<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOTEL DISCOVERY, INC.
(Name of Small Business Issuer in its Charter)
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MINNESOTA 5812 31-1487885
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification Number)
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7701 FRANCE AVENUE SOUTH, SUITE 217
EDINA, MINNESOTA 55435
(612) 841-6363
(Address and Telephone Number of Principal Executive Offices)
STEPHEN D. KING, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
HOTEL DISCOVERY, INC.
7701 FRANCE AVENUE SOUTH, SUITE 217
EDINA, MINNESOTA 55435
(612) 841-6363
(Name, Address, and Telephone Number of Agent For Service)
Copies to:
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WILLIAM M. MOWER, ESQ. GIRARD P. MILLER, ESQ.
GAY L. GREITER, ESQ. DOHERTY RUMBLE & BUTLER, P.A.
MASLON EDELMAN BORMAN & BRAND, LLP 3500 FIFTH STREET TOWERS
3300 NORWEST CENTER 150 SOUTH FIFTH STREET
MINNEAPOLIS, MINNESOTA 55402-4140 MINNEAPOLIS, MINNESOTA 55402-4235
(612) 672-8200 (612) 340-5555
FAX (612) 672-8397 FAX (612) 340-5584
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE REGISTRATION FEE
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- ----------------------------------------------------------------------------------------------------------------------
Units, each consisting of one
share of Common Stock, $.01 par
value, and one Class A Warrant
to purchase one share of Common
Stock........................... 2,530,000 Units(2) $5.00 $12,650,000 $3,833.33
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(3)... 2,530,000 Shares $6.50 $16,445,000 $4,983.33
======================================================================================================================
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(1) Pursuant to Rule 416 under the Securities Act, this registration statement
also covers such additional securities as may become issuable upon exercise
of the Class A Warrants.
(2) Includes 330,000 Units subject to an option granted to the Underwriter to
cover over-allotments, if any.
(3) Issuable upon exercise of the Class A Warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST , 1997
HOTEL DISCOVERY, INC. LOGO
HOTEL DISCOVERY, INC.
2,200,000 UNITS
Consisting of 2,200,000 Shares of Common Stock
and 2,200,000 Redeemable Class A Warrants
-------------------------
Hotel Discovery, Inc. (the "Company") is offering 2,200,000 units (the
"Offering"), each unit consisting of one share of Common Stock, $.01 par value
(a "Share") and one redeemable Class A Warrant at an initial public offering
price of $5.00 per unit (a "Unit"). The Class A Warrants are immediately
exercisable and, commencing 10 trading days after the Effective Date (as
hereinafter defined), transferable separate from the Common Stock. Each Class A
Warrant entitles the holder to purchase at any time until four years following
the date that the Registration Statement relating to this Prospectus has been
declared effective by the Securities and Exchange Commission (the "Effective
Date"), one share of Common Stock at an exercise price of $6.50 per Warrant,
subject to adjustment. The Class A Warrants are subject to redemption by the
Company for $.01 per Warrant at any time 90 days after the Effective Date, on 30
days' written notice, provided that the average closing bid price of the Common
Stock exceeds $7.00 (subject to adjustment) for any 14 consecutive trading days
prior to such notice. See "Description of Securities."
Prior to this Offering, there has been no market for the Company's
securities. See "Underwriting" for information relating to the factors
considered in determining the Price to Public. The Company has applied for
listing its Common Stock, Class A Warrants and Units on the Nasdaq SmallCap
Market under the symbols HOTD, HOTDW and HOTDU, respectively.
-------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE
"RISK FACTORS" COMMENCING ON PAGE 6 AND "DILUTION" ON PAGE 12. THESE ARE
SPECULATIVE SECURITIES.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
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Per Unit................................. $5.00 $0.40 $4.60
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Total(3)(4).............................. $11,000,000 $880,000 $10,120,000
====================================================================================================================
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(1) The Underwriter will receive a sales commission equal to 8% of the Total
Price to Public from the sale of the Units. The Company has also agreed to
pay the Underwriter a nonaccountable expense allowance equal to 2% of the
Total Price to Public. The Company has also agreed to sell to the
Underwriter, for nominal consideration, a 5-year warrant to purchase up to
220,000 shares at 120% of the Price to Public (the "Underwriter's Warrant").
In addition, the Company has agreed to indemnify the Underwriter against
certain liabilities. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $220,000, which does
not include the 2% nonaccountable expense allowance described in Note 1
above and assumes no exercise of the Underwriter's over-allotment option.
(3) The Company has granted the Underwriter a 45-day option to purchase up to
330,000 additional Units from the Company solely to cover over-allotments,
if any. If such option is exercised in full, the Total Price to Public,
Total Underwriting Discount and Total Proceeds to Company will be
$12,650,000, $1,012,000 and $11,638,000, respectively. See "Underwriting."
(4) At the request of the Company, up to 10% of the Units offered hereby may be
reserved for sale to persons designated by the Company at the Price to
Public.
The Units are offered by the Underwriter, subject to receipt and acceptance
by it, its right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
Units will be made on or about , 1997 in Minneapolis, Minnesota.
RJ Steichen & Company Logo
The date of this Prospectus is , 1997.
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[INSIDE FRONT COVER OF PROSPECTUS -
DESCRIPTION OF PICTURES]
Picture 1 - an artist's color drawing of the proposed 200-foot front elevation
of the Mall of America Unit. The entrance to the restaurant, which is located
to the left, is flanked on the left side by rock waterfalls and classical
statues. A large stylized banner with the words "Hotel Discovery" is located
over the entrance. The prow of a large replica of a sailing ship is visible to
the right of the entrance. The wall to the right of the entrance shows a
progression of various building material, from masonry to brick to stucco.
Picture 2 - a photograph of the front elevation of the Kenwood Unit in
Cincinnati, Ohio, and a portion of the parking lot.
Picture 3 - a photograph of the lobby of the Kenwood Unit, with the hostess'
desk and retail area.
Picture 4 - a photograph of the bar of the Kenwood Unit, with waterfall and
aquariums.
Picture 5 - a photograph of the Mapping Room dining area of the Kenwood Unit.
Picture 6 - a photograph of the Observatory Room dining area of the Kenwood
Unit.
Picture 7 - a photograph of the Safari Room dining area of the Kenwood Unit.
[PICTURES TO COME FROM THE COMPANY]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK,
UNITS AND CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes no exercise of the Underwriter's over-allotment option.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed under the
heading "Risk Factors", which investors should carefully consider.
THE COMPANY
The business of Hotel Discovery, Inc. (the "Company") is to develop, own
and operate theme restaurants with a retail component designed to appeal to the
upscale casual dining market. The Company opened its first restaurant in the
Kenwood Shopping Center in Cincinnati, Ohio (the "Kenwood Unit") on December 19,
1996, and a second restaurant to be located at the Mall of America in a suburb
of Minneapolis, Minnesota (the "Mall of America Unit") is under development.
In October 1995, a limited partnership raised $2.5 million to build the
Kenwood Unit which, at 17,000 square feet and up to 360 seats, represents the
first embodiment of the Hotel Discovery theme concept. In conjunction with a
reorganization of the Company, the assets of the limited partnership were
directly contributed to the Company in November 1996 in consideration of Common
Stock of the Company. See "Reorganization." The Company subsequently raised
approximately $7 million in private placements which concluded in June and July
1997, the proceeds of which were used to complete and add special features to
the Kenwood Unit, begin development of the Mall of America Unit and for working
capital purposes.
Management has spent more than four years in the development stage of the
Hotel Discovery concept. The Company's officers bring substantial restaurant
experience to the Company, with significant hands-on multi-location operating
experience as well as extensive site selection and development experience.
Hotel Discovery is a concept restaurant that offers four different dining
themes as entertainment. In the Kenwood Unit, the themes of adventure,
imagination, exploration and innovation are embodied in the Safari Room, the
Artist Loft, the Observatory and the Mapping Room, respectively. Specially
designed furnishings and decorations, as well as the sights and sounds of
state-of-the-art video and audio systems, transport guests along imaginative
dining journeys. Imaginary places filled with myths and legends provide a unique
blend of awareness, enjoyment, and entertainment to guests of Hotel Discovery.
The Hotel Discovery menu offers a broad range of cuisine from around the
world, including "cultural fusion" menu items such as Barcelona Spring Rolls and
Asian Tacos. Features include American, Asian, Jamaican, West Indian, Mexican
and European tastes and textures. Menu items are freshly made, using only the
highest quality fresh meats, produce, spices and other ingredients. The menu
mirrors the exploratory journey and adventure society themes of the restaurant
itself.
The Company targets the upscale casual segment of the dining-out industry,
for which quality food pleasingly presented is an important consideration.
Management expects that future restaurants will be located in highly visible,
upscale malls or resort areas which feature upper and upper middle class
demographics and a high level of tourist traffic. The Company is considering
potential sites in Las Vegas and Chicago, but no assurances can be given that
attractive sites will be located in those cities or that negotiations to build
or lease such sites will be successfully concluded.
The Company began operations as Hotel Mexico, Inc., an Ohio corporation,
and was reorganized as Hotel Discovery, Inc., a Minnesota corporation, in August
1997. See "Reorganization." The Company was incorporated in January 1994 as an
Ohio corporation. Its executive offices are located at 7701 France Avenue South,
Suite 217, Edina, Minnesota 55435 and its telephone number is (612) 841-6363.
3
<PAGE> 5
THE OFFERING
Securities Offered............ 2,200,000 Units, each Unit consisting of one
share of Common Stock and one redeemable Class
A Warrant at an initial public offering price
of $5.00 per Unit. Each Class A Warrant is
immediately exercisable and, commencing 10
trading days after the Effective Date,
transferable separately from the Common Stock.
Each Class A Warrant entitles the holder to
purchase, at any time until four years after
the Effective Date, one share of Common Stock
at an exercise price of $6.50 per Warrant,
subject to adjustment. The Class A Warrants are
subject to redemption by the Company for $.01
per Warrant at any time 90 days after the
Effective Date, on 30 days' written notice,
provided that the average closing bid price of
the Common Stock exceeds $7.00 (subject to
adjustment) for any 14 consecutive trading days
prior to such notice.
Common Stock Outstanding
Before this Offering........ 5,399,289 Shares
Common Stock Outstanding
After this Offering......... 7,599,289 Shares(1)
Proposed Nasdaq SmallCap
Market Symbols:
Common Stock................ HOTD
Warrants.................... HOTDW
Units....................... HOTDU
Use of Proceeds............... The Company intends to utilize the proceeds for
further concept development, to complete
development and construction of a second Hotel
Discovery restaurant at the Mall of America in
Bloomington, Minnesota (the "Mall of America
Unit") and a third Hotel Discovery restaurant
at an unidentified site, and for working
capital.
- -------------------------
(1) Does not include (i) 330,000 Units subject to the Underwriter's
over-allotment option; (ii) 220,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrant at 120% of the Price to Public; (iii)
2,200,000 shares of Common Stock which are issuable upon the exercise of the
Class A Warrants at an exercise price of $6.50 per Warrant; (iv) 214,955
shares of Common Stock issuable upon exercise of warrants at an exercise
price of $3.75 per warrant; (v) 500,000 shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option and Compensation Plan, of
which options relating to 452,666 shares are currently outstanding at an
exercise price of $3.00 per share; and (vi) 25,000 shares of Common Stock
issuable upon exercise of directors' stock options at an exercise price of
$3.34 per share.
4
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SUMMARY FINANCIAL INFORMATION
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TWENTY-SIX WEEKS ENDED
YEAR ENDED YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1995 1996 1996 1997
------------ ------------ -------- --------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 0 $ 104,129 $ 0 $ 1,864,564
Restaurant costs and expenses............... 0 309,563 0 2,525,472
Selling, general and administrative
expenses.................................. 14,775 138,209 44,122 765,573
Pre-opening and development costs........... 923,482 1,970,452 413,889 189,423
Other (income) expense...................... 2,209 13,507 (10,950) 65,787
---------- ----------- ---------- -----------
Net loss.................................. $ (940,466) $(2,327,602) $ (447,061) $(1,681,691)
========== =========== ========== ===========
Net loss per share.......................... $ (.28) $ (.53) $ (.10) $ (.33)
========== =========== ========== ===========
Shares used in per share calculations....... 3,362,611 4,355,187 4,286,100 5,058,240
========== =========== ========== ===========
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JUNE 29, 1997
------------------------------------------
PRO FORMA PRO FORMA AS
ACTUAL (1) ADJUSTED(2)
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BALANCE SHEET DATA:
Working capital (deficiency).......................... $(1,684,117) $ (284,117) $ 9,395,883
Total assets.......................................... 6,972,765 7,572,765 17,252,765
Total liabilities..................................... 5,065,966 4,265,966 4,265,966
Accumulated deficit................................... (5,123,427) (5,123,427) (5,123,427)
Stockholders' equity.................................. 1,906,799 3,306,799 12,986,799
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(1) Assumes completion on June 29, 1997 of the sale of 499,804 shares of Common
Stock at $3.00 per share for net proceeds of approximately $1.4 million that
actually occurred in July 1997.
(2) As adjusted for the sale of the Units offered hereby and the anticipated
application of the net proceeds therefrom. Does not include: (i) 330,000
Units subject to the Underwriter's over-allotment option; (ii) 220,000
shares of Common Stock issuable upon exercise of the Underwriter's Warrant
at 120% of the Price to Public; (iii) 2,200,000 shares of Common Stock which
are issuable upon the exercise of the Class A Warrants at an exercise price
of $6.50 per Warrant; (iv) 214,955 shares of Common Stock issuable upon
exercise of warrants at an exercise price of $3.75 per warrant; (v) 500,000
shares of Common Stock reserved for issuance under the Company's 1997 Stock
Option and Compensation Plan, of which options relating to 452,666 shares
are currently outstanding at an exercise price of $3.00 per share; and (vi)
25,000 shares of Common Stock issuable upon exercise of directors' stock
options at an exercise price of $3.34 per share.
5
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RISK FACTORS
An investment in the Shares offered hereby is highly speculative and
involves a high degree of risk. Investors could lose their entire investment.
Prospective investors should carefully consider the following factors, along
with the other information set forth in this Prospectus, in evaluating the
Company, its business and prospects before purchasing the Shares.
LACK OF SIGNIFICANT OPERATING HISTORY
The Company's first restaurant, the Kenwood Unit, opened on December 19,
1996 and, accordingly, the Company faces all of the risks, expenses and
difficulties frequently encountered in connection with the operation and
development of a new business enterprise, including the lack of a significant
operating history. Management anticipates net losses to continue for the
foreseeable future. There can be no assurance that the Company will be able to
generate significant revenues or operate profitably. Future revenues and
profits, if any, will depend upon various factors, including market acceptance
of the Hotel Discovery concept, the quality of restaurant operations, the
ability to expand to multi-unit locations and general economic conditions.
Furthermore, to the extent the Company's expansion strategy is successful, there
is no assurance that the Company will successfully manage the transition to
higher volume operations, control its operating expenses, attract necessary
additional personnel, or attract the required capital. Unless otherwise stated,
all historical financial results for the Company are derived solely from the
Kenwood Unit, which may not be indicative of other locations.
LIMITED BASE OF OPERATIONS
The Company currently operates one restaurant, the Kenwood Unit, and plans
to open the Mall of America Unit in the second quarter of 1998. During the
Company's initial development stage, the combination of a relatively small
number of locations and the significant investment associated with each new
restaurant may cause the operating results of the Company to fluctuate
significantly and adversely affect the profitability and cash flow of the
Company. Due to the small number of current and planned locations and the large
expenditure required to open each new unit, poor operating results at any one
unit or a delay in the planned opening of a unit would materially affect the
profitability and cash flow of the entire Company. Future growth in revenues and
profits will depend to a substantial extent on the Company's ability to increase
the number of its restaurants and on its choice of locations. Because of the
substantial financial requirements associated with opening new units, the
investment risk related to any one Hotel Discovery unit is much larger than that
associated with most other restaurant companies' venues.
DEPENDENCE ON KEY PERSONNEL
The Company will be largely dependent upon the personal efforts and
abilities of Stephen D. King, Chairman and Chief Executive Officer, and Ronald
K. Fuller, President and Chief Operating Officer. The loss or unavailability to
the Company of either of these individuals could have a material adverse effect
upon the Company's business. See "Management."
NEED FOR ADDITIONAL MANAGEMENT
The success of the Company will depend in large part upon the Company's
ability to supplement its existing management team. While both Messrs. King and
Fuller have significant restaurant and multi-location restaurant management
experience, the Company will need to hire other corporate level and management
employees to help implement and operate its expansion plans, including a chief
financial officer. The failure to obtain, or delays in obtaining, key employees
could have a material adverse effect on the Company. See "Management."
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING
The success of the Company's operations depends to a significant extent on
a number of factors including discretionary consumer spending, economic
conditions affecting disposable consumer income, the overall
6
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success of the malls, entertainment centers and other venues where Hotel
Discovery restaurants are or will be located, and the continued popularity of
theme restaurants generally and the Company's concept in particular. Theme
restaurants are more susceptible to shifts in consumer preferences and
frequently experience a decline of revenue growth or of actual revenues as
consumers tire of the related theme.
RISKS OF NEW CONSTRUCTION
Construction projects, including the opening of additional restaurant
locations, entail risks, including shortages of materials or skilled labor,
unforeseen environmental, engineering or geological problems, work stoppages,
weather interference, floods, difficulties with regulatory agencies and
unanticipated cost increases, any of which could give rise to delays and cost
overruns.
LIMITED FINANCIAL RESOURCES; ADEQUACY OF PROCEEDS AND NEED FOR ADDITIONAL
FINANCING
The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial equity capital and other
financing to fund the development of additional restaurants. The proceeds of
this Offering will provide the Company with the financing required to develop
and open the Mall of America Unit and for working capital purposes. The total
cost of developing the Kenwood Unit was approximately $4.7 million, which
included $3.5 million for building design and construction and $1.2 million for
equipment, furniture and fixtures. The Company estimates that the total cost of
developing the planned Mall of America Unit will be approximately $4.5 million,
net of landlord contributions. Although the Company estimates that the proceeds
from this Offering will be sufficient to develop and open both the Mall of
America Unit and a third Hotel Discovery restaurant, there can be no assurance
that both of such restaurants can be developed at such estimated costs. If the
proceeds of this Offering are not sufficient to develop a third unit, the
Company may be required to seek additional funds through an additional offering
of the Company's equity securities or by incurring indebtedness. If additional
funds are required, there can be no assurance that any additional funds will be
available on terms acceptable to the Company or its shareholders. New investors
may seek and obtain substantially better terms than were granted its present
investors and the issuance of such securities would result in dilution to
existing shareholders. Furthermore, as the Company prepares to open additional
restaurants, it will expend a relatively higher amount on administrative
expenses than would a mature company with similar operations.
EXPANSION STRATEGY
The Company's ability to open and successfully operate additional
restaurants will also depend upon the hiring and training of skilled restaurant
management personnel and the ability to successfully manage growth, including
monitoring units and controlling costs, food quality and customer service. The
Company anticipates that the opening of additional restaurants will result in
additional expenses associated with managing operations located in multiple
markets. Furthermore, the Company believes that competition for unit-level
management has become increasingly intense as additional restaurant chains
expand to new markets. Achieving consumer awareness and market acceptance will
require substantial efforts and expenditures by the Company. An extraordinary
amount of management's time may be drawn to such matters and may adversely
affect operating results. The Company is considering potential sites in Las
Vegas and Chicago, but there can be no assurance that the Company will be able
to enter into any other contracts for development of additional restaurants on
terms satisfactory to the Company or at all. Accordingly, there can be no
assurance that the Company will be able to open new restaurants or that, if
opened, those units can be operated profitably.
RESTAURANT AND RETAIL INDUSTRY COMPETITION
The restaurant and specialty retail businesses are highly competitive. The
restaurant industry is highly competitive with respect to price, service,
quality and location and, as a result, has a high failure rate. There are
numerous well-established competitors, including national, regional and local
restaurant chains, possessing substantially greater financial, marketing,
personnel and other resources than the Company. There can be no assurance that
the Company will be able to successfully respond to various competitive factors
affecting the restaurant industry. The restaurant industry is also generally
affected by changes in consumer preferences,
7
<PAGE> 9
national, regional and local economic conditions and demographic trends. The
performance of restaurant facilities may also be affected by factors such as
traffic patterns, demographic considerations, and the type, number and location
of competing facilities. In addition, factors such as inflation, increased labor
and employee benefit costs, and the availability of experienced management and
hourly employees may also adversely affect the restaurant industry in general
and the Company in particular. Restaurant operating costs are further affected
by increases in the minimum hourly wage, unemployment tax rates and similar
matters over which the Company has no control.
The theme retail business is also highly competitive, particularly in
locations experiencing an oversupply of retail businesses. Hotel Discovery would
compete with a number of well-established specialty retailers possessing
significantly greater financial, marketing, personnel and other resources than
the Company.
LONG-TERM, NON-CANCELABLE LEASES
The Company has entered into long-term leases relating to the Kenwood Unit
and the Mall of America Unit. These leases are non-cancelable by the Company
(except in limited circumstances) and range in term from 12 to 15 years.
Additional restaurants developed by the Company are likely to be subject to
similar long-term, non-cancelable leases. If the Kenwood Unit, the Mall of
America Unit or any other future restaurant does not perform at a profitable
level and the decision is made to close that unit, the Company may nonetheless
be committed to perform its obligations under the applicable lease, which would
include, among other things, payment of the applicable base rent for the balance
of the respective lease term. If such a termination were to occur at one or more
of these locations, the Company could lose a restaurant without necessarily
receiving an adequate return on its investment. See "Description of Leases."
CONTROL OF THE COMPANY
Following this offering, Stephen D. King will control approximately 29.6%
of the Company's Common Stock, assuming all of the shares offered hereunder are
sold. See "Principal Shareholders." Thus Mr. King will have the ability to
substantially influence the election of members of the Board of Directors and to
direct the operations and financial affairs of the Company.
GOVERNMENT REGULATION
The restaurant business is subject to various federal, state and local
government regulations, including those relating to the sale of food and
alcoholic beverages. The failure to maintain food and liquor licenses would have
a material adverse effect on the Company's operating results. In addition,
restaurant operating costs are affected by increases in the minimum hourly wage,
unemployment tax rates, sales taxes and similar costs over which the Company has
no control. Many of the Company's restaurant personnel will be paid at rates
based on the federal minimum wage. Increases in the minimum wage would result in
an increase in the Company's labor costs. The Company will be subject to "dram
shop" statutes in certain states, including Minnesota and Ohio, which generally
provide a person injured by an intoxicated person the right to recover damages
from the establishment that served alcoholic beverages to the intoxicated
person. The Company has obtained liability insurance against such potential
liability.
TRADEMARKS
The Company's ability to successfully implement its Hotel Discovery concept
will depend in part upon its ability to protect its trademarks. The Company has
filed a trademark application with the United States Patent and Trademark Office
to register the "Hotel Discovery" mark and design. There can be no assurance
that the Company will be granted trademark registration for any or all of the
proposed uses in the Company's applications. In the event the Company's mark is
granted registration, there can be no assurance that the Company can protect
such mark and design against prior users in areas where the Company conducts or
will conduct operations. There is no assurance that the Company will be able to
prevent competitors from using the same or similar marks, concepts or
appearance.
8
<PAGE> 10
SUBSTANTIAL DILUTION
Purchasers of the securities offered hereby will experience immediate
substantial dilution of $3.37 per share in net tangible book value per share of
Common Stock if all of the shares offered hereby are sold. See "Dilution."
DIVIDENDS NOT LIKELY
At the present time, the Company intends to use earnings, if any, to
finance further growth of the Company's business. Accordingly, investors should
not purchase the shares with a view toward receipt of dividends.
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company has applied for listing of the Common Stock on
the Nasdaq SmallCap Market, there can be no assurance that an active public
market will develop or be sustained. In addition, the SmallCap Market may be
significantly less liquid than the Nasdaq National Market. If the Company fails
to maintain the standards for quotation, the Company's securities could be
removed from the market and traded in the over-the-counter market. As a result,
an investor would find it more difficult to dispose of, or obtain accurate
quotations as to the price of, the securities.
In addition, if the Company fails to maintain its qualification for the
Units to trade on the Nasdaq SmallCap Market, the Units will be subject to
certain rules of the Securities and Exchange Commission relating to "penny
stocks." Such rules require broker-dealers to make a suitability determination
for purchasers and to receive the purchaser's prior written consent for a
purchase transaction, thus restricting the ability of purchasers and
broker-dealers to sell the stock in the open market.
The offering price of the Units has been arbitrarily determined by
negotiation between the Company and the Underwriter and bears no relationship to
the Company's current operating results, book value, net worth or financial
statement criteria of value. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Such factors are largely subjective, and the Company makes no
representation as to any objectively determinable value of the Units offered
hereby. See "Underwriting".
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS
Purchasers of Units will be able to exercise the Class A Warrants only if a
current prospectus relating to the shares of Common Stock underlying the Class A
Warrants is then in effect and only if such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Class A Warrants reside. Although the Company will
use its best efforts to (i) maintain the effectiveness of a current prospectus
covering the shares of Common Stock underlying the Class A Warrants and (ii)
maintain the registration of such Common Stock under the securities laws of the
states in which the Company initially qualifies the Units for sale in the
Offering, there can be no assurance that the Company will be able to do so. The
Company will be unable to issue shares of Common Stock to those persons desiring
to exercise their Class A Warrants if a current prospectus covering the shares
issuable upon the exercise of the Class A Warrants is not kept effective or if
such shares are not qualified nor exempt from qualification in the states in
which the holders of the Warrants reside.
The Class A Warrants are subject to redemption at any time by the Company
at $.01 per Warrant 90 days after the Effective Date, on 30 days' prior written
notice, if the average closing bid price of the Common Stock shall exceed $7.00
(subject to adjustment), for 14 consecutive trading days, at any time prior to
such notice and provided a current prospectus covering the shares is then
effective under federal securities laws. If the Class A Warrants are redeemed,
Warrant holders will lose their right to exercise the Warrants except during
such 30-day redemption period. Redemption of the Class A Warrants could force
the holders to
9
<PAGE> 11
exercise the Class A Warrants at a time when it may be disadvantageous for the
holders to do so or to sell the Class A Warrants at the then market price or
accept the redemption price, which is likely to be substantially less than the
market value of the Class A Warrants at the time of redemption. See "Description
of Securities -- Class A Warrants."
UNDERWRITER'S WARRANT
The Company has agreed to sell to the Underwriter, for nominal
consideration, a five-year warrant to purchase up to 220,000 shares of Common
Stock at 120% of the Price to Public. As long as the Underwriter's Warrant or
other outstanding warrants remain unexercised, the Company's ability to raise
additional capital may be adversely affected. See "Underwriting."
