in downtown West Palm
Beach, Florida. Net sales decreased from $4,163,476 in 1997 to $3,774,366 in
1998, representing a decrease of 9.3%. The decrease in net sales from 1997 to
1998 was due to the insurgence of new restaurants opening in the downtown West
Palm Beach market place. Sforza Ristorante's net sales were $1,886,689 for the
year ended December 31, 1998 and $2,156,710 for the year ended December 31,
1997. My Martini Grille's net sales were $1,887,677 for 1998 and $2,006,766 for
1997. The decrease in Sforza Ristorante's net sales of 12.5% and My Martini
Grille of 5.9% from 1997 to 1998 was due to reduced customer counts. Management
believes that the decline was the result of increased competition from new
restaurants which opened in downtown West Palm Beach during 1997 and 1998.
COST OF SALES
Cost of sales includes the cost of food and beverages sold and the
salaries and wages related to food preparation and service. Cost of sales
decreased from $2,338,755 in 1997 to $1,887,946, a 19.3% decrease.
The cost of sales for Sforza Ristorante as a percentage of net sales
was 53.7% in 1997 and 53.3% in 1998. Cost of sales for My Martini Grille was
58.8% for 1997 and 46.8% in 1998. Management is continuing its evaluation of the
menu offerings and pricing structure in an attempt to maximize the sales and
profits from its restaurants. Total cost of sales, expressed as a percentage of
net sales, was 50.0% in 1998 and 56.2% in 1997.
11
<PAGE>
OPERATING EXPENSES
Operating expenses include other salaries and wages, rent and other
occupancy expenses, advertising, repairs and maintenance, general supplies,
depreciation and amortization, start-up cost amortization, management fees and
administrative expenses. Operating expenses decreased from $2,227,163 in 1997 to
$2,174,814 in 1998. Such expenses totaled 53.5% and 57.6% of net sales in 1997
and 1998, respectively. Operating expenses, as percentage of net sales during
1999, are expected to decrease from the 1998 level principally due to the
elimination of certain non-recurring expenses and an expected increase in sales
in 1999.
During 1998 and 1997, the Company incurred management fees of $93,982
and $63,309, respectively, pursuant to arrangements with URC which terminated on
October 31, 1998. Depreciation and amortization totaled $174,683 in 1998 and
$130,145 in 1997.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
On December 30, 1997, the Company 51% equity interests in each of four
limited partnerships which operate or are planned to operate Max's Grille
Restaurants. One of the restaurants was operating as of December 30, 1997 and
two additional restaurants were developed and opened during 1998. The Company's
investments are accounted for using the equity method. See Liquidity and Capital
Resources below for combined summarized financial information for the limited
partnerships.
The Company's share of the combined loss of the limited partnerships
for 1998 was $450,415. This amount includes a $235,703 charge for restaurant
start-up costs and $27,081 amortization of the excess of the Company's initial
investment over the combined book value of the limited partnerships at the
acquisition date. During 1999, three restaurants will be open for the entire
year. In the event a fourth restaurant is not opened during 1999, the Company
will receive a return of its investment of approximately $600,000. Management
expects the limited partnerships to achieve profitability in 1999.
OTHER INCOME AND EXPENSES
The Company recorded a charge to earnings of $206,250 in 1997 in
connection with the granting of options to purchase 75,000 shares of Common
Stock to URC. The charge to earnings was based upon the excess of the initial
public offering price of the Company's Common Stock over the exercise price of
the options. The transaction also resulted in an increase to the Company's
paid-in capital of $206,250.
12
<PAGE>
During 1997, the Company paid dividends to its Series A preferred
shareholders of $20,000 and recorded an additional dividend to Series A
preferred shareholders of $200,000 relating to the redemption of certain
preferred shares (see Liquidity and Capital Resources below). Such dividends are
recorded as deductions from earnings attributable to the common shareholders and
consequently enter into the determination of the net loss in 1997 for financial
reporting purposes.
Other income for the years 1998 and 1997 principally consists of
interest earned.
INCOME TAX EXPENSE
The Company reported net losses for federal income tax purposes for the
years ended December 31, 1997 and 1998 and, at December 31, 1998, has available
net operating loss carryforwards approximating $995,000 which may be used to
reduce future taxable income. The 1997 income tax benefit reflects the
refundable income taxes from 1996, net of the deferred tax asset recognized in
1996. The tax benefits from the operating loss carryforwards in1998 and 1997
were offset by valuation allowances and, accordingly, no net deferred tax
assests are recognized in the accompanying financial statements.
INTEREST EXPENSE, NET
Interest incurred principally relates to capital leases for equipment.
Interest expense in 1997 is reflected net of interest capitalized on qualifying
expenditures of $7,450.
NET LOSS
As a result of the above, the Company's net loss attributable to common
shareholders was $737,611 and $833,043 for the years ended December 31, 1998 and
1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating restaurants are located in West Palm Beach,
Florida and are therefore subject to the relative seasonality of the tourist
industry in South Florida. Restaurant sales are expected to be brisk in the
tourist season which is generally from mid-fall to mid-spring and slow during
the off-season. The Company expects to use its cash reserves or working capital
generated during its busy season to fund its operations during the off-season.
13
<PAGE>
The Company's principal financing for the construction and opening of
its restaurants prior to 1997 was provided by its shareholders. During the year
ended December 31, 1997, the Company borrowed $250,000 pursuant to a fixed rate
promissory note payable to a principal of URC and subsequently converted
$125,000 of such note into 40,000 shares of Common Stock. In addition, $31,250
was raised through the issuance and sale of 25,000 shares of its Common Stock.
During May 1997, the Company issued and sold 160,000 shares of Series A
Preferred Stock (the "Series A shares") for $2.50 per share. Such funding was
obtained to complete construction and opening of the My Martini Grille
restaurant, and provide working capital to support operations, as needed, during
the off-season. The Company consummated the initial public offering of its
Common Stock in November 1997, raising net proceeds of $4,041,364. Such proceeds
were used to redeem 80,000 Series A shares for $400,000, repay the $125,000
balance due on the fixed rate promissory note, provide funding for the
acquisition of certain limited partnership interests and for working capital
(see below).
The Company does not have an existing arrangement for a credit facility
with a financial institution for short-term financing. Management believes that
cash flow generated from operations, together with the above financing
transactions and the net proceeds from the initial public offering will be
sufficient to meet the Company's working capital requirements and anticipated
capital expenditures through 1999.
On December 30, 1997, the Company acquired 51% limited partnership
interests in each of four limited partnerships for an aggregate of $3,000,000
pursuant to a partnership interest subscription agreement. Each of the limited
partnerships operates or is planned to operate Max's Grill Restaurants at a
separate location in South Florida. The business of the limited partnerships is
governed by identical limited partnership agreements (the Agreements) which vest
overall management and control of the partnerships in URC through management
agreements executed by each of the limited partnerships. The Agreements provide
for the return of approximately $600,000 of the Company's investment in the
event the fourth restaurant is not developed. The Agreements do not require the
partners to make loans to the partnerships or additional contributions to
capital.
The investments in the limited partnerships are accounted for under the
equity method of accounting. Summarized combined balance sheet information for
the limited partnerships as of December 31, 1998 follows:
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Assets:
Current assets $ 1,256,483
Property and equipment, net 1,972,259
Other assets 27,495
-----------
Total assets $ 3,256,237
===========
Liabilities and equity:
Current liabilities $ 1,206,806
Long-term debt 150,302
Partners' equity 1,899,129
-----------
Total liabilities and equity $ 3,256,237
===========
</TABLE>
The limited partnerships' combined results of operations for 1997
attributable to the Company during its period of ownership in 1997 were not
material. Summarized combined results of operations for the year ended December
31, 1998 are presented as follows:
<TABLE>
<CAPTION>
<S> <C>
Net sales $ 5,722,623
===========
Net loss $ (830,066)
============
</TABLE>
15
<PAGE>
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period and its
management does not believe that inflation has had a material effect on sales or
expenses. As operating expenses increase, the Company expects to recover
increased costs by increasing prices, to the extent permitted by competition.
Because the Company's business is somewhat dependent on tourism in Florida, any
significant decrease in tourism caused by inflation would likely have a material
adverse effect on revenue and profitability.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Management has addressed the
issue and believes its operating systems to be year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company's directors and officers are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------------------- ------- -----------------------------------------------
<S> <C> <C>
Gerald J. Visconti, Jr........... 34 President, Chief Executive Officer
Secretary and Director
Michael J. Fulgenzi.............. 50 Vice President
Vincent Holland.................. 68 Chief Financial Officer, Treasurer and Director
Dale J. Brisson.................. 38 Director
</TABLE>
Gerald J. Visconti, Jr. has served as an officer and director of the Company
since its inception in July 1996. He structured the Company to consummate the
public offering in 1997. In addition he established the Company's accounting and
management information systems departments. Mr.Visconti was elected president on
November 1, 1998. Prior to joining the Company, he owned and operated an
international transportation company in Los Angeles, California for 11 years.
Mr. Visconti graduated from Morrisville Technical College, Morrisville, New York
in 1983 with a degree in automotive technology. He is a highly energetic and
capable entrepreneur who is exceptionally adept in restructuring business
organizations in order to accomplish optimum management proficiency and company
profitability.
Michael J Fulgenzi is an experienced restaurant executive who has an abundance
of knowledge in all facets of the restaurant industry. Not only was he an
accomplished chef, and independent restaurant owner, but he also operated his
own hospitality consulting company where he advised numerous restaurateurs
precisely how to improve their restaurant concepts, improve management
proficiency, and accomplish profitability.
Vincent Holland has over 37 years of restaurant experience. For the past 15
years he has been an active restaurant consultant with exposure to over 60
restaurants, hotels, country clubs, etc. Vince has perfected an industry
business and financing plan especially for restaurants. His business emphasis
includes establishing realistic revenue projections, operational cost budgets,
and formulating periodic business and financial reporting.
17
<PAGE>
Dale J. Brisson has served as a director of the Company since its inception in
July 1996, and as President from July 1996 - December 1997. He has served as
President and as a director of Castle Room, Inc. since May 1995, Clematis Bistro
Corporation since April 1996 and Sushi Enterprises, Inc. since July 1996. Born
and raised in Palm Beach County, Florida, Mr. Brisson has spent his entire
career in the restaurant business. In 1986, he opened the first Rosie's Key West
Grille in Lake Worth, Florida, which by 1994 had grown into a chain of four
restaurants in Palm Beach County with 110 employees.
Each director of the Company is elected for a term of one year which expires
at the annual meeting of the Company's shareholders or at such other time as his
successor is duly elected and qualified.
Directors have not been compensated for their services on the Board of
Directors. The Company will reimburse directors for reasonable travel expenses
incurred in connection with their activities on behalf of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership of equity
securities of the Company with the Securities and Exchange Commission ("SEC").
Officers, directors, and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
that they file.
Based solely upon a review of Forms 3 and Forms 4 furnished to the Company
pursuant to Rule 16a-3 under the Exchange Act during its most recent fiscal year
and Forms 5 with respect to its most recent fiscal year, the Company believes
that all such forms required to be filed pursuant to Section 16(a) of the
Exchange Act were timely filed, as necessary, by the officers, directors, and
security holders required to file the same during the fiscal year ended December
31, 1997, except that Form 3 reports were filed late by each of the Company's
officers and directors.
18
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company does not have an audit committee, but as a whole selects and
engages the Company's independent certified public accountants and reviews the
scope of the annual audit, audit fees, and results of the audit.
The Company does not have a compensation committee, but as a whole approves
the compensation for executive employees of the Company.
The Company has no nominating committee or any committee serving a similar
function.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid for services
rendered to the Company during the last three fiscal years by the Company's
Chief Executive Officer ("CEO") and its four most highly compensated executive
officers other than the CEO who served as such at the end of the last fiscal
year.(1)(3)
19
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------------------
Other Annual Securities Underlying
Name and Principal Compensation ($) Options Granted (#)
Position Year Salary ($) Bonus ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald J. Visconti (1) 1998 $68,153 $ 0 $ 0 (4)
President, Director 1997 $51,000 $20,000 - -
and Chief Executive 1996 - - - -
Officer
- - ------------------------------------------------------------------ -------------------------------------------------
Dale J. Brisson (2) 1998 $ 0 $ 0 $12,260 N/A
Director 1997 $ 69,230 - - N/A
1996 - - - N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Visconti became president and Chief Executive Office of the Company on
November 1, 1998.
(2) Mr. Brisson was an employee of the Company from July 1996 to December 30,
1997. The compensation set forth for 1998 was paid pursuant to a consulting
agreement.
(3) No officer of the company earned $100,000 or more per year, during 1996
through 1998.
(4) Does not include options to purchase 70,000 shares of Common Stock granted
to Mr. Visconti subsequent to December 31, 1998 at exercise prices ranging
from $2.50 to $4.44 per share.