UNDESIGNATED STOCK
The Company's authorized capital consists of 100,000,000 shares of capital
stock. The Board of Directors, without any action by the Company's stockholders,
is authorized to designate and issue shares in such classes or series (including
classes or series of preferred stock) as it deems appropriate and to establish
the rights, preferences and privileges of such shares, including dividends,
liquidation and voting rights. The Company currently has 5,399,289 shares of
Common Stock outstanding and has authorized the issuance of an additional
2,530,000 shares of Common Stock in contemplation of this Offering. A further
3,489,955 shares of Common Stock have been authorized for the following: (i)
2,200,000 shares issuable upon the exercise of the Class A Warrants being issued
as part of this Offering (2,530,000 if the Underwriter's over-allotment option
is exercised in full), (ii) 220,000 shares issuable upon the exercise of the
Underwriter's Warrant, (iii) 214,955 shares of Common Stock issuable upon
exercise of warrants; (iv) 500,000 shares for issuance under the Company's 1997
Stock Option and Compensation Plan, of which options relating to 452,666 shares
are currently outstanding, and (v) 25,000 shares of Common Stock issuable upon
exercise of directors' stock options. No other class of common stock or
preferred stock is currently designated and there is no current plan to
designate or issue any such securities. The rights of holders of preferred stock
and other classes of common stock that may be issued may be superior to the
rights granted to the holders of the Units. The ability of the Board of
Directors to designate and issue such undesignated shares could impede or deter
an unsolicited tender offer or takeover proposal regarding the Company. Further,
the issuance of additional shares having preferential rights could adversely
affect the voting power and other rights of holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts of Common Stock
in the public market subsequent to this offering may adversely affect the
prevailing market price of Common Stock and may impair the Company's ability to
raise additional capital by the sale of its equity securities. The Company and
its directors, executive officers and 5% shareholders have agreed that they will
not sell nor grant any option for the sale of or otherwise dispose of any shares
of Common Stock for 180 days after the Effective Date without the prior written
consent of the Underwriter. It is expected that 4,438,288 shares of the
Company's Common Stock which were sold in reliance on "private placement"
exemptions under the Securities Act of 1933, as amended (the "1933 Act") will
become eligible for sale pursuant to Rule 144 under the 1933 Act as follows:
1,157,625 shares on the Effective Date, 707,966 shares in September 1997,
1,092,400 shares in the fourth quarter of 1997 (except that the holders of such
1,092,400 shares have agreed not to sell or otherwise dispose of such shares for
90 days after the Effective Date), 800,685 shares in the second quarter of 1998,
and 679,612 shares in the third quarter of 1998. See "Description of Securities
- -- Shares Eligible for Future Sale." In connection with this Offering, certain
officers and directors of the Company have agreed to escrow a portion of their
shares with the State of Minnesota for three years or until (i) the Company
meets certain earnings requirements established by the State of Minnesota, or
(ii) the State of Minnesota determines that the escrow agreement is no longer
necessary. A total of shares of Common Stock will be subject to such
escrow.
10
<PAGE> 12
MINNESOTA ANTI-TAKEOVER LAW
The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of the Company, which may hinder or delay a change in control of the Company.
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering, after
deducting estimated costs and expenses of the Offering, are estimated to be
approximately $9,680,000 ($11,165,000 if the Underwriter's over-allotment option
is exercised in full). The Company intends to utilize the net proceeds as
follows:
<TABLE>
<S> <C>
Further concept development................................. $ 300,000
Development and construction of the Mall of America Unit.... 4,500,000
Development and construction of a third Hotel Discovery
restaurant at an unidentified site........................ 4,500,000
Working capital............................................. 380,000
----------
Total....................................................... $9,680,000
==========
</TABLE>
NEW FACILITIES
The Company intends to apply at least $9,000,000 of the net proceeds to
develop and open two new Hotel Discovery restaurants. The Company currently
estimates that the average cost of developing and opening new Hotel Discovery
restaurants, including equipment, furniture, fixtures and pre-opening expenses,
will range from $4,000,000 to $4,500,000 per facility, net of landlord
contributions, depending upon location, site conditions, construction costs, and
the level of landlord contributions to a facility. There can be no assurance
that the Company will be able to develop and open new Hotel Discovery
restaurants at such costs.
GENERAL
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this Offering, based upon the current state of its business
operations, its current plans and current economic and industry conditions.
These estimates are subject to change based on unanticipated levels and types of
competition, adverse market trends and new business opportunities. Any material
revisions in the allocation of proceeds will be made at the discretion of the
Board of Directors. The Company believes the net proceeds from this Offering,
together with cash generated from operations, will be sufficient to meet the
Company's capital needs for at least 12 months, in connection with the Company's
plans to develop the Mall of America Unit and the third restaurant Unit. Pending
the use of the proceeds of this Offering, the Company intends to invest the
proceeds in short-term, high quality, interest-bearing instruments. If the
Underwriter exercises the over-allotment option in full, the Company will
realize additional net proceeds of approximately $1,485,000. Such additional net
proceeds will be added to the Company's working capital.
11
<PAGE> 13
DILUTION
As of June 29, 1997, the Company's net tangible book value was $1,886,799
or approximately $0.39 per share of Common Stock. "Net tangible book value"
represents the tangible assets of the Company less all liabilities. Without
giving effect to any other changes in net tangible book value after June 29,
1997, other than to give effect to (i) the sale of the securities offered hereby
(assuming the entire offering price of the Units is allocated to the Common
Stock), and (ii) the application of the net proceeds therefrom, the tangible
book value as of June 29, 1997 would have been $11,566,799, or approximately
$1.63 per share. This represents an immediate increase to existing shareholders
in net tangible book value of approximately $1.24 per share and an immediate
dilution to new shareholders of $3.37 per share. "Dilution" represents the
difference between the amount per share paid by purchasers in this Offering and
pro forma net tangible book value per share of the Common Stock after this
Offering. The following table illustrates the per share dilution to new
investors as of June 29, 1997:
<TABLE>
<S> <C> <C>
Public offering price....................................... $5.00
Net tangible book value before offering..................... $0.39
Increase in net tangible book value attributable to new
investors................................................. 1.24
-----
Pro forma net tangible book value after the offering........ 1.63
-----
Dilution in net tangible book value to new investors(1)..... $3.37
=====
</TABLE>
- -------------------------
(1) The dilution in net tangible book value per share to new investors, assuming
the Underwriter's over-allotment option is fully exercised, would be $3.24.
The following table summarizes the differences between the existing
shareholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total cash consideration paid, and
the average cash consideration per share of Common Stock paid (assuming the
entire offering price of the Units is allocated to the Common Stock).
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED(1) CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Founding Investors....................... 3,000,000 39.5% $ 2,500,000 12.1% $0.83
Private Placement Investors.............. 2,399,289 31.5 7,197,867 34.7 3.00
New Investors............................ 2,200,000 29.0 11,000,000 53.2 5.00
--------- ----- ----------- -----
Total............................... 7,599,289 100.0% $20,697,867 100.0%
========= ===== =========== =====
</TABLE>
- -------------------------
(1) The foregoing table takes into account the July 1997 sale of 499,804 shares
of Common Stock at $3.00 per share but does not take into consideration: (i)
330,000 Units subject to the Underwriter's over-allotment option; (ii)
220,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrant at 120% of the Price to Public; (iii) 2,200,000 shares of Common
Stock which are issuable upon the exercise of the Class A Warrants at an
exercise price of $6.50 per Warrant; (iv) 214,955 shares of Common Stock
issuable upon exercise of warrants at an exercise price of $3.75 per
warrant; (v) 500,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option and Compensation Plan, of which options relating
to 452,666 shares are currently outstanding at an exercise price of $3.00
per share; and (vi) 25,000 shares of Common Stock issuable upon exercise of
directors' stock options at an exercise price of $3.34 per share.
12
<PAGE> 14
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, and the Board of Directors presently intends to retain all earnings, if
any, for use in the Company's business for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
29, 1997, as further adjusted to give effect to the sale of the Units offered
hereby and the anticipated application by the Company of the proceeds therefrom.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ ------------ --------------
<S> <C> <C> <C>
Long-term debt:
Long-term debt, net................................. $ 895,870 $ 895,870 $ 895,870
Convertible debt(3)................................. 150,000 150,000 150,000
----------- ----------- -----------
Total long-term debt........................... 1,045,870 1,045,870 1,045,870
----------- ----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 100,000,000 shares
authorized; 4,899,485 shares issued and
outstanding; 5,399,289 pro forma; 7,599,289 as
adjusted......................................... 48,995 53,993 75,993
Additional paid-in capital.......................... 7,581,231 8,976,233 18,634,233
Common stock subscribed............................. (600,000) (600,000) (600,000)
Accumulated deficit................................. (5,123,427) (5,123,427) (5,123,427)
----------- ----------- -----------
Total stockholders' equity..................... 1,906,799 3,306,799 12,986,799
----------- ----------- -----------
Total capitalization........................... $ 2,952,669 $ 4,352,669 $14,032,669
=========== =========== ===========
</TABLE>
- -------------------------
(1) Assumes completion on June 29, 1997 of the sale of 499,804 shares of Common
Stock at $3.00 per share for net proceeds of approximately $1,400,000 which
was completed in July 1997.
(2) As adjusted for the sale of the Units offered hereby and the anticipated
application of the net proceeds therefrom. Does not include: (i) 330,000
Units subject to the Underwriter's over-allotment option; (ii) 220,000
shares of Common Stock issuable upon exercise of the Underwriter's Warrant
at 120% of the Price to Public; (iii) 2,200,000 shares of Common Stock which
are issuable upon the exercise of the Class A Warrants at an exercise price
of $6.50 per Warrant; (iv) 214,955 shares of Common Stock issuable upon
exercise of warrants at an exercise price of $3.75 per warrant; (v) 500,000
shares of Common Stock reserved for issuance under the Company's 1997 Stock
Option and Compensation Plan, of which options relating to 452,666 shares
are currently outstanding at an exercise price of $3.00 per share; and (vi)
25,000 shares of Common Stock issuable upon exercise of directors' stock
options at an exercise price of $3.34 per share.
(3) Convertible into 39,600 shares of Common Stock at maturity on July 1, 1999.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
financial statements and related notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company was formed in January 1994 as an Ohio corporation to develop,
own and operate upscale, casual theme restaurants under the name "Hotel
Discovery." The Company opened its first restaurant in the Kenwood Shopping
Center in Cincinnati, Ohio in December 1996. Prior to opening the Kenwood Unit,
the Company had no revenues and its activities were devoted solely to
development. The Company is presently developing a unit in the Mall of America
in Bloomington, Minnesota.
Future revenue and profits, if any, will depend upon various factors,
including market acceptance of the Hotel Discovery concept, the quality of the
restaurant operations, the ability to expand to multi-unit locations and general
economic conditions. The Company's present sources of revenue are limited to its
existing unit. There can be no assurances the Company will successfully
implement its expansion plans, in which case it will continue to be dependent on
the revenues from the existing unit. The Company also faces all of the risks,
expenses and difficulties frequently encountered in connection with the
expansion and development of a new and expanding business. Furthermore, to the
extent that the Company's expansion strategy is successful, it must manage the
transition to multiple site operations, higher volume operations, the control of
overhead expenses and the addition of necessary personnel.
The Company has adopted a 52/53 week accounting period ending on the Sunday
nearest December 31 of each year.
RESULTS OF OPERATIONS
The Company had no revenues or operations during the period from January
13, 1994 (Inception) to December 19, 1996 (the opening of the Kenwood Unit).
Accordingly, comparisons to periods prior to December 19, 1996 are not
meaningful.
Total Revenues -- The Kenwood Unit opened in December 1996. For the year
ended December 29, 1996, the Company had total sales of $104,129 compared with
$1,864,564 for the 26 weeks ended June 29, 1997.
Costs and Expenses -- For the year ended December 31, 1995, the Company had
a net loss of $940,466. For the year ended December 29, 1996, the Company had a
net loss of $2,327,602 compared with a net loss of $1,681,691 for the 26 weeks
ended June 29, 1997. The net losses for 1995 and 1996 are largely attributable
to concept development and pre-opening costs totaling $923,482 and $1,970,452
for each period, respectively. The net loss for the 1997 period is largely
attributable to additional expenses as the Company increases its corporate
overhead structure for the development of additional locations supported by
revenues from a single operating unit. On February 1, 1997, the Company entered
into an employment agreement with an executive officer requiring the payment of
annual compensation totaling $200,000 per year. This agreement, and continued
increases in the Company's corporate overhead, will impact general and
administrative expenses on an ongoing basis.
14
<PAGE> 16
OPERATING RESULTS OF THE KENWOOD UNIT
During the period from the commencement of Kenwood Unit operations
(December 19, 1996) to December 29, 1996, food and beverage costs were $43,324
or 41.6% of sales compared with $612,115 or 32.8% of sales for the June 29, 1997
period. The improvement in food and beverage costs as a percentage of sales is
due primarily to improved operating efficiencies.
Labor, benefits and other direct restaurant operating expenses were
$241,239 or 231.7% of sales during the period from the commencement of Kenwood
operations (December 19, 1996) to December 29, 1996, compared to $1,638,357 or
87.9% of sales during the 26 weeks ended June 29, 1997. This improvement in
restaurant operating expenses as a percentage of sales is due primarily to
improved labor management and other operating efficiencies and increased sales.
Although no assurances can be given, management believes that the Kenwood
Unit's current level of sales, trained workforce and general operation will
continue to improve unit level performance in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its capital requirements through the sale of Common
Stock to and borrowings from its principal shareholder, Stephen D. King, the
private placement of common stock and debt, and through revenues from
operations. During the period from January 13, 1994 (Inception) through
September 1995, the Company's predecessor sold 1,750 shares of Common Stock to
Mr. King and another individual for nominal consideration, which shares were
split 825-to-1 in November 1996.
During the years ended December 29, 1996 and December 31, 1995, the maximum
amount of borrowings from Mr. King outstanding at any time was $1,213,469 and
$862,891, respectively. At year end December 29, 1996, and December 31, 1995,
the amount of such outstanding indebtedness was $447,787 and $862,891,
respectively. Included in these amounts were concept development costs
reimbursed to a demonstration restaurant owned and operated by Mr. King in the
amount of $278,101 for the year ended December 29, 1996 and $433,996 for the
year ended December 31, 1995. The Company paid interest of 11.5% on all such
advances.
In October 1995, the Company's predecessor and Kenwood Restaurant Limited
Partnership, an Ohio limited partnership formed in June 1995 (the "Kenwood
Partnership"), raised $2.5 million in a private placement of 250 shares of
Common Stock of the Company's predecessor (which shares were split 825-to-1 in
November 1996, and now represent 206,250 shares of the Company) and limited
partnership interests in the Kenwood Partnership. In a reorganization of the
Company which occurred in November 1996, the Kenwood Partnership contributed all
of its assets to the Company's predecessor, including the Kenwood Unit, in
exchange for 1,350,000 shares of Common Stock of the Company.
From November 1996 through July 1997, the Company's predecessor completed
private placements of an aggregate of 2,392,889 shares of Common Stock at $3.00
per share. The net proceeds were approximately $5.9 million. Such proceeds have
been, and will be, used for new and additional features for the Kenwood Unit,
repayment of indebtedness, working capital and development of the planned Mall
of America Unit.
For the year ended December 31, 1995, the year ended December 29, 1996 and
the 26 weeks ended June 29, 1997, the Company used $932,549, $1,024,187 and
$2,387,424, respectively, in cash flow for operating activities.
Since Inception, the Company's principal capital requirements have been the
funding of (i) the development of the Company and the Hotel Discovery concept,
(ii) the construction of the Kenwood Unit and the acquisition of furniture,
fixtures and equipment therein and (iii) toward the development of the Mall of
America Unit. Total capital expenditures for the Kenwood Unit were approximately
$4.7 million.
When completed, the Company estimates that capital expenditures for the
Mall of America Unit will be approximately $4.5 million, net of landlord
contributions of $1.6 million. The unit is expected to be complete in the second
quarter of 1998.
15
<PAGE> 17
The Company borrowed $1.0 million under a leasehold mortgage term loan from
a bank, which is personally guaranteed by Mr. King. This financing was used for
the Kenwood Unit. Principal and interest are due monthly through October 1999,
at which time the remaining balance is due in full. In December 1996, the
Company borrowed an additional $2.5 million under a mortgage term loan from a
bank. Payments of interest only were due through January 1998, at which time the
entire principal balance was due. This loan was paid in full on January 31,
1997. In May 1997, the Company borrowed $2.0 million on a 13-month term note,
with interest only payable monthly at the rate of 7.15%. This note was
guaranteed by Mr. King and was fully secured by substantially all of the
Company's assets. This note was repaid in full in July 1997. On June 23, 1997,
the Company borrowed $800,000 from Provident Bank, which is fully secured by
substantially all of the Company's assets. The loan bears interest at 2% over
the bank's reference rate payable monthly. The loan was personally guaranteed by
Mr. King. This loan was repaid in full in July 1997.
After the completion of the Mall of America Unit, future development and
expansion will be financed through cash flow from operations and other forms of
financing such as the sale of additional equity and debt securities, capital
leases and other credit facilities. There are no assurances that such financing
will be available on terms acceptable or favorable to the Company.
16
<PAGE> 18
BUSINESS
GENERAL
Hotel Discovery, Inc. is a Minnesota corporation which was formed to
develop, own and operate upscale casual theme restaurants. The Company was
formed in January 1994 as an Ohio corporation, prior to reorganizing as a
Minnesota corporation, and operates one Hotel Discovery restaurant in the
Kenwood Shopping Center in Cincinnati, Ohio, which opened in December 1996. A
second restaurant to be located at the Mall of America in a suburb of
Minneapolis, Minnesota, is currently under development. The Company also has a
license agreement with Eastgate Restaurants, Inc., a corporation wholly-owned by
Stephen D. King, for the operation of a demonstration and test restaurant in
Cincinnati which opened in June 1994.
HOTEL DISCOVERY CONCEPT
Hotel Discovery restaurants will serve the rapidly emerging upscale casual
segment of the restaurant industry. Each Hotel Discovery restaurant will combine
two contemporary trends within the restaurant industry by incorporating the
entertainment features of restaurants such as Planet Hollywood, Rainforest Cafe
and Dave & Buster's with the upscale casual attributes of restaurants like
Palomino and The Cheesecake Factory. The Hotel Discovery concept is carefully
designed to provide guests with a new and innovative dining concept providing
noteworthy food, superior service and genuinely imaginative surroundings and
special effects. Hotel Discovery restaurants will contain visual and audio
effects providing a unique sight and sound experience. Management believes the
Hotel Discovery restaurant ambiance and entertainment quality strongly
differentiate its concept from traditional casual segment restaurants such as
Applebee's, Bennigan's, Chili's and Friday's and goes beyond the simple food
service-only concept of a typical theme restaurant.
THE CONCEPT AND THE KENWOOD UNIT
Hotel Discovery is designed around the concepts of adventure, imagination,
exploration and invention. It is based on a foundation of superior food and
excellent service coupled with soft, sophisticated, non-intrusive entertainment.
The surroundings and extensive self-entertainment aspects within Hotel Discovery
restaurants, such as videos corresponding to each dining room, provide guests
with soft discovery experiences that allow them to actively and passively
participate in quality dining experiences.
Imaginary places, myths, and legends intended to pique guests' individual
interests provide a unique land of awareness, enjoyment, and entertainment to
guests of Hotel Discovery. Specially designed furnishings and decorations, along
with specially arranged audio-visual presentations, are carefully orchestrated
to transport guests along imaginative dining journeys. The guest's voyage begins
the moment he or she enters the restaurant and sees a hologram of an old-time
sailing ship rocking on ocean waves. The guest is greeted by the concierge and
then introduced to his or her adventure guide, who seats the guest in one of
four distinctly different dining rooms: the Mapping Room, the Safari Room, the
Artist Loft, or the Observatory.
Features of Hotel Discovery include the sights and sounds of
state-of-the-art video and audio systems, as well as more tangible entertainment
items such as aquariums, waterfalls, a 25-foot moving whale's tail, space
shuttle, a star dome with fiber optic lights, an artist's work in progress and
African masks with moving eyes. While guests venture through the many different
aspects of Hotel Discovery at their leisure, they are able to experience
destinations both real and imaginary within any of the four dining rooms.
ADDITIONAL CONCEPT DEVELOPMENT
In July 1997, the Company entered into an agreement with The Cuningham
Group, an architectural and engineering firm based in Minneapolis, Minnesota, to
assist the Company with Hotel Discovery concept development and rollout. The
Cuningham Group offers full design and build services and the Company believes
that it is a leading firm in the growing restaurant entertainment segment.
Clients of The Cuningham Group in the restaurant and entertainment industries
include Rainforest Cafe, Grand Casinos, Hilton Hotels, Paramount Studios, Steven
Spielberg, MCA, IMAX Corporation, Harrah's Entertainment, Knott's Berry Farm,
Walt Disney Company, Universal Studios and Six Flags.
17
<PAGE> 19
THE CONCEPT AND THE MALL OF AMERICA UNIT
The Company has obtained a lease for a 16,000-square-foot Hotel Discovery
restaurant to be located on the third floor of the Mall of America in
Bloomington, Minnesota, a suburb of Minneapolis (the "Mall of America Unit").
The lease is for a 12-year term and provides for minimum annual rent of $25 per
square foot or, if higher, 6% of gross sales. The minimum rent of $405,000 has
been waived for the first year of the lease. The Mall has agreed to reimburse
the Company for up to $1.6 million for leasehold improvements.
FLOOR PLAN OF THE MALL OF AMERICA UNIT*
[BLUEPRINT OF MALL OF AMERICA UNIT]
* subject to change.
The Mall of America site will feature a 200-foot-long, curved front
elevation that is planned to include waterfalls, stone masonry, brick and stucco
which will symbolize the evolution of building materials through the centuries.
As currently under development, the entrance will be very open and inviting,
with a large replica of a sailing ship framing the retail merchandise area on
one side and a half wall of rock with water fountains leading into the Discovery
Club Bar on the other. The bar will be used to entertain guests who are waiting
to be seated in the dining rooms and is expected to feature a stylized,
partially open globe that will be large enough for guests to actually sit inside
and enjoy sound and lighting effects.
The dining room themes of imagination, invention, adventure and exploration
will be carried forward and expanded to represent a period and place for each
room. As currently planned, the imagination room will become an artist's loft in
Paris, France, with large windows, completed works of art and works in process
on display. The invention room will become Galileo's Observatory in
seventeenth-century Florence, Italy, with graceful arches, polished wood
surfaces and a towering telescope replica mounted on a rotating platform. The
adventure room will recall the natural splendor of the famous Serengheti plains
from the vantage point of a luxuriously appointed veranda. The exploration room,
with massive stone ruins and primitive wooden structures, will evoke Machu
Picchu, the mysterious Incan city in the clouds.
RETAIL COMPONENT
The retail area of a Hotel Discovery restaurant is located at the entrance
of the facility. All restaurant patrons will have to pass by merchandise on
their way to and from the dining areas. The retail component of the Hotel
Discovery concept at the Kenwood Unit includes a collection of adult and
children's casual clothing, including T-shirts, sweat shirts, shirts and caps,
and a limited amount of other logo merchandise. The Mall of America Unit will
display a much larger selection of merchandise which will be centered around the
four
18
<PAGE> 20
themes of imagination, invention, exploration and adventure as expressed in the
four dining rooms. Such merchandise is expected to include educational toys and
games, stationery, prints, telescopes, art materials, jewelry, primitive musical
instruments, gift items and travel and hotel memorabilia. The Company believes
that its unique theme will generate significant consumer identification similar
to the retail items sold by other restaurant/retail facilities.
EXPANSION PLANS; LOCATION SELECTION
Management believes the Hotel Discovery concept is ideally targeted to the
upscale mall and resort area customer segment. Future expansion activities will
be concentrated in locations which exhibit large upper and upper middle class
demographics and malls containing upscale, quality retailers and upscale casual
restaurants. In addition, the large size of planned Hotel Discovery restaurants
will necessitate locations in areas with significant tourist as well as local
traffic. Several leading leasing managers of upscale malls have expressed
interest in having a Hotel Discovery restaurant as a tenant. The Company
currently intends to aim future expansion at upscale malls or resort areas.
AWARD-WINNING MENU
The Hotel Discovery menu features items from around the world. In the 1997
Taste of Cincinnati festival, Hotel Discovery's Ebony Butterfly Medallions won
"Best Entree" and another Hotel Discovery menu entry won honorable mention in
the vegetarian category. Menu offerings include a variety of freshly prepared
steaks, chicken, seafood, entree salads and pastas, all with an eclectic,
international flair. The menu mirrors the exploratory journey and adventure
society concept embodied in the restaurant itself.
Management believes that continual guest feedback on the key attributes of
food quality, menu variety, service and ambiance is crucial to Hotel Discovery's
success. It is currently obtained by weekly tabulation of comment cards that are
distributed with every guest check, an extensive mystery diner program and
periodic marketing research and telephone interviews. This constant feedback
enables Hotel Discovery management to monitor guest response to all areas of the
operation and react accordingly.
Great care is taken to ensure that only the finest and freshest meats,
vegetables, spices and other ingredients are used in Hotel Discovery recipes.
Hotel Discovery's freshly prepared menu items are designed to cater to the most
discerning tastes consistent with the image of an upscale casual dining
experience.
RESTAURANT OPERATIONS
Hotel Discovery strives to maintain quality through extensive training of
its employees and careful supervision of personnel. The Company has developed,
and expects to implement at each Hotel Discovery restaurant, operations in
accordance with a detailed operating manual, which contains specifications
relating to food and beverage preparation, maintenance of premises and employee
conduct. Each restaurant is expected to have a director of operations, five to
seven managers and a controller.
The Company places emphasis on employee training and incentives. Problems
of employee turnover, low morale and inconsistent performance have been
worsening within the restaurant industry in recent years. The Company believes
that many of these problems can be lessened through extensive training, both
initially and on an ongoing basis. Hotel Discovery training begins with
classroom sessions that immerse new employees in Company food, beverage and
service standards and guest communication guidelines. Each prospective guest
service employee actually tastes, and is tested on, every food and beverage item
on the menu. Daily shift meetings are held prior to lunch and dinner to
communicate daily specials and feedback from comment cards and to reinforce
service standards.
MANAGEMENT AND FINANCIAL CONTROLS
Hotel Discovery has implemented specific management control features for
employee follow-up, customer satisfaction, and financial results. These controls
are described below.
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<PAGE> 21
Employee Follow-up. Shift schedules are posted weekly for each position in
the restaurant. Each shift is managed by a scheduled manager. Managers are
responsible for executing job functions and following a thorough and complete
checklist for each category of the restaurant. Checklists review the appearance
of the outside of the restaurant, the dining room, kitchen and restrooms as well
as dining room service and food preparation. Regular one-on-one meetings are
held with employees and feedback as to their performance is given on a regular
and consistent basis. This feedback includes positive reinforcement as well as
redirection when a change in focus is needed. In addition, the restaurant's
director of operations holds a weekly quality circle luncheon for key employees
from each position in the restaurant. The President of the Company also holds a
quarterly "town meeting" with selected employees to ensure that a strong
communications system between the corporate office and the field is in place.
Customer Satisfaction. Similar checklists are used to ensure that guests
receive a high level of service and food quality. In addition, floor management
is conducted during all peak seating periods by management. Management's
incentives include a bonus based upon a percentage of cash flow and/or
profitability. These incentives enable the manager to act and work as a
"partner." It is this type of pay-for-performance system that will allow the
results of Hotel Discovery restaurants to mirror those of an entrepreneurially
owned and operated business.
Financial Controls. Financial controls are monitored through a computer
software system that is state-of-the-art for tracking sales, food costs, labor,
and guest lists. All of this data is reviewed on a daily, weekly and monthly
basis, enabling management to react promptly to correct deviations and
capitalize on trends.
COMPETITION
The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than the Company and with substantially longer operating
histories. The Company believes that it competes with other full-service dine-in
restaurants, take-out food service companies, fast-food restaurants,
delicatessens, cafeteria-style buffets and prepared food stores, as well as with
supermarkets and convenience stores. Competitors include national, regional and
local restaurants, purveyors of carry-out food and convenience dining
establishments.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product and local competitive factors.
The Company attempts to manage or adapt to these factors, but it should be
recognized that some or all of these factors could cause the Company to be
adversely affected. Management is of the opinion that quality food pleasingly
presented is an absolute requirement within the upscale casual segment of the
market.
THE UPSCALE CASUAL DINING SEGMENT
The Hotel Discovery concept is positioned squarely in the upscale casual
segment of the dining-out industry. Virtually all the successful upscale casual
chains in the full service restaurant industry locate in major metropolitan
areas and most typically within or contiguous to a high-traffic, upscale
regional mall or resort area. While mall traffic in general has been sporadic or
declining in recent years as the "big box" concept in retailing drains potential
customers away from malls, the regional mall still remains a viable concept for
fulfilling customer needs. In actuality, the declining customer count within the
regional mall has created an opportunity for the upscale casual segment of the
restaurant industry. Landlords desiring to increase traffic within the upscale
mall have shown a willingness to provide restaurants with generous "add backs"
or "give ups" to locate within a specific mall in order to increase the traffic
flow, thereby creating an advantageous situation for both the mall developer as
well as the restaurant investor.
Although price is not the most important determinant to customer count
within this $15 per average check niche, value is. The Hotel Discovery menu is
extensive, varied, innovative, original and constantly evolving, using only the
freshest ingredients coupled with a pleasing presentation. The surroundings are
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<PAGE> 22
high-energy and casual with efficient, attentive and friendly service. Rather
than merely a place to consume food, the concept appeals to all the senses
through video, audio and entertainment features.
While the dining-out industry as a whole has shown relatively sluggish
growth over the last few years, the segment of the industry targeted by Hotel
Discovery has shown both rapid and consistent growth. Since the mid-1980s the
top 20% of households have been increasing their share of total income. While
this trend has had a profound effect on retailing in general, the effect on
various segments of the restaurant industry has also been quite pronounced. An
increase in the frequency of meals consumed away from home and a significantly
larger average check have been observed.
GOVERNMENT REGULATIONS
Hotel Discovery restaurants are subject to federal, state and local laws
affecting the operation of its restaurants, including zoning, health, sanitation
and safety regulation and alcoholic beverage licensing requirements. Each
restaurant is operated in accordance with standardized procedures designed to
assure compliance with all applicable codes and regulations. The suspension of
food service or liquor license would cause an interruption of operations at the
affected restaurant. The Company believes that it is in compliance with all
licensing and other regulations.
The Company is also subject to the Fair Labor Standards Act, which governs
minimum wages, overtime and working conditions. A significant portion of Hotel
Discovery restaurant employees are paid at rates relating to federal minimum
wage. Accordingly, an increase in the minimum wage would directly increase each
restaurant's labor cost.
Obtaining alcoholic beverage licenses from various jurisdictions will
require disclosure of certain detailed information about directors, officers and
greater than 10% shareholders of the Company's equity securities, and will
necessitate that such persons be approved by the appropriate liquor licensing
authority.
THE KENWOOD UNIT
LOCATION
The Kenwood Unit is located in the recently refurbished Sycamore Plaza at
Kenwood Shopping Center, 7800 Montgomery Road, Cincinnati, Ohio, and opened for
business on December 19, 1996. The restaurant contains approximately 17,000
square feet on three levels and is located at the northeast corner of the
Shopping Center Plaza. The Company leases the site upon which the restaurant is
constructed.
The Kenwood Unit was open for dinner on December 19, 1996 and for lunch on
January 4, 1997. For the 26 weeks ended June 29, 1997, the Kenwood Unit had
total sales of $1,864,564.
The Kenwood location represents the highest volume retail sales per square
foot in Cincinnati, reflecting a combination of high disposable income in the
Kenwood/Montgomery area as well as a population of approximately 200,000 within
a five-mile radius. The site contains an exclusive no-build area which provides
a direct view of the restaurant from both Kenwood and Montgomery Roads. There is
ample parking available adjacent to the location within the shopping center
complex.
DESCRIPTION OF LEASE
The initial term of the lease is for 15 years. In addition, the Company has
the right to extend the term of the lease for two additional terms of five years
each, exercisable not earlier than 12 months nor later than six months prior to
the expiration of the initial term or first option period, as applicable.
The lease provides for the payment of both a monthly fixed minimum rent and
a percentage rent based on gross sales in excess of an escalating base amount.
The monthly fixed minimum rent is $12,833 for the first five years of the lease,
$14,117 for the sixth through tenth years, $15,400 for the eleventh through
fifteenth years, $16,683 during the first five-year lease renewal term and
$17,967 during the second five-year lease renewal term.
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<PAGE> 23
In addition to the fixed minimum rent, the lease provides for the payment
of a percentage rent equal to 4% of the gross sales from the restaurant in
excess of the following annual gross sales amounts: $3,850,000 for the first
five years of the lease, $4,235,000 for the sixth through tenth years,
$4,620,000 for the eleventh through fifteenth years, $5,004,999 for the first
five-year lease renewal term and $5,390,000 for the second five-year lease
renewal term.
The lease is a "triple net" lease and, in addition to the fixed minimum
rent and percentage rent, the Company is required to pay its proportionate share
of taxes, insurance, and maintenance and operation costs. Initially, the
estimated annual amount payable with respect to taxes, maintenance and operating
costs, and insurance is $4.15 a square foot, or approximately $32,000 per year.
The landlord agreed to reimburse the Company in an amount up to $200,000 as
a construction allowance for the completion of building and leasehold
improvements within 30 days of the opening of the Kenwood Unit. The Company
expects to complete the necessary documentation to obtain such reimbursement in
the near future. In addition, the landlord agreed that it will not construct any
permanent facility within a designated no-build area outlined in the lease. This
"no-build" area allows unimpaired visibility of the restaurant from both Kenwood
Road and Montgomery Road.
FINANCING OF THE KENWOOD UNIT
The total cost of the Kenwood Unit, including additional features, was
approximately $4.7 million. Approximately $2,475,000 of the cost of the
restaurant was funded by the proceeds of a private placement in October 1995.
Another $1,025,000 was financed by a private placement which was concluded in
June 1997, $850,000 of which was spent on new additional features. Leasehold
improvements in the amount of $200,000 will be financed by the landlord. An
additional $1,000,000 was funded by a leasehold mortgage term loan (the "Loan")
which was incurred by the Kenwood Restaurant Limited Partnership and assumed by
the Company.
The Loan is secured with a leasehold mortgage and lien on the assets of the
restaurant and is guaranteed by Mr. King individually. The Loan bears interest
at a floating rate which is currently 9.06% and provides for monthly payments of
principal in the amount of $5,785 plus interest through October 1999, at which
time the remaining balance is due in full.
THE MALL OF AMERICA UNIT
LOCATION
The Mall of America Unit will consist of a 16,000-square-foot restaurant
located on the third floor of the Mall of America in Bloomington, Minnesota. The
site is leased pursuant to a lease dated August 4, 1997 between Mall of America
Company, a Minnesota general partnership, and the Company.
The Mall of America opened in August 1992 with 266 tenants and now holds
approximately 520 stores, merchandise carts and attractions, including four
large anchor tenants (Macy's, Bloomingdale's, Sears and Nordstrom). The mall
encompasses 4.2 million square feet on four enclosed floors, of which 2.5
million square feet are leasable, and employs 11,000 to 13,000 people, depending
on the season. More than 93% of the leasable space is under contract, up from
71% five years ago. The mall draws an estimated 40 million visitors per year.
Tourists account for 35% to 39% of mall traffic, which percentage increases up
to 50% in the summer months.
According to a recent article in the Minneapolis Star Tribune, the industry
benchmark for success in prime shopping malls is $325 in annual sales per square
foot, while stores in the Mall of America with fewer than 15,000 square feet
(which includes most of the mall's tenants) average $450 in annual sales per
square foot. This figure is partially offset by higher-than-average expenses,
including property taxes and charges for common areas such as the rotunda and
broad hallways. Mall development will increasingly focus on
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<PAGE> 24
entertainment in order to maintain a strong flow of visitors to the mall. Since
it opened in 1992, the mall has emerged as a laboratory for new retail and
development concepts, including:
- Knott's Camp Snoopy, the country's first indoor amusement park combined
with a shopping center,
- The first Rainforest Cafe, a tropical-theme restaurant with related
entertainment and merchandise which has undergone three expansions since
its 1994 opening and has since opened six other locations in the United
States and in London, England;
- Postmark America, the U.S. Postal Service's only retail store, and
- Chrysler's Great Cars Great Trucks, a prototype showcase where shoppers
can inspect vehicles and use touchscreen computers to price customized
vehicles.
Having successfully pioneered the Hotel Discovery concept at the Kenwood
Unit, the management of the Company is optimistic that the Mall of America, with
its reputation for innovation in retailing and entertainment, will be an ideal
location to showcase the Company's continuing development of its highly-themed,
entertainment-oriented Hotel Discovery restaurant concept.
DESCRIPTION OF MALL OF AMERICA LEASE
The term of the lease is for 12 years, commencing on the earlier of (i) the
day following the last day allowed to the Company for completion of remodeling
of the leased space or (ii) the date on which the restaurant opens for business.
The lease does not provide for renewal terms.
The lease provides for the payment of either a minimum annual rent or a
percentage rent based on gross sales. The minimum annual rent is $25 per square
foot, or $405,375 per year based on approximately 16,215 square feet of leased
area. The percentage rent is the amount by which 6% of gross sales exceeds
minimum rent. The lease provides for waiver of the minimum annual rent for the
first year of the lease. The landlord will also reimburse the Company for up to
$1.6 million in leasehold improvements.
The lease is a triple net lease and, in addition to the fixed minimum rent
and percentage rent, the Company is required to pay its proportionate share of
taxes, insurance, and maintenance and operation costs.
EMPLOYEES
As of August 22, 1997, the Company employed 133 persons, of whom 82 worked
in full-time positions and 51 were part-time. The Mall of America Unit is
expected to employ approximately 250 full- and part-time personnel when
operating at full capacity. No current employee is covered by a collective
bargaining agreement, and the Company has never experienced an organized work
stoppage, strike or labor dispute. The Company considers relations with its
employees to be excellent.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Stephen D. King.............................. 41 Chairman and Chief Executive Officer
Ronald K. Fuller............................. 51 President, Chief Operating Officer and Director
Steven B. Carey.............................. 36 Vice President -- Menu Development
John J. Motschenbacher....................... 34 Controller
Patricia J. Diamond.......................... 38 Director of Retail
Thomas W. Orr................................ 52 Director
</TABLE>
Stephen D. King, the Chairman and Chief Executive Officer of the Company,
is a managing partner of BaryCenter Capital Management, a Cincinnati-based
financial advisor and investment firm. Mr. King will devote substantially all of
his management time to the Company. From 1982 to 1990, Mr. King served in
various capacities, including Chief Executive Officer, of Pizza Hut of
Cincinnati, Inc., which operates 36 Pizza Hut restaurants in the Cincinnati,
Ohio area. Mr. King has also served in various capacities with Long John Silver,
Two Pesos and Skyline Chili franchise operations. Mr. King also has extensive
real estate and financing expertise and, from 1991 to 1994, served as managing
partner of a real estate development partnership with properties valued at
approximately $60 million.
Ronald K. Fuller joined the Company as President and Chief Operating
Officer in January 1997. Mr. Fuller had served since 1993 as President and Chief
Executive Officer for Leeann Chin, Inc., Minneapolis, Minnesota. From 1985 to
1993, Mr. Fuller held several executive positions with General Mills, Inc. and
General Mills Restaurants, Inc. in Minneapolis and Orlando, Florida, including
Vice President -- Operations, Executive Vice President -- New Concept
Development, and President/General Manager.
Thomas W. Orr is a Director of the Company and has been a Senior Consultant
since 1995 for the Delta Consulting Group, Trumbull, Connecticut, specializing
in business strategy, new business development, marketing and sales. From 1994
to 1995, Mr. Orr was President of the retail chicken group of ConAgra Broiler
Company, with responsibility for strategic direction, operations of five plants,
sales, marketing, international and commodity businesses. Mr. Orr had previously
been associated with ConAgra Broiler Company from 1991 to 1993 as Vice President
of Sales and Vice President of Marketing. From 1993 to 1994, Mr. Orr served as
Senior Vice President for Jennie-O Foods, Inc., a subsidiary of Hormel Foods,
with responsibility for strategy development, marketing and sales for the
retail, food service and commodity divisions.
Steven B. Carey became Vice President -- Menu Development of the Company in
January 1997. From 1994 until that time, Mr. Carey was Corporate Executive Chef
for Leeann Chin, Inc. From 1985 to 1994 he acted as Executive Chef or Senior
Executive Chef for a number of units of Restaurants Unlimited, based in Seattle,
Washington, including Palomino (Minneapolis), Ryan's Grill (Honolulu), Cutter's
Grand Cafe (Philadelphia), Kincaid's Bayhouse (Burlingame, California) and
Skates on the Bay (Berkeley).
John J. Motschenbacher became Corporate Controller of the Company in June
1997. From 1993 to immediately prior to joining the Company, Mr. Motschenbacher
served in various capacities for Leeann Chin, Inc., including as Director of
Accounting and MIS and as Corporate Controller. He was the Controller of
Q-Steaks, Inc., a steakhouse chain based in St. Louis Park, Minnesota. From 1991
to 1992 he was a Regional Controller for Bon Appetit Management Company (San
Francisco), a provider of contract and institutional food service. From 1988 to
1991, he served as Senior Regional Accountant and then Manager of Accounting and
Administration for Consul Restaurant Corporation (Bloomington, Minnesota), a
Chi-Chi's Restaurant franchisee and provider of contract food services.
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<PAGE> 26
Patricia J. Diamond became Director of Retail of the Company in August
1997. From April 1996 to immediately prior to joining the Company, Ms. Diamond
served as General Manager of UnderWater World at the Mall of America, where she
was responsible for developing and coordinating all aquarium operations,
including financial, personnel, marketing and retail functions. From January
1992 to April 1996, Ms. Diamond acted as General Manager of the LEGO Imagination
Center at the Mall of America, where she was responsible for setup, development,
and management, including budgeting, hiring of personnel, retail, exhibition and
special events promotion.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company
for the period from January 13, 1994 (Inception) through December 29, 1996 to
the Company's Chairman and Chief Executive Officer:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ---------------
OTHER ANNUAL AWARD
NAME OF INDIVIDUAL POSITION SALARY COMPENSATION OPTIONS GRANTED
------------------ -------- ------ ------------ ---------------
<S> <C> <C> <C> <C>
Stephen D. King................... Chairman of the Board and $0(1) 0 --
Chief Executive Officer
</TABLE>
- -------------------------
(1) Effective August 1, 1997, the Company began paying a salary to Mr. King of
$200,000 per year.
EMPLOYMENT AGREEMENTS
Mr. Fuller has a two-year employment agreement with the Company, which
provides for an annual base salary of $200,000 for his first year of employment,
which may be adjusted annually as determined by the Board of Directors, plus a
bonus based upon the Company's performance. Such agreement also provides that if
Mr. Fuller is terminated by the Company for a reason other than "cause," as
defined therein, he will receive up to two years' severance if such termination
occurs prior to the Effective Date and one year's severance if such termination
occurs thereafter. Mr. Fuller receives medical, dental and other customary
benefits. The employment agreement provides that Mr. Fuller will not compete
with the Company for one year following termination of his employment. Mr.
Fuller received options to purchase 300,000 shares of Common Stock at an
exercise price of $3.00 per share. Options to purchase 50,000 shares are
currently vested. The remaining options vest over two years.
The Company intends to retain other executive management employees pursuant
to employment agreements. The Company intends to offer stock options to such
employees.
STOCK OPTION AND COMPENSATION PLAN
The Board of Directors adopted the 1997 Stock Option and Incentive
Compensation Plan (the "Plan") in January 1997 and reserved 500,000 shares of
Common Stock for issuance to employees and key consultants under the Plan.
The Plan is administered by the Board of Directors, which has the
discretion to determine the number and purchase price of shares subject to stock
options, which may not be below 85% of the fair market value of the Common Stock
on the date granted, the term of each option, and the time or times during its
term when the option becomes exercisable. As of the date of this Prospectus,
options aggregating 452,666 shares of Common Stock have been granted to certain
non-executive employees of the Company.
BOARD OF DIRECTORS AND DIRECTOR COMPENSATION
Each of the Company's directors has been elected to serve until the next
annual meeting of shareholders. The Company's executive officers are appointed
annually by the Company's directors. Each of the Company's directors continues
to serve until his or her successor has been designated and qualified.
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<PAGE> 27
Directors receive no fees for serving as directors. The Company's sole
non-employee director, Mr. Orr received a ten-year option to purchase 25,000
shares of Common Stock when he joined the Board. One-third of the options vest
on each of the first, second and third anniversaries of the date of grant. The
option granted to Mr. Orr has an exercise price of $3.34 a share. Members of the
Board who are also employees of the Company receive no options for their
services as directors.
REORGANIZATION
The Company's predecessor, Hotel Mexico, Inc. ("HMI"), was originally
incorporated in January 1994 as an Ohio corporation. The Kenwood Restaurant
Limited Partnership, an Ohio limited partnership (the "Kenwood Partnership"),
was formed in June 1995 for the purpose of owning and operating the Kenwood
Unit. The general partner of the Kenwood Partnership is Kenwood Restaurant,
Inc., an Ohio corporation (the "General Partner"), which is 12.9% owned by
Stephen D. King and 87.1% owned by other shareholders. Mr. King owns 23.9% of
the voting stock of the General Partner. The Kenwood Partnership has 22 limited
partners (the "Limited Partners") as a result of a private placement in October
1995.
HMI's operations and the net assets of the Kenwood Partnership were
combined on November 14, 1996. On that date, the Kenwood Partnership contributed
all of its net assets to a newly formed corporation in exchange for shares of
such corporation. HMI then merged with and into the newly-formed corporation,
the name of which was changed to Hotel Mexico, Inc. Upon consummation of the
merger, outstanding shares of HMI were converted into an aggregate of 1,350,000
shares of Common Stock of the newly formed corporation.
The shares of HMI Common Stock received by the Kenwood Partnership in the
reorganization will be retained by the Kenwood Partnership until the Effective
Date. At that time, it is anticipated that the shares of Common Stock and any
other partnership assets will be distributed to the general and limited partners
in accordance with the Partnership Agreement and the Kenwood Partnership will be
dissolved.
On June 24, 1997, the Board of Directors of HMI approved its
reincorporation as a Minnesota corporation named Hotel Discovery, Inc. Following
approval of the transaction and of the name change by HMI's shareholders at a
special meeting held on August 11, 1997, HMI was merged with and into Hotel
Discovery, Inc., a newly-formed Minnesota corporation, on August 22, 1997. Hotel
Discovery, Inc. has an authorized capital stock of 100,000,000 undesignated
shares, and each share of Common Stock of HMI was converted into one share of
Common Stock of Hotel Discovery, Inc.
CERTAIN TRANSACTIONS
The Company granted a five-year non-exclusive license to Eastgate
Restaurants, Inc., an Ohio corporation wholly owned by Stephen D. King, to test
the concept at a demonstration restaurant at 792 Eastgate South Drive,
Cincinnati, Ohio, which opened in June 1994. The license granted includes the
right to use the Hotel Mexico name, emblems, restaurant design, furnishings,
menu and operating procedures. The license fee included an initial payment of
$2,500 to the Company and a monthly fee of $200.
A principal shareholder, director and executive officer provided
essentially all of the Company's working capital in the development stage. This
working capital was provided by direct advances to the Company and reimbursement
for various business costs and expenses incurred by the principal shareholder on
behalf of the Company. During the years ended December 29, 1996 and December 31,
1995, the maximum amount of such indebtedness outstanding at any time was
$1,213,469 and $862,891, respectively. At year end December 29, 1996 and
December 31, 1995, the amount of such outstanding indebtedness was $447,787 and
$862,891, respectively. Included in these amounts were concept development costs
reimbursed to a demonstration restaurant owned and operated by the principal
shareholder in the amount of $278,101 for the year ended December 29, 1996 and
$433,996 for the year ended December 31, 1995. The Company pays interest of
11.5% on all such advances. As of June 29, 1997, $348,430 was outstanding on
such indebtedness.
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<PAGE> 28
Under the Kenwood Unit lease, the landlord is required to reimburse the
Company for leasehold improvements in the amount of $200,000 upon presentation
of appropriate documentation, which money the Company intends to use to retire a
portion of its debt to Mr. King.
In December 1996, the Company borrowed $2.5 million under a term loan from
PNC Bank, Ohio, National Association, fully secured by cash collateral. The loan
accrued annual interest of 5.94% and payments of interest only were due through
January 1998, at which time the entire principal was due. The loan was
personally guaranteed by Mr. King. This loan was paid in full on January 31,
1997. In May 1997 the Company borrowed $2.0 million on a 13-month term note,
with interest only payable monthly at the rate of 7.15%. This note was
guaranteed by Mr. King and was fully secured by substantially all of the
Company's assets. This note was repaid in full in July 1997. Mr. King has also
personally guaranteed a $1,000,000 leasehold mortgage term loan from PNC Bank,
Ohio to the Company. See "The Kenwood Unit--Financing of the Kenwood Unit."
On June 23, 1997, the Company borrowed $800,000 from Provident Bank, which
is fully secured by substantially all of the Company's assets. The loan bears
interest at 2% over the bank's reference rate payable monthly. The loan was
personally guaranteed by Mr. King. This loan was repaid in full in July 1997.
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<PAGE> 29
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, as
adjusted to give effect to the issuance of the securities offered hereby, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, and (iv) all executive officers and directors
of the Company as a group. Unless otherwise indicated, each of the following
persons has sole voting and investment power with respect to the shares of
Common Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
PERCENT
----------------------
SHARES OF PRIOR TO AFTER
NAME COMMON STOCK OFFERING OFFERING(1)
---- ------------ -------- -----------
<S> <C> <C> <C>
Stephen D. King(2)......................................... 900,000(3) 16.7% 11.8%
Ronald K. Fuller........................................... 60,000(4) 1.1 0.8
Thomas W. Orr.............................................. 0 -- --
Kenwood Restaurant Limited Partnership(2).................. 1,350,000(5) 25.0 17.8
All executive officers and directors as a group (3
persons)................................................. 960,000(3) 17.6 12.6
</TABLE>
- -------------------------
(1) Figures do not include any shares that may be purchased in the offering by
executive officers, directors and the principal shareholder of the Company.
Assumes that the Underwriter's over-allotment option is not exercised.
(2) Such person's address is 8260 NorthCreek Drive, Suite 140, Cincinnati, Ohio
45236.
(3) Includes 225,284 shares owned by Mr. King that are subject to options to
purchase held by various individuals. Does not include 403,843 shares as to
which Mr. King has voting control pursuant to voting trust agreements. Such
voting trust agreements will terminate on the Effective Date. Mr. King has
an option exercisable through September 20, 2001 to purchase those shares.
Also does not include shares held by the Kenwood Restaurant Limited
Partnership, as to which shares Mr. King has voting control. See
"Reorganization." Including all such shares (but excluding, subsequent to
the offering, the shares subject to the voting trust agreements), Mr. King's
percentage ownership would be 49.2% and 29.6%, respectively.
(4) Includes 50,000 shares issuable upon exercise of stock options that are
exercisable within 60 days.
(5) Mr. King has voting control of these shares. See "Reorganization."
28
<PAGE> 30
DESCRIPTION OF SECURITIES
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
redeemable Class A Warrant. Warrants are immediately exercisable and, commencing
10 trading days after the Effective Date, separately transferable from the
Common Stock. Each Class A Warrant entitles the holder to purchase at any time,
until the earlier of redemption by the Company or four years following the
Effective Date, one share of common Stock at an exercise price of $6.50 per
Warrant, subject to adjustment.
CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 undesignated
shares of Common Stock, $.01 par value per share in the case of Common Stock,
and a par value as determined by the Board of directors in the case of Preferred
Stock. After the closing of this Offering, there will be issued and outstanding
7,599,289 shares of Common Stock, or 7,929,289 shares if the Underwriter's
over-allotment option is exercised in full.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of existing shareholders should additional shares of
Common Stock be issued. Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of assets legally
available therefor, and to share ratably in the assets of the Company available
upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Significant
corporate transactions, such as amendments to the articles of incorporation,
mergers, sales of assets and dissolution or liquidation, require approval by the
affirmative vote of the majority of the outstanding shares of Common Stock.
Other matters to be voted upon by the holders of Common Stock normally require
the affirmative vote of a majority of the shares present at the particular
stockholders' meeting. The Company's directors and officers as a group
beneficially own approximately 17.6% of the Outstanding Common Stock of the
Company. Upon completion of this Offering, such persons will beneficially own
approximately 12.6% of the outstanding shares (12.1% if the Underwriter's
over-allotment option is exercised in full). See "Principal Shareholders."
Accordingly, such persons will continue to be able to substantially control the
Company's affairs including, without limitation, the sale of equity or debt
securities of the Company, the appointment of officers, the determination of
officers' compensation and the determination whether to cause a registration
statement to be filed. There are approximately 265 beneficial holders of the
Company's Common Stock as of the date of this Prospectus.
The rights of holders of the shares of Common Stock may in the future
become subject to prior and superior rights and preferences in the event that
the Board of Directors establishes one or more additional classes of Common
Stock or one or more series of Preferred Stock. The Board of Directors has no
present plan to establish any such class or series.
The limited partners of the Kenwood Partnership, who currently own an
aggregate of 206,250 shares of Common Stock of the Company and will receive an
aggregate of 922,500 additional shares of the Company's Common Stock upon
dissolution of the Kenwood Partnership, have preemptive rights with respect to
certain private placements of equity securities and certain debt securities of
the Company pursuant to a Shareholder Agreement dated as of September 30, 1995.
These preemptive rights will terminate immediately prior to the Effective Date.