20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table reflects shares of Common Stock beneficially owned(1)
(or deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) as of April 13, 1999 by (i) each person known to the
Company as having beneficial ownership of more than 5% of the Common Stock; (ii)
each director of the Company; (iii) each officer of the Company; and (iv) all
directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER Shares Beneficially Owned(1) Percent of Class
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dale J. Brisson(b)(d) 381,250 22.30%
2815 Hampton Court E
Delray Beach, Florida 33445
- ----------------------------------------------------------------------------------------------------------------------
Daniel S. Catalfumo(c) 95,000 5.56%
4300 Catalfumo Way
Palm Beach Gardens, Florida 33410
- ----------------------------------------------------------------------------------------------------------------------
Gerald J. Visconti, Jr.(a) 51,961 3.04%
3500 North Flagler Drive
West Palm Beach, Florida 33401
- ----------------------------------------------------------------------------------------------------------------------
Milton Barbarosh (d) 377,750 22.09%
1900 Corporate Blvd., Suite 305-W
Boca Raton, FL 33431
- ----------------------------------------------------------------------------------------------------------------------
Vincent Holland (b) 0 0
Suite 301
1701 Marina Isle Way
Jupiter, Florida 33477
- ----------------------------------------------------------------------------------------------------------------------
All directors and officers as a group 905,961 52.99%
(3 persons)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) An officer and a director.
(b) A director.
(c) Includes 75,000 shares of Common Stock underlying an option granted to
Unique Restaurant Concepts Inc. (URC). Mr. Catalfumo is a principle of
URC.
(d) Includes 150,000 shares of Common Stock owned by Vask
Enterprises, Inc., a Florida corporation of which Mr. Brisson and
Mr. Barbarosh are principals.
-------------------------------------
(1) Unless otherwise indicated, each person has sole voting and investment
rights with respect to the shares specified opposite his name.
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Separation Agreement. Effective on November 1, 1998 (the "Separation
Date") the Company entered into an agreement (the "Separation Agreement") by and
among the Company and certain corporations, partnerships and individuals,
including Dennis Max, Burton Rapoport and Daniel Catalfumo, each of whom was at
the time a director of the Company. Pursuant to the terms of the Separation
Agreement, each of Messrs. Max, Rapoport and Catalfumo resigned as directors of
the Company on the Separation Date, and the Company terminated its Management
and Consulting Agreement for My Martini Grille and Sforza Ristorante with Unique
Restaurant Concepts, Inc. ("URC"), a corporation owned by the three resigning
directors. During fiscal 1998, URC was paid fees of $93,982 for management and
consulting services rendered by URC through the Separation Date. The Separation
Agreement also contained conditions providing that a previous Joinder Agreement
among certain of the parties was terminated whereby the remaining directors of
the Company would no longer be obligated to vote their capital stock of the
Company in favor of electing the resigning directors to the Company's board of
directors. Finally, the Separation Agreement provided that Mr. Max would be
available to provide advisory services to the Company. Mr. Max has provided
limited services but was paid no fees for such services from the
Separation Date through December 31, 1998.
Premises Leases. The Company leases the spaces for its three
restaurants from Clematis Development Group, L.C., a Florida limited liability
company partially owned by Joseph Visconti, a former director. Castle Room
Inc.'s lease expires in December 2005 and calls for an annual rent of $51,500 in
the first year, gradually rising to $94,125 in 2005. Clematis Bistro
Corporation's lease expires in January 2006 and calls for annual rent of $96,250
in the first year, gradually rising to $145,750 in the final year. Sushi
Enterprises, Inc.'s lease expires in January 2006 and calls for annual rent of
$20,000 in the first year, gradually rising to $46,875 in the final year. Each
lease is "triple net," meaning that the tenant pays for insurance, taxes and
maintenance.
Construction. Dan Catalfumo, a former director, owns the construction
company which built Max's Beach Place Grille, one of the Max's Grille
Restaurants in 1997, and built the Max's Grille Restaurants in the Las Olas
Riverfront development, Ft. Lauderdale, Florida and in Weston, Florida in 1998.
Funding Agreement. The Company, URC, Dennis Max, a former director, and
related parties entered into a Funding Agreement on July 1, 1997 pursuant to
which the Company agreed to devote $3,000,000 of the proceeds of its November
1997 public offering to the construction and pre-opening expenses of four Max's
Grille Restaurants and to grant URC an option to acquire 75,000 shares of the
Company's Common Stock exercisable at $5.00 per share through December 31, 1999
in exchange for 51% equity interests in such Max's Grille Restaurants and URC's
agreement to manage such restaurants at a discounted rate.
22
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Report.
2.1 Partnership Interest Subscription Agreement (incorporated by
reference to Exhibit 2.1 on Form 8-K filed with the Securities and
Exchange Commission on January 14, 1998, File No.
000-33251).
3.1 Articles of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement
filed on Form SB-2, Amendment No. 3, filed with the Securities and
Exchange Commission on October 17, 1997, File Number 333-32117).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement filed on Form
SB-2, Amendment No. 3, filed with the Securities and Exchange
Commission on October 17, 1997, File Number
333-32117).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement filed on Form
SB-2, Amendment No. 3, filed with the Securities and Exchange
Commission on October 17, 1997, File Number
333-32117).
4.2 Specimen Warrant (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement filed on Form SB-2, Amendment No.
3, filed with the Securities and Exchange Commission on October 17,
1997, File Number 333-32117).
23
<PAGE>
4.3 Promissory Note in the principal amount of $60,000 dated December 1, 1995
by the Company payable to First Union National Bank of Florida
(incorporated by reference to Exhibit 4.6 to the Company's Registration
Statement filed on Form SB-2, Amendment No. 3, filed with the Securities
and Exchange Commission on October 17, 1997, File Number 333-32117).
4.4 Form of Stock Option Agreement dated July 1, 1997 between the Company and
Unique Restaurant Concepts Ltd. (incorporated by reference to Exhibit 4.7
to the Company's Registration Statement filed on Form SB-2, Amendment No.
3, filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.1 Unique Brickell, Ltd. Amended and Restated Limited Partnership Agreement
(incorporated by reference to Exhibit 10.1 on Form 8-K filed with the
Securities and Exchange Commission on January 14, 1998, File No.
000-33251).
10.2 Unique Weston, Ltd. Amended and Restated Limited Partnership Agreement
(incorporated by reference to Exhibit 10.2 on Form 8-K filed with the
Securities and Exchange Commission on January 14, 1998, File No.
000-33251).
10.3 Unique TBA, Ltd. Amended and Restated Limited Partnership Agreement
(incorporated by reference to Exhibit 10.3 on Form 8-K filed with the
Securities and Exchange Commission on January 14, 1998, File No.
000-33251).
10.4 Max's Beach Grille, Ltd. Amended and Restated Limited Partnership
Agreement (incorporated by reference to Exhibit 10.4 on Form 8-K filed
with the Securities and Exchange Commission on January 14, 1998, File No.
000-33251).
10.5 License Agreement by and between Unique Restaurant Concepts, Inc. and
Unique Brickell, Ltd. (incorporated by reference to Exhibit 10.5 on Form
8-K filed with the Securities and Exchange Commission on January 14,
1998, File No. 000-33251).
10.6 License Agreement by and between Unique Restaurant Concepts, Inc. and
Unique Weston, Ltd. (incorporated by reference to Exhibit 10.6 on Form
8-K filed with the Securities and Exchange Commission on January 14,
1998, File No. 000-33251).
10.7 License Agreement by and between Unique Restaurant Concepts, Inc. and
Unique TBA, Ltd. (incorporated by reference to Exhibit 10.7 on Form 8-K
filed with the Securities and Exchange Commission on January 14, 1998,
File No. 000-33251).
10.8 License Agreement by and between Unique Restaurant Concepts, Inc. and
Max's Beach Grille, Ltd. (incorporated by reference to Exhibit 10.8 on
Form 8-K filed with the Securities and Exchange Commission on January 14,
1998, File No. 000-33251).
10.9 Management Agreement by and among Unique Restaurant Concepts, Inc., Max's
Beach Grille, Ltd., Unique Brickell, Ltd., Unique Weston, Ltd. and Unique
TBA, Ltd. (incorporated by reference to Exhibit 10.9 on Form 8-K filed
with the Securities and Exchange Commission on January 14,
1998, File No. 000-33251).
24
<PAGE>
10.10 1997 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement filed on Form SB-2, Amendment No. 3,
filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.11 Certificate of registration of My Martini Grille as a service mark
(incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement filed on Form SB-2, Amendment No. 3, filed with the Securities
and Exchange Commission on October 17, 1997, File Number 333-32117).
10.12 Certificate of registration of Sforza Ristorante as a service mark
(incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement filed on Form SB-2, Amendment No. 3, filed with the Securities
and Exchange Commission on October 17, 1997, File Number 333-32117).
10.13* Standard Lease dated October 1998 by and between the Company and 230
Clematis Street Limited Partnership, for the Company's executive offices.
10.14 Sforza Ristorante lease (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement filed on Form SB-2, Amendment No. 3,
filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.15 My Martini Grille lease (incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement filed on Form SB-2, Amendment No. 3,
filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.16 Planned sushi restaurant lease (incorporated by reference to Exhibit 10.7
to the Company's Registration Statement filed on Form SB-2, Amendment No.
3, filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.17 Management and Consulting Agreement, as amended (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement filed
on Form SB-2, Amendment No. 3, filed with the Securities and Exchange
Commission on October 17, 1997, File
Number 333-32117).
10.18 Funding Agreement, as amended (incorporated by reference to Exhibit 10.9
to the Company's Registration Statement filed on Form SB-2, Amendment No.
3, filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.19 Form of Lock-up Agreement (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement filed on Form SB-2, Amendment No. 3,
filed with the Securities and Exchange Commission on October 17, 1997,
File Number 333-32117).
10.20* Release and Indemnification Agreement dated October 31, 1998 by and among
the Company, Castle Room, Inc., Clematis Bistro Corporation, Sushi
Enterprises, Inc., Dennis Max, Burt Rapoport and Dan Catalfumo.
10.21* Agreement dated October 31, 1998 by and among the Company, Castle Room,
Inc., Clematis Bistro Corporation, Sushi Enterprises, Inc., Max's Beach
Grill, Ltd., Unique Brickell, Ltd., Unique Weston, Ltd., Unique TBA,
Ltd., Unique Restuarant Concepts, Inc., Unique Restuarant Concepts, Ltd.,
Dennis Max, Burt Rapoport, Dan Catalfumo, Joseph Visconti, Gerald J.
Visconti, Jr. and Dale Brisson.
21.1* Subsidiaries of the Registrant
27* Financial Data Schedule
- ---------------------------------------
* Filed herewith.
(b) There were no reports on Form 8-K filed during the last quarter of the
fiscal year ended December 31, 1998.
25
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
SFORZA ENTERPRISES INC.
(Registrant)
Dated: April 15, 1999 By: /s/ Gerald J. Visconti
----------------------------
Gerald J. Visconti
President, Chief Executive Officer and
Director
In accordance with Section 13 of the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael J. Fulgenzi Vice President and Secretary April 15, 1999
- ----------------------------------
Michael J. Fulgenzi
/s/ Dale J. Brisson Director April 15, 1999
- ----------------------------------
Dale J. Brisson
/s/ Vincent Holland Chief Financial Officer, Chief
- ---------------------------------- Accounting Officer and Director April 15, 1999
Vincent Holland
</TABLE>
26
<PAGE>
ITEM 7 FINANCIAL STATEMENTS
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page #
------
Table of contents F-1
Report of independent accountants F-2
Consolidated financial statements:
Consolidated balance sheet F-3
Consolidated statements of operations F-4
Consolidated statements of shareholders' equity F-5
Consolidated statements of cash flows F-6 - F-7
Notes to consolidated financial statements F-8 - F-16
F-1
<PAGE>
Report of Independent Accountants
Board of Directors and Shareholders
Sforza Enterprises Inc.
We have audited the accompanying consolidated balance sheet of Sforza
Enterprises Inc. and subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1998. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sforza Enterprises
Inc. and subsidiaries as of December 31, 1998, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s Templeton & Company, P.A.
Royal Palm Beach, Florida
April 1, 1999
F-2
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 439,476
Inventories 69,146
Other current assets 133,398
----------
Total current assets 642,020
Investments in unconsolidated affiliates 2,549,585
Property and equipment, net 924,696
Other assets, net 27,517
----------
Total assets $4,143,818
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 283,322
Accrued expenses 160,064
Installment note payable 2,442
Current portion of obligations
under capital leases 21,150
----------
Total current liabilities 466,978
Obligations under capital leases, net 20,419
----------
Total liabilities 487,397
----------
Shareholders' equity:
Common stock, $.01 par value; 20,000,000
shares authorized; 1,710,000 issued and
outstanding 17,100
Additional paid-in capital 5,097,064
Accumulated deficit (1,457,743)
----------
Total shareholders' equity 3,656,421
----------
Total liabilities and shareholders'
equity $4,143,818
==========
See accompanying notes.