CLASS A WARRANTS
The Class A Warrants included as part of the Units being offered hereby
will be issued under and governed by the provisions of a Warrant Agreement (the
"Warrant Agreement") between the Company and Norwest Bank Minnesota, N.A. as
Warrant Agent (the "Warrant Agent"). The following summary of the
29
<PAGE> 31
Warrant Agreement is not complete, and is qualified in its entirety by reference
to the Warrant Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Commencing 10 trading days after the Effective Date, the shares of Common
Stock and the Class A Warrants offered as part of the Units will be detachable
and separately transferable. One Class A Warrant entitles the holder
("Warrantholder") thereof to purchase one share of Common Stock during the four
years following the Effective Date, subject to earlier redemption, provided that
at such time a current prospectus relating to the shares of Common Stock
issuable upon exercise of the Class A Warrants is in effect and the issuance of
such shares is qualified for sale or exempt from qualification under applicable
state securities laws. Each Class A Warrant will be exercisable at an exercise
price of $6.50 per Warrant, subject to adjustment in certain events.
The Class A Warrants are subject to redemption by the Company beginning 90
days after the Effective Date, on not less than 30 days' written notice, at a
price of $.01 per Warrant at any time following a period of 14 consecutive
trading days where the per share average closing bid price of the Common Stock
exceeds $7.00 (subject to adjustment), provided that a current prospectus
covering the shares issuable upon the exercise of the Class A Warrants is then
effective under federal securities laws. For these purposes, the closing bid
price of the Common Stock shall be determined by the closing bid price as
reported by Nasdaq so long as the Common Stock is quoted on Nasdaq and, if the
Common Stock is listed on a national securities exchange, shall be determined by
the last reported sale price on the primary exchange on which the Common Stock
is traded. Holders of Class A Warrants will automatically forfeit all rights
thereunder except the right to receive the $.01 redemption price per Warrant
unless the Class A Warrants are exercised before they are redeemed.
The Warrantholders are not entitled to vote, receive dividends or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Class A Warrants are in registered form and may be presented for transfer,
exchange or exercise at the office of the Warrant Agent. Although the Company
has applied for listing of the Class A Warrants on the Nasdaq SmallCap Market,
there is currently no established market for the Class A Warrants, and there is
no assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Class A
Warrants to protect Warrantholders against dilution in certain events, including
stock dividends, stock splits, reclassification, and any combination of Common
Stock, or the merger, consolidation, or disposition of substantially all the
assets of the Company.
The Class A Warrants may be exercised upon surrender of the certificate
therefor on or prior to the expiration date (or earlier redemption date) at the
offices of the Warrant Agent, with the form of "Election to Purchase" on the
reserve side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of Class A Warrants
being exercised.
RECENT PRIVATE PLACEMENTS OF COMMON STOCK
In July 1997, the Company concluded the private placement of 499,804 shares
of Common Stock at $3.00 per share. The Company realized net proceeds of
approximately $1,400,000. These proceeds were used for working capital purposes.
In June 1997, the Company concluded the private placement of 1,663,085
shares of Common Stock at $3.00 per share. The Company realized net proceeds of
approximately $4,350,000. Of these net proceeds, $1,200,000 was used to repay a
$1.2 million working capital loan from PNC Bank, Ohio, National Association,
which loan had been guaranteed by Mr. King personally. An additional $675,000
was used to complete construction and development of the Kenwood Unit, $850,000
has been or is being used for new features for the Kenwood Unit, approximately
$200,000 has been used for development and execution of the lease at the Mall of
America, and the balance was utilized for working capital, including operating
losses.
The Underwriter acted as the selling agent (the "Agent") with respect to
these equity offerings. The Agent received sales commissions equal to 8% of the
gross proceeds of the offering plus a non-accountable
30
<PAGE> 32
expense allowance of 2% of gross proceeds. The Agent also received four-year
warrants to purchase 199,205 shares of the Company's Common Stock at an exercise
price of $3.75 per share.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 7,599,289 shares of Common
Stock issued and outstanding (7,929,289 if the Underwriter's over-allotment
option is exercised in full). The shares purchased in this Offering will be
freely tradeable without registration or other restriction under the 1933 Act,
except for any shares purchased by an "affiliate" of the Company (as defined in
the Act).
All the currently outstanding shares were issued in reliance upon the
"private placement" exemptions provided by the Act and are deemed restricted
securities within the meaning of Rule 144 ("Restricted Shares"). Restricted
Shares may not be sold unless they are registered under the Act or are sold
pursuant to an applicable exemption from registration, including an exemption
under Rule 144. A total of 4,438,288 Restricted Shares will become eligible for
sale, assuming all of the other requirements of Rule 144 have been satisfied, as
follows: 1,157,625 shares upon the Effective Date, 707,966 shares in September
1997, 1,092,400 shares in the fourth quarter of 1997 (except that the holders of
such 1,092,400 shares have agreed not to sell or otherwise dispose of such
shares for 90 days after the Effective Date), 800,685 shares in the second
quarter of 1998, and 679,612 shares in the third quarter of 1998.
Rule 144 provides that if at least one year has elapsed since restricted
shares of Common Stock were last acquired from the Company or an affiliate of
the Company, the holder is generally entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the shares
of Common Stock then outstanding or the reported average weekly trading volume
of the Common Stock during the four calendar weeks immediately preceding the
date on which notice of the sale is sent to the SEC. Sales under Rule 144 are
subject to certain manner of sale restrictions, notice requirements and
availability of current public information concerning the Company. A person who
is not an affiliate of the Company during the three months preceding the sale
generally may sell shares without regard to the volume limitations, manner of
sale provision, notice requirements or the availability of public information
concerning the Company, provided that at least two years have elapsed since the
shares were last acquired from the Company or an affiliate.
In general, under Rule 701 as currently in effect, any employee, consultant
or advisor of the Company who purchases shares from the Company by exercising a
stock option outstanding on the date of the Offering is eligible to resell such
shares 90 days after the date of the Prospectus in reliance on Rule 144, but
need not comply with certain restrictions contained in Rule 144, including the
holding period requirement. As soon as practicable after the Offering, the
Company intends to register, through a Form S-8 registration statement, 500,000
shares of Common Stock that are reserved for issuance under the Stock Option
Plan. See "Management." After the effective date of such registration statement,
shares issued upon exercise of outstanding options would generally be eligible
for immediate resale in the public market, subject to vesting under the
applicable option agreements.
Following this Offering, the Company cannot predict the effect, if any,
that sales of the Common Stock or the availability of such Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless, sales
by existing shareholders of substantial amounts of Common Stock could adversely
affect prevailing market prices for the Common Stock if and when a public market
exists. The Company's executive officers, directors and 5% shareholders have
agreed that they will not sell, grant any option for the sale of, or otherwise
dispose of any equity securities of the Company (or any securities convertible
into or exercisable or exchangeable for equity securities of the Company) for a
period of 180 days after the Effective Date without the prior written consent of
the Underwriter. Private placement investors in the Company's Common Stock
agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 90 days after the Effective Date.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a
31
<PAGE> 33
"control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in the
election of directors. In general, Section 302A.673 prohibits a publicly-held
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who is the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock or who is an affiliate or associate of the
corporation and at any time within four years prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for the
Common Stock.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated the effective date of this offering, R.J. Steichen & Company
(the "Underwriter") has agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriter, an aggregate of 2,200,000 Units.
The Underwriting Agreement provides that the Underwriter will be obligated
to purchase, subject to the terms and conditions set forth therein, all of the
Units being sold pursuant to the Underwriting Agreement (other than the Units
covered by the over-allotment option) if any of the Units being sold pursuant to
the Underwriting Agreement are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the 2,200,000 Units at a Price to Public of $5.00 per Unit and
to certain selected dealers at such price less a concession not in excess of
$.24 per Unit to certain other dealers who are members of the National
Association of Securities Dealers, Inc. After the initial public offering, the
Price to Public and other selling terms may be changed by the Underwriter. The
Underwriter does not intend to confirm sales to any account over which it has
discretionary authority.
In the Underwriting Agreement, the Company and the Underwriter have agreed
to indemnify each other (including officers, directors and control persons of
each other) against certain liabilities under the 1933 Act, or to contribute to
payments which the Underwriter may be required to make in respect thereof.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
The Company has granted to the Underwriter an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional 330,000
Units at the Price to Public, less the Underwriting Discount shown on the cover
page of this Prospectus. This option may only be exercised in whole or in part,
but only for the purpose of covering any over-allotments in the sale of the
Units offered hereby.
The Company's executive officers, directors and 5% shareholders have agreed
that they will not sell, grant any option for the sale of, or otherwise dispose
of any equity securities of the Company (or any securities convertible into or
exercisable or exchangeable for equity securities of the Company) for a period
of 180 days after the Effective Date without the prior written consent of the
Underwriter. Private placement investors in the Company's Common Stock agreed
not to sell or otherwise dispose of any shares of Common Stock for a period of
90 days after the Effective Date.
32
<PAGE> 34
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 2% of the aggregate Total Price to Public of the Units or $220,000
($253,000 if the Underwriter's over-allotment option is exercised in full).
The Company has agreed to sell to the Underwriter, for $50.00, five-year
warrants to purchase 220,000 shares of Common Stock of the Company at a price
per share equal to 120% of the Price to Public (the "Underwriter's Warrant").
The Underwriter's Warrant is exercisable commencing one year from the Effective
Date and for a period of four years thereafter. The Underwriter's Warrant
contains anti-dilution provisions providing for appropriate adjustments to the
exercise price and the number of shares on the occurrence of certain events. The
shares of Common Stock received upon exercise of the Underwriter's Warrant may
participate in any securities registration by the Company, at the Company's
expense, during the term of the Warrant and for two years thereafter unless and
to the extent that, in the judgment of the underwriter of such offering, the
market for the securities to be sold by the Company would be adversely affected
thereby. In addition, the holders of such shares have a one-time right to demand
registration of the shares during the term of the Warrant, at the Company's
expense, if and when registration of the Company's securities on Form S-3
becomes available under the 1933 Act. The Underwriter's Warrant also has a
cashless exercise option. Any profits realized by the Underwriter upon the sale
of the Underwriter's Warrant or the securities issuable upon exercise thereof
may be deemed to constitute additional underwriting compensation.
In November 1996 through July 1997, the Company sold an aggregate of
2,162,889 shares of Common Stock in two private placements in which the
Underwriter acted as selling agent. The Underwriter received agent's commissions
of approximately $597,616 and warrants to purchase an aggregate of 199,205
shares of Common Stock exercisable at $3.75 per share.
At the request of the Company, up to 10% of the Units offered hereby may be
reserved for sale to persons designated by the Company. The price of such Units
will be the Price to Public set forth on the cover of this Prospectus.
Prior to this Offering, there has been no public market for the shares.
Consequently, the Price to Public of the Units and the exercise price of the
Class A Warrants were arbitrarily determined through negotiation between the
Company and the Underwriter and bears no relation to the Company's current
earnings, book value, net worth, financial statement criteria of value, the
history of and prospects for the industry in which the Company principally
competes or the capability of the Company's management. There can be no
assurance that the price at which the Units, the Class A Warrants or the Common
Stock will sell in the public market after this Offering will not be lower than
the price at which they are sold by the Underwriter.
The foregoing is a summary of the material provisions of the Underwriting
Agreement and the Underwriter's Warrant. Copies of such documents have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Company by Maslon Edelman Borman & Brand, LLP, Minneapolis, Minnesota. Certain
legal matters relating to the sale of the Units of Common Stock will be passed
upon for the Underwriter by Doherty Rumble & Butler, P.A., Minneapolis,
Minnesota.
EXPERTS
The financial statements of Hotel Discovery, Inc. at December 29, 1996 and
for each of the two years in the period ended December 29, 1996 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young,
LLP, independent auditors, as set forth in their report appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
33
<PAGE> 35
ADDITIONAL INFORMATION
The Company is not a reporting company under the Securities Exchange Act of
1934, as amended. The Company has filed with the Washington, D.C. Office of the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 under the Act with respect to the Common Stock offered hereby. This
Prospectus filed as a part of the Registration Statement does not contain all of
the information contained in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits may be inspected without
charge and copied at the Washington office of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549, and copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at the same
address.
34
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-1
Audited Financial Statements:
Balance Sheet............................................. F-2
Statements of Operations.................................. F-3
Statements of Shareholders' Equity........................ F-4
Statements of Cash Flows.................................. F-5
Notes to Financial Statements............................... F-6
</TABLE>
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Hotel Discovery, Inc.,
We have audited the accompanying balance sheet of Hotel Discovery, Inc. as
of December 29, 1996 and the related statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 1995 and December 29,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hotel Discovery, Inc. at
December 29, 1996 and the results of its operations and its cash flows for the
years ended December 31, 1995 and December 29, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
Cincinnati, Ohio
August 20, 1997
F-1
<PAGE> 38
HOTEL DISCOVERY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 29,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $2,707,561 $ 1,998,056
Inventory................................................. 138,757 131,987
Other current assets...................................... 91,575 205,936
---------- -----------
Total current assets................................... 2,937,893 2,335,979
---------- -----------
PROPERTY AND EQUIPMENT
Building.................................................. 1,900,547 1,900,547
Leasehold improvements.................................... 1,452,635 1,584,677
Equipment and fixtures.................................... 902,334 1,218,538
---------- -----------
4,255,516 4,703,762
Less: accumulated depreciation............................ (25,000) (300,000)
---------- -----------
Total property and equipment, net...................... 4,230,516 4,403,762
---------- -----------
OTHER ASSETS................................................ 51,841 233,024
---------- -----------
Total assets........................................... $7,220,250 $ 6,972,765
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable.................................. $2,500,000 $ 2,800,000
Accounts payable.......................................... 803,885 751,197
Accrued expenses.......................................... 538,637 14,466
Salaries and wages payable................................ 174,882 36,583
Advances payable to principal shareholder................. 447,787 348,430
Current portion of long-term debt......................... 69,420 69,420
---------- -----------
Total current liabilities.............................. 4,534,611 4,020,096
LONG-TERM DEBT, LESS CURRENT PORTION........................ 924,795 895,870
CONVERTIBLE PROMISSORY NOTES PAYABLE........................ 150,000 150,000
---------- -----------
Total liabilities...................................... 5,609,406 5,065,966
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' EQUITY:
Common stock (.01 par value, 100,000,000 shares authorized
and 3,945,400 and 4,899,485 shares issued and
outstanding)........................................... 39,454 48,995
Additional paid-in capital................................ 5,013,126 7,581,231
Less: common stock subscribed............................. 0 (600,000)
Accumulated deficit....................................... (3,441,736) (5,123,427)
---------- -----------
Total shareholders' equity............................. 1,610,844 1,906,799
---------- -----------
Total liabilities and shareholders' equity............. $7,220,250 $ 6,972,765
========== ===========
</TABLE>
See accompanying notes
F-2
<PAGE> 39
HOTEL DISCOVERY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS ENDED
--------------------------- ------------------------
DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1995 1996 1996 1997
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................... $ 0 $ 104,129 $ 0 $ 1,864,564
---------- ----------- ---------- -----------
COSTS AND EXPENSES:
Food and beverage costs................... 0 43,324 0 612,115
Labor and benefits........................ 0 85,407 0 1,036,302
Restaurant operating expenses............. 0 155,832 0 602,055
Depreciation and amortization............. 0 25,000 0 275,000
Selling, general and administrative
expenses............................... 14,775 138,209 44,122 765,573
Pre-opening and development costs......... 923,482 1,970,452 413,889 189,423
---------- ----------- ---------- -----------
Total costs and expenses............. 938,257 2,418,224 458,011 3,480,468
---------- ----------- ---------- -----------
LOSS FROM OPERATIONS........................ (938,257) (2,314,095) (458,011) (1,615,904)
OTHER INCOME (EXPENSE):
Interest (expense)........................ (2,209) (13,507) 0 (92,503)
Interest income........................... 0 0 10,950 26,716
---------- ----------- ---------- -----------
Total other income (expense)......... (2,209) (13,507) 10,950 (65,787)
---------- ----------- ---------- -----------
Net loss............................. $ (940,466) $(2,327,602) $ (447,061) $(1,681,691)
========== =========== ========== ===========
Shares used in per share calculations....... 3,362,611 4,355,187 4,286,100 5,058,240
========== =========== ========== ===========
Net loss per share.......................... $ (.28) $ (.53) $ (.10) $ (.33)
========== =========== ========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 40
HOTEL DISCOVERY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN COMMON STOCK ACCUMULATED
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT TOTAL
------ ------ ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1, 1995..... 1,650,000 $16,500 $ 9,000 $ (25,500) $ (173,668) $ (173,668)
Issuance of shares........... 1,350,000 13,500 2,461,000 (1,750,000) -- 724,500
Cash received on stock
subscribed................. -- -- -- 830,000 -- 830,000
Net loss..................... -- -- -- -- (940,466) (940,466)
--------- ------- ---------- ----------- ----------- -----------
BALANCE -- DECEMBER 31, 1995... 3,000,000 30,000 2,470,000 (945,500) (1,114,134) 440,366
Issuance of shares........... 945,400 9,454 2,543,126 -- -- 2,552,580
Cash received on stock
subscribed................. -- -- -- 945,500 -- 945,500
Net loss..................... -- -- -- -- (2,327,602) (2,327,602)
--------- ------- ---------- ----------- ----------- -----------
BALANCE -- DECEMBER 29, 1996... 3,945,400 39,454 5,013,126 -- (3,441,736) 1,610,844
Issuance of shares
(unaudited)................ 947,685 9,477 2,548,969 (690,000) -- 1,868,446
Shares issued for services
(unaudited)................ 6,400 64 19,136 -- -- 19,200
Cash received on stock
subscribed (unaudited)..... -- -- -- 90,000 -- 90,000
Net loss (unaudited)......... -- -- -- -- (1,681,691) (1,681,691)
--------- ------- ---------- ----------- ----------- -----------
BALANCE -- JUNE 29, 1997
(UNAUDITED)........ 4,899,485 $48,995 $7,581,231 $ (600,000) $(5,123,427) $ 1,906,799
========= ======= ========== =========== =========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 41
HOTEL DISCOVERY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS ENDED
--------------------------- -----------------------
DECEMBER 31, DECEMBER 29, JUNE 30, JUNE 29,
1995 1996 1996 1997
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................. $ (940,466) $(2,327,602) $(447,061) $(1,681,691)
Depreciation and amortization.......... 0 25,000 0 275,000
Shares issued for services............. 0 0 0 19,200
Changes in operating assets and
liabilities --
Inventory............................ 0 (138,757) 0 6,770
Other current assets................. 20,000 (71,575) 20,000 (114,361)
Other assets......................... 0 0 34,527 (177,183)
Accounts payable..................... (12,083) 775,228 148,731 (52,689)
Accrued expenses and salaries and
wages payable..................... 0 713,519 0 (662,470)
---------- ----------- --------- -----------
Net cash used for operating
activities...................... (932,549) (1,024,187) (243,803) (2,387,424)
---------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (811,969) (3,443,544) (996,684) (448,245)
Payment of organization costs............. 0 0 (165) (4,000)
---------- ----------- --------- -----------
Net cash used for investing
activities...................... (811,969) (3,443,544) (996,849) (452,245)
---------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (payments) from shareholder...... 637,221 (415,103) (67,185) (99,357)
Net increase in short-term notes
payable................................ 0 2,500,000 0 300,000
Proceeds from issuance of bank note....... 0 1,000,000 0 0
Issuance of convertible notes payable..... 0 150,000 100,000 0
Proceeds from issuance of equity.......... 724,980 2,552,580 0 1,868,446
Principal repayments on bank note......... 0 (5,785) 0 (28,925)
Payments received on stock
subscriptions.......................... 830,000 945,500 915,000 90,000
---------- ----------- --------- -----------
Net cash provided by financing
activities...................... 2,192,201 6,727,192 947,815 2,130,164
---------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 447,683 2,259,461 (292,837) (709,505)
CASH AND CASH EQUIVALENTS, BEGINNING........ 417 448,100 448,100 2,707,561
---------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, ENDING........... $ 448,100 $ 2,707,561 $ 155,263 $ 1,998,056
========== =========== ========= ===========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest.................... $ 60,000 $ 45,000 $ 0 $ 65,787
Cash paid for income taxes................ $ 0 $ 0 $ 0 $ 0
</TABLE>
See accompanying notes
F-5
<PAGE> 42
HOTEL DISCOVERY, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 29, 1996 AND DECEMBER 31, 1995
1. DESCRIPTION OF THE BUSINESS AND FORMATION OF THE COMPANY
Hotel Discovery, Inc. (the "Company") owns and operates one restaurant in
Cincinnati Ohio (the "Kenwood Unit"). Prior to the opening of this restaurant on
December 19, 1996, the Company was in the development stage. In August 1997, the
Company reincorporated in the State of Minnesota and changed its name from Hotel
Mexico, Inc. to Hotel Discovery, Inc. and increased the number of authorized
shares to 100,000,000.
On November 13, 1996, the Company was reorganized after Hotel Mexico, Inc.
was incorporated in the state of Ohio and became the owner of Hotel Mexico,
Inc.-predecessor and all the net assets of Kenwood Restaurant Limited
Partnership. The result of the reorganization is that the owners of Hotel
Mexico, Inc.-predecessor and the Partnership became the owners of all the
outstanding stock of Hotel Mexico, Inc.-successor. The reincorporation and
reorganization have been reflected retroactively and all share and per share
amounts have been adjusted.
A demonstration and test restaurant, owned by the principal shareholder of
the Company, which opened in June 1994, was used in the development of the Hotel
Discovery concept. This restaurant operates using the Hotel Mexico name under a
license agreement with the Company.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA
The unaudited balance sheet as of June 29, 1997 and the related statements
of operations, cash flows and shareholders' equity for the twenty-six week
period ended June 29, 1997 have been prepared in accordance with the accounting
policies in effect as of December 29, 1996 and for the two years ended December
29, 1996. In the opinion of management such interim financial statements contain
all adjustments (all of which are normal and recurring in nature) necessary to
present fairly the Company's financial position and results of operations and
cash flows. The results of operations for the twenty-six week period ended June
29, 1997 is not necessarily indicative of the results to be expected for the
full year.
FISCAL YEAR
The Company has adopted a 52/53 week accounting period ending on the Sunday
nearest December 31 of each year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, bank deposits and liquid
money market investments with maturities of 90 days or less.
INVENTORY
Restaurant food and supplies inventories are stated at the lower of cost
(determined using the first-in first-out method) or market.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
$0 and $98,673 for 1995 and 1996.
F-6
<PAGE> 43
HOTEL DISCOVERY, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRE-OPENING AND DEVELOPMENT COSTS
Pre-opening costs such as staff training, advertising, rent, and concept
development, menu design, consultant and similar costs of a development nature
are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment acquired are recorded at cost and includes interest
on funds borrowed to finance construction. Capitalized interest in 1996 was
$45,000. Improvements are capitalized, while repair and maintenance expenses are
charged to operations as incurred. Leasehold improvements are being amortized
using the straight line method over the shorter of the estimated useful life or
the lease term. Furniture and equipment are being depreciated on a straight-line
method over 5 to 15 years.
INCOME TAXES
The Company accounts for income taxes using the liability method to
recognize deferred income tax assets and liabilities. Deferred income taxes are
determined based upon the temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities.
STOCK OPTIONS
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation, the Company has chosen to account for
stock option grants using the intrinsic value method prescribed in APB opinion
No. 25, Accounting for Stock Issued to Employees. No options were granted during
the two years ended December 29, 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1996 the Company adopted Financial Accounting Standards Board
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (Statement 121). Statement 121 establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles, and goodwill either to be
held or disposed of. The adoption of Statement 121 did not have an impact on the
Company's financial position or results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from the estimates.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding and dilutive common equivalent
shares assumed to be outstanding during each period. Common equivalent shares
consist of dilutive options to purchase common stock. However, pursuant to
certain rules of the Securities and Exchange Commission, the calculation also
includes equity securities, including options and warrants, issued within one
year of an initial public offering with an issue price less than the initial
public offering price, even if the effect is anti-dilutive. The treasury stock
method was used in determining the dilutive effect of such issuances.
F-7
<PAGE> 44
HOTEL DISCOVERY, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company will adopt in the fiscal year ending December 28, 1997,
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
No. 128), which was issued in February 1997. SFAS No. 128 requires disclosures
of basic earnings per share (EPS) and diluted EPS, which replaces the existing
primary EPS and fully diluted EPS, as defined by APB No. 15. Basic EPS is
computed by dividing net income by the weighted average number of shares of
Common Stock, outstanding during the year. Dilutive EPS is computed similar to
EPS as previously reported provided that, when applying the treasury stock
method to common equivalent shares, the Company must use its average share price
for the period rather than the more dilutive greater of the average share price
or end-of-period share price required by APB No. 15.
3. DEBT
The Company borrowed $1,000,000 in August 1996 under a leasehold mortgage
term loan from a bank. The loan bears interest at 9.06%, payments of principal
and interest are due monthly in the amount of $5,785 through October 1999 at
which time the remaining balance is due in full.
In December 1996, the Company borrowed an additional $2,500,000 under a
mortgage term loan from a bank. The loan bears interest at 5.94%, payments of
interest only are due through January 1998 at which time the entire principal is
due. The loan has been classified as short-term as it was repaid in full in
January 1997.
The loans are secured by the leasehold mortgage and substantially all
assets of the Kenwood Unit. Additionally the principal shareholder has
personally guaranteed the loans. Related loan agreements require minimum working
capital, tangible net worth and debt coverage ratios and restrict additional
indebtedness or asset sales. The fair value of the Company's debt approximates
market.
Aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 69,420
1998........................................................ 69,420
1999........................................................ 855,375
--------
$994,215
========
</TABLE>
In May and June 1997, the Company borrowed $2,800,000 under loan agreements
with banks. The loans have been classified as short-term as they were repaid in
full in July 1997.
4. CONVERTIBLE PROMISSORY NOTES PAYABLE
In June and July 1996, the Company executed three convertible promissory
notes in the total amount of $150,000. The notes mature on July 1, 1999, bearing
interest at 8.01% per annum. The notes are convertible into 39,600 shares of the
Company's common stock at maturity, at the payee's option.
5. INCOME TAXES
Deferred tax assets and liabilities are recognized based on the difference
between financial statement amounts and tax carrying values of assets and
liabilities. Due to the limited history of the Company's operations, a valuation
allowance was established for the net deferred tax assets. For the two years
ending
F-8
<PAGE> 45
HOTEL DISCOVERY, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
December 29, 1996, the Company did not record a benefit from income taxes.
Significant components of the Company's deferred tax assets and liabilities are
as follows at December 29, 1996:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 685,700
Deferral of pre-opening expenses.......................... 336,200
Other tax deferred items.................................. 67,200
----------
Total deferred tax assets................................... 1,089,100
Less: valuation allowance................................... 1,089,100
----------
Net deferred tax assets..................................... -0-
Deferred tax liabilities.................................... -0-
----------
Net deferred tax assets..................................... $ -0-
==========
</TABLE>
The Company's net operating loss carryforward expires in 2011.
The following is a reconciliation of the tax expense recorded in these
financial statements to the expected tax rate based on statutory rates.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Net loss.......................................... $(2,327,602) $(940,466)
Expected rate..................................... 40% 40%
----------- ---------
Expected tax benefit.............................. (931,000) (376,200)
Tax loss attributable to predecessor entities..... -- 218,100
Valuation allowance............................... 931,000 158,100
----------- ---------
Tax benefit recognized............................ $ -0- $ -0-
=========== =========
</TABLE>
6. SHAREHOLDERS' EQUITY
STOCK OPTION PLAN
In January 1997, the Board of Directors adopted the 1997 Stock Option and
Incentive Compensation Plan (the "Plan") and reserved 500,000 common shares for
issuance under the Plan. The Plan is administered by a stock option committee of
the Board of Directors which has the discretion to determine the number of
shares granted, the price of the option, the term of the option and the time
period over which the option may be exercised.
As of August 20, 1997 the Company had granted 452,666 options to purchase
the Company's stock for $3.00 per share under the Plan. Additionally, 25,000
options have been granted to a Director outside of the Plan at $3.34 per share.
As of August 20, 1997, 50,000 options are exercisable, the remaining options
become exercisable over the next three years. The total options that will be
exercisable at each year end are: 1997--50,000, 1998--315,999, 1999--459,332 and
2000--477,666.
WARRANTS
In 1997, the Company granted 214,995 warrants. The warrants are immediately
exercisable at a price of $3.75 per share and expire in five years.
F-9
<PAGE> 46
HOTEL DISCOVERY, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
CAPITAL STOCK
In June 1997, in connection with the Company's reincorporation in
Minnesota, the authorized capital of the Company increased to 100,000,000
shares. As allowed under Minnesota law the Board of Directors is authorized to
designate and issue shares in such classes or series (including classes or
series of preferred stock) as it deems appropriate and to establish the rights,
preferences, and privileges of such shares.
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into a long-term operating ground lease, which
expires in 2012, for the Kenwood Unit. The agreement requires the Company to pay
all maintenance, taxes, operating expenses and a percentage (4%) of sales over
stated thresholds.
The future minimum base rent payments are:
<TABLE>
<S> <C>
1997........................................................ $ 153,996
1998........................................................ 153,996
1999........................................................ 153,996
2000........................................................ 153,996
2001........................................................ 153,996
Thereafter.................................................. 1,770,960
----------
$2,540,940
==========
</TABLE>
On August 14, 1997, the Company entered into a twelve year lease with Mall
of America Company for a 16,000 square-foot restaurant space in Mall of America.
The minimum annual rent is $405,375 plus a percentage rent for a total annual
rent of up to 6% of gross sales. The minimum rent has been waived for the first
year.
8. RELATED PARTY TRANSACTIONS
The principal shareholder, director and executive officer provided
essentially all of the Company's working capital in the development stage. The
working capital was provided by direct advances to the Company and reimbursement
for various business costs and expenses incurred by the shareholder on behalf of
the Company. During the years ended December 29,1996 and December 31, 1995 the
maximum amount of such indebtedness outstanding at any time was $1,213,469, and
$862,891, respectively. At December 29,1996 and December 31, 1995, the amount
outstanding of such indebtedness was $447,787 and $862,891. Included in these
amounts were concept development costs reimbursed to a demonstration restaurant
owned and operated by the principal shareholder in the amount of $278,101 for
the year ended December 29, 1996 and $433,996 for the year ended December 31,
1995. The Company pays interest at 11.5% on these advances. There are no fixed
repayment terms on the advances.
9. SALE OF SHARES AND PROPOSED TRANSACTION
In July 1997, the Company sold an additional 499,804 common shares at $3.00
per share.
The Board of Directors has authorized the completion of a public offering
of up to 2,530,000 Units each consisting of one share of common stock and one
detachable warrant.
F-10
<PAGE> 47
Picture 1 - a photograph of a Hotel Discovery billboard, showing a
rhinoceros, hourglass, dove and sailing ship bursting from huge wooden doors.
Caption: "Eat. Drink. Be Enlightened. Hotel Discovery. Across from Kenwood
Towne Center."
[PHOTOGRAPHS]
<PAGE> 48
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 11
Dilution................................ 12
Dividend Policy......................... 13
Capitalization.......................... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 14
Business................................ 17
The Kenwood Unit........................ 21
The Mall of America Unit................ 22
Management.............................. 24
Reorganization.......................... 26
Certain Transactions.................... 26
Principal Shareholders.................. 28
Description of Securities............... 29
Underwriting............................ 32
Legal Matters........................... 33
Experts................................. 33
Additional Information.................. 34
Index to Financial Statements........... F-1
</TABLE>
----------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
HOTEL DISCOVERY, INC. LOGO
HOTEL DISCOVERY, INC.
2,200,000 UNITS
CONSISTING OF 2,200,000 SHARES
OF COMMON STOCK AND 2,200,000
REDEEMABLE CLASS A WARRANTS
------------------------------
PROSPECTUS
------------------------------
RJ STEICHEN & COMPANY LOGO
, 1997
======================================================
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any person
made or threatened to be made a party to any proceeding by reason of the former
or present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles of
Incorporation of the Company provide that a director shall have no personal
liability to the Company and its shareholders for breach of his fiduciary duty
as a director, to the fullest extent permitted by law.
The Underwriting Agreement contains provisions under which the small
business issuer on the one hand, and the Underwriter, on the other hand, have
agreed to indemnify each other (including officers and directors of the small
business issuer and the Underwriter and any person who may be deemed to control
the small business issuer or the Underwriter) against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 8,817
NASD filing fee............................................. 3,410
Nasdaq listing fee.......................................... 10,000
Legal fees and expenses..................................... 75,000
Accounting fees and expenses................................ 40,000
Blue Sky fees and expenses.................................. 20,000
Transfer agent fees and expenses............................ 1,000
Printing and engraving expenses............................. 45,000
Miscellaneous............................................... 16,773
--------
Total..................................................... $220,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the initial capitalization of the Company in January
1994, the Company sold an aggregate of 1,750 shares of Common Stock to two
"accredited investors" as defined in Regulation D of the Securities Act of 1933,
as amended (the "Securities Act") for nominal consideration. Such shares were
split 825-to-1 in November 1996, and now represent 1,443,750 shares of the
Company. The Company believes that such sale of such Common Stock was exempt
from registration pursuant to Section 4(2) of the Securities Act and Rules 505
and/or 506 under Regulation D of the Securities Act.
II-1
<PAGE> 50
In October 1995, the Company and Kenwood Restaurant Limited Partnership, an
Ohio limited partnership formed in June 1995, raised gross proceeds of $2.5
million in a private placement of 250 shares of Common Stock of the Company
(which shares were split 825-to-1 in November 1996, and now represent 206,250
shares of the Company) and limited partnership interests in the Kenwood
Restaurant Limited Partnership to 19 "accredited investors." In a reorganization
of the Company which occurred in November 1996, the Kenwood Restaurant Limited
Partnership contributed all of its assets to the Company, including the Kenwood
Unit, in exchange for 1,350,000 shares of Common Stock of the Company. The
Company believes that such sale of such securities was exempt from registration
pursuant to Section 4(2) of the Securities Act and Rules 505 and/or 506 under
Regulation D of the Securities Act.
From November 1996 through July 1997, the Company completed private
placements to "accredited investors" of an aggregate of 2,392,889 shares of
Common Stock at $3.00 per share. The net proceeds to the Company were
approximately $5.9 million. The Company believes that such sales of Common Stock
were exempt from registration pursuant to Section 4(2) of the Securities Act and
Rule 506 under Regulation D of the Securities Act.
II-2
<PAGE> 51
ITEM 27. EXHIBITS.
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (with form of Underwriter's
Warrant)
3.1 Articles of Incorporation
3.2 By-laws
4 Form of Warrant Agreement
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Indenture of Lease dated November 9, 1994 between Phillip E.
Stephens, Trustee and Kenwood Restaurant, Inc.; First
Amendment to Lease dated May 3, 1995 by and between Phillip
E. Stephens, Trustee and Kenwood Restaurant, Inc.; by Second
Amendment to Lease dated 1996 between Phillip E.
Stephens, Trustee and Kenwood Restaurant Limited
Partnership; Second Amendment to Agreement dated October 18,
1996 between Phillip E. Stephens, Trustee and Kenwood
Restaurant Limited Partnership; and Addendum to Second
Amendment to Lease dated October 18, 1996 between Phillip E.
Stephens, Trustee and Kenwood Restaurant Limited Partnership
(Kenwood Unit)
10.2 Lease dated August 4, 1997 between Mall of America Company
and Hotel Mexico, Inc. (Mall of America Unit)
10.3 Loan Agreement by and among Kenwood Restaurant Limited
Partnership and PNC Bank, Ohio, National Association
10.4 Company's 1997 Stock Option and Compensation Plan
10.5 Employment Agreement between the Company and Ronald K.
Fuller dated March 17, 1997
24.1 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5)
24.2 Consent of Ernst & Young LLP
25 Powers of Attorney (included on page II-5)
27.1 Financial Data Schedule
</TABLE>
II-3
<PAGE> 52
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement; and (iii) include any additional or changed material information
on the plan of distribution.
(2) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) or Rule 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
The small business issuer hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE> 53
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, State of Minnesota, on August 22, 1997.
HOTEL DISCOVERY, INC.
By /s/ STEPHEN D. KING
--------------------------------------
Stephen D. King
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Stephen
D. King, Ronald K. Fuller or William M. Mower, each or any of them, such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for such person and in such person's name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as such person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN D. KING Chairman of the Board and Chief August 22, 1997
- ------------------------------------- Executive Officer
Stephen D. King
/s/ RONALD K. FULLER President, Chief Operating Officer August 22, 1997
- ------------------------------------- and Director (Chief Financial and
Ronald K. Fuller Chief Accounting Officer)
/s/ THOMAS W. ORR Director August 22, 1997
- -------------------------------------
Thomas W. Orr
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
2,200,000 UNITS CONSISTING OF 2,200,000 SHARES OF COMMON STOCK
AND
2,200,000 REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
HOTEL DISCOVERY, INC.
UNDERWRITING AGREEMENT
____________, 1997
R. J. Steichen & Company
One Financial Plaza
120 South Sixth Street
Minneapolis, MN 55402
Ladies and Gentlemen:
Hotel Discovery, Inc., an Minnesota corporation (the "COMPANY"), proposes
to issue and sell to you (the "UNDERWRITER"), an aggregate of 2,200,000 Units
("UNITS"), each Unit consisting of one share of Common Stock ("COMMON STOCK")
and one Redeemable Class A Common Stock Purchase Warrant (the "WARRANT")
exercisable for a period of four (4) years commencing on the effective date of
the Registration Statement to purchase one share of Common Stock of the Company
at a price of $6.50 per share. The Warrants shall be immediately exercisable
and are detachable and transferable commencing ten (10) trading days after the
effective date of the Registration Statement under the Act or at any earlier
time agreed to by the Underwriter and the Company. The Warrants shall be
redeemable at the option of the Company at $.01 per Warrant at any time ninety
(90) days after the effective date and upon thirty (30) days' prior notice in
writing of the Company's intention to redeem, provided that the average closing
bid price for the Common Stock exceeds $7.00 per share (subject to adjustment)
for any 14 consecutive trading days prior to such notice, on such other terms
set forth in the Preliminary Prospectus (defined herein).
The 2,200,000 Units to be purchased from the Company are referred to
herein as the "FIRM UNITS." In addition, solely for the purpose of covering
overallotments with respect to the Firm Units, the Company proposes to grant to
the Underwriter, for its account, the option to purchase up to an additional
330,000 Units (the "OPTION UNITS"). The Firm Units and any Option Units
purchased pursuant to this Underwriting Agreement are herein referred to as the
"UNITS."
<PAGE> 2
The Company hereby confirms its agreement with respect to the purchase of
the Units by the Underwriter.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriter as follows:
(a) The Company has prepared in conformity in all material respects with
the requirements of the Securities Act of 1933, as amended (the "ACT"),
and the applicable rules and regulations of the Securities and Exchange
Commission (the "COMMISSION") thereunder, and has filed with the National
Office of the Commission in Washington, D.C., a registration statement on
Form SB-2, File No. 333-_________, including a Prospectus relating to the
Units, and will file with the Commission before the effective date of the
registration statement one or more amendments thereto. Copies of such
registration statement and amendments (including all forms of the
preliminary prospectus) have been delivered to you. Any such preliminary
prospectus (as described in Rule 430 under the Act) included at any time
as part of such registration statement is herein called a "PRELIMINARY
PROSPECTUS." As used herein, the term "REGISTRATION STATEMENT" shall,
except where the context otherwise requires, mean said registration
statement (and all exhibits thereto) as amended by all amendments filed
prior to its effective date; and the term "PROSPECTUS" shall, except
where the context otherwise requires, mean said final prospectus on file
with the Commission when the Registration Statement becomes effective
(except that, if the prospectus filed by the Company pursuant to Rule
424(b) under Act shall differ from the prospectus included in the
Registration Statement, the term "PROSPECTUS" shall, except where the
context otherwise requires, mean the prospectus so filed pursuant to Rule
424(b) from and after the date on which it shall have been first used.)
Reference herein to the Registration Statement, to any Preliminary
Prospectus, to the Prospectus or to any amendment of or supplement to the
Prospectus includes all documents and information incorporated therein by
reference.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus, at
the time of filing thereof with the Commission, did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties in this subparagraph shall apply to
statements in, or omissions from, any Preliminary Prospectus which are
based upon and conform to written information furnished to the Company by
or on behalf of you specifically for use in the preparation thereof.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to each Closing Date (defined hereinafter) and upon
the effective date of any post-effective amendment to the Registration
Statement, the Registration Statement and the Prospectus, and any
amendments thereof or supplements thereto, will in all material respects
conform to the requirements of the Act and of the applicable rules
2
<PAGE> 3
and regulations of the Commission thereunder (the "RULES AND
REGULATIONS"). When the Registration Statement becomes effective and at
all times subsequent thereto, up to each Closing Date and the effective
date of any post-effective amendment to the Registration Statement,
neither the Registration Statement (as amended, if the Company shall have
filed with the Commission any post-effective amendment thereto), nor the
Prospectus, will include an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that the Company
makes no representations or warranties as to information contained in or
omitted from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof. There is no contract or document required to be
described in the Registration Statement or Prospectus, or to be filed as
an exhibit to the Registration Statement, which was not described or
filed as required.
(d) [Deleted]
(e) Ernst & Young, LLP, the accountants who have examined certain
financial statements and schedules of the Company, filed and to be filed
with the Commission as part of the Registration Statement and the
Prospectus, are independent public accountants within the meaning of the
Act and the Rules and Regulations. The financial statements of the
Company, together with related notes and summaries thereof, set forth in
the Registration Statement and Prospectus, in all material respects
present fairly the financial position and results of operations and
changes in financial position of the Company as of the dates and for the
periods indicated. All such financial statements (including the related
notes) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
concerned except as may be otherwise stated therein.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and other than as
described in the Registration Statement and Prospectus, (i) the Company
has not incurred any material liabilities or obligations, contingent or
otherwise, or entered into any material transaction, except obligations
incurred in the ordinary course of business that in the aggregate are not
material; (ii) the Company has not paid or declared any dividend or other
distribution on its Common Stock; (iii) there has not been any change in
the Common Stock or increase in the long-term debt of the Company
(including any capitalized lease obligation), or any issuance of options,
warrants, or rights to purchase Common Stock of the Company, or any
material adverse change in the business, financial position, results of
operations, key personnel, capitalization, properties, or net worth of the
Company, considered as a whole; and (iv) no material loss or damage
(whether or not insured) to the property of the Company has been
sustained.
3
<PAGE> 4
(g) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own its properties and
conduct its business as it is currently being carried on and as described
in the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in all states or jurisdictions in which
the ownership or lease of property or the conduct of its business requires
such qualification and in which the failure to so qualify would have a
material adverse effect on its business condition (financial or other), or
properties. The Company has all necessary and material authorizations,
approvals and orders of and from all governmental regulatory officials and
bodies to own its properties and conduct its business as described in the
Prospectus and is conducting its business in substantial compliance with
all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business.
(h) The Company is not in violation of its articles of
incorporation, bylaws, or other governing documents and is not in default
in the performance of any obligation, agreement or condition contained in
any lease agreement or in any bond, debenture, note or any other evidence
of indebtedness or in any material contract, indenture, loan agreement or
license where such default would have a material adverse effect on the
business condition (financial or other) or properties of the Company,
considered as a whole which violation or default has not been waived. The
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a material breach of
any of the terms or provisions of, or constitute a material default under,
the articles of incorporation or bylaws, or other governing documents of
the Company, or any indenture, mortgage, agreement or other instrument to
which the Company is a party or by which it is bound, or to which any
property of the Company is subject, or conflict with or violate any law or
any order, rule or regulation, applicable to the Company of any court, or
of any federal or state regulatory body or administrative agency, having
jurisdiction over the Company or any of its properties which conflict,
breach or default has not been waived.
(i) The Company will, as of each Closing Date, have the duly
authorized and outstanding capitalization set forth in the Prospectus. The
outstanding Common Stock of the Company is duly authorized and validly
issued, fully paid and nonassessable. The Common Stock of the Company
conform in all material respects in substance to all statements in relation
thereto contained in the Registration Statement and the Prospectus. The
Company has all requisite power and authority (corporate and other) to
issue, sell, and deliver the Units, including the Common Stock issuable
upon exercise of the Warrants in accordance with and upon the terms and
conditions set forth in this Agreement and in the Registration Statement
and Prospectus; and all corporate action required to be taken by the
Company for the due and proper authorization, issuance, sale, and delivery
of the Units, including the Common Stock issuable upon exercise of the
Warrants, has been validly and sufficiently taken.
4
<PAGE> 5
(j) The Company has full legal power, right and authority
(corporate and other) to enter into this Underwriting Agreement and to
perform and discharge its obligations hereunder, and this Underwriting
Agreement has been duly authorized, executed and delivered on behalf of the
Company and is the valid and binding obligation of the Company, subject, as
to the enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally, and
except as enforceability of the indemnification or contribution provisions
may be limited by federal or state securities laws or principles of public
policy.
(k) The Company will apply the proceeds of the sale of the Units
by it substantially to the purposes set forth in the Prospectus.
(l) To the best of the Company's knowledge, no approval,
authorization, consent or order of any public board or body (other than in
connection with or in compliance with the provisions of the Act and the
securities or Blue Sky laws of various jurisdictions) is legally required
for the sale of the Units by the Company.
(m) The Company has no subsidiaries.
(n) The Company has good and marketable title, free and clear of
all liens, encumbrances, equities, charges or claims, to all of the
property, real and personal, described in the Registration Statement and
Prospectus as being owned by it, except as otherwise set forth in the
Registration Statement and Prospectus and except for such as are not in the
aggregate material in relation to the property of the Company considered as
a whole and do not materially affect the value of such property, and,
except as otherwise stated in the Registration Statement and Prospectus,
has valid and binding leases to the real and/or personal property described
in the Registration Statement and Prospectus as under lease to it with such
exceptions as could not materially interfere with the conduct of the
business.
(o) There are no actions, suits or proceedings or investigations
pending before any court or governmental agency, authority or body to which
the Company is a party or of which the business or property of the Company
is the subject which, if decided adversely, would have a material adverse
effect on the general affairs, condition (financial or other), business,
properties, net worth, or results of operations of the Company, and, to the
best of the Company's knowledge, no such actions, suits or proceedings are
threatened.
(p) The Company has not taken or will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation
as defined in the Securities Exchange Act of 1934, as amended, of the price
of the Company's securities to facilitate the sale or resale of the Units.
5
<PAGE> 6
(q) The Company has not, directly or indirectly, at any time during
the past five years (i) made any contributions to any candidate for
political office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any state, Federal or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
applicable law.
(r) Except as described in the Prospectus and to the best knowledge
of the Company, the Company owns or possesses the right to utilize all the
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, and similar rights necessary for the present
conduct of its business as described in the Prospectus, without any known
conflict with the asserted rights of others in respect of such matters.
Except as may be stated in the Prospectus, the Company has not received any
notice of any infringement of, or license or similar fees for, any patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, or other similar rights of others, or any claim
with respect thereto, which would have a material adverse effect on the
business of the Company.
(s) The Company has filed all necessary federal, state and foreign
income and franchise tax returns or if not filed, has obtained all
necessary extensions and has paid all taxes as shown as due on any such
returns; and the Company has no knowledge of any material tax deficiency
which has been asserted against the Company, and, to the best of the
Company's knowledge, the Company has no material obligation to pay any
taxes except as may be stated in the Prospectus.
(t) All prior offers or sales of the securities of the Company were
exempt from registration under the Act and all applicable state blue sky
laws.
(u) No securities of the Company have been sold within three years
prior to the date hereof, except as set out in Item 26 of Part II of the
Registration Statement.
(v) The Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of the
Units or Underwriter's Warrants (defined hereinafter) hereunder resulting
from its acts for which the Underwriter may be responsible. The Company
will indemnify the Underwriter for and hold the Underwriter harmless
against any claim for such finder's fees or origination fees.
(w) All material contracts or agreements are properly filed as an
exhibit to the Registration Statement. Each contract to which the Company
is a party and which is filed as a part of or incorporated by reference
into the Registration Statement has been duly and validly executed, is
in full force and effect in all material respects in accordance with its
terms, and none of such contracts have been assigned by the Company, and
the Company knows of no present situation or condition or fact which would
prevent compliance by the Company with the terms of such contracts, as
amended to date. Except for amendments
6
<PAGE> 7
or modifications of such contracts in the ordinary course of business,
the Company has no intention of exercising any right which it may have to
cancel any of its obligations under any of such contracts, and has no
knowledge that any other party to any of such contracts has any intention
not to render full performance under such contracts.
(x) The Company maintains insurance which is in full force and
effect, of the types and in an amount, in the judgment of the Company and
except as otherwise disclosed in the Prospectus, which is reasonable for
its present business taking into account its operations and assets,
including, but not limited to, insurance covering all personal property
owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against.
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) All material transactions between the Company and its officers,
directors, promoters, and its shareholders who beneficially own 5% or
more of any class of the Company's voting securities required to be
disclosed in the Prospectus have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the
Company and no less favorable to the Company than the terms that could
have been obtained from unrelated parties.
2. PURCHASE OF THE UNITS BY THE UNDERWRITER.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter, and the Underwriter agrees to
purchase from the Company, the Firm Units. The purchase price for each
Firm Unit shall be $4.60 per Unit.
(b) The Company hereby grants to the Underwriter, for its account,
an option to purchase from the Company, solely for the purpose of covering
overallotments in the sale of Firm Units, all or any portion of an
aggregate of 330,000 Option Units for a period of 45 days from the date
hereof at the same purchase price per Option Unit as the purchase price per
Firm Unit set forth in Section 2(a) above.
3. DELIVERY OF AND PAYMENT FOR UNITS. Delivery of certificates for the
Firm Units and payment therefor shall be made at the offices of Maslon Edelman
Borman & Brand, PLLP (or such other place as mutually may be agreed upon), at
10:00 a.m., Minneapolis, Minnesota
7
<PAGE> 8
time, on or before the third full business day following the effective date of
the Registration Statement (the "FIRST CLOSING DATE").
The option to purchase Option Units granted in Section 2(b) hereof may be
exercised at any time (but not more than once) during the 45-day term thereof
by written notice to the Company from you. Such notice shall set forth the
aggregate number of Option Units as to which the option is being exercised, and
the time and date, not earlier than either the First Closing Date or the second
business day after the day on which the option shall have been exercised but
not later than the third full business day after the date of such exercise, as
determined by you, when the Option Units are to be delivered (the "SECOND
CLOSING DATE"). Delivery and payment for such Option Units to be purchased by
you are to be at the offices set forth above for delivery and payment of the
Firm Units. The First Closing Date and the Second Closing Date are sometimes
herein individually called the "CLOSING DATE" and collectively called the
"CLOSING DATES."
Delivery of facsimile certificates for the Units shall be made by or on
behalf of the Company to you against payment by you of the purchase price
therefor by wire transfer or certified or official bank check in clearing house
funds to the order of the Company. The certificates for such Units shall be
registered in such names and denominations as you shall have requested at least
two full business days prior to the applicable Closing Date. Time shall be of
the essence and delivery at the time and place specified in this Agreement is a
further condition to your obligations hereunder.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become and remain effective, up to each Closing Date. The
Company will notify you promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus
or for additional information, will prepare and file with the Commission,
promptly upon your request, any amendments of or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion, may
be necessary or advisable in connection with the distribution of the Units;
and will not file any amendments and supplements to the Registration
Statement as originally filed with the Commission unless it shall first
have delivered copies of such amendments or supplements to you, or file any
such amendment or supplement to which you shall have reasonably objected in
writing to the Company. The Company will immediately advise you by
telephone, confirming such advice in writing (i) when notice is received
from the Commission that the Registration Statement has become effective,
(ii) of any order suspending the effectiveness of the Registration
Statement or of any proceedings or examination under the Act, as soon as
the Company is advised thereof, and (iii) of any order or communication of
any public authority addressed to the Company suspending or threatening to
suspend qualification of the Units for sale in any state. The Company will
use its best efforts to prevent the issuance of any stop order or other
such order, and,
8
<PAGE> 9
should a stop order or other such order be issued, to obtain as soon as
possible the lifting thereof.
(b) If, at any time when a prospectus relating to the Units is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or in the
reasonable opinion of counsel for you, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company will
notify you promptly and prepare and file with the Commission an appropriate
amendment or supplement.
(c) The Company will use its best efforts to take or cause to be
taken all necessary action and furnish to whomever you may reasonably
direct such information as may be required in qualifying the Units for
offering and sale under the Blue Sky or securities laws of such states as
you and the Company shall designate. The Company shall not, however, be
required to register or qualify as a foreign corporation or as a dealer in
securities or, except as to matters and transactions related to the
offering or sale of the Units, consent to service of process in any state.
(d) The Company will furnish to the Underwriter, from time to time
and without charge, copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus (including all documents from which
information is incorporated by reference), and all amendments of and
supplements to any of such documents, in each case as soon as available
and in such quantities as you may from time to time reasonably request for
the purposes contemplated by the Act. The Company authorizes the
Underwriter and all dealers to whom any of the Units may be sold by the
Underwriter to use the Preliminary Prospectuses and Prospectuses supplied,
as from time to time amended or supplemented, in connection with the sale
of the Units as and to the extent permitted by federal and applicable
state and local securities laws.
(e) The Company will furnish to you two copies of the Registration
Statement and all amendments thereof which are signed and include all
exhibits and schedules.
(f) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you as soon as the same shall be sent
to shareholders generally, copies of all annual or interim shareholder
reports of the Company, and will, for the same period, also furnish you
with the following:
(i) two copies of any report, application, or document (other
than exhibits, which, however, will be furnished on request) which the
Company shall file with the Commission or any securities exchange;
9
<PAGE> 10
(ii) as soon as the same shall be sent to shareholders
generally, copies of each communication which shall be sent to
shareholders; and
(iii) from time to time such other information concerning the
Company as you may reasonably request, provided that the Company shall
not be required to furnish any information pursuant hereto that is not
furnished to its shareholders or not otherwise made publicly
available.