F-3
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
Net sales $3,774,366 $4,163,476
---------- ----------
Cost and expenses:
Cost of sales 1,887,946 2,338,755
Operating expenses 2,174,814 2,227,163
Interest expense, net 11,166 35,943
---------- ----------
Total cost and expenses 4,073,926 4,601,861
---------- ----------
Operating loss (299,560) (438,385)
Other income (expense):
Other income 12,364 22,401
Dividends to preferred shareholders - (220,000)
Compensatory earnings charge for
stock options granted - (206,250)
Equity in losses of unconsolidated
affiliates (450,415) -
---------- -----------
Loss before provision for income taxes (737,611) (842,234)
Income tax benefit - (9,191)
---------- ----------
Net loss $ (737,611) $ (833,043)
========== ==========
Net loss per common share $ (.43) $ (.76)
========== ==========
Weighted average common shares
outstanding 1,710,000 1,096,267
========== ==========
See accompanying notes.
F-4
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------- Paid-in Earnings
No. Shares Amount Capital (Deficit)
---------- ------ ------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 987,500 $ 9,875 $ 500,425 $ 112,944
Issuance of 32,500
shares of common stock 32,500 325 155,925 -
Issuance of options to
purchase 75,000
shares of common stock - - 206,250 -
Issuance of 650,000
shares of common
stock in initial
public offering 650,000 6,500 4,034,864 -
Conversion of 80,000
shares of Series A
preferred to 40,000
shares of common
stock 40,000 400 199,600 -
Net loss for the year
ended December 31,
1997 - - - (833,043)
--------- --------- ---------- -----------
Balance, December 31,
1997 1,710,000 17,100 5,097,064 (720,132)
Net loss for the year
ended December 31,
1998 - - - (737,611)
--------- --------- ---------- -----------
Balance, December 31,
1998 1,710,000 $ 17,100 $5,097,064 $(1,457,743)
========= ========= ========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Cash flows from operating activities:
Net loss $ (737,611) $ (833,043)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Equity in losses of unconsolidated
affiliates 450,415 -
Compensatory earnings charge for
stock options granted - 206,250
Depreciation and amortization 174,683 130,145
Deferred income taxes - 6,068
Changes in operating assets and
liabilities:
Inventories 1,016 (31,501)
Other current assets 29,449 (105,780)
Accounts payable 88,454 193,951
Accrued expenses (12,896) 87,979
Other current liabilities - (77,146)
---------- ----------
Net cash used in operating
activities (6,490) (423,077)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (103,095) (630,345)
Investments in unconsolidated
affiliates - (3,000,000)
Decrease in other assets, net 6,246 244,354
---------- ----------
Net cash used in investing activities (96,849) (3,385,991)
---------- ----------
See accompanying notes.
F-6
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Cash flows from financing activities:
Proceeds from issuances of common
stock, net $ - $4,072,614
Proceeds from issuance of preferred
stock - 400,000
Redemption of preferred stock - (200,000)
Repayment of notes payable,
shareholders - (63,445)
Proceeds from fixed rate promissory
note - 250,000
Repayment of fixed rate promissory
note - (125,000)
Principal payments on long-term debt (21,246) (117,070)
Principal payments on obligations
under capital leases (27,208) (19,401)
---------- ----------
Net cash provided by (used in)
financing activities (48,454) 4,197,698
---------- ----------
Net increase (decrease) in cash and
cash equivalents (151,793) 388,630
Cash and cash equivalents, beginning
of year 591,269 202,639
---------- ----------
Cash and cash equivalents, end of
year $ 439,476 $ 591,269
========== ==========
See accompanying notes.
F-7
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Description of Business
Sforza Enterprises Inc. (Sforza) and subsidiaries (the Company) operate Sforza
Ristorante, a full-service Northern Italian restaurant, which opened in February
1996, and My Martini Grille, a full-service up-scale grill which opened in
February 1997. Both restaurants are located in downtown West Palm Beach,
Florida. During November 1997, Sforza sold 650,000 units (consisting of 650,000
shares of its common stock and 650,000 warrants to purchase shares of common
stock) pursuant to a registration statement filed with the Securities and
Exchange Commission for net proceeds of $4,041,364 in an initial public offering
of its common stock.
On December 30, 1997, Sforza used $3,000,000 of the net proceeds from the
initial public offering to acquire 51% limited partnership interests in each of
four limited partnerships for the purpose of developing and operating Max's
Grille Restaurants (see Note 3) in separate South Florida locations. The
investments are accounted for using the equity method.
Note 2 - Summary of Significant Accounting Policies
A summary of the significant accounting policies used in preparing the
accompanying financial statements follows:
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Sforza
Enterprises Inc. and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions are eliminated in consolidation.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
temporary cash investments with maturities of three months or less, when
purchased, to be cash equivalents.
Inventories
-----------
Inventories consist of various food and beverage items which are stated at
the lower of cost or market using the first-in, first-out method.
F-8
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 2 - Summary of Significant Accounting Policies, Continued
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
which range from three to ten years. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the
improvements or the term of the lease, whichever is shorter. Equipment
leased under capital leases is amortized over the lives of the respective
leases.
Earnings (Net Loss) per Common Share
------------------------------------
Earnings (net loss) per common share is computed in accordance with
Financial Accounting Standards Board Statement 128 (FAS 128). Basic
earnings (net loss) per common share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Dividends to preferred
shareholders of $220,000 which were deducted in determining the net loss
for 1997 increased the basic net loss per share by $.20 in 1997.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the Company's earnings. The effect of
potentially dilutive securities outstanding during 1998 and 1997 is
anti-dilutive, therefore, diluted earnings per share are not presented for
such years. Securities that could potentially dilute basic earnings per
share in future periods include outstanding options to purchase 75,000
shares at $5.00 per share, options to purchase 65,000 shares at $11.63 per
share, and warrants to purchase 650,000 shares at $9.50 per share.
Management Estimates
--------------------
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk, include temporary cash investments. The
Company places its cash and temporary cash investments with high credit
quality financial institutions. Such balances generally exceed the FDIC
insurance limit.
F-9
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 3 - Investments in Unconsolidated Affiliates
On December 30, 1997, the Company acquired 51% limited partnership interests in
each of four limited partnerships for an aggregate of $3,000,000 pursuant to a
Partnership Interest Subscription Agreement (the Subscription Agreement). Each
of the limited partnerships operates or is planned to operate a Max's Grille
Restaurant at a separate location in South Florida. The business of the limited
partnerships is governed by identical limited partnership agreements (the
agreements) which vest overall management and control of the limited
partnerships in Unique Restaurant Concepts, Inc. (URCI) through management
agreements with URCI executed by each of the limited partnerships. URCI also
managed the Company-owned restaurants under separate management agreements
through October 1998 (see Note 7).
Three Max's Grille Restaurants are operating as of December 31, 1998. One of the
restaurants began operating in April 1997; another in June 1998; and the third
opened in October 1998. The agreements provide for the return of approximately
$600,000 of the Company's investment in the event the fourth restaurant is not
developed. The agreements do not require the partners to make loans to the
partnerships or additional contributions to capital. The Company accounts for
the investments in the limited partnerships using the equity method.
Summarized combined balance sheet information for the limited partnerships as of
December 31, 1998 follows:
Assets:
Current assets $1,256,483
Property and equipment, net 1,972,259
Other assets 27,495
----------
Total assets $3,256,237
==========
Liabilities and equity:
Current liabilities $1,206,806
Long-term debt, net 150,302
----------
Total liabilities 1,357,108
Partners' equity 1,899,129
----------
Total liabilities and equity $3,256,237
==========
The limited partnerships' combined results of operations for 1997 attributable
to the Company during its period of ownership in 1997 were not material.
Combined results of operations for the year ended December 31, 1998 are
presented as follows:
F-10
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 3 - Investments in Unconsolidated Affiliates, Continued
Net sales $ 5,722,623
Cost and expenses (including
pre-opening expenses of $462,163) 6,587,491
-----------
Loss from operations (864,868)
Other income 34,802
-----------
Net loss $ (830,066)
===========
Equity in losses of unconsolidated affiliates for 1998 includes the Company's
51% interest in the limited partnerships' combined net loss plus $27,081,
representing amortization of the excess of the Company's initial investment over
the limited partnerships' combined book value at the acquisition date.
Note 4 - Property and Equipment
Property and equipment consists of the following at December 31, 1998:
Leasehold improvements $ 540,272
Equipment leased under capital leases 90,873
Furniture, fixtures, and equipment 631,360
----------
1,262,505
Less accumulated depreciation and
amortization (337,809)
----------
$ 924,696
==========
The Company capitalizes interest on qualifying expenditures in accordance with
Statement of Financial Accounting Standards Number 34. Total interest incurred
and capitalized for the years ended December 31, 1998 and 1997 are presented as
follows:
1998 1997
---------- ----------
Interest incurred $ 11,166 $ 43,393
Interest capitalized - 7,450
---------- ----------
Interest expense, net $ 11,166 $ 35,943
========== ==========
Depreciation and amortization of property and equipment for the years ended
December 31, 1998 and 1997 amounted to $174,683 and $130,145, respectively.
F-11
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 5 - Description of Leasing Arrangements
The Company operates primarily in facilities leased from an entity partially
owned by certain of the Company's shareholders under three separate leases. The
leases have specified monthly payments over their ten-year terms and require the
Company to pay its proportionate share of common area maintenance costs and real
estate taxes. Certain of the Company's shareholders have personally guaranteed
an amount aggregating $125,000 in lieu of cash security deposits. The Company
leases certain equipment from unrelated parties under capital leases. The
consolidated balance sheet at December 31, 1998 includes the following regarding
equipment leased under capital leases:
Equipment leased under capital leases $ 90,873
Accumulated amortization (46,694)
----------
$ 44,179
==========
Minimum annual rentals for leases in effect at December 31, 1998 follow:
Equipment
Year Ending Under Capital Operating
December 31, Leases Leases
------------ ------ ------
1999 $ 26,694 $ 203,750
2000 22,508 216,250
2001 - 228,750
2002 - 241,250
2003 - 254,250
Thereafter - 745,500
---------- ----------
Total minimum rentals 49,202 $1,889,750
==========
Less interest portion (7,633)
----------
Present value of net
minimum rentals $ 41,569
==========
Total rent expense under operating leases for the year ended December 31, 1998
and 1997 amounted to $249,231 and $286,329, respectively.
Note 6 - Installment Note Payable
The installment note payable at December 31, 1998 represents the balance due on
an equipment loan which matures in 1999.
F-12
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 7 - Related Party Transactions
Management Agreement
Restaurant management services were provided under various arrangements by URCI
(see Note 1) through October 31, 1998. One of URCI's shareholders is a
shareholder in Sforza and another shareholder was a member of Sforza's Board of
Directors. Total management fees incurred under these arrangements in 1998 and
1997 amounted to $93,982 and $63,309, respectively.
In addition, on July 1, 1997, the Company granted to URCI options to purchase
75,000 shares of its common stock at an exercise price of $5.00 per share which
will be exercisable through December 31, 1999. Such grant resulted in a charge
to earnings of $206,250. URCI also manages each of the Max's Grille Restaurants
owned by the limited partnerships (see Note 3).
Underwriter Compensation
Joseph Charles & Associates, Inc. (JCA) was the lead underwriter in connection
with the Company's initial public offering of common stock (see Note 1). Two of
JCA's shareholders are also shareholders in Sforza. The underwriters' discounts
and commissions and non-accountable expense allowance totaled $654,875 for this
transaction. In addition, JCA received a $60,000 fee for consulting services to
be rendered through November 1999.
Note 8 - Income Taxes
The income tax expense (benefit) for the years ended December 31, 1998 and 1997
consists as follows:
1998
--------------------------------------------------
Current Deferred Total
------- -------- -----
Federal $ - $ - $ -
State - - -
--------- --------- --------
$ - $ - $ -
========= ========= ========
1997
--------------------------------------------------
Current Deferred Total
------- -------- -----
Federal $ (11,663) $ 5,881 $ 5,782)
State (3,596) 187 (3,409)
--------- --------- ---------
$ (15,259) $ 6,068 $(9,191)
========= ========= ========
At December 31, 1998, the Company has net operating loss carryforwards
approximating $994,434 for federal income tax purposes, expiring through 2113,
which may be carried forward to offset future taxable income. General tax credit
carryforwards
F-13
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 8 - Income Taxes, Continued
which total approximately $16,837 and expire through 2113 are also available at
December 31, 1998.
Reconciliations of the effective income tax rate with the U.S. statutory income
tax rate for the years ended December 31, 1998 and 1997 are presented as
follows:
1998 1997
------- -------
U.S. statutory rate (34.0)% (34.0)%
Preferred stock dividends - 8.9
Stock options granted - 8.3
Valuation allowance on net deferred
tax assets 34.0 13.7
Other, net - 2.0
------ -----
Effective income tax rate -% (1.1)%
====== ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and tax carryforwards.