(g) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you, quarterly profit and loss
statements, reports of the Company's cash flow filed by the Company with
the Commission.
(h) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than eighteen months
after the effective date of the Registration Statement, a statement of
earnings of the Company (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158).
(i) Whether or not this Agreement becomes effective or is terminated
or cancelled or the sale of the Units to you is consummated, and regardless
of the reason for or cause of any such termination, cancellation, or
failure to consummate, the Company will pay or cause to be paid (A) all
expenses (including any transfer taxes) incurred in connection with the
delivery to you of the Units, (B) all expenses and fees (including, without
limitation, fees and expenses of the Company's accountants and counsel,
excluding, however, fees of the Underwriter' counsel) in connection with
the preparation, printing, filing, delivery, and shipping of the
Registration Statement (including the financial statements therein and all
amendments, schedules, and exhibits thereto), each Preliminary Prospectus,
the Prospectus, and any amendment thereof or supplement thereto, (C) all
fees and expenses, including all Company counsel fees, (D) fees and
expenses of the Underwriter's counsel, incurred in connection with the
qualification of the Units for offering and sale by the Underwriter or by
dealers under the securities or Blue Sky laws of the states and other
jurisdictions which you and the Company mutually shall designate in
accordance with Section 4(c) hereof, (E) subject to the further provisions
of this Section 4(i), all fees and expenses, including all counsel fees,
excluding, however, fees of the Underwriter's counsel, incurred in
connection with the review of the offering by the National Association of
Securities Dealers, Inc. and listing fees, if any, (F) all costs and
expenses incident to qualification with The Nasdaq SmallCap Market, (G)
postage and express charges and other expenses in connection with delivery
of the Preliminary and Final Prospectus to the Underwriter, and (H) all
other costs and expenses incident to the performance of the Company's
obligations hereunder that are not otherwise specifically provided for
herein. In addition to and not in lieu of the foregoing, the Company shall
pay to the Underwriter on each Closing Date, for out-of-pocket expenses
(including fees of Underwriter's counsel), a nonaccountable expense
allowance equal to two percent (2%) of the aggregate purchase price for the
Units sold to the Underwriter on each Closing
10
<PAGE> 11
Date. If the Underwriter withdraws from the sale of the Units as herein
proposed for any reason other than its inability to sell the Units and
through no other fault of its own, or if the sale of the Units as herein
proposed is abandoned by the Company, the Company will reimburse the
Underwriter in the amount of all accountable expenses (including fees and
disbursements of counsel) incurred by the Underwriter in connection with
the contemplated purchase, offer, and sale of the Units, including
without limitation, expenses incurred in their investigation, preparation
to market, and marketing of the Units, and in contemplation of performing
and in performance of its obligations hereunder, up to an aggregate of
$30,000, such expenses and fees to be evidenced by appropriate receipts,
invoices, or other documentation.
(j) The Company will cause each officer and director of the Company
to furnish to the Underwriter, on or prior to the date of this Agreement, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriter, pursuant to which each such person shall agree not to offer
for sale, sell, distribute or otherwise dispose of any securities of the
Company for a period of 180 days from the date hereof. The Company will
use its best efforts to cause each significant Shareholder of the Company
(as reasonably determined by the Underwriter) to furnish to the
Underwriter, on or prior to the date of this Agreement, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriter, pursuant to which each such Shareholder shall agree not to
offer for sale, sell, distribute or otherwise dispose of any securities
of the Company for a period of 90 days from the date hereof.
(k) The Company will not, during the 180 days following the effective
date of the Registration Statement, except with your prior written consent,
offer for sale, sell, distribute, or otherwise dispose of any Common Stock
or sell or grant options, rights, or warrants with respect to any Common
Stock (except for the grants, options, rights, warrants or convertible
securities pursuant to the Company's 1997 Stock Option and Incentive
Compensation Plan), otherwise than in accordance with this Agreement or as
contemplated by the Prospectus.
(l) The Company authorizes the Underwriter and all dealers to whom
any of the Units may be sold by the Underwriter in connection with the
distribution of the Units, to use the Prospectus as from time to time
amended or supplemented in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable state Blue Sky or
securities laws.
(m) The Company shall not request an effective date nor allow the
Registration Statement to be declared effective without the prior approval
of the Underwriter.
(n) Within the time during which the Prospectus is required to be
delivered under the Act, the Company will comply, at its own expense,
with all requirements imposed upon it by the Act, by the Rules and
Regulations, by the Exchange Act, and by any order of the Commission, so
far as necessary to permit the continuance of sales or dealings in the
Units.
(o) The Company shall file an application and take all other steps
necessary to have the Units actually listed on The Nasdaq SmallCap Market
on or prior to the effective date of the Registration Statement under the
Act.
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(p) The Company will reserve and keep available that maximum number
of its authorized but unissued shares of Common Stock which are issuable
upon exercise of Warrants and the Underwriter's Warrant during the term
of the Warrants and the Underwriter's Warrant.
(q) Prior to the Closing Date, no discussions will be held by
officers, directors or any other affiliate or associate of the Company
with any member of the news media and no news release or other publicity
about the Company will be permitted without prior approval of the
Company's and the Underwriter's respective legal counsel.
(r) The Company shall have obtained a CUSIP number for the Units
(and its components) prior to the effective date of the Registration
Statement under the Act.
(s) The Company shall supply to the Underwriter, and its legal
counsel, at the Company's cost, one complete bound volume of all of
the documents relating to the public offering, within a reasonable time
after the Closing Date, not to exceed four (4) months. The volume shall
be hard cover bound in book format.
(t) The Company will apply the proceeds from the sale of the Units
by it to the purposes and in the manner set forth in the Registration
Statement and, pending such application, shall invest such net proceeds
only in one or more of the following, except as otherwise provided by
prior written consent of the Underwriter: (i) interest-bearing
obligations issued by the United States Government or issued by an agency
or instrumentality of the United States Government and guaranteed by the
United States Government and having a maturity not in excess of one year,
(ii) interest-bearing domestic commercial paper having a maturity of not
more than 365 days and, at the time of purchase by the Company, rated
investment grade by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, (iii) interest-bearing certificates of deposit issued by a
commercial bank chartered by the United States Government or by any state
of the United States having shareholders' equity of at least $500,000,000
except that the foregoing notwithstanding, the Company may invest no more
than $100,000 of such net proceeds in certificates of deposit issued by
any such commercial bank regardless of shareholders' equity, and (iv)
shares or other units of interest in a registered open-ended investment
company the assets of which aggregate at least $200,000,000 and are
invested solely in so-called "money market" obligations.
5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter herein shall be subject to the accuracy of the representations and
warranties on the part of the Company herein as of the date hereof, and as of
each Closing Date, to the accuracy of the written statements of Company officers
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective not later than
5:00 P.M., Minneapolis, Minnesota time, on the date of this Agreement or on such
later time and date as shall be satisfactory to the Underwriter, no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereof or supplement or the qualification of the Units for offering or sale
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or shall be threatened by the Commission or by
any state securities authority, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the Underwriter's satisfaction.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, contains an untrue statement of fact that, in the Underwriter's
reasonable opinion, is material, or omits to state a fact that, in your
reasonable opinion, is material and is required to be stated therein or is
necessary to make the statements therein not misleading provided that this
Section 5(b) shall not apply to statements in, or omissions from, the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto that are based upon and conform to written information provided by the
Underwriter specifically for use in the Registration Statement or Prospectus.
(c) On or prior to each Closing Date, the form and validity of the Units,
the legality and sufficiency of the corporate proceedings and matters relating
to the incorporation of the Company and other matters incident to the issuance
of the Units, the form of the Registration Statement and the Prospectus and of
any amendments thereof or supplements thereto filed prior to such Closing Date
(other than financial statements and schedules and other financial or
statistical data included therein), the authorization, execution, and delivery
of this Agreement and the description of the Units contained in the Prospectus
shall have been reasonably approved by the Underwriter. In connection with such
determination, the Company shall have furnished to the Underwriter such
documents as you may have requested for the purpose of enabling the Underwriter
to pass upon such matters.
(d) On each Closing Date there shall have been furnished to the
Underwriter, the favorable opinion (addressed to the Underwriter) of Maslon
Edelman Borman & Brand, a Professional Limited Liability Partnership, counsel
for the Company, dated such Closing Date, and in form reasonably satisfactory to
counsel for the Underwriter, to the effect that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Prospectus. The Company has no
subsidiaries other than as described in the Prospectus.
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(ii) The authorized capital stock of the Company as of the date of this
Agreement is as set forth in the Prospectus. The outstanding shares of the
Common Stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Units (and their components) have been
duly authorized and, upon issuance, delivery and payment therefor as described
in this Agreement, will be validly issued, fully paid and nonassessable. The
shares of Common Stock underlying the Warrants have been duly authorized and
reserved for issuance and when issued, sold and delivered in accordance with
the terms of the Warrant, will be validly issued, fully paid and nonassessable.
The issuance, sale and delivery of the Underwriter's Warrant has been duly
authorized and the shares (the "WARRANT SHARES") of Common Stock issuable upon
the exercise thereof have been reserved for issuance upon such exercise. The
Warrant Shares, when issued, sold and delivered in accordance with the terms of
the Underwriter's Warrant, will be validly issued, fully paid and
nonassessable. No preemptive rights of, or rights of refusal in favor of,
stockholders of the Company exist with respect to the Units (or any component
thereof), the Underwriter's Warrant or the Warrant Shares, or the issue and
sale thereof, pursuant to the Company's Articles of Incorporation or Bylaws.
(iii) The authorized securities of the Company conform as to legal matters
in all material respects to the description thereof set forth in the Prospectus
under the caption "Description of Securities." The certificates representing
the Warrants and the Common Stock are in proper form under the Minnesota
Business Corporation Act.
(iv) The Registration Statement has become effective under the Securities
Act and, to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement or suspending or preventing the use of the
Prospectus is in effect and, to our knowledge, no proceedings for that purpose
have been instituted or are pending by the Commission.
(v) The Registration Statement and the Prospectus comply as to form in
all material respects with the requirements of the Securities Act and with the
Rules and Regulations, except the financial statements, the notes thereto and
the related schedules and other financial and statistical data contained
therein, as to which we express no opinion.
(vi) Counsel knows of no contracts, leases, documents or pending legal
proceedings that are required to be described in the Prospectus or to be filed
as exhibits to the Registration Statement that are not so described or filed.
(vii) The Underwriting Agreement, the Warrant Agreement and the
Underwriter's Warrant have been duly authorized by all requisite corporate
action,
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<PAGE> 15
executed and delivered by the Company and constitute the valid and
binding obligations of the Company enforceable in accordance with
their respective terms.
(viii) The execution and delivery of the Underwriting
Agreement and the issue and sale of the Underwriter's Warrant, the
Units (and their components) and the shares underlying the Warrant
will not violate or conflict with the Articles of Incorporation or
the Bylaws of the Company or any material provision of any material
contract or instrument filed as an exhibit to the Registration
Statement to which the Company is a party or by which the Company
is bound (other than any violation of or conflict with any
financial tests or covenants contained therein, as to which counsel
need express no opinion) or any law of the United States or the
State of Minnesota, any rule or regulation of any governmental
authority or regulatory body of the United States or the State of
Minnesota, or any judgment, order or decree known to us and
applicable to the Company of any court or governmental authority.
(ix) No holders of capital stock of the Company, or securities
convertible into capital stock of the Company, have the right to
cause the Company to include such holder's capital stock in the
Registration Statement pursuant to the Company's Articles of
Incorporation or Bylaws or any contract or agreement.
(x) No consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or any
court is required to be obtained or made by the Company for the
issue and sale of the Units pursuant to the Underwriting Agreement,
except such as have been obtained or made and such as may be
required under applicable state securities or blue sky laws or by
the National Association of Securities Dealers, Inc., as to which
we express no opinion.
Although counsel to the Company cannot guarantee the accuracy and
completeness of the statements contained in the Registration Statement or in the
Prospectus, on the basis of discussions and meetings with officers of the
Company, representatives of the Company's independent auditors, the Underwriter
and counsel to the Underwriter, our participation in the preparation of the
Registration Statement and the Prospectus, our examination of the documents
referred to in the Registration Statement and in the Prospectus, and our
procedures forming the basis of the opinions expressed above, nothing came to
our attention that led us to believe that the Registration Statement, as of the
date it was declared effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus, as of its
date or on the date hereof, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that we
express no view with respect to the content of financial statements, the
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<PAGE> 16
notes thereto and the related schedules and other financial or
statistical data included in the Registration Statement or the Prospectus
or as to statements in the Registration Statement or Prospectus which are
based on and conform to written information furnished to the Company by
or on your behalf specifically for use in the preparation thereof).
In rendering such opinion, such counsel may rely (A) as to questions
of the law of jurisdictions other than the State of Minnesota or the
United States upon an opinion or opinions (dated the Closing Date,
addressed to the Underwriter and in form satisfactory to the Underwriter)
of counsel acceptable to the Underwriter and (B) as to matters of fact,
to the extent they deem proper, on certificates of appropriate officers
of the Company, of the transfer agent and registrar for the Units and of
public officials; PROVIDED, such opinions and certificates must be
attached to the opinion of counsel.
(e) At the time of execution of this Agreement, the
Underwriter shall have received from Ernst & Young, LLP, a letter dated
the date of such execution, in form and substance satisfactory to the
Underwriter, to the effect that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
published instructions, and Regulations thereunder, and further stating in
effect that:
(i) In their opinion, the audited financial statements
included in the Registration Statement and Prospectus covered by
their report included therein, comply as to form in all material
respects with the applicable requirements of the Act and the
published instructions, and Regulations, thereunder.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since
inception, (B) inquiries of certain officials of the Company
responsible for financial and accounting matters, (C) a reading
of the Company's monthly operating statements subsequent to
December 31, 1996, and (D) other specified procedures and
inquiries (but not an audit in accordance with generally accepted
auditing standards), nothing came to their attention causing them
to believe that:
(1) that the unaudited financial statements of the
Company, contained in the Prospectus and any amendment
thereof or supplement thereto, do not comply as to form, in
all material respects, with the applicable accounting
requirements of the Act and the published Rules and
Regulations or were not prepared in conformity with
generally-accepted accounting principles and practices
applied on a basis consistent in all material respects with
those followed in the preparation of, the audited financial
statements of the Company included therein; or
(2) that the unaudited amounts of revenues, income
before provision for income taxes, net income and ratio of
earnings to fixed charges of the Company contained in the
Prospectus, or any amendment
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<PAGE> 17
thereof or supplement thereto, were not derived from
financial statements prepared in conformity with
generally-accepted accounting principles and practices
applied on a basis consistent in all material respects with
those followed in the preparation of the audited financial
statements of the Company included therein; or
(3) that the unaudited pro forma financial statements of
the Company and recently-acquired companies, if any,
contained in the Prospectus or any amendment thereof or
supplement thereto, were not properly compiled in accordance
with generally-accepted accounting principles or did not
provide for all adjustments necessary for a fair presentation
of the information purported to be shown thereby; or
(4) with respect to the period subsequent to December
31, 1996, there were, at a specified date, not more than five
(5) business days prior to the date of the letter, any
changes or any material increases or decreases in capital
stock, long-term or short-term debt or shareholders' equity,
decreases in net assets, net current assets, or net worth or
any material decrease, as compared with the corresponding
period of the prior year, in revenues or net income of the
Company as compared with the amounts shown in the December
31, 1996 balance sheet included in the Registration
Statement, except as disclosed or referred to in the
Prospectus and Registration Statement.
(iii) Certain information set forth on the cover of the
Prospectus, and in the Prospectus under the headings "Prospectus
Summary," "Summary Financial Information," "Risk Factors," "Use of
Proceeds," "Dilution," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business," "Management," "Reorganization," "Certain Transactions,"
"Principal Shareholders" and "Description of Securities" and that
are expressed in dollars (or percentages derived from dollar
amounts) or numbers have been compared to accounting records of the
Company which were subject to the internal accounting controls of
the Company and are in agreement with such records or computations
made therefrom, excluding any questions of legal interpretation.
(f) The Underwriter shall have received from Ernst & Young, LLP, a
letter dated as of each Closing Date, to the effect that such accountants
reaffirm, as of such Closing Date, and as though made on such Closing
Date, the statements made in the letter furnished by such accountants
pursuant to subparagraph (e) of this Section 5, except that the specified
date referred to in such letter will be a date not more than five (5)
business days prior to such Closing Date.
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(g) At each Closing Date, the Company shall have performed all material
obligations and satisfied all material conditions on its part to be performed or
satisfied on or prior thereto (except any condition satisfaction of which shall
have been waived as herein provided) and compliance with the provisions of this
subparagraph (g) shall be evidenced by a certificate of an executive officer of
the Company.
(h) On each Closing Date there shall have been furnished to you a
certificate, dated as of such Closing Date and addressed to the Underwriter,
signed by the principal executive officer and principal financial officer of the
Company to the effect that:
(i) the representations and warranties and covenants of the Company
in this Agreement are true and correct in all material respects as if made
at and as of such Closing Date and the Company has complied in all material
respects with all the agreements and satisfied all the material conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date;
(ii) no stop order or other order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto or the
qualification of the Units for offering or sale has been issued and, to the
Company's knowledge, no proceedings for that purpose have been instituted
or are pending or, to the knowledge of the respective signers thereof, are
threatened by the Commission or any state or regulatory body;
(iii) neither the Registration Statement, as of the date it was
declared effective, nor the Prospectus, as of its date and the Closing
Date, included any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (B) since the effective date of the Registration
Statement, no event has occurred which should have been set forth in an
amendment or supplement to the Prospectus which has not been set forth in
such an amendment or supplement; (C) subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus
and except as set forth in or contemplated by the Prospectus, the Company
has not incurred any material liability or obligation, direct or
contingent, whether or not in the ordinary course of business, or entered
into any material transaction, outside of the ordinary course of business,
and there has not been any material change in the Common Stock, or any
increase in the short-term or long-term debt, including any capitalized
lease obligation (other than in the ordinary course of its business and in
an amount which is not material) or any issuance of options, warrants,
convertible securities or other rights to purchase the Common Stock of the
Company or any material adverse change in the general affairs, business,
key personnel, capitalization or financial position of the Company
considered as a whole (other than the issuance of Common Stock pursuant to
existing options); and subsequent to the date of the Underwriting
Agreement, the Company has not
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sustained any material loss or damage to its property or interference
with its business by strike, fire, flood, accident or other calamity,
whether or not any of the foregoing is insured, that would have a
material adverse effect upon the Company considered as a whole, (D)
the projection of the Company previously presented to the Underwriter
showing that the Company will be able to meet the maintenance
requirements for listing on The Nasdaq SmallCap Market for a period of
24 months from the date hereof, were prepared in good faith and
continue to represent the signers' best present estimate of the
Company's financial condition following the Closing of the sale of the
Units.
(i) The Underwriter shall receive a Blue Sky Memorandum reasonably
satisfactory to the Underwriter from Doherty, Rumble & Butler, P.A.,
confirming that all requisite action for the offer and sale of the Units in
all jurisdictions requested has been taken.
(j) The Underwriter shall have received "lock up" agreements, in form
and substance acceptable to the Underwriter, from (i) all directors and
officers of the Company restricting the sale, assignment or other
conveyance of any securities of the Company without the prior written
consent of the Underwriter for a period of 180 days from the effective date
of the Registration Statement under the Act, and (ii) from all significant
shareholders of the Company (as reasonably determined by the Underwriter)
restricting the sale, assignment or other conveyance of any securities of
the Company without the prior written consent of the Underwriter for a
period of 90 days from the effective date of the Registration Statement
under the Act.
(k) The Company's Units (and the securities comprising the Units)
shall be listed on The Nasdaq SmallCap Market on or prior to the effective
date of the Registration Statement under the Act.
(l) Prior to the First Closing, the number of issued and outstanding
shares of common stock of the Company shall not exceed 5,399,289 shares,
and there shall be no change in the capitalization of the Company without
the prior written consent of the Underwriter.
(m) The Company's Units (and the securities comprising the Units)
shall be registered under the Securities Exchange Act of 1934, as amended,
pursuant to Form 8-A, on or prior to the effective date of the Registration
Statement under the Act.
(n) The Company shall have furnished to the Underwriter and Doherty,
Rumble & Butler, P.A., counsel for the Underwriter, such further
certificates and documents as the Underwriter's counsel may reasonably
request, relating to the fulfillment of the conditions set forth in this
Section 5.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Underwriter and to counsel for the Underwriter. The Company will
furnish you with such conformed copies of such opinions, certificates, letters,
and other documents as you shall reasonably request. The Underwriter may
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waive in writing the performance of any one or more of the conditions specified
in this Section 5 or extend the time for their performance.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriter hereunder may be cancelled by
the Underwriter at, or at any time prior to, each Closing Date. Any such
cancellation shall be without liability of the Underwriter to the Company or
any liability of the Company to the Underwriter, except pursuant to Section
4(i) hereof. Notice of such cancellation shall be given to the Company in
writing, or by telefax or telephone confirmed in writing.
The Underwriter may waive in writing the performance of any one or more of
the foregoing conditions or extend the time for their performance.
6. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at immediately after the
time at which the Registration Statement shall have become effective under
the Act.
(b) Until the First Closing Date, this Agreement may be terminated by
you by giving notice to the Company, if (i) the Company shall have
sustained a loss or damage by fire, flood, accident, or other calamity
which is material to the property, business, or condition (financial or
other) of the Company considered as a whole, any properties of the Company
shall have become a party or subject to litigation material to the Company
considered as a whole, or there shall have been, since the respective dates
as of which information is given in the Registration Statement or the
Prospectus, any material adverse change or development in the general
affairs, condition (financial or other), business, key personnel,
capitalization, properties, results of operations or net worth, of the
Company considered as a whole, whether or not arising in the ordinary
course of business, which loss, damage, or change, in your judgment, shall
render it inadvisable to proceed with the delivery of the Units, whether or
not such loss shall have been insured, (ii) trading in securities generally
on the New York Stock Exchange, the American Stock Exchange, The Nasdaq
National Market, The Nasdaq SmallCap Market or the over-the-counter market
shall have been suspended or minimum prices shall have been established on
such exchange or market by the Commission or by such exchange, (iii) a
general banking moratorium shall have been declared by federal or state
authorities, or (iv) there shall have been such a serious, unusual and
material adverse change in general economic, political, or financial
conditions or the effect of international conditions on the financial
markets in the United States shall be such as, in your reasonable judgment,
makes it inadvisable to proceed with the delivery of the Units. Any
termination of this Agreement pursuant to this Section 6 shall be without
liability of the Company to the Underwriter, except as otherwise provided
in Sections 4(i), 7 and 8 hereof, and without liability of the Underwriter
to the Company, except as provided in Sections 7 and 8 hereof.
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(c) Any notice referred to in this Section 6 may be given at the address
specified in Section 11 hereof in writing or by telegraph or telephone, and if
by telegraph or telephone, shall be immediately confirmed in writing.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact made by the Company in
Section l hereof or contained (A) in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment thereof or
supplement thereto, or (B) in any Blue Sky application or other document
executed by the Company specifically for that purpose or based upon and
conforming to written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Units
under the securities laws thereof (any such application, document or
information being hereinafter called a "BLUE SKY APPLICATION"), or (ii)
the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, or the Prospectus, or any amendment thereof
or supplement thereto, or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and will reimburse the Underwriter, its officers and
directors and each such controlling person for any legal or other
expenses reasonably incurred by the Underwriter, its officers and
directors or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company
through you or on your behalf specifically for use in the preparation of
the Registration Statement or any amendment thereof or supplement
thereto, or any such Blue Sky Application or any such Preliminary
Prospectus or the Prospectus or any such amendment thereof or supplement
thereto; and provided, further, that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in
any Preliminary Prospectus but eliminated or remedied in the Prospectus
(as amended or supplemented), such indemnity agreement shall not inure to
the benefit of the Underwriter (or to the benefit of any person who
controls the Underwriter), if the person asserting any loss, liability,
claim or damage purchased the Units which are the subject thereof and a
copy of the Prospectus (as then supplemented or amended) was not sent or
given to such person with or prior to the written confirmation of the
sale of such Units to such person.
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(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director
or officer, or controlling person, may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment thereof or supplement thereto, or (B) in any
Blue Sky Application, or (ii) the omission or alleged omission to state
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment thereof or supplement thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through
you specifically for use with reference to the Underwriter in the
preparation of the Registration Statement or any amendment thereof or
supplement thereto or any such Blue Sky Application or any such
Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto; and will reimburse the Company, any such director or
officer, or controlling person, for any legal or other expenses
reasonably incurred by the Company or any such director or officer, or
controlling person, in connection with investigating or defending any
such loss, claim, damage, liability or action. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof; no indemnification shall
be available to any party who shall fail to give notice as provided in
this Section 7(c) if the party to whom notice was not given was unaware
of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to
notify such indemnifying party of any such action, suit or proceeding
shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this section.
In case any such action is brought against any indemnified party, and the
indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein,
and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel who
shall be to the reasonable satisfaction of such indemnified party, and
(notwithstanding subparagraphs (a) and (b) of this Section 7) after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by such indemnified party
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in connection with the defense thereof other than reasonable costs of
investigation except as provided below. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified
party shall have reasonably concluded that there may be a conflict of
interest between the indemnifying parties, or any of them, and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense
of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall be
at the expense of the indemnifying parties; provided, however, that the
indemnifying parties shall not be liable for the fees and expenses of more
than one counsel for the indemnified parties. Any such indemnifying party
shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected by the indemnified party without
the consent of such indemnifying party.
8. CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which indemnification provided for in Section 7 is
unavailable, each indemnifying party shall contribute to the aggregate losses,
claims, damages, expenses and liabilities to which the indemnified parties may
be subject in such proportion so that the Underwriter is responsible for that
portion (the "UNDERWRITING PORTION") represented by the percentage that the
underwriting commissions appearing on the cover page of the Prospectus bear to
the public offering price (net of Underwriting Commissions) appearing thereon
and the Company is responsible for the remaining portion (the "RESIDUAL
PORTION"); provided, however, (i) that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation; and (ii) if such allocation is not permitted by applicable
law, then the relative fault of the Company, its directors, officers and
controlling persons, on the one hand, and the Underwriter, its officers,
directors and its controlling persons, on the other, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or by the
Underwriter and the parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriter agree that it would not be just and equitable if the
respective obligations of the Company on the one hand, and the Underwriter, on
the other, to contribute pursuant to this Section 8 were to be determined by pro
rata or per capita allocation of the aggregate damages (even if the Underwriter,
its officers, directors and its controlling persons in the aggregate were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 8. For purposes of this Section 8, the term "DAMAGES" shall include any
legal or other expense reasonably incurred by the indemnified party in
connection with investigating or defending any action or claim that is the
23
<PAGE> 24
subject of the contribution provisions of this Section 8. Notwithstanding the
provisions of this Section 8, the Underwriter, its officers, directors and its
controlling persons in the aggregate shall not be required to contribute any
amount in excess of the amount by which the total purchase price of the Units
purchased by it, directly or indirectly, from the Company pursuant to this
Agreement exceeds the amount of any damages that the Underwriter, its officers,
directors and its controlling persons in the aggregate have otherwise been
required to pay by reason of such untrue statement or omission. For purposes
of this Section 8, each person, if any, who controls the Underwriter within the
meaning of the Act shall have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of the Act, each officer who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company. Each party entitled to contribution agrees that,
upon the service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be sought, it
will promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise. In case
any such action, suit, or proceeding is brought against any party, and such
person so notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified.
9. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company and the
Underwriter contained in Sections 7 and 8 hereof, the representations,
warranties, and covenants of the Company contained in Sections 1 and 4 hereof
and the representations and warranties of the Underwriter contained in Section
14 hereof shall remain operative and in full force and effect, regardless of
any termination or cancellation of this Agreement or any investigation made by
or on behalf of the Underwriter or the Company or any of their respective
directors or officers, or any controlling person referred to in said Sections 7
and 8, and shall survive the delivery of, and payment for, the Units.
10. NOTICES. Except as otherwise expressly provided in this Agreement,
all notices and other communications hereunder shall be in writing and, if
given to the Underwriter, shall be mailed, delivered or telefaxed to R. J.
Steichen & Company, One Financial Plaza, 120 South Sixth Street, Minneapolis,
MN 55402, Attention: President, with a copy to Girard P. Miller, Doherty,
Rumble & Butler, P.A., 150 South Fifth Street, Suite 3500, Minneapolis, MN
55402, or if given to the Company, shall be mailed, delivered or telefaxed to
it at Hotel Discovery, Inc., 7701 France Avenue South, Suite 217, Edina, MN
55435, Attention: President, with a copy to William M. Mower, Maslon Edelman
Borman & Brand, a Professional Limited Liability Partnership, 90 South Seventh
Street, Suite 3300, Minneapolis, MN 55402.
11. UNDERWRITER'S WARRANTS. Upon payment of a purchase price of $50 by
the Underwriter, the Company will issue and deliver to R. J. Steichen &
Company, for its account, Warrants to purchase Common Stock in an amount equal
to 220,000 shares of Common Stock. Such Warrants shall be issued on the
Closing Date and shall be dated as of the Closing Date.
24
<PAGE> 25
Such Warrants shall be exercisable commencing one (1) year after the Effective
Date for a period of four years thereafter at a price per share of $6.00. Such
Warrant shall contain such terms and conditions as contained in the form of
Underwriter's Warrant attached hereto and labeled Appendix A.
12. INFORMATION FURNISHED BY UNDERWRITER. The statements relating to
stabilization activities of the Underwriter on the inside front cover of the
Preliminary Prospectus and the Prospectus, and under the caption "UNDERWRITING"
in any Preliminary Prospectus and in the Prospectus, and, to the extent the
same relate to you, in any Blue Sky application, constitute the written
information furnished by or on behalf of you referred to in Section 1 hereof
and in paragraphs (a) and (b) of Section 7 hereof.
13. PARTIES. This Agreement is made solely for the benefit of the
Underwriter, the Company, any director, officer, or controlling person referred
to in Sections 7 and 8 hereof, and their respective personal representatives,
successors and assigns, and no other person shall acquire or have any right by
virtue of this Agreement. The term "personal representatives, successors and
assigns," as used in this Agreement, shall not include any purchaser of Units
(as such purchaser) from the Underwriter.
14. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERWRITER. The
Underwriter represents, warrants to and agrees with the Company that:
(a) The Underwriter is a corporation duly incorporated and validly
existing in good standing under the laws of the jurisdiction in which it is
incorporated.
(b) The Underwriter is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, and under the securities laws
of Minnesota and of such other states in which it intends to offer or sell
the Units, if such registration is required in any such other state, and is
a member in good standing of the National Association of Securities
Dealers, Inc., and no proceedings have been initiated or threatened to
suspend any such registration or membership.
(c) The execution, delivery and performance of this Agreement by the
Underwriter, and the consummation of the transactions contemplated hereby,
have been duly authorized by the Underwriter, and at the time of its
execution, performance, or consummation, will not constitute or result in
any breach or violation of any of the terms, provisions or conditions of,
or constitute a default under, any federal statute or regulation
(including, without limitation, the net capital requirements under Rule
15c-1 of the Securities Exchange Act of 1934) or any statute or regulation
of any state in which it intends to offer or sell the Units, or any order,
judgment, decree, rule or regulation of any court or governmental agency or
body having jurisdiction over the Underwriter or any of its activities or
property; and other than registration of the Units under the Act and
applicable states securities laws and subject to the favorable review by
the National Association of Securities Dealers, Inc., no consent, approval,
authorization or order of any
25
<PAGE> 26
court or governmental agency or body is required for the consummation of
the transactions contemplated hereby.
(d) There is not now pending or threatened against the Underwriter
or any control person of the Underwriter any action or proceeding either
in any court of competent jurisdiction or before the Commission, National
Association of Securities Dealers, Inc. or the securities authorities of
any state, based upon any action or failure to act on the part of the
Underwriter or any controlling person of an Underwriter that would
restrict the Underwriter's ability to perform its obligations hereunder.
(e) The Units will be offered by the Underwriter only to persons
resident in Minnesota and such other states as are mutually designated by
the Underwriter and the Company pursuant to Section 4(c) hereof. All of
such persons shall be persons and entities for whom the purchase of the
Units is a suitable investment and the Underwriter shall employ or engage
no Selected Dealer, sales person, agent or representative in the offer or
sale of the Units, which Selected Dealer, sales person, agent or
representative is not properly registered and licensed for the purpose of
such offer or sale. All such registrations and licenses shall remain in
full force and effect until after the Closing Dates.
(f) The Underwriter agrees that neither the Underwriter nor any
officer or other person employed by the Underwriter or any Selected
Dealer will provide any information or make any representations to
offerees of the Units, other than such information and representations as
are either contained in the Prospectus or the Registration Statement or
are not inconsistent with information set forth in the Prospectus or the
Registration Statement.
(g) The Underwriter agrees that in the event the Underwriter learns
of any circumstances or fact which it believes would make any Preliminary
Prospectus, the Prospectus, or the Registration Statement inaccurate or
misleading in any material respect, it will immediately bring such
circumstances or facts to the attention of the Company.
15. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Minnesota.
HOTEL DISCOVERY, INC.
By _____________________________
Its ______________________
"COMPANY"
26
<PAGE> 27
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
R. J. STEICHEN & COMPANY
By _________________________________
Authorized Officer
____________________________________
Print Name
"UNDERWRITER"
27
<PAGE> 28
APPENDIX A
UNDERWRITER'S WARRANT
<PAGE> 29
HOTEL DISCOVERY, INC.
COMMON STOCK PURCHASE WARRANT
Hotel Discovery, Inc., an Minnesota corporation (the "COMPANY"), hereby
agrees that, for value received, R. J. STEICHEN & COMPANY, or its assigns, is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time after ____________, 1998, and before 4:30 p.m.,
Minneapolis, Minnesota time, on __________, 2002 Two Hundred Twenty Thousand
(220,000) shares of the $.01 par value Common Stock of the Company, at an
exercise price of $6.00 per Share, subject to adjustment as provided herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant shall
be exercised (in minimum quantities of 100 shares) by the holder surrendering
this Warrant with the form of exercise attached hereto duly executed by such
holder, to the Company at its principal office, accompanied by payment, in cash
or by cashier's check payable to the order of the Company, of the purchase
price payable in respect of the Shares being purchased. If less than all of
the Shares purchasable hereunder is purchased, the Company will, upon such
exercise, execute and deliver to the holder hereof a new Warrant (dated the
date hereof) evidencing the number of Shares not so purchased. As soon as
practicable after the exercise of this Warrant and payment of the purchase
price, the Company will cause to be issued in the name of and delivered to the
holder hereof, or as such holder may direct, a certificate or certificates
representing the Shares purchased upon such exercise. The Company may require
that such certificate or certificates contain on the face thereof a legend
substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase
Warrant dated____________, 1997, issued by Hotel Discovery,
Inc., a copy of which is available for inspection at the offices
of Hotel Discovery, Inc. Transfer may not be made except in
accordance with the terms of the Common Stock Purchase Warrant.
In addition, no sale, offer to sell or transfer of the shares
represented by this certificate shall be made unless a
Registration Statement under the Securities Act of 1933, as
amended (the "ACT"), with respect to such shares is then in effect
or an exemption from the registration requirements of the Act is
then in fact applicable to such shares."
___________________________
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH
AT THE BOTTOM OF PAGE 8 HEREOF.
<PAGE> 30
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Except where directed by a court of competent
jurisdiction pursuant to the dissolution or liquidation of a
corporate holder hereof, for the period ending one year from
_______________, 1997, title to this Warrant may not be sold,
transferred, assigned or hypothecated, except that within such
one-year period title to this Warrant may be transferred only
to R. J. Steichen & Company (the "UNDERWRITER"), or to a
person who is both an officer and shareholder, or both an
officer and employee, of the Underwriter, or to a successor
(or both an officer and shareholder, or both an officer and
employee) in interest to the business of the Underwriter, by
endorsement (by the holder hereof executing the form of
assignment attached hereto) and delivery in the same manner as
in the case of a negotiable instrument transferable by
endorsement and delivery subject to the requirements of
Section 4 hereof.
(b) Until this Warrant is duly transferred on the
books of the Company, the Company may treat the registered
holder of this Warrant as absolute owner hereof for all
purposes without being affected by any notice to the contrary.
(c) Each successive holder of this Warrant, or of any
portion of the rights represented thereby, shall be bound by
the terms and conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare a
dividend payable in Common Stock, the exercise price in effect immediately prior
to the subdivision, combination or record date for such dividend payable in
Common Stock shall forthwith be proportionately increased, in the case of
combination, or proportionately decreased, in the case of subdivision or
declaration of a dividend payable in Common Stock, and the number of Shares
purchasable upon exercise of this Warrant, immediately preceding such event,
shall be changed to the number determined by dividing the then current exercise
price by the exercise price as adjusted after such subdivision, combination or
dividend payable in Common Stock and against the number of Shares purchasable
upon the exercise of this Warrant immediately preceding such event, so as to
achieve an exercise price and number of Shares purchasable after such event
proportional to such exercise price and number of Shares purchasable immediately
preceding such event. No adjustment in exercise price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; PROVIDED, HOWEVER, that any adjustments which are not
require to be so made shall be carried forward and taken into account in any
subsequent adjustment. All calculations hereunder shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
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<PAGE> 31
No fractional Shares are to be issued upon the exercise of the Warrant,
but the Company shall pay a cash adjustment in respect of any fraction of a
Share which would otherwise be issuable in an amount equal to the same fraction
of the market price per share of Common Stock on the day of exercise as
determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
Common Stock of the Company, or in the case of any consolidation with or merger
of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation, merger
or sale, as the case may be, lawful provision shall be made so that the holder
of the Warrant shall have the right thereafter to receive, upon the exercise
hereof, the kind and amount of shares of stock or other securities or property
which the holder would have been entitled to receive if, immediately prior to
such reorganization, reclassification, consolidation, merger or sale, the
holder had held the number of Shares which were then purchasable upon the
exercise of the Warrant. In any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be
made in the application of the provisions set forth herein with respect to the
rights and interest thereafter of the holder of the Warrant, to the end that
the provisions set forth herein (including provisions with respect to
adjustments of the exercise price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new exercise
price; and
(b) cause a copy of such statement to be mailed to the holder of
the Warrant as of a date within ten (10) days after the date when
the circumstances giving rise to the adjustment occurred.
4. REGISTRATION RIGHTS. Prior to making any disposition of the Warrant
or of any Shares purchased upon exercise of the Warrant, the holder will give
written notice to the Company describing briefly the manner of any such proposed
disposition. The holder will not make any such disposition until (i) the
Company has notified him that, in the opinion of its counsel, registration under
the Act is not required with respect to such disposition, or (ii) a Registration
Statement covering the proposed distribution has been filed by the Company and
has become effective. The Company agrees that, upon receipt of written notice
from the holder hereof with respect to such proposed distribution, it will use
its best efforts, in the consultation with the holder's counsel, to ascertain as
promptly as possible whether or not registration is required, and will advise
the holder promptly with respect thereto, and the holder will cooperate in
providing the Company with information necessary to make such determination.
3
<PAGE> 32
If, at any time prior to the expiration of seven (7) years from the date
hereof, the Company shall propose to file any Registration Statement (other
than any registration on Forms S-4, S-8 or any other similarly inappropriate
form or Registration Statement with respect to an initial public offering in
which there are no selling shareholders) under the Securities Act of 1933, as
amended, covering a public offering of the Company's Units or shares, it will
notify the holder hereof at least thirty (30) days prior to each such filing
and will include in the Registration Statement (to the extent permitted by
applicable regulation), the shares purchased by the holder or purchasable by
the holder upon the exercise of the Warrant to the extent requested by the
holder hereof. Notwithstanding the foregoing, the number of shares of the
holders of the Warrants proposed to be registered thereby shall be reduced pro
rata with any other selling shareholder (other than the Company) upon the
reasonable request of the managing underwriter of such offering. If the
Registration Statement or Offering Statement filed pursuant to such thirty (30)
day notice has not become effective within six months following the date such
notice is given to the holder hereof, the Company must again notify such holder
in the manner provided above.
At any time prior to the expiration of five (5) years from the date
hereof, and provided that a registration statement on Form S-3 (or its
equivalent) is then available to the Company, and on a one-time basis only, if
the holders of 50% or more of the Warrants and/or the Shares acquired upon
exercise of the Warrants request the registration of the Shares on Form S-3 (or
its equivalent), the Company shall promptly thereafter use its best efforts to
effect the registration under the Securities Act of 1933, as amended, of all
such shares which such holders request in writing to be so registered, and in a
manner corresponding to the methods of distribution described in such holders'
request.
All expenses of any such registrations referred to in this Section 4,
except the fees of counsel to such holders and underwriting commissions or
discounts, filing fees, and any transfer or other taxes applicable to such
shares, shall be borne by the Company.
Upon effectiveness of a Registration Statement which includes Common Stock
purchased or purchasable upon the exercise of this Warrant in accordance with a
valid demand under this Section 4, the rights under this Warrant of all holders
to make another such demand shall terminate. Each purchaser or transferee of a
portion of this Warrant is responsible to determine whether his or her demand
rights under this paragraph have been terminated by such an exercise. Any
Warrants issued upon transfers subsequent to such an exercise shall have all of
the demand registration provisions under this Section 4 deleted.
The Company will mail to each record holder, at the last known post office
address, written notice of any exercise of the rights granted under this
paragraph 4, by certified or registered mail, return receipt requested, and
each holder shall have twenty (20) days from the date of deposit of such notice
in the U.S. Mail to notify the Company in writing whether such holder wishes to
join in such exercise.
The Company will furnish the holder hereof with a reasonable number of
copies of any prospectus included in such filings and will amend or supplement
the same as required during the
4
<PAGE> 33
period of required use thereof. The Company will maintain, at its expense, the
effectiveness of any Registration Statement or the Offering Statement filed by
the Company, whether or not at the request of the holder hereof, for at least
six (6) months following the effective date thereof.
In the case of the filing of any Registration Statement, and to the extent
permissible under the Securities Act of 1933, as amended, and controlling
precedent thereunder, the Company and the holder hereof shall provide cross
indemnification agreements to each other in customary scope covering the
accuracy and completeness of the information furnished by each.
The holder of the Warrant agrees to cooperate with the Company in the
preparation and filing of any such Registration Statement or Offering
Statement, and in the furnishing of information concerning the holder for
inclusion therein, or in any efforts by the Company to establish that the
proposed sale is exempt under the Act as to any proposed distribution.
5. RIGHT TO CONVERT.
(a) The holder of this Warrant shall have the right
to require the Company to convert this Warrant (the
"CONVERSION RIGHT"), at any time after ________________, 1998
and prior to its expiration, into Common Stock as provided for
in this Section 5. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the
holder of any exercise price) that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the value
of the Warrant at the time the Conversion Right is exercised
(determined by subtracting the exercise price for one Warrant
Share in effect immediately prior to the exercise of the
Conversion Right from the Fair Market Value (as determined
below) for one Warrant Share immediately prior to the exercise
of the Conversion Right) by (y) the Fair Market Value of one
share of Common Stock immediately prior to the exercise of the
Conversion Right.
(b) The Conversion Right may be exercised by the
holder, at any time or from time to time, prior to its
expiration, on any business day, by delivering a written
notice (the "CONVERSION NOTICE") to the Company at the offices
of the Company exercising the Conversion Right and specifying
(i) the total number of shares of Common Stock the
Warrantholder will purchase pursuant to such conversion, and
(ii) a place, and a date not less than five (5) nor more than
twenty (20) business days from the date of the Conversion
Notice, for the closing of such purchase.
(c) At any closing under Section 5(b) hereof, (i) the
holder will surrender the Warrant, (ii) the Company will
deliver to the holder a certificate or certificates for the
number of shares of Common Stock issuable upon such
conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the holder a new
Warrant representing the
5
<PAGE> 34
number of shares, if any, with respect to which the Warrant
shall not have been converted.
(d) "FAIR MARKET VALUE" of a share of Common Stock as
of a particular date (the "DETERMINATION DATE") shall mean:
(i) If the Company's Common Stock is
traded on an exchange or is quoted on The Nasdaq
National Market or The Nasdaq SmallCap Market, then the
average closing or last sale prices, respectively,
reported for the ten (10) business days immediately
preceding the Determination Date.
(ii) If the Company's Common Stock is not traded on an
exchange or on The Nasdaq National Market or The Nasdaq
SmallCap Market, but is traded in the over-the-counter
market, then the average of the closing bid and asked
prices reported for the ten (10) business days
immediately preceding the Determination Date.
(iii) If the Company's Common Stock is not publicly
traded and there has been a bona fide sale for cash on
an arm's-length basis within 45 days prior to the
Determination Date of such Common Stock by the Company
privately to one or more investors unaffiliated with
the Company (a "Qualifying Sale"), then the most recent
such sales price; and
(iv) If the Company's Common Stock is not publicly
traded and there has been no Qualifying Sale, then the
appraised fair market value of such stock, as
determined by mutual agreement of the Company and the
holder of the Warrant; or if the parties cannot agree
to such valuation, then each of the Company and the
holder shall select an arbitrator and such arbitrators
shall select a third, and such three arbitrators shall
determine (in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, such expenses to be borne equally by the
parties) the fair market value (without any discount
for lack of marketability or minority interest) of a
share of Common Stock of the Company.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at his or her last known post office address appearing on the books of
the Company, not less than fifteen (15) days prior to the date on which (a) a
record will be taken for the purpose of determining the holders of Common Stock
entitled to dividends (other than cash dividends) or subscription rights, or (b)
a record will be taken (or in lieu thereof, the transfer books will be closed)
for the purpose of determining the holders of common stock entitled to notice of
and to vote at a meeting of shareholders at which any capital reorganization,
reclassification of common stock, consolidation,
6
<PAGE> 35
merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant and the shares of Common
Stock included therein upon the basis herein set forth shall at all times be
reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the terms "COMMON STOCK" or "SHARES" shall include
any stock of any class of the Company other than preferred stock that has a
fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all other action which may be necessary in order to protect
the rights of the holder hereof against dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names and
addresses of all holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock Purchase
Warrant shall be interpreted under the laws of the State of Minnesota.
All Shares or other securities issued upon the exercise of the Warrant
shall be validly issued, fully paid and non-assessable, and the Company will
pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
7
<PAGE> 36
IN WITNESS WHEREOF, this Warrant has been duly executed by Hotel
Discovery, Inc., this_____day of_________, 1997.
HOTEL DISCOVERY, INC.
By _____________________________
Its ____________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED
OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL
BE MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
8
<PAGE> 37
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder,_________________ shares of Common Stock of Hotel Discovery,
Inc. to which such Warrant relates and herewith makes payment of $_________
therefor in cash or by certified check, and requests that such shares be issued
and be delivered to,_______________, the address for which is set forth below
the signature of the undersigned.
Dated:____________
__________________________ _____________________________________
(Taxpayer's I.D. Number) Signature)
_____________________________________
(Address)
_____________________________________
_________________
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ________ the right to purchase shares of Common Stock of Hotel Discovery,
Inc. to which the within Warrant relates and appoints ____________, attorney, to
transfer said right on the books of Hotel Discovery, Inc. with full power of
substitution in the premises.
Dated: ________________________
_____________________________________
(Signature)
_____________________________________
(Address)
_____________________________________
<PAGE> 38
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant pursuant to Section 5)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Common Stock Purchase Warrant for, and to
purchase thereunder, ______________________ shares of Common Stock, as provided
for in Section 5 therein.
If said number of shares shall not be all the shares purchasable under the
within Common Stock Purchase Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional shares to:
NAME ________________________________________________________
(Please Print Name)
ADDRESS ________________________________________________________
________________________________________________________
SOCIAL SECURITY NO. ______________________________________________________
SIGNATURE ____________________________________________________________
NOTE: The above signature should correspond exactly
with the name on the first page of this Common Stock
Purchase Warrant or with the name of the assignee
appearing in the assignment form on the preceding page.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
HOTEL DISCOVERY, INC.
The undersigned hereby creates a corporation under Chapter 302A of the
Minnesota Statutes and adopts the following Articles of Incorporation.
ARTICLE 1
NAME
The name of the Corporation is HOTEL DISCOVERY, INC.
ARTICLE 2
REGISTERED OFFICE
The address of the registered office of the Corporation is 3300 Norwest
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402.
ARTICLE 3
CAPITAL
A. The Corporation is authorized to issue one hundred million
(100,000,000) shares of capital stock, having a par value of one
cent ($.01) per share in the case of common stock, and having a par
value as determined by the Board of Directors in the case of
preferred stock, to be held, sold and paid for at such times and in
such manner as the Board of Directors may from time to time
determine in accordance with the laws of the State of Minnesota.
B. In addition to any and all powers conferred upon the Board of
Directors by the laws of the State of Minnesota, the Board of
Directors shall have the authority to establish by resolution more
than one class or series of shares, either preferred or common, and
to fix the relative rights, restrictions and preferences of any such
different classes or series, and the authority to issue shares of a
class or series to another class or series to effectuate share
dividends, splits or conversion of the Corporation's outstanding
shares.
C. The Board of Directors shall also have the authority to issue
rights to convert any of the Corporation's securities into shares of
stock of any class or classes, the authority to issue options to
purchase or subscribe for shares of stock of any class or classes,
and the authority to issue share purchase or subscription warrants
or any other evidence of such option rights which set forth the
terms, provisions and conditions thereof, including the price or
prices at which such shares may be subscribed for or purchased.
Such options, warrants and rights, may be transferable or
nontransferable and separable or inseparable from other securities
of the Corporation. The Board of Directors is authorized to fix the
terms,
<PAGE> 2
provisions and conditions of such options, warrants and
rights, including the conversion basis or bases and the option price
or prices at which shares may be subscribed for or purchased.
ARTICLE 4
SHAREHOLDER RIGHTS
A. No shareholder of the Corporation shall have any preemptive
rights.
B. No shareholder of the Corporation shall have any cumulative
voting rights.
ARTICLE 5
INCORPORATOR
The name and address of the incorporator, who is a natural person of full
age, is:
William M. Mower
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
ARTICLE 6
WRITTEN ACTION BY LESS THAN ALL OF THE DIRECTORS
Any action required or permitted to be taken at a Board meeting, other
than an action requiring shareholder approval, may be taken by written action
of the Board of Directors if signed by the number of directors that would be
required to take the same action at a meeting at which all directors were
present.
ARTICLE 7
LIMITED LIABILITY OF DIRECTORS
To the fullest extent permitted by law, a director shall have no personal
liability to the Corporation or its shareholders for breach of fiduciary duty
as a director. Any amendment to or repeal of this Article 7 shall not
adversely affect any right or protection of a director of the Corporation for
or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
IN WITNESS WHEREOF, I have signed my name this 31st day of July, 1997.
/s/ William M. Mower
------------------------------------
William M. Mower, Incorporator
2
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
HOTEL DISCOVERY, INC.
ARTICLE 1
OFFICES
1.1 Registered Office. The registered office of the Corporation shall be
located within the State of Minnesota as set forth in the Articles of
Incorporation. The Board of Directors shall have authority to change the
registered office of the Corporation and a statement evidencing any such change
shall be filed with the Secretary of State of Minnesota as required by law.
1.2 Offices. The Corporation may have other offices, including its
principal business office, either within or without the State of Minnesota.
ARTICLE 2
CORPORATE SEAL
2.1 Corporate Seal. The Board of Directors shall determine whether or
not the Corporation will adopt a corporate seal. If a corporate seal is
adopted, inscribed on the corporate seal shall be the name of the Corporation
and the words "Corporate Seal," and when so directed by the Board of Directors,
a duplicate of the seal may be kept and used by the Secretary of the
Corporation.
ARTICLE 3
SHAREHOLDERS
3.1 Regular Meetings. Regular meetings of the shareholders shall be held
at the Corporation's registered office or at such other place within or without
the State of Minnesota as is designated by the Board of Directors. Regular
meetings may be held annually or on a less frequent periodic basis, as
established by a resolution of the Board of Directors, or may be held on call
by the Board of Directors from time to time as and when the Board determines.
At each regular meeting, the shareholders shall elect qualified successors for
directors who serve for an indefinite term or whose terms have expired or are
due to expire within six (6) months after the date of the meeting, and may
transact such other business which properly comes before them. Notwithstanding
the foregoing, if a regular meeting of the shareholders has not been held for a
<PAGE> 2
period of fifteen (15) months, a shareholder or group of shareholders holding
three percent (3%) or more of the issued and outstanding voting shares of the
Corporation may demand that a regular meeting of the shareholders be held by
giving written notice to the Chief Executive Officer or Treasurer of the
Corporation. Within thirty (30) days after receipt of the notice, the Board
shall cause a regular meeting of the shareholders to be called and held within
ninety (90) days after receipt of the notice. Any regular meeting held
pursuant to such a demand by a shareholder or shareholders shall be held within
the county where the principal executive office of the Corporation is located.
3.2 Special Meeting. Special meetings of the shareholders may be called
by the Chief Executive Officer, by a Vice-President in the absence of the Chief
Executive Officer, by the Treasurer, or by the Board of Directors or any two or
more members thereof. Special meetings may also be called by one or more
shareholders holding ten percent (10%) or more of the issued and outstanding
voting shares of the Corporation by delivering to the Chief Executive Officer
or Treasurer a written demand for a special meeting, which demand shall state
the purposes of such meeting. Within thirty (30) days after receipt of the
written demand, the Board of Directors shall call a special meeting of the
shareholders to be held within ninety (90) days after receipt of the written
demand. Any special meeting held pursuant to such written demand shall be held
within the county where the principal executive office of the Corporation is
located.