Deferred tax liabilities are recognized for temporary differences that will
result in future taxable amounts. Deferred tax assets are recognized for
temporary differences that will result in deductible amounts in future years and
for carryforwards. Realization of the future tax benefits related to the
deferred tax assets is dependent on many factors, including the Company's
ability to generate taxable income within the net operating loss period. Due to
the Company's limited operating history, management has provided a valuation
allowance for financial reporting purposes at December 31, 1998 to offset its
net deferred tax asset at that date.
The following is a summary of the significant components of the Company's
deferred tax assets and deferred tax liabilities as of December 31, 1998:
Gross deferred tax assets:
Accrued expenses not deducted $ 43,630
Operating loss carryforward 373,907
Tax credit carryforwards 16,837
Investment in unconsolidated affiliates 21,682
--------
456,056
Gross deferred tax liabilities:
Property and equipment differences (39,831)
Net deferred tax asset 416,225
Less: valuation allowance (416,225)
Net deferred tax asset recognized $ -
========
F-14
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 9 - Shareholders' Equity
Preferred Stock
- ---------------
During May 1997, the Company amended its articles of incorporation to authorize
the issuance of up to 400,000 shares of preferred stock and issued 160,000
shares of Series A convertible preferred stock (the Series A shares) for
$400,000. The Series A shares had a liquidation preference of $2.50 per share
and carried a cumulative dividend of ten percent (10%) per annum. Upon the
completion of the initial public offering of the Company's common stock (see
Note 1), 80,000 of the Series A shares converted into 40,000 common shares while
the other 80,000 Series A shares were redeemed for $400,000. The redemption of
the 80,000 Series A shares resulted in a $200,000 preferred stock dividend which
was recorded as a deduction from earnings attributable to common shareholders.
The conversion of the remaining 80,000 shares resulted in a $200,000 increase in
shareholders' equity. Dividends of $20,000 were also paid for the period the
Series A shares were outstanding. The Company has no authorized or outstanding
preferred stock as of December 31, 1998.
Fixed Rate Promissory Note Conversion
- -------------------------------------
During 1997, the Company borrowed $250,000 pursuant to a fixed rate promissory
note payable to a principal of URCI. On June 1, 1997, the terms of the loan were
modified to convert $125,000 of the principal balance into 20,000 shares of
common stock with the remaining $125,000 payable on demand. The remaining
balance was repaid with proceeds from the Company's initial public offering
together with $21,319 interest accrued at 15% per annum.
Common Stock Issuance
- ---------------------
During February 1997, the Company issued 12,500 shares of its common stock for
total proceeds of $31,250 ($2.50 per share).
Stock Option Plans
- ------------------
On June 1, 1997, the Company adopted the equity incentive plan (the Plan) which
provides for the granting of options to key employees and consultants to
purchase up to 142,500 shares of the Company's common stock. No options were
granted pursuant to the Plan through December 31, 1998.
During February 1999, the Company granted options to purchase 12,000 shares at
$1.00 per share which become exercisable on December 31, 1999 pursuant to the
Plan. The Company also granted options to purchase 40,000 shares under the
Plan at $4.44 per share; 20,000 of which became exercisable in October 1999
and 20,000 of which become exercisable in October 2000.
F-15
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Note 9 - Shareholders' Equity, Continued
Stock Option Plans, continued
- -----------------------------
In addition, during February 1999, the Company granted options to purchase
30,000 shares at $2.50 per share pursuant to a separate, non-qualified plan; of
which 15,000 become exercisable in October 1999, and 15,000 become exercisable
in October 2000.
Common Stock Options and Warrants
- ---------------------------------
As of December 31, 1998, warrants to purchase 650,000 shares of the Company's
common stock are outstanding in connection with the initial public offering (see
Note 1). The warrants are exercisable at $9.50 per share at any time through
November 2002 and are subject to redemption by the Company at $.01 per warrant
if the quoted market price per share of the common stock reaches a certain level
for a specified period.
In connection with the initial public offering (see Notes 1 and 7), the Company
sold to JCA an option to purchase 65,000 units at $11.63 for nominal
consideration which is exercisable through 2002.
Note 10 - Supplemental Statement of Cash Flows Information
Supplemental statement of cash flows information for the years ended December
31, 1998 and 1997 follows:
1998 1997
--------- ----------
Non-cash financing activities:
Series A preferred shares redeemed
on conversion to common stock $ - $ (200,000)
Common stock issued on conversion
of Series A preferred shares - 200,000
Fixed rate promissory note
converted to common stock - (125,000)
Common stock issued on conversion
of fixed rate promissory note - 125,000
--------- ----------
Total non-cash financing activities $ - $ -
========= ==========
Cash payments for:
Interest $ 11,166 $ 43,801
========= ==========
Income taxes $ - $ 15,387
========= ==========
F-16
STANDARD LEASE
This Lease, dated October __, 1998, between 230 CLEMATIS STREET LIMITED
PARTNERSHIP, a Florida limited partnership, whose address is 400 Clematis
Street, Suite 205, West Palm Beach, Florida 33401 ("Lessor"), and SFORZA
ENTERPRISES, INC., a Florida corporation, whose principal address is 222
Clematis Street, Suite 202, West Palm Beach, Florida 33401 ("Lessee").
1. PREMISES. Lessor hereby leases to Lessee that certain interior space
commonly referred to as Suite 202, 222 Clematis Street, West Palm Beach, Florida
33401 (the "Leased Space"). The Leased Space is also herein referred to as the
"Premises".
2. LEASE TERM AND COMMENCEMENT DATE. The term of this Lease (the "Lease
Term") shall commence on November 1, 1998 (the "Lease Commencement Date"), and
expires on October 31, 1999. Lessee accepts the Premises on an "as is" basis.
Lessee shall execute Lessor's Lease Commencement Certificate when Lessor tenders
possession of the Premises.
3. USE. (a) Lessee shall use and occupy the Premises for the following
purpose only, and no other: a work-live space. No more than two persons shall
regularly live in the Premises at any time. Lessee shall be in continuous use
and occupancy of the Premises and shall not vacate nor abandon the same during
the Lease Term.
(b) Such use shall be consistent with, and considerate of, other
tenants in the building, which include office and retail businesses and their
clientele, as well as residential tenants living in the building containing the
Premises. The use of the Premises is subject to regulations prescribed by Lessor
from time to time.
(c) The Premises shall be maintained in a neat, orderly, and attractive
manner. In the event Lessor is dissatisfied with the appearance of Lessee's
Premises, it shall specify the items which in Lessor's opinion fail to satisfy
this Lease's appearance requirements, and Lessee shall either (i) correct such
deficiencies or (ii) respond in writing to Lessor as to why it is in compliance.
Lessee's corrective actions or written response shall be provided within three
(3) days of Lessor's notice.
4. RENT. See "Rent Rider" attached hereto and which is made a part of
this Lease.
5. SECURITY DEPOSIT. Lessee has deposited with Lessor a Security
Deposit in the amount of -$350.00-.
6. LESSOR'S RULES AND REGULATIONS. The use of the Premises and the
Common Areas is subject to regulations prescribed by Lessor from time to time.
Lessor will adopt, and Lessee hereby agrees to comply with, rules and
regulations regarding the use of the Premises and the Property of which it is
a part. Such rules and regulations will
<PAGE>
be adopted in an effort to assure the users of the Property that no offensive or
annoying activity or behavior (including noise generated) will be permitted to
occur which disrupts or tends to disrupt the rights of others to the quiet and
peaceful enjoyment of their premises. As used herein, the term "Common Areas"
means all areas and improvements located within the Property, of which the
Premises forms a part, which property is more particularly described on Exhibit
"A" hereto (the "Property"). Unless covered by a separate written parking
agreement (which shall solely govern Lessee's parking privileges, if any),
Lessor's parking lot at the rear of the Property is not available for the use of
Lessor's tenants, or such tenants' employees, customers, agents, invitees,
and vendors.
7. MODIFICATION. The Common Areas are subject to the absolute control
of Lessor, and Lessor may increase, reduce or change the number, dimensions or
location of walkways, buildings, parking (if any) and other areas.
8. SIGNS. Lessee shall not place, erect nor install any signage nor
allow to be erected nor installed any signs, printed displays, or window
lettering visible from outside the Premises without the prior written approval
of Lessor. All such signs, if allowed by Lessor, shall be maintained in a good
and safe condition and appearance at Lessee's expense and Lessee shall repair
any damage to the Premises, Common Areas, or Property resulting from the
erection, maintenance or removal of said signs.
9. LIENS; IMPROVEMENTS AND ALTERATIONS OF PREMISES BY LESSEE. Lessee
shall have no right to make any improvements or alterations to the Premises,
without the prior written consent of Lessor, which shall be in Lessor's sole
discretion.
The interest of Lessor in the Premises and the Property is not subject
to liens for improvements or alterations made by Lessee. Lessee shall comply
with the Mechanic's Lien Law of the State of Florida as set forth in Florida
Statutes, Chapter 713. Lessee shall not create nor permit to be created nor
remain as a result of any action or work done or contracted for by Lessee, any
lien, encumbrance or charge levied on account of any mechanic's, laborer's or
materialman's lien which might be or become a lien, encumbrance or charge upon
the Premises. Any such lien shall be discharged within ten (10) days after
notice of the filing thereof, by payments, deposit, bond, order of a court of
competent jurisdiction or otherwise. Failure to do so shall constitute a Default
hereunder.
Pursuant to Section 713.10, Florida Statutes, as amended from time to
time, the parties will, at the option of Lessor, execute, acknowledge and
deliver a Short Form of Lease or Notice of Lien Prohibition in the form
prescribed by Lessor. At Lessor's option, Lessor may record such instrument or
instruments.
10. REPAIRS BY LESSOR. Lessor agrees to keep and maintain only the
structural components of the roof, structural components and exterior walls
(exclusive of all signs, doors, windows, and glass, including plate glass) of
the Premises. If any such
<PAGE>
maintenance and repairs are caused in part or in whole by the act, neglect,
fault or omission of duty by Lessee, its agents, servants, employees or
invitees, or any damage is caused to the Leased Space by breaking or entering,
Lessee shall pay to Lessor the actual cost of such maintenance and repairs.
Lessor shall not be liable for failure to make such repairs or to perform any
maintenance, unless Lessor shall be guilty of willful misconduct or gross
negligence.
11. REPAIRS BY LESSEE. Lessee shall, at its own cost and expense, keep
and maintain the Premises in good order and repair except such portions of the
Premises to be repaired by Lessor. Without limiting the foregoing, Lessee agrees
to keep in good order and repair, and to maintain and replace as needed, all
fixtures pertaining to heating, air conditioning (including compressors, fans
and ducts), ventilation, electrical and sprinkler systems and Lessee shall be
liable for any damage to such systems resulting from Lessee's misuse. Lessee
shall obtain, at its expense, a service contract for repairs and maintenance of
the heating and air-conditioning system for the Premises which conforms to the
warranty requirements of said system. Lessee agrees to return the Premises to
Lessor broom clean, at the expiration or sooner termination of this Lease, and
in good condition and repair, reasonable wear and tear expected.
12. COMPLIANCE WITH LAW. Lessee shall promptly execute and comply with
all statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State, County and City Governments and any of their departments,
applicable to the Premises, and shall further comply with the requirements of
all insurance carriers respecting the same. Such compliance shall include,
without limitation, all statutes etc. related to environmental conditions, as
well as complying with all Code requirements, including the Americans with
Disabilities Act ("ADA").
13. UTILITIES; JANITORIAL. Lessee shall pay the cost of gas,
electricity, fuel, light, heat, power, water, telephone, cable, and all other
utilities furnished to the Premises or use by Lessee in connection therewith,
whether such utility costs are determined by separate metering or are billed by
Lessor as Additional Rent based upon Lessor's reasonable determination of
Lessee's consumption. Lessee is responsible for its own interior janitorial
services.
14. PERSONAL PROPERTY TAXES. Lessee shall pay all personal property
taxes assessed against or levied upon Lessee's fixtures, signs, furnishings,
equipment, and all other personal property of any kind owned by Lessee and used
in connection with the Premises.
15. LIABILITY INSURANCE. Lessee shall carry at its own expense
Comprehensive General Public Liability (to include Bodily Injury) and Property
Damage Insurance with combined single limits of not less than $1,000,000.00 with
insurance companies authorized to do business in Florida and satisfactory to
Lessor (an insurance company with Best's Key Rating Guide; Property - Casualty
of not less than "A+" shall be deemed satisfactory to Lessor), insuring Lessor
and Lessee against any liability arising
<PAGE>
out of the ownership, use, occupancy or maintenance of the Premises and all
areas appurtenant thereto, including loss of income. In addition, Lessee shall
maintain any Workmen's Compensation coverage required under Florida law in full
force and effect during this Lease Term. The insurance policy or policies shall
contain provisions prohibiting the modification or cancellation of insurance
with at least thirty (30) days prior written notice to Lessor. Lessee shall
deliver said policies or certificates thereof to Lessor by the earlier of
Lessee's occupancy of the premises or commencement of any construction
improvements thereto and thereafter, renewal policies or certificates shall be
delivered to Lessor not less than thirty (30) days prior to expiration.
16. LIMITED LIABILITY. Lessor, or its agents, shall not be liable for
any loss or damage to persons or property from water or rain which may leak from
any part of the Property, or from pipes, appliances, or plumbing works therein,
or from the roof, street or subsurface or from any other place resulting from
any cause whatsoever, unless caused by or due to the gross negligence or willful
misconduct of Lessor, its agents, servants, or employees. All property of Lessee
kept or stored on the Premises shall be kept or stored at the risk of Lessee and
Lessee shall hold Lessor harmless from any claims arising out of damage to the
same, unless such damage shall be caused by the willful misconduct or gross
negligence of Lessor. Lessee acknowledges that the police and law enforcement
security protection provided by law enforcement agencies for the Premises is
limited to that provided to other businesses or enterprises situated in Palm
Beach County and any special security measures deemed necessary for additional
protection of the Premises shall be at the sole responsibility and expense of
Lessee.
17. DAMAGE OR DESTRUCTION. If the Premises are damaged by fire or other
insured casualty and the insurance proceeds have been made available therefor by
the holder(s) of mortgages, if any, covering the Premises, the damage shall be
repaired by and at the expense of Lessor to the extent of such available
insurance proceeds, provided such repairs can, in Lessor's sole opinion, be made
within ninety (90) days after the occurrence of the casualty without the payment
of overtime or other premiums. Until such repairs are completed, the rent shall
be abated in proportion to that part of the Premises which is unusable by Lessee
in the conduct of its business, as determined in the sole discretion of Lessor.
If the damage is due to the fault or neglect of Lessee or its employees,
contractors, agents or invitees, there shall be no abatement of rent. If the
Premises are damaged as result of any cause not covered by fire and extended
coverage insurance or if the insurance proceeds have not been made available or
if, in Lessor's opinion, the repairs cannot be made within ninety (90) days,
Lessor shall have the option: (i) to repair or restore such damage, this Lease
continuing in full force and effect but the rent shall be proportionately
reduced during the repair period or; (ii) give Notice to Lessee, at any time
within ninety (90) days after such damage, terminating this Lease as of the
casualty date and all interest of Lessee in the Premises shall terminate.
18. CONDEMNATION. If the whole of the Premises or so much thereof as to
render the balance unusable by Lessee shall be taken under power of eminent
domain or otherwise transferred in lieu thereof, this Lease shall automatically
terminate as of the
<PAGE>
date of such condemnation. No award for any total or partial taking shall be
apportioned and Lessee hereby assigns to Lessor any award which may be made in
such taking or condemnation; provided, however, nothing contained herein shall
be deemed to give Lessor any interest in or require Lessee to assign to Lessor
any award made to Lessee for the taking of personal property belonging to
Lessee, and removable by Lessee at the expiration of this Lease.
19. ASSIGNMENT AND SUBLETTING. Lessee shall not, either voluntarily or
by operation of law, sell, assign, hypothecate or transfer this Lease or sublet
the Premises, or any part thereof, or permit the Premises, or any part thereof,
to be used for any purpose other than as set forth in this Lease. Unless
approved in writing by Lessor, not to be unreasonably withheld, any sale,
assignment, transfer or subletting of this Lease, or the Premises, contrary to
the provisions of this section shall be void and shall, at the option of Lessor,
constitute a Default under this Lease. If Lessee is a corporation, any merger,
consolidation or liquidation or any change in ownership or power to vote of
twenty percent (20%) or more of the total outstanding stock ownership shall
constitute an assignment under this Lease.
20. SUBORDINATION. This Lease is subject and subordinate to any and all
mortgages, deeds of trust, protective land covenants, or leasehold estates
pursuant to a ground lease, now existing, or which may hereafter be executed,
covering the Premises or the real property of which the same are a part. Lessee
agrees to execute, acknowledge and deliver upon request, any and all documents
or instruments requested by Lessor to evidence the subordination of this Lease
to any such mortgages, deeds of trust, protective land covenants or leasehold
estates. Lessee hereby agrees to attorn to any person, firm or corporation
purchasing or otherwise acquiring the Property at any sale or other proceeding,
or pursuant to the exercise of any other rights, powers or remedies under such
mortgages or deeds of trust or leasehold estate as if such person, firm or
corporation had been named as Lessor herein. Lessee agrees to execute,
acknowledge and deliver in recordable form to any proposed mortgagee or
purchaser or to Lessor or to such other person designated by Lessor, a
certificate certifying, if such be the case, (i) that this Lease is in full
force and effect and there are no defenses or offsets thereto, or if Lessee
claims any defenses or offsets, stating those claimed by Lessee; (ii) that
Lessee has accepted possession of the Premises as of the date of such
certificate; and (iii) that Lessee agrees to notify any proposed mortgagee or
purchaser of any Default by Lessor hereunder which would entitle Lessee to
cancel this Lease or abate Base Rent, Additional Rent or other sums payable
hereunder. Lessor's written request therefor shall be conclusive that this Lease
is in full force and effect without modification except as may be represented by
Lessee.
21. DEFAULT. If Lessee shall (i) fail to pay the rent or any other item
to be paid by Lessee hereunder when due and such failure shall not have been
cured within three (3) days after written Notice thereof by Lessor to Lessee;
(ii) fail to perform any other term, covenant, or condition of this Lease and
such failure shall not have been cured to the satisfaction of Lessor within
twenty (20) days after written Notice thereof by Lessor; (iii)
<PAGE>
vacate or abandon the Premises; or (iv) fail to open within sixty (60) days
after the Commencement Date as set forth in this Lease; then Lessor may, at its
option, declare Lessee to be in Default hereunder, and thereupon, Lessor shall
be entitled, without further notice, to terminate this Lease and accelerate the
payment of Base Rent and Additional Rent for the balance of the term hereof or,
in addition, exercise any one or more of the remedies provided herein or
permitted by law.
In the event of a Default by Lessee, Lessor may, at its option, elect
any of the following remedies:
(a) re-enter and take possession of the Premises and remove all persons
and property from the Premises at the cost and for the account of Lessee without
being deemed guilty of trespass or becoming liable for any loss or damage which
may be occasioned thereby, or Lessor may terminate this Lease. In the event
Lessor elects to re-enter and take possession of the Premises without
terminating this Lease, Lessor may, as agent of Lessee, relet the Premises, or
any part thereof, for such term or terms, which may be for a term extending
beyond the term of this Lease, at such rental or rentals, and upon such other
terms and conditions as Lessor, in its discretion, may deem advisable, with the
right to make alterations and repairs to the Premises. Upon any such reletting,
Lessor shall receive and collect the rents therefor, applying the same first to
the payment of such expenses as Lessor may have paid, assumed or incurred in
recovering possession of the Premises, including costs, expenses and attorney's
fees, placing the same in good order and condition, repairing or altering the
Premises for reletting and all other expenses, commissions and charges paid,
assumed or incurred by Lessor in or about reletting the Premises, and then to
the fulfillment of the Lease obligations of Lessee. In any event, and whether or
not the Premises or any part thereof is relet, Lessee shall pay Lessor for all
such amounts required to be paid by Lessee up to the time of re-entry by Lessor
and thereafter. Lessee shall, if required by Lessor, pay to Lessor until the
expiration or termination of this Lease, an equivalent of that amount equal to
all Base Rent and Additional Rent, and other charges required to be paid by
Lessee under the terms hereof, less the proceeds, if any, of such reletting, and
the same shall be due and payable on the first day of each calendar month during
the remainder of this Lease.
(b) re-take and recover possession of the Premises, and accelerate and
collect all Base Rent and Additional Rent, and other charges required to be paid
by Lessee for the balance of the Lease Term under the terms hereof.
22. WAIVER OF JURY. Lessor and Lessee hereby mutually, voluntarily, and
intentionally waive the right either may have to a trial by jury in respect to
any and all civil actions commenced by either party in connection with this
Lease.
23. ACCESS BY LESSOR. Lessor, and its agents, shall have the right to
enter the Premises at all reasonable times for any purpose including the making
of such alterations, repairs, improvements or additions to the Premises as
Lessor may deem necessary or desirable. Lessee's keys to the Premises shall
conform to Lessor's key
<PAGE>
system for the building in order that Lessor's master key may access the
Premises. If Lessee installs a security system for the Premises, Lessor shall be
provided with the access code.
24. SALE BY LESSOR. In the event of any transfer of Lessor's interest
in the Premises, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Lessor occurring after such transfer provided
however, any funds in the hands of Lessor at the time of such transfer, in which
Lessee has an interest, shall be turned over to the transferee and any amounts
then due and payable to Lessee by Lessor under any provisions of this Lease
shall be paid to Lessee, it being intended hereby that the covenants and
obligations contained in this Lease on the part of Lessor shall, be binding on
Lessor, its successors and assigns only during their respective periods of
ownership.
25. SURRENDER OF PREMISES. At the expiration or termination of this
Lease, Lessee shall surrender the Premises to Lessor broom clean and in as good
a condition and repair as is reasonable and proper, normal wear and tear
excepted. If not then in default, Lessee shall, except as provided otherwise
within this Lease, have the right at the end of this Lease to remove any
equipment, furniture, trade fixtures or other personal property placed in the
Premises by Lessee provided Lessee promptly repairs any damage to the Premises,
or the Property, caused by such removal.
26. NOTICES. Any Notice required or permitted to be given hereunder
shall be in writing and shall be given by certified mail, postage prepaid,
return receipt requested, addressed to Lessee, or to Lessor, at the address
noted on the first page hereof. If certified mail is so utilized, receipt shall
be conclusively presumed to have occurred on the third business day after such
mailing. Either party may, by Notice to the other, specify a different address
for Notice purposes. Notwithstanding the foregoing, upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
Notice purposes.
27. ATTORNEY FEES. If any legal matter, dispute, action or proceeding
exists or is commenced by either party to enforce the obligations of the other
under this Lease, the non-prevailing party shall be liable for and shall pay for
the expense of attorney fees of prevailing party in such matter. "Attorney
fees", as referred to in this Lease, shall include fees and expenses of
attorneys, including costs of paralegals and law clerks, for all legal services,
negotiation services and collection services through trial and appeal.
28. HOLDING OVER. Should Lessee continue in occupancy of the Premises
after expiration of this Lease without Lessor's consent, Lessee shall become a
tenant at sufferance upon each and all of the terms herein provided and any such
holding over shall not constitute a renewal or extension of this Lease. During
such holding over, Lessee shall pay, at Lessor's sole discretion, Base Rent and
Additional Rent at twice the monthly amount which was payable by Lessee
immediately prior to the hold over occurrence. Furthermore, Lessee will be
liable for any damages Lessor may suffer as a result of
<PAGE>
Lessee's hold over, including, but not limited to, any and all damages resulting
from Lessor's inability to give possession of the Premises to a new tenant, or
prepare the space for same.
29. BROKERS. Lessee warrants it has had no dealings with any real
estate broker or agents in connection with the negotiation of this Lease, and it
knows of no real estate broker or agent who is or might be entitled to a
commission in connection with this Lease and Lessee agrees to indemnify and hold
Lessor harmless from and against any and all claims for any such commissions.
30. RADON GAS. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed Federal and State guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
the county public health unit. This notice is given pursuant to 404.056(8)
Florida Statutes.
31. NONRECOURSE AS TO LESSOR. Notwithstanding any provisions herein to
the contrary, neither Lessor nor its partners, nor the agent of Lessor, nor the
owners of the Property, shall be personally liable for the breach of any
provisions of this Lease. In the event of any such breach, Lessee shall look
solely to Lessor's equity in the land and building of which the Premises are a
part for the satisfaction of all of Lessee's rights and remedies. Such exception
of personal liability is absolute and unconditional.
32. CONSTRUCTION BY LESSEE. (a) Before commencing any alterations, or
installations, in or to the Premises, Lessee shall submit the plans and
specifications therefor as well as its budget concerning the cost of the same to
Lessor or its agent for Lessor's written approval, such approval to be in
Lessor's sole discretion. Lessor's rights hereunder extend to, and include, by
way of example and not of limitation, the right to approve, or disapprove, of
Lessee's contractor or subcontractors. All work to be done by Lessee shall be
performed in strict accordance with the approved plans and specifications and
budget, unless otherwise approved in writing by Lessor. Lessee shall comply at
its expense, with all present and future governmental requirements arising out
of and in connection with, or necessitated by such alterations or installations.
(b) Before commencing any work or installing any equipment, Lessee
shall obtain necessary consents, authorizations and licenses from all
governmental authorities have jurisdiction. Further, prior to the commencement
of such work, the contractor performing the work shall secure Builders' Risk
Insurance on a completed value form with Lessor and Lessee as named insured, in
an amount not less than one hundred (100%) percent of the value of the work.
(c) Lessee's improvements shall comply in all respects with the ADA and
the Florida Statutes implementing such federal law and regulations.
<PAGE>
33. INTEREST. Any amount due Lessor not paid when due shall bear
interest at eighteen (18%) percent per annum from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease.
34. FURTHER CONDITIONS. Notwithstanding any other provision of this
Lease, in the event Lessee is late in the payment of its rent more than three
(3) times during the term of this Lease or any extensions thereof, then Lessor,
at Lessor's option and in Lessor's sole discretion, and without any further
notice, may terminate this Lease.
35. TIME. Time is of the essence of this agreement.
36. WAIVER. Lessor's failure to take or delay in taking advantage of
any default or breach of covenant on part of Lessee shall not be construed as a
waiver thereof, nor shall any custom or practice which may grow between the
parties in the course of administering this Lease be construed to waive or
lessen the right of Lessor to insist upon the strict performance by Lessee of
any term, covenant or condition hereof, or to exercise any rights of Lessor on
account of any such default. In no case will Lessor be deemed to have waived any
of Lessor's rights under this Lease, law or equity, unless Lessor delivers to
Lessee a written waiver executed by an officer of Lessor which expressly
identifies the right being waived. A waiver of a particular breach or default
shall not be deemed to be a waiver of the same or any other subsequent breach or
default. The acceptance of rent hereunder shall not be, a waiver of any breach
of any term, covenant, or condition of this Lease. The presentation of any rent
or other charge hereunder in the form of a check marked by Lessee to constitute
a waiver of any default shall not constitute such waiver even though endorsed
and cashed by Lessor unless Lessor expressly agrees to waive such default by
separate written instrument. No surrender of the Premises for the remainder of
the Lease Term shall operate to release Lessee from liability hereunder.
37. SEVERABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease and the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease as of
the day and year first above written.
<PAGE>
<TABLE>
<S> <C>
Witnessed as to Lessor Lessor: 230 CLEMATIS STREET LIMITED
PARTNERSHIP, a Florida limited
partnership, by REN GP CORP., a
Florida corporation, its general partner
__________________________ BY: ____________________________
Title:
__________________________ Date Executed:____________________
Witnessed as to Lessee Lessee: SFORZA ENTERPRISES, INC.,
a Florida corporation
__________________________ BY: ____________________________
Title:
__________________________ Date Executed:____________________
</TABLE>
RENT RIDER
1. TOTAL REMITTANCE TO LESSOR. The total monthly remittance to Lessor
shall include Base Rent, Additional Rent, and Florida sales tax as provided
below.
2. BASE RENT. Base Rent, as set forth below, shall be paid in advance
on or before the first day of each calendar month during this Lease Term:
Base Rent from November 1, 1998, through November 30, 1999: equal
monthly payment of $1,030.00.
Base Rent from December 1, 1998, through October 31, 1999: equal
monthly payments of $1,450.00.
The first full month and last months' rents, and applicable sales tax, shall be
paid to Lessor upon the execution of this Lease.
3. ADDITIONAL RENT. It is the intent for the Base Rent payable to
Lessor to be absolutely net of all increased expenses associated with taxes,
insurance, and operating expenses for the Property over those in effect for 1999
(the "Base Year"). Therefore, if Lessee continues to occupy the Premises on
January 1, 2000, then commencing January 1, 2000, in addition to Base Rent,
Lessee shall pay the following as Additional Rent:
<PAGE>
(a) Taxes. Lessee's Pro Rate Share (as hereinafter defined) of the
amount of any increase in all real and personal property taxes and assessments
(including, without limitation, sanitary taxes, extraordinary or special
assessments and all costs and fees including reasonable attorney's fees incurred
by Lessor in contesting the same) levied, imposed or assessed upon the Property
over those in effect for the Base Year, plus the full amount of any real
property tax assessment that is directly attributable to improvements by Lessee
to the Premises.
(b) Insurance. Lessee's Pro Rata Share of the amount of any increase in
the total cost to the Lessor of all fire, extended coverage, liability,
workmen's compensation and other insurance coverage carried by Lessor with
respect to the Property, over the cost thereof for the Base Year.
(c) Operating Costs. Lessee's Pro Rata Share of the amount of any
increases to Lessor in total Operating Cost over those in effect for the Base
Year. The term "Operating Costs" (and shall include Taxes and Insurance) shall
mean the total cost and expenses incurred in connection with the normal
administration (including a management fee), operation, preventive and
corrective maintenance and repair of the Property, the implementation and costs
for which shall be at the sole discretion of Lessor and whether paid to
employees of Lessor or parties engaged by Lessor. Lessor shall have the right,
but not the obligation, to direct that trash intensive lessees within the
Property arrange for the use of their own trash receptacle and removal service
at Lessee's expense, or in the alternative, Lessor may assess a surcharge for
the excess trash collection and removal service.
(d) Lessee's Pro Rate Share. Lessee's Pro Rata Share is 3.1%.
(e) In the event Lessor determines that Lessee's consumption or use of
various amenities, services or Lessor-provided utilities is excessive, in
Lessor's sole discretion and judgment, then Lessor may assess Lessee with a
monthly surcharge to reimburse itself for such excessive consumption or usage.
Lessee shall pay such surcharge to Lessor along with its Base Rent.
Alternatively, Lessor, at its option and its sole discretion, may discontinue
providing the excessively consumed or used amenity, service or utility and
direct Lessee to arrange for such amenity, service or utility on its own, at
Lessee's sole expense.
(f) Adjustment Procedure. Notwithstanding any other provision herein to
the contrary, it is agreed that in the event all of the space in the building
contained on the Property is not occupied or provided with building standard
services during any year, an adjustment shall be made in computing Additional
Rent so that those components of Additional Rent which may vary with occupancy
or levels of services shall be computed for such year as though all of the space
in the building has been occupied or provided with building standard services
during such year.
<PAGE>
4. PAYMENT OF ADDITIONAL RENT. (a) Estimated Payments. Lessee shall pay
Lessor, together with the Base Rent, a monthly installment of estimated
Additional Rent as set forth by Lessor.
(b) Reconciliation Payment of Actual Additional Rent Payable. Within
one hundred and twenty (120) days of the end of each calendar year under this
Lease, Lessor shall endeavor to deliver to Lessee a statement of the actual
Additional Rent payable by Lessee for the prior year. Any further Additional
Rent amount due to Lessor shall be paid by Lessee within thirty (30) days
following Lessor's delivery of said statement. If the total of the estimated
payments is greater than the actual Additional Rent for the same period. Lessee
shall receive a credit against the next due payment of estimated Additional
Rent. Should a credit be due Lessee at the termination of this Lease, Lessor
shall remit payment to Lessee within thirty (30) days of notification that said
credit is due Lessee.
5. ADMINISTRATIVE CHARGE FOR LATE PAYMENT. Payments of Base Rent and
Additional Rent not received by the first (1st) of the month shall be subject to
an administrative charge of five (5%) percent of the unpaid amount.
6. REMITTANCE OF SALES TAX. To the extent subject to Florida State
Sales Tax, such tax shall be added to and remitted along with the payments
required under this Rent Rider.
7. NO SETOFF. All Base Rent, Additional Rent, and all other payments
required under this Lease shall be due and payable by Lessee to Lessor, without
demand, and without any reduction, abatement, counterclaim or setoff.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease
effective as of the day and year first above written.
Witnessed as to Lessor Lessor: 230 CLEMATIS STREET LIMITED
PARTNERSHIP, a Florida limited
partnership, by REN GP CORP., a
Florida corporation, its general partner
________________________ BY: ____________________________________________
Title:
________________________ Date Executed: _________________________________
Witnessed as to Lessee Lessee: SFORZA ENTERPRISES, INC.,
a Florida corporation
________________________ BY: ____________________________________________
Title:
________________________ Date Executed: _________________________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
-----------------
Lots 5, 6, and 7, Block 5, THE TOWN OF WEST PALM BEACH, FLORIDA, according to
the Plat thereof on file in the Office of the Clerk of the Circuit Court in and
for Palm Beach County, Florida, recorded in Plat Book 1, Page 2.
RELEASE AND INDEMNIFICATION AGREEMENT
THIS RELEASE AND INDEMNIFICATION AGREEMENT ("Agreement") is made as of
the 31st day of October, 1998 by and among SFORZA ENTERPRISES, INC., CASTLE
ROOM, INC., CLEMATIS BISTRO CORPORATION and SUSHI ENTERPRISES, INC., each a
Florida corporation (individually "Company" and collectively "Companies") and
DENNIS MAX, BURT RAPOPORT and DAN CATALFUMO (referred to individually as
"Indemnitee" and collectively as "Indemnitees"). Each Company shall be jointly
and severally liable hereunder with each of the other Companies.
PRELIMINARY STATEMENT:
As a material inducement to Indemnitees and their affiliates to enter
into that certain Agreement with the Companies of even date herewith pursuant to
which, amony other things, Indemnitees are resigning as officers and directors
of certain of the Companies, the Companies have agreed to release and indemnify
the Indemnitees, and the Indemnitees have agreed not to sue the Companies, as
set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the undertakings
of the parties described above, the Companies hereby agree as follows:
1. Release: Covenant. Each of the Companies hereby remises, releases,
acquits, satisfies, and forever discharges each of the Indemnitees from all, and
all manner of action and actions, cause and causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever, in law or in equity, which
said Companies ever had, now has, or which any personal representative,
successor, heir or assign of said Companies, hereafter can, shall or may have,
against said Indemnitees for, upon or by reason of any matter, cause or thing
whatsoever, from the beginning of the world to the day of these presents.
Indemnitees hereby covenant and agree that from the date of this Agreement to
the date on which any claim is made against any of the Indemnitees by or in the
name of any of the Companies, Indemnitees shall not initiate any suit or action
at law against any of the Companies with respect to acts or omissions of any of
the Companies occurring prior to the date of this Agreement.
2. Indemnification. To the fullest extent permitted by Florida law, the
Companies hereby agree to defend, indemnify and otherwise hold harmless
Indemnitees, their heirs, personal representatives, administrators, successors
and assigns from and against any and all claims, suits, actions or threatened
actions (including, but not limited to any action by or in the right of a
Company or its shareholders and regardless of whether the same be civil,
criminal, administrative, investigative or otherwise), injuries, losses,
liabilities, damages, causes of action and expenses of any nature ("Indemnified
Loss"), arising, directly or indirectly, by reason of the fact that he is or was
an officer, director, employee, agent of one or more of the Companies or any
subsidiary (direct or indirect) of any Company or by reason of any act or
omission occurring while he served in such capacity (each an "Indemnified
Matter").
<PAGE>
"Indemnified Loss" shall include, but shall not be limited to, all
costs, attorneys' fees (including all appellate levels), expenses, liabilities,
fines, judgements and amounts paid in settlement thereof, which are actually and
reasonably incurred by or imposed upon Indemnitees, or which arise in connection
with such action, suit or proceeding. "Indemnified Loss" shall also include but
not be limited to any and all expenses that any Indemnitee incurs to enforce his
rights pursuant to this Agreement, including, but not limited to, pursuing an
order for specific enforcement of any of the provisions, conditions, covenants
or restrictions contained herein.
This Agreement shall be construed to provide each Indemnitee with the
most favorable rights to indemnification and advancement of expenses that can be
given under Florida law as to any Indemnified Matter, and to avoid any payment
or expense by any Indemnitee in connection with any Indemnified Matter. The only
limitation on indemnification and advancement of expenses as to any given
Indemnified Matter shall be to the extent of a judgement or other final
adjudication, within the ,meaning of Florida Statutes Section 607.0850(7), that
establishes that the Indemnitee's actions, or omissions to act, were material to
the cause of action and constitute:
a. A violation of the criminal law, unless the Indemnitee had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;
b. A transaction from which the Indemnitee derived an improper
personal benefit;
c. In the case of a director, a circumstance under which the
liability provisions of Florida Statutes Section 607.0834 are applicable; or
d. Willful misconduct or a conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder.
Until any such a final adjudication occurs with respect to a matter,
however, the Companies shall indemnify, defend, hold harmless and advance
expenses to each Indemnitee with respect to such Indemnified Matter to the full
extent set forth herein, without regard to the aforedescribed limitation.
3. Defense of Indemnified Matters.
a. Within fifteen (15) business days after receipt of notice of
commencement of any action or claim by any third-party (including any
governmental authority) before any court or other governmental authority of
competent jurisdiction (but in any event at least 10 business days preceding the
date on which an answer or other pleading must be served in order to prevent a
judgment by default in favor of the third-party claimant), Indemnitee shall give
Companies written notice thereof, together with a copy of such claim, process or
other legal pleading, which notice shall be provided by overnight express mail.
Upon receipt of such notice, the Companies shall undertake the defense of such
claim through the law firm of Ruden, McClosky, Smith, Schuster & Russell, P.A.,
or, if that firm is unable or unwilling to accept such representation, by
another firm reasonably acceptable to the Indemnitee, and shall promptly confirm
such undertaking to the Indemnitee in writing. Notwithstanding the Companies'
undertaking of such defense, the Indemnitee shall have the right, at its own
expense, to engage its own counsel and participate in the defense of such claim,
and no settlement or compromise of such claim shall be made without the prior
written consent of the Indemnitee, which consent shall not be unreasonably
<PAGE>
withheld. In connection with any defense undertaken by the Companies in
accordance with this Section 3(a), the Indemnitee will cooperate with all
reasonable requests of the Companies.
b. If the Companies by the fifteenth (15th) business day after
receipt of notice of commencement of any such claim (or such earlier date which
is five (5) days before the date on which the answer or other responsive
pleading must be filed in order to prevent judgment by default in favor of the
third-party claimant), does not undertake the defense of such claim, or if the
Indemnitee reasonably determines that the Companies or any of them have a
conflict of interest with respect to such claim or the vigorous defense thereof,
the Indemnitee (upon further written notice to the Companies) shall have the
right to undertake and control the defense, compromise or settlement of such
claim on behalf of and for the account and risk of the Companies. To the fullest
extent permitted by Florida law, the Companies shall advance to each Indemnitee,
within ten (10) days of each written demand by an Indemnitee therefor,
Indemnitees' costs and expenses incurred in defending any civil or criminal
proceeding pursuant to this Section 3(b).
4. Miscellaneous
a. Notices. All notices and other communications required or
permitted hereunder shall be in writing and, except as otherwise noted herein,
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office, (by first
class mail, postage prepaid) addressed:
If to the Companies: c/o Sforza Enterprises, Inc.
222 Clematis Street
Suite 202
West Palm Beach, Florida 33401
If to Dennis Max: Unique Restaurant Concepts, Inc.
490 East Palmetto Park Road
Suite 110
Boca Raton, Florida 33432
If Burt Rapoport: Unique Restaurant Concepts, Inc.
490 East Palmetto Park Road
Suite 110
Boca Raton, Florida 33432
If to Dan Catalfumo: Catalfumo Companies
4300 Catalfumo Way
Palm Beach Gardens, Florida 33410
<PAGE>
Any party change the address to which notices are to be addressed by giving the
other party notice in the manner herein set forth.
b. Entire Agreement. This Agreement sets forth all the promises,
covenants, agreements, conditions and understandings between the parties hereto,
and supersedes all prior and contemporaneous agreements, understandings,
inducements or conditions, expressed or implied, oral or written, except as
herein contained.
c. Amendment. The parties hereby irrevocably agree that no attempted
amendment, modification, termination, discharge or change (collectively,
"Amendent") of this Agreement shall be valid and effective, unless the parties
shall unanimously agree in writing to such Amendment.
d. No Waiver. No waiver of any provision of this Agreement shall be
effective, unless it is in writing and signed by the party against whom it is
asserted, and any such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a continuing or
future waiver.
e. Counterparts. This Agreement and any amendments may be executed
in one or more counterparts, each of which shall be deemed an original and all
of which together will constitute one and the same instrument.
f. Headings. The article and section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
g. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Florida, and any proceeding arising between the
parties in any manner pertaining or related to this Agreement shall, to the
extent permitted by law, be held in Broward County, Florida.
h. Further Assurances. The parties hereto will execute and deliver
such further instruments and do such further acts and things as may be
reasonably required to carry out the intent and purposes of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANIES:
SFORZA ENTERPRISES, INC., a Florida corporation
By:/s Gerald J. Visconti, Jr.
-----------------------------------------
CASTLE ROOM, INC., a Florida corporation
By:/s Dale Brisson
-----------------------------------------
CLEMATIS BISTRO CORPORATION,
a Florida corporation
By:/s Dale Brisson
-----------------------------------------
SUSHI ENTERPRISES, INC., a Florida corporation
By:/s Dale Brisson
-----------------------------------------
Title: President
-----------------------------------------
INDEMNITEES:
/s DENNIS MAX
---------------------------------------------
DENNIS MAX
/s BURT RAPOPORT
---------------------------------------------
BURT RAPOPORT
/s DAN CATALFUMO
---------------------------------------------
DAN CATALFUMO
<PAGE>
EXHIBIT B
Form of Amendment to Limited Partnership Agreement
AGREEMENT
THIS AGREEMENT is made and entered into as of the 31st of October,
1998, by and among SFORZA ENTERPRISES, INC., a Florida corporation (together
with its wholly owned subsidiaries, CASTLE ROOM, INC., CLEMATIS BISTRO
CORPORATION and SUSHI ENTERPRISES, INC., each a Florida corporation, "SEI"),
MAX'S BEACH GRILL, LTD., a Florida limited partnership ("Unique Beach Place"),
UNIQUE BRICKELL, LTD., a Florida limited partnership ("Unique Riverfront"),
UNIQUE WESTON, LTD., a Florida limited partnership ("Unique Weston") UNIQUE TBA,
LTD., a Florida limited partnership ("Unique TBA"), UNIQUE RESTAURANT CONCEPTS,
INC., a Florida corporation ("URC"), UNIQUE RESTAURANT CONCEPTS, LTD., a Florida
limited partnership ("URCL"), DENNIS MAX ("Max"), BURT RAPOPORT ("Rapoport"),
DAN CATALFUMO ("Catalfumo"), JOSEPH VISCONTI ("Joseph"), JAY VISCONTI ("Jay")
and DALE BRISSON ("Brisson").
PRELIMINARY STATEMENT
A. Prior to the initial public offering of shares of its common stock
in November, 1997 (the "IPO"), SEI owned two adjacent restaurants on Clematis
Street in West Palm Beach, Florida, known as Sforza Ristorante and My Martini
Grille and was in the planning stage of opening a third restaurant to be known
as Sushi Rok (collectively, the "Wholly Owned Restaurants"). The principal
shareholders and directors of SEI were Joseph, Jay and Brisson (collectively,
the "SEI Founding Shareholders").
B. In contemplation of the IPO, SEI entered into that certain Funding
Agreement dated July 1, 1997 with Unique Beach Place, Unique Riverfront, Unique
Weston, URC, Max and URCL (as amended on September 1, 1997 and October 1, 1997,
the "Funding Agreement"). Generally, the Funding Agreement contemplated that SEI
would apply $3 Million of the net proceeds of the IPO to acquire a 51% equity
interest in Unique Beach Place, Unique Weston, Unique Riverfront and a fourth
entity to be formed, subsequently organized as Unique TBA. Each of the foregoing
partnerships (sometimes hereinafter collectively referred to as the "Operating
Partnerships") was organized to own a single restaurant, each of which
restaurants would generally replicate the Max's Grill concept previously
developed by URC. In addition, the Funding Agreement included provisions
relating to the management structure of SEI and the Operating Partnerships and,
by execution of a Joinder to the Funding Agreement, the SEI Founding
Shareholders agreed to vote their capital stock in SEI consistent with the
provisions of the Funding Agreement. It was further contemplated by the parties
that the restaurants to be owned by the Operating Partnerships and the Wholly
Owned Restaurants would be managed by URC.
C. As contemplated by the Funding Agreement, Max, Rapoport and
Catalfumo (collectively, the "Unique Principals") became members of the Board of
Directors of SEI, constituting 50% of the entire Board. The intention of the
parties to the Funding Agreement was that the financial performance of the
Operating Partnerships would be consolidated, on a line item basis,
<PAGE>
with SEI's financial statements and the Funding Agreement was structured to
accomplish that. After closing of the IPO, the Unique Principals learned that,
because of their positions on the Board of Directors of SEI and their
affiliation with URC, the entity that would manage all of the restaurants in
which SEI had an interest, the United States Securities and Exchange Commission
had concluded that the financial results of the Operating Partnerships could not
be consolidated with those of SEI on a line item basis. The principal
underwriter for the IPO advised that it would be in the best interests of SEI
and its shareholders if such consolidation could be permitted. It was suggested
that one method by which this might be accomplished would be if the Unique
Principals caused other restaurant assets held by their affiliated entities to
be acquired by SEI in return for shares that would result in the Unique
Principals owning, directly or indirectly, a controlling interest in SEI. This
would not only permit consolidation of the financial results of the Operating
Partnerships, but would also avoid future conflicts that could arise from a
voting deadlock between the Unique Principals and SEI Founding Shareholders on
SEI's Board of Directors.
D. In April, 1998, the Unique Principals, Patti Max (Max's wife) and SEI entered
into a Letter of Intent with respect to a merger transaction pursuant to which
the Unique Principals would cause numerous additional restaurant assets,
including their interests in the Operating Partnerships, to be merged into SEI.
The Letter of Intent contemplated that the Unique Principals would receive cash
and a majority stock position in SEI as a result of the transaction. In
addition, the Letter of Intent contempleated that SEI would complete a secondary
offering to provide additional capital for expansion of the Max's Grill concept.
E. After several months of negotiations, SEI and the Unique Principals
have determined to abandon their efforts to consummate the transactions
contemplated by the Letter of Intent. Changes in market conditions and the
resultant impact on valuations and SEI's ability to raise capital were the
principal obstacles to the ability to consummate a merger transaction of the
nature contemplated by the Letter of Intent. The protracted negotiations also
highlighted conflict of interest issues in the existing management structure
because of the difficulties of the SEI Founding Shareholders and the Unique
Principals sharing positions on SEI's Board of Directors while SEI was seeking
to negotiate transactions with the Unique Principals and while URC was managing
SEI's restaurants.
F. In view of the failed merger efforts, the parties discussed
alternative solutions and have reach an agreement that, it is believed, will
permit complete consolidation of the financial results of the Operating
Partnerships with those of SEI and eliminate conflicts of interests between the
Unique Principals and SEI. Generally, the agreement involves revising the SEI
corporate management structure so that the Unique Principals will not
participate therein. In addition, the parties have agreed to certain changes in
the manner in which the Wholly Owned Restaurants will be operated and have
agreed to resolve certain other pending issues.
NOW, THEREFORE, the parties hereto intending to be legally bound
hereby, for good and valuable consideration the receipt, adequacy and
sufficiency of which are hereby acknowledged, agree as follows:
<PAGE>
1. Incorporation of Recitals; Exhibits. The parties hereby agree that
the factual matters set forth in the above recitations are true and correct and
are hereby incorporated into the Agreement. All exhibits referred to as being
annexed hereto are hereby incorporated by this reference into the Agreement as
if fully set forth at length herein.
2. SEI Board Restructuring.
2.1 Cancellation of Joinder. The Unique Principals, the Operating
Partnership, URC and URCL hereby agree with the SEI Founding Shareholders to
cancel the Joinder executed by the SEI Founding Shareholders so that, from and
after the date hereof, the SEI Founding Shareholders, their successors and
assigns, shall have no obligation to vote their capital stock in SEI in favor of
any of the Unique Principals being elected to the Board of Directors of SEI.
Paragraph 2 of the Funding Agreement (as amended in Paragraph 3 of the Second
Amendment to the Funding Agreement) is hereby deleted therefrom in its entirety.
2.2 Resignations. The Unique Principals shall execute and deliver to
SEI resignations of their positions as members of the Board of Directors and as
officers of SEI effective as of the close of business on October 31, 1998.
2.3 Release and Indemnification. SEI shall, simultaneously with the
execution hereof, execute and deliver to the Unique Principals a Release and
Indemnification Agreement in form of Exhibit A.
2.4 Advisory Services. Max agrees that, until October 31, 1999, Max
shall be available to provide advisory services to SEI and shall serve on an
Advisory Board of SEI if one is created; provided, however, that SEI
acknowledges that the foregoing will only require an insubstantial amount of
Max's time and will not interfere with Max's principal employment as President
of URC.
3. Matters Affecting the Operating Partnerships.
3.1 Consent to Assignment. URCL has heretofore assigned its limited
partnership interests in each of the Operating Partnerships to Unique SEI
Holdings, Inc. ("Unique SEI Holdings") pursuant to four Assignment and
Contribution Agreements each dated as of the 31st day of January, 1998.
Simultaneously with the execution hereof, the SEI Founding Shareholders shall
cause the corporate general partner of each of the Operating Partnerships to
execute and deliver a consent to these assignments, which consents had
previously been verbally given but which had heretofore not been delivered in
writing.
3.2 Amendments to Partnerships Agreements. Simultaneously with the
execution hereof, the Unique Principals shall cause Unique SEI Holdings to
execute and deliver, the SEI Founding Shareholders shall cause the corporate
general partners of each of the Operating Partnerships to
<PAGE>
execute and deliver, and SEI shall execute and deliver an amendment to the
limited partnership agreements of each of the Operating Partnerships in the form
annexed hereto as Exhibit B.
3.3 Union TBA. As of the date hereof, Unique TBA has not selected a
location for establishment of a Max's Grill restaurant, although a portion of
the $3 Million committed by SEI to the Operating Partnerships has been
allocated, as SEI's capital contribution ("TBA Capital"), to Unique TBA. The
parties hereby agree that in the event SEI's Board of Directors has not voted to
proceed with a designated location ("Location Vote") for development of Unique
TBA's Max's Grill restaurant by June 30, 1999, either Unique SEI Holdings or SEI
may elect to dissolve, liquidate and terminate Unique TBA by giving written
notice of its election to do so any time after June 30, 1999 and prior to a
Location Vote. Upon either of such party's election to terminate Unique TBA, the
parties shall cooperate in promptly liquidating Unique TBA with the TBA Capital
being returned to SEI which may thereafter use the TBA Capital for any purpose
deemed appropriate by SEI.
3.4 Management and License Unaffected. Each of the Operating
Partnerships has entered into a License Agreement dated as of December 30, 1997
with URC (the "License Agreements") and all four Operating Partnerships entered
into a Management Agreement dated as of December 30, 1997 with URC (the
"Operating Partnerships Management Agreement"). The License Agreements and the
Operating Partnerships Management Agreement are not affected by this Agreement
and remain in full force and effect.
4. Wholly Owned Restaurants.
4.1 Termination of Management and Consulting Agreement. URC has
heretofore provided certain management and consulting services for the benefit
of the Wholly Owned Restaurants pursuant to a Management and Consulting
Agreement dated June 1, 1997 between URC and SEI, as amended by an Addendum
thereto dated December 30, 1997 (collectively, the "Management Agreement"). The
Management Agreement, by its terms, expired on May 31, 1998, although the
parties operated pursuant to the Management Agreement thereafter while
continuing to negotiate the possible merger transaction. The parties hereby
agree that, as of the close of business on October 31, 1998, URC shall cease
providing management and consulting services to the Wholly Owned Restaurants
and, from and after that date, the Management Agreement shall be terminated and
neither SEI nor URC shall have any further obligations thereunder. SEI and URC
hereby mutually release each other from any and all claims arising under the
Management Agreement and the relationship created thereby.
4.2 Non-solicitation. URC, URCL, the Unique Principals and each entity
in the restaurant or bakery business affiliated with the Unique Principals
(collectively, the "Unique Parties") hereby agree that, without the express
written consent of SEI: (i) for a period ending twelve (12) months after the
date of this Agreement, the Unique Parties shall not solicit for employment any
of the individuals that, as of the date hereof, are employed by any of the
Wholly Owned Restaurants; and (ii) for a period of six (6) months from the date
hereof, the Unique Parties shall not employ any
<PAGE>
individual employed, as of the date hereof, by any of the Wholly Owned
Restaurants (whether or not such person has terminated his employment with a
Wholly Owned Restaurant).
4.3 Payroll Services. Notwithstanding termination of the Management
Agreement, URC shall continue to perform the accounting services it performed
pursuant to the Management Agreement until close of the current financial period
in the third week of November, 1998, and shall continue to perform the payroll
services it performed pursuant to the Management Agreement for the Wholly Owned
Restaurants until December 31, 1998. URC shall also generate for SEI the forms,
such as W-2's, required to satisfy Internal Revenue Service year-end
requirements relating to payroll.
4.4 Miscellaneous. URC hereby consents to, and will not seek to impede,
SEI's efforts to hire Melissa Higdon who is presently an employee of URC;
provided, however, that URC intends to continue employing Ms. Higdon if she
elects not to accept an offer from SEI. SEI shall be entitled to remove from
URC's offices the items identified in Exhibit C annexed thereto.
5. Financial Matters. The parties hereto have heretofore raised
numerous claims with respect to financial issues between them including, without
limitation, matters relating to the employment and termination of a shared
accounting executive, Transmedia public relations matters, pre-opening expenses
charged to Unique Riverfront, vendor rebates, possible employee defalcations at
Sforza Ristorante, the decision to renovate My Martini and the cost thereof,
management fees paid to date pursuant to the Management Agreement and URC's
preclusion from earning more substantial management fees during the busy season
as a result of termination of the Management Agreement, reasonable compensation
to Max for performance of ongoing advisory services to SEI, the cost of
architectural plans and specifications relating to renovations of Sforza
Ristorante and legal fees and expenses incurred in connection with SEI's
potential acquisition of another restaurant and negotiation of the merger
transaction. After consideration and analysis of each of these claims, the
parties have determined that the respective claims are approximately equal and,
accordingly, all monetary claims between SEI, the SEI Founding Shareholders and
each of the Operating Partnerships, on the one hand, and the Unique Parties, on
the other hand, have been fully resolved so that neither is indebted to the
other and each hereby releases the other from any such claims including, without
limitation, those enumerated herein.
6. Representations and Warranties. Each party to this Agreement hereby
represents and warrants to the other parties to this Agreement as follows:
6.1 Due Organization. To the extent that such party is an entity, it is
a duly organized and validly existing partnership or corporation under the laws
of the State of Florida and has the power and lawful authority to own its
properties and to transact the business in which it is currently engaged.
6.2 Power and Authority. To the extent that such party is an entity, it
has full corporate or partnership power and authority to enter into this
Agreement and to carry out the transactions
<PAGE>
contemplated hereby. To the extent that such party is an individual, the
individual has the legal capacity to enter into this Agreement and to carry out
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the other agreements, documents and instruments required to
be delivered pursuant to this Agreement and the consummation of the transactions
contemplated by this Agreement and each of such agreements, documents and
instruments have been duly and validly authorized by such party. No other acts
or proceedings on the part of such party are necessary to authorize the
performance of this Agreement and the other agreements, documents and
instruments required to be delivered pursuant to this Agreement.
6.3 Valid and Binding Obligation. This Agreement and agreements,
documents and instruments required to be delivered pursuant to this Agreement
are valid and binding obligations of such party enforceable against such party
in accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to creditors' rights or by the application of equitable
principles when equitable remedies are sought.
6.4 No Violation. Neither the execution, delivery or performance of
this Agreement or the agreements, documents and instruments required to be
delivered pursuant to this Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will:
(a) violate or conflict with any provision of the partnership
agreement or articles of incorporation or bylaws of such party if it is an
entity;
(b) result in a breach of, or default (or an event which, with
notice or lapse of time or both, would constitute a default) under any note,
bond, mortgage, contract or other instrument or obligation to which such party
is bound; or
(c) violate any order, judgment, writ, injunction, decree, or any
law, statute, rule, ordinance or regulation applicable to such party.
7. Miscellaneous.
7.1 Amendment. The parties hereby irrevocably agree that no attempted
amendment, modification, termination, discharge or change of this Agreement
shall be valid and binding unless the parties shall unanimously agree in writing
to such amendment.
7.2 Notices. Any notice required or permitted to be delivered under the
provisions of this Agreement shall be deemed delivered, whether actually
received or not, when deposited in a United States Postal Service Depository,
postage prepaid, registered or certified, return receipt requested, and
addressed to the Partner at the address set forth below, or such other address
as shall be specified by written notice delivered to the Partnership:
<PAGE>
If to SEI or SEI 222 Clematis Street
Founding Suite 202
Shareholders: West Palm Beach, Florida 33401
with a copy to: De Martino, Finkelstein, Rose & Virga
1818 North Street, N.W., Suite 400
Washington, D.C. 20036
Attention: Ralph V. De Martino, Esq.
If to Unique Unique Restaurant Concepts, Inc.
Parties: 4900 East Palmetto Park Road, Suite 110
Boca Rato, Florida 33432
Attention: Dennis Max, President
with a copy to: Ruden, McClosky, Smith, Schuster & Russell, P.A.
P.O. Box 1900
Fort Lauderdale, Florida 33302
Attention: Michael H. Krul, Esq.
All notices, demands and requests shall be effective upon being
deposited in the United States mail. However, the time period in which a
response to any such notice, demand or request must be given shall commence to
run from the date of receipt on the return receipt of the notice, demand or
request by the addressee thereof or the date of actual receipt in the case of
delivery by other means. Rejection or other refusal to accept or the inability
to deliver because of changed address of which no notice was given shall be
deemed to be receipt of the notice, demand or request when sent.
7.3 Further Assurances. The parties will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
7.4 Headings. The headings of the various sections of this Agreement
are intended solely for convenience of reference, and shall not be deemed or
construed to explain, modify or place any construction upon the provisions
hereof.
7.5 Successors and Assigns. This Agreement and any amendments hereto
shall be binding upon and, to the extent expressly permitted by the provisions
hereof, shall inure to the benefit of the parties, their respective successors
and assigns.
7.6 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida, and agreed upon venue, to
the extent permitted by law, shall be Palm Beach County, Florida.
<PAGE>
7.7 Entire Agreement. This Agreement sets forth all (and is intended by
all parties hereto to be an integration of all) of the promises, agreements,
conditions, understandings, warranties and representations among the parties
hereto and supersedes any and all prior and contemporaneous promises,
agreements, conditions, understandings, warranties or representations, oral or
written, express or implied, except as set forth herein.
7.8 Counterparts. This Agreement and any amendments hereto may be
executed in counterparts, each of which shall be deemed an original, and such
counterparts shall constitute but one and the same instrument.
7.9 Gender. Wherever the context requires, any pronoun used herein may
be deemed to mean the corresponding masculine, feminine or neuter in form
thereof and the singular form of any nouns and pronouns herein may be deemed to
mean the corresponding plural and vice versa as the case may require.
7.10 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions hereof
relating to successors and assigns, and no other person shall have any rights,
interest or claims hereunder or be entitled to any benefits under or on account
of this Agreement as a third party beneficiary or otherwise.
7.11 Prevailing Party; Attorney's Fees. In the event that any
litigation, arbitration or similar administrative or judicial proceeding arises
between the parties with respect to the interpretation or enforcement of this
Agreement, the parties hereto that are the prevailing parties in such proceeding
shall be entitled to recover from the parties hereto that are the non-prevailing
parties in such proceeding, their reasonable attorney's and paralegal fees and
expenses for all negotiations, proceedings and appeals therefrom, and any
post-judgment or award enforcement actions, including bankruptcy proceedings,
related thereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the day and year first above written.
SFORZA ENTERPRISES, INC., a Florida corporation
By: Gerald J. Visconti, Jr.
Title: President
CASTLE ROOM, INC., a Florida corporation
By: Dale J. Brisson
Title: President
CLEMATIS BRISTRO CORPORATION, a Florida corporation
By: Dale J. Brisson
Title: President
SUSHI ENTERPRISES, INC., a Florida corporation
By: Dale J. Brisson
Title: President
<PAGE>
MAX'S BEACH GRILL, LTD., a Florida limited
partnership
By: Max's Beach Grille, Inc., a Florida
corporation, its General Partner
By: Dennis Max
Title: President
UNIQUE BRICKELL, LTD., a Florida limited
partnership
By: Unique Brickell, Inc., a Florida corporation,
its General Partner
By: Dennis Max
Title: President
UNIQUE WESTON, LTD., a Florida limited partnership
By: Unique Weston, Inc., a Florida corporation,
its General Partner
By: Dennis Max
Title: President
UNIQUE TBA, LTD., a Florida limited partnership
By: Unique TBA, Inc., a Florida corporation, its
General Partner
By: Dennis Max
Title: President
<PAGE>
UNIQUE RESTAURANT CONCEPTS, INC., a Florida
corporation
By: /s Dennis Max
Title: President
UNIQUE RESTAURANT CONCEPTS, LTD., a Florida
limited partnership
By: Unique Restaurant Concepts, Inc., its general
partner
By: /s Dennis Max
Title: President
/s DENNIS MAX
-------------------------------------
DENNIS MAX
/s BURT RAPOPORT
-------------------------------------
BURT RAPOPORT
/s DAN CATALFUMO
-------------------------------------
DAN CATALFUMO
/s JOSEPH VISCONTI
-------------------------------------
JOSEPH VISCONTI
/s JAY VISCONTI
-------------------------------------
JAY VISCONTI
/s DALE BRISSON
-------------------------------------
DALE BRISSON
<PAGE>
EXHIBIT A
Release and Indemnification Agreement
SUBSIDIARIES OF THE REGISTRANT
- - - Clematis Bistro Corporation, 100%, Florida
- - - Sushi Enterprises, Inc., 100%, Florida
- - - Castle Room, Inc., 100%, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 439476
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 69146
<CURRENT-ASSETS> 133398
<PP&E> 1262505
<DEPRECIATION> 337809
<TOTAL-ASSETS> 4143818
<CURRENT-LIABILITIES> 466978
<BONDS> 20409
0
0
<COMMON> 17100
<OTHER-SE> 3639321
<TOTAL-LIABILITY-AND-EQUITY> 4143818
<SALES> 3774366
<TOTAL-REVENUES> 3774366
<CGS> 1887946
<TOTAL-COSTS> 1887946
<OTHER-EXPENSES> 2174814
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11166
<INCOME-PRETAX> (737611)
<INCOME-TAX> 0
<INCOME-CONTINUING> (737611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (737611)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