3.3 Quorum. Business may be transacted at any duly held meeting of the
shareholders at which a quorum is present. The holders of a majority of the
voting power of the shares entitled to vote at a meeting are a quorum. The
shareholders present at the meeting may continue to transact business until
adjournment, even though a number of shareholders withdraw leaving less than a
quorum. If a quorum is not present at any meeting, those shareholders present
have the power to adjourn the meeting from time to time until the requisite
number of voting shares are present. The date, time and place of the
reconvened meeting shall be announced at the time of adjournment and notice of
the reconvened meeting shall be given to all shareholders who were not present
at the time of adjournment. Any business which might have been transacted at
the meeting which was adjourned may be transacted at the reconvened meeting.
3.4 Voting. At each shareholders' meeting, every shareholder having the
right to vote is entitled to vote in person or by proxy. Shareholders have one
(1) vote for each share having voting power standing in their name on the books
of the Corporation, unless otherwise provided in the Articles of Incorporation,
or these By-Laws, or in the terms of the shares. All elections and questions
shall be decided by a majority vote of the number of shares entitled to vote
and represented at any meeting at which there is a quorum, except as otherwise
required by statute, the Articles of Incorporation, these By-Laws, or by
agreement among the shareholders.
3.5 Notice of Meeting. Notice of regular or special meetings of the
shareholders shall be given by an officer or agent of the Corporation to each
shareholder shown on the books of the Corporation to be the holder of record of
shares entitled to vote at the meeting. If the notice is to be mailed, then
the notice must be mailed to each shareholder at the shareholder's address as
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<PAGE> 3
shown on the books of the Corporation at least five (5) calendar days prior to
the meeting. If the notice is not mailed, then the notice must be given at
least forty-eight (48) hours prior to the meeting. The notice must contain the
date, time and place of the meeting, and in the case of a special meeting, must
also contain a statement of the purpose of the meeting. In no event shall
notice be given more than sixty (60) days prior to the meeting. If a plan of
merger, exchange, sale or other disposition of all or substantially all of the
assets of the Corporation is to be considered at a meeting of shareholders,
notice of such meeting shall be given to every shareholder, whether or not
entitled to vote, not less than fourteen (14) days prior to the date of such
meeting.
3.6 Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxies must be filed with an officer of the
Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
3.7 Closing Transfer Books. The Board of Directors may close the stock
transfer books for a period of time which does not exceed sixty (60) days
preceding any of the following: the date of any meeting of shareholders; the
payment of dividends; the allotment of rights; or the change, conversion, or
exchange of shares.
3.8 Record Date. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date, not exceeding sixty (60) days preceding
the date of any of the events described in Section 3.7, as a record date for
the determination of which shareholders are entitled (i) to notice of and to
vote at any meeting and any meeting subsequent to adjournment, (ii) to receive
any dividend or allotment of rights, or (iii) to exercise the rights in respect
to any change, conversion, or exchange of shares. If a record date is fixed by
the Board of Directors, only those shareholders of record on the record date
shall be entitled to receive notice of and to vote at the meeting and any
meeting subsequent to adjournment or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date so fixed. If the share transfer books are not closed and
no record date is fixed for determination of the shareholders of record, then
the date on which notice of the meeting is mailed or the date of adoption of a
resolution of the Board of Directors declaring a dividend, allotment of rights,
change, conversion or exchange of shares, as the case may be, shall be the
record date for such determination.
3.9 Presiding Officer. The Chief Executive Officer of the Corporation
shall preside over all meetings of the shareholders. In the absence of the
Chief Executive Officer, the shareholders may choose any person present to act
as presiding officer.
3.10 Written Action by Shareholders. Any action which may be taken at a
meeting of the shareholders may be taken without a meeting and notice if a
consent in writing, setting forth
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<PAGE> 4
the action so taken, is signed by all of the shareholders entitled to notice of
a meeting for such purpose.
ARTICLE 4
DIRECTORS
4.1 General Powers. The property, affairs and business of the Corporation
shall be managed by the Board of Directors which shall initially consist of
four (4) directors. In addition to the powers and authorities by these By-Laws
expressly conferred upon it, the Board may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Articles of Incorporation or these By-Laws directed or required to be exercised
or done by the shareholders.
4.2 Number. The number of directors may be either increased or decreased
by resolution of the shareholders at their regular meetings or at a special
meeting called for that purpose. The number of directors may be increased by
resolution adopted by the affirmative vote of a majority of the Board of
Directors. Any newly created directorships established by the Board of
Directors shall be filled by a majority vote of the directors serving at the
time of increase.
4.3 Qualifications and Term of Office. Directors need not be
shareholders or residents of the State of Minnesota. The Board of Directors
shall be elected by the shareholders at their regular meeting and at any
special shareholders' meeting called for that purpose. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until the director's successor is elected and qualifies, or until the
earlier death, resignation, removal, or disqualification of the director.
4.4 Quorum. A majority of the Board of Directors constitutes a quorum
for the transaction of business; provided, however, that if any vacancies exist
by reason of death, resignation, or otherwise, a majority of the remaining
directors constitutes a quorum. If less than a quorum is present at any
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
4.5 Action of Directors. The acts of a majority of the directors
present at a meeting at which a quorum is present are the acts of the Board of
Directors.
4.6 Meetings. Meetings of the Board of Directors may be held from time to
time at any place, within or without the State of Minnesota, that the Board of
Directors may select. If the Board of Directors fails to select a place for a
meeting, the meeting shall be held at the principal executive office of the
Corporation. The Chief Executive Officer or any director may call a meeting of
the Board of Directors by giving notice to all directors of the date, time and
place of the meeting. If the notice is to be mailed, then the notice must be
mailed to each director
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<PAGE> 5
at least five (5) calendar days prior to the meeting. If the notice is not to
be mailed, then the notice must be given at least forty-eight (48) hours prior
to the meeting. If the date, time and place of the meeting of the Board of
Directors has been announced at a previous meeting of the Board of Directors,
no additional notice of such meeting is required, except that notice shall be
given to all directors who were not present at the previous meeting. Notice of
the meeting of the Board of Directors need not state the purpose of the
meeting. A director may orally or in writing waive notice of the meeting.
Attendance by a director at a meeting of the Board of Directors also
constitutes a waiver of notice of such meeting, unless the director objects at
the beginning of the meeting to the transaction of business because the meeting
allegedly is not lawfully called or convened and such director does not
participate thereafter in the meeting.
4.7 Meeting by Electronic Communications. A conference among directors
by any means of communication through which the directors may simultaneously
hear each other during the conference constitutes meeting of the Board of
Directors if the number of directors participating in the conference would be
sufficient to constitute a quorum at a meeting, and if the same notice is given
of the conference as would be required for a Board of Directors meeting under
these By-Laws. In any Board of Directors meeting, a director may participate
by any means of communication through which the director, other directors so
participating, and all directors physically present at the meeting may
simultaneously hear each other during the meeting.
4.8 Compensation. Directors may receive such compensation as may be
determined from time to time by resolution of the Board of Directors.
4.9 Committee. By the affirmative vote of a majority of the directors,
the Board of Directors may establish a committee or committees having the
authority of the Board of Directors in the management of the business of the
Corporation to the extent provided in the resolution adopted by the Board of
Directors. A committee shall consist of one or more persons, who need not be
directors, that have been appointed by affirmative vote of a majority of the
directors present. A majority of the members of the committee present at any
meeting of the committee is a quorum for the transaction of business, unless a
larger or smaller proportion or number is provided in the resolution approved
by the Board of Directors. Minutes of any meetings of committees created by
the Board of Directors shall be available upon request to members of the
committee and to any director.
4.10 Action by Absent Director. A director may give advance written
consent or opposition to a proposal to be acted upon at a Board of Directors
meeting by giving a written statement to the Chief Executive Officer,
Treasurer, or any director which sets forth the proposal to be voted on and
contains a statement of the director's voting preference with regard to the
proposal. An advance written statement does not constitute presence of the
director for purposes of determining a quorum, but the advance written
statement shall be counted in the vote on the subject proposal provided that
the proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal set forth in the advance written
statement. The
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<PAGE> 6
advance written statement by a director on a proposal shall be included in the
records of the Board of Directors' action on the proposal.
4.11 Removal of Directors by Board of Directors. Any director who has
been elected by the Board of Directors to fill a vacancy on the Board of
Directors, or to fill a directorship created by action of the Board of
Directors, and who has not subsequently been reelected by the shareholders, may
be removed by a majority vote of all directors constituting the Board,
exclusive of the director whose removal is proposed.
4.12 Vacancies. Any vacancy on the Board of Directors may be filled by
vote of the remaining directors, even though less than a quorum.
4.13 Written Action by Less than All of the Directors. Any action which
may be taken at a meeting of the Board of Directors may be taken without a
meeting and notice thereof if a consent in writing setting forth the action
taken is signed by the number of directors required to take the same action at
a duly held meeting of the Board of Directors at which all of the directors are
present. If a written action is signed by less than all the directors, any
director not signing the action will be notified as soon as reasonably possible
of the content of the action and the effective date of the action. Failure to
provide the notice does not invalidate the written action. A director who does
not sign or consent to the written action has no liability for the action or
actions so taken.
4.14 Dissent from Action. A director of the Corporation who is present
at a meeting of the Board of Directors at which any action is taken shall be
presumed to have assented to the action taken unless the director objects at
the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened and does not participate thereafter, or
unless the director votes against the action at the meeting, or is prohibited
from voting on the action.
ARTICLE 5
OFFICERS
5.1 Election of Officers. The Board of Directors shall from time to time,
elect a Chief Executive Officer, who may also be designated as President, and a
Chief Financial Officer, who may also be designated as Treasurer. The Board of
Directors may elect, but shall not be required to elect, a Secretary, one or
more Vice Presidents, and a Chairman of the Board. In addition, the Board of
Directors may elect such other officers and agents as it may deem necessary.
The officers shall exercise such powers and perform such duties as are
prescribed by applicable statutes, the Articles of Incorporation, the By-Laws,
or as may be determined from time to time by the Board of Directors. Any
number of offices may be held by the same person.
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<PAGE> 7
5.2 Term of Office. The officers shall hold office until their
successors are elected and qualify; provided, however, that any officer may be
removed with or without cause by the affirmative vote of a majority of the
directors present at a Board of Directors meeting at which a quorum is present.
5.3 Chief Executive Officer. The Chief Executive Officer shall:
(a) Have general active management of the business of the
Corporation;
(b) When present, preside at all meetings of the shareholders;
(c) When present, and if there is not a Chairman of the Board,
preside at all meetings of the Board of Directors;
(d) See that all orders and resolutions of the Board of Directors
are carried into effect;
(e) Sign and deliver in the name of the Corporation any deeds,
mortgages, bonds, contracts or other instruments pertaining to the
business of the Corporation, except in cases in which the authority
to sign and deliver is required by law to be exercised by another
person or is expressly delegated by the Articles of Incorporation or
By-Laws or by the Board of Directors to some other officer or agent
of the Corporation;
(f) Maintain records of and, whenever necessary, certify all
proceedings of the Board of Directors and the shareholders; and
(g) Perform all other duties prescribed by the Board of Directors.
All other officers shall be subject to the direction and authority of the Chief
Executive Officer.
5.4 Chief Financial Officer. The Chief Financial Officer or Treasurer
shall:
(a) Keep accurate financial records for the Corporation;
(b) Deposit all money, drafts and checks in the name of and to
the credit of the Corporation in the banks and depositories
designated by the Board of Directors;
(c) Endorse for deposit all notes, checks and drafts received by
the Corporation as ordered by the Board of Directors, making proper
vouchers therefor;
(d) Disburse corporate funds and issue checks and drafts in the
name of the Corporation, as ordered by the Board of Directors;
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<PAGE> 8
(e) Render to the Chief Executive Officer and the Board of
Directors, whenever requested, an account of all transactions by the
Chief Financial Officer and of the financial condition of the
Corporation; and
(f) Perform all other duties prescribed by the Board of Directors
or by the Chief Executive Officer.
5.5 Vice President. Each Vice President, if any, shall have such powers
and perform such duties as may be specified in these By-Laws or prescribed by
the Board of Directors. If the Chief Executive Officer is absent or disabled,
the Vice President shall succeed to the President's powers and duties. If
there are two or more Vice Presidents, the order of succession shall be
determined by seniority of election or as otherwise prescribed by the Board of
Directors.
5.6 Secretary. The Secretary, if any, shall attend all meetings of the
shareholders and the Board of Directors. The Secretary shall act as clerk and
shall record all the proceedings of the meetings in the minute book of the
Corporation and shall give proper notice of meetings of shareholders and the
Board of Directors. The Secretary shall keep the seal of the Corporation, if
any, and shall affix the seal to any instrument requiring it and shall attest
the seal, and shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
5.7 Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors and shall perform such other
duties as may from time to time be assigned by the Board of Directors.
5.8 Assistant Officers. In the event of absence or disability of any Vice
President, Secretary or the Chief Financial Officer, the assistant to such
officer, if any, shall succeed to the powers and duties of the absent officer
until the principal officer resumes his duties or a replacement is elected by
the Board of Directors. If there are two or more assistants, the order of
succession shall be determined through seniority by the order in which elected
or as otherwise prescribed by the Board of Directors. The assistant officers
shall exercise such other powers and duties as may be delegated to them from
time to time by the Board of Directors or the principal officer under whom they
serve, but at all times shall remain subordinate to the principal officers they
are designated to assist.
ARTICLE 6
INDEMNIFICATION
The Corporation shall indemnify its officers, directors, employees and
agents to the full extent permitted by the laws of the State of Minnesota, as
now in effect, or as the same may be hereafter modified.
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<PAGE> 9
ARTICLE 7
SHARES AND THEIR TRANSFER
7.1 Certificates of Shares. Unless the Board of Directors has provided
that the Corporation's shares are to be uncertified, every owner of shares of
the Corporation shall be entitled to a certificate, to be in such form as the
Board of Directors prescribes, certifying the number of shares owned by such
shareholder. The certificates for shares shall be numbered in the order in
which they are issued and shall be signed in the name of the Corporation by the
Chief Executive Officer or a Vice President and by the Secretary or Assistant
Secretary, or the Chief Financial Officer, or any other officer of the
Corporation authorized by the Board of Directors and shall have the corporate
seal, if any, affixed thereto. A record shall be kept of the name of the
person owning the shares represented by each certificate, the respective issue
dates thereof, and in the case of cancellation, the respective dates of
cancellation. Except as provided in Section 7.5 of this Article 7, every
certificate surrendered to the Corporation for exchange or transfer shall be
cancelled, and no other certificate shall be issued in exchange for any
existing certificate until such existing certificate is cancelled.
7.2 Uncertificated Shares. The Board of Directors by a majority vote of
directors present at a duly called meeting may provide that any or all shares
of classes or series of shares are to be uncertificated shares. In that case,
any shareholder who is issued uncertificated shares shall be provided with the
information legally required to be disclosed in a certificate.
7.3 Issuance of Shares. The Board of Directors is authorized to issue
shares of the capital stock of the Corporation up to the number of shares
authorized by the Articles of Incorporation. Shares may be issued for any
consideration (including, without limitation, money or other tangible or
intangible property received by the Corporation or to be received by the
Corporation under a written agreement, or services rendered to the Corporation
or to be rendered to the Corporation under a written agreement) which is
authorized by a resolution approved by the affirmative vote of a majority of
the directors present, valuing all nonmonetary consideration and establishing a
price in money or other consideration, or a minimum price, or a general formula
or method by which the price will be determined. Upon authorization by
resolution approved by the affirmative vote of a majority of the directors
present, the Corporation may, without any new or additional consideration,
issue shares of its authorized and unissued capital stock in exchange for or in
conversion of its outstanding shares, or issue its own shares pro rata to its
shareholders or the shareholders of one or more classes or series, to
effectuate share dividends or splits, including reverse share splits. No
shares of a class or series shall be issued to the holder of the shares of
another class or series, unless issuance is either expressly provided for in
the Articles of Incorporation or is approved at a meeting by the affirmative
vote of the holders of a majority of the voting power of all shares of the same
class or series as the shares to be issued.
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7.4 Transfer of Shares. Transfer of shares on the books of the
Corporation may be authorized only by the shareholder named in the certificates
or the shareholder's representative or duly authorized attorney-in-fact and
only upon surrender for cancellation of the certificate for such shares. The
shareholder in whose name shares stand on the books of the Corporation shall be
considered the owner thereof for all purposes regarding the Corporation.
7.5 Lost Certificates. Any shareholder claiming a certificate for shares
has been lost or destroyed shall make an affidavit or affirmation of that fact
in such form as the Board of Directors may require and shall, if the directors
so require, give the Corporation a bond of indemnity in form and with one or
more sureties satisfactory to the Board of Directors and in an amount
determined by the Board of Directors, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss or destruction
of the certificate. A new certificate may then be issued in the same tenor for
the same number of shares as the one alleged to have been lost or destroyed.
7.6 Transfer Agent and Registrar. The Board of Directors may appoint one
or more transfer agents or transfer clerks and one or more registrars and may
require all certificates for shares to bear the signature or signatures of any
of them.
7.7 Facsimile Signature. When any certificate is manually signed by a
transfer agent, a transfer clerk, or a registrar appointed by the Board of
Directors to perform such duties, a facsimile or engraved signature of the
officers and a facsimile corporate seal, if any, may be inscribed on the
certificate in lieu of the actual signatures and seal.
ARTICLE 8
FINANCIAL AND PROPERTY MANAGEMENT
8.1 Checks. All checks, drafts, other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the Corporation
shall be signed by the Chief Executive Officer or Treasurer, or any other
officer or officers, agent or agents of the Corporation, as may from time to
time be determined by resolution of the Board of Directors.
8.2 Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies, or other depositories as the Board of Directors may select.
8.3 Voting Securities Held by Corporation. The Chief Executive Officer,
or other officer or agent designated by the Board of Directors, shall have full
power and authority on behalf of the Corporation to attend, act at, and vote at
any meeting of security or interest holders of other corporations or entities
in which the Corporation may hold securities or interests. At the meeting, the
Chief Executive Officer or other designated agent shall possess and exercise
any and
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all rights and powers incident to the ownership of the securities or interest
which the Corporation holds.
ARTICLE 9
AMENDMENTS
The Board of Directors of the Corporation is expressly authorized to make
By-Laws of the Corporation and from time to time to adopt, amend or repeal
By-Laws so made to the extent and in the manner prescribed in the Minnesota
Statutes. The Board of Directors shall not adopt, amend, or repeal a By-Law
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies in the Board of Directors, or fixing
the number of directors or their classifications, qualifications, or terms of
office, but may adopt or amend a By-Law to increase the number of directors.
The authority in the Board of Directors is subject to the power of the voting
shareholders to adopt, change or repeal the By-Laws by a vote of shareholders
holding a majority of the shares entitled to vote and present or represented at
any regular meeting or special meeting called for that purpose.
Date of Adoption: August 1, 1997 /s/ Stephen D. King
-------------------------------
Stephen D. King, Secretary
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EXHIBIT 4
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _________, 1997 by and between Hotel
Discovery, Inc., a Minnesota corporation (the "Company"), and Norwest Bank
Minnesota, National Association, as Warrant Agent (the "Warrant Agent").
A. The Company proposes to issue up to 2,200,000 Redeemable Class A
Warrants (the "Warrants") evidencing the right to purchase an aggregate of up
to 2,200,000 authorized but previously unissued shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock"). The Warrants would
be issued in connection with the issuance by the Company of up to 2,200,000
Units, each Unit consisting of one share of Common Stock and one Warrant, in
connection with the Company's Registration Statement on Form SB-2.
B. The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent desires so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants.
NOW THEREFORE, it is agreed as follows:
ARTICLE I.
APPOINTMENT OF WARRANT AGENT; ISSUANCE,
FORM AND EXECUTION OF WARRANT CERTIFICATES
Section 1.1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company, and the Warrant Agent hereby
accepts the agency established herein and agrees to perform its agency duties
in accordance with the terms and conditions of this Warrant Agreement.
Section 1.2. Warrant Certificates. The Company shall execute and deliver
to the Warrant Agent certificates which the Company has authorized to represent
the Warrants ("Warrant Certificates"). The Warrant Certificates shall be
substantially as set forth in Exhibit A hereto and may have such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Warrant Agreement, or as may be required to comply with any law or with
any rule or regulation relating to listing of the Warrants on the Nasdaq stock
market, including the SmallCap Market System, or on any stock exchange or to
conform to usage. The Warrant Certificates shall be dated with the date of
their issuance.
Section 1.3. Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by a duly authorized officer of the
Company, either manually or by facsimile signature printed thereon. The
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. Any Warrant
Certificate may be signed on behalf of the Company by the person who at the
actual date of the signing of such Warrant Certificate shall have been the
proper officer
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of the Company, although at the date of issuance of such Warrant
Certificate any such person has ceased to be such officer of the Company.
ARTICLE II.
EXERCISE OF WARRANTS
Section 2.1. Exercise. Any or all of the Warrants represented by each
Warrant Certificate may be exercised by the holder thereof on or before 5:00
p.m., Minneapolis time, on _________, 2001, unless extended by the Company, by
surrender of the Warrant Certificate with the Purchase Form, which is printed
on the reverse thereof (or a reasonable facsimile thereof) duly executed by
such holder, to the Warrant Agent at its principal office in Minneapolis,
Minnesota, accompanied by payment, in cash or by certified or official bank
check payable to the order of the Company, in an amount equal to the product of
the number of shares of Common Stock issuable upon exercise of the Warrant
represented by such Warrant Certificate, as adjusted pursuant to the provisions
of Article III hereof, multiplied by the exercise price of $6.50, as adjusted
pursuant to the provisions of Article III hereof (such price as so adjusted
from time to time being herein called the "Exercise Price"), and such holder
shall be entitled to receive such number of fully paid and nonassessable shares
of Common Stock, as so adjusted, at the time of such exercise.
Section 2.2. Time of Exercise. Each exercise of Warrants shall be deemed
to have been effective immediately prior to the close of business on the
business day on which the Warrant Certificate relating to such Warrants shall
have been surrendered to the Warrant Agent as provided in Section 2.1, and at
such time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such exercise as
provided in Section 2.3, shall be deemed to have become the holder or holders
of record thereof.
Section 2.3. Issuance of Shares of Common Stock; No Fractional Shares.
As soon as practicable after the exercise of any Warrant, and in any event
within ten (10) days after receipt by the Warrant Agent of the notice of
exercise under Section 2.1, the Company at its expense (including the payment
by it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder thereof or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to which
such holder would otherwise be entitled, an amount in cash equal to such
fraction multiplied by the then current value of a share of Common Stock,
such current value to be determined as follows:
(i) if the Common Stock shall be listed or admitted to
unlisted trading privileges on any single national securities
exchange, then such current value shall be computed on the
basis of the last reported sale price of the Common Stock on
such exchange on the last business day prior to the date
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of the exercise of such Warrant upon which a sale shall have
been effected; or
(ii) if the Common Stock shall not be so listed or
admitted to unlisted trading privileges and bid and asked
prices therefor in the over-the-counter market shall be
reported by Nasdaq, including the SmallCap Market System, then
such current value shall be the last reported sale on the last
business day prior to the date of the exercise of such
Warrant, or, in the event the last reported sale is
unavailable, the average of the closing bid and asked prices
on the last business day prior to the date of the exercise of
such Warrant as so reported; or
(iii) if the Common Stock shall be listed or admitted to
unlisted trading privileges on more than one national
securities exchange or one or more national securities
exchanges and in the over-the-counter market, then such
current value shall, if different as a result of calculation
under the applicable method(s) described above in this
Section, be deemed to be the higher number calculated in
connection therewith; or
(iv) if the Common Stock shall not be so listed or
admitted to unlisted trading privileges and such bid and asked
prices shall not be so reported, then such current value shall
be computed on the basis of the book value of Common Stock as
of the close of business on the last day of the month
immediately preceding the date upon which such Warrant was
exercised, as determined by the Company,
and
(b) in case such exercise includes only part of the Warrants
represented by any Warrant Certificate, a new Warrant Certificate or
Warrant Certificates of like tenor, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock equal (without
giving effect to any adjustment therein) to the number of such shares
called for on the face of such Warrant Certificate minus the number of
such shares designated by the holder for such exercise as provided in
Section 2.1. Warrants, represented by a properly assigned Warrant
Certificate, may be exercised by a new holder without first having a new
Warrant Certificate issued.
Section 2.4. Extension of Exercise Period; Change of Exercise Price. The
Company may, upon notice given to the Warrant Agent, and without the consent of
the holders of the Warrant Certificates, (i) reduce the Exercise Price during
all or any portion of the originally stated exercise period, or (ii) extend the
period over which the Warrants are exercisable beyond ________, 2001 and
increase the Exercise Price for any period the Warrant exercise period is
extended. In the case of the extension of the exercise period or a change in
the Exercise Price, the Company must provide the Warrant Agent and the
Warrantholders of record notice of such extension of the exercise period,
specifying, as the case may be, the time to which such exercise period is
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extended, or specifying the new Exercise Price and the periods for which such
new Exercise Price is in effect, a reasonable time prior to the date such
extension or new Exercise Price is to take effect, such reasonable time to be
commercially reasonable and consistent with applicable securities laws and
regulations.
ARTICLE III.
ANTIDILUTION PROVISIONS
Section 3.1. Adjustment of Exercise Price.
(a) The Exercise Price shall be subject to the following adjustments.
In the event that:
(i) any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common
Stock shall be paid by the Company;
(ii) the Company shall subdivide its then outstanding
shares of Common Stock into a greater number of shares; or
(iii) the Company shall combine outstanding shares of
Common Stock, by reclassification or otherwise;
then, in any such event, the Exercise Price in effect immediately prior to
such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full
cent) determined by dividing (A) the number of shares of Common Stock
outstanding immediately prior to such event, multiplied by the then
existing Exercise Price, by (B) the total number of shares of Common Stock
outstanding immediately after such event (including the maximum number of
shares of Common Stock issuable in respect of any securities convertible
into Common Stock), and the resulting quotient shall be the adjusted
Exercise Price per share.
(b) No adjustment of the Exercise Price shall be made if the amount
of such adjustments shall be less than one cent per share, but in such
case any adjustment that would otherwise be required to be made shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustment or adjustments
so carried forward, shall amount to not less than one cent per share.
Section 3.2. Adjustment of Number of Shares Purchasable on Exercise of
Warrants. Upon each adjustment of the Exercise Price pursuant to Section 3.1,
the registered holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Exercise Price the number
of shares, calculated to the nearest full share, obtained by multiplying the
number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Exercise Price in effect prior to such adjustment) by the
Exercise Price in effect prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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Section 3.3. Notice as to Adjustment. Upon any adjustment of the
Exercise Price and an increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of the Warrants, then, and in each such
case, the Company shall within ten (10) days after the effective date of such
adjustment give written notice thereof, by first class mail, postage prepaid,
addressed to each registered Warrantholder at the address of such Warrantholder
as shown on the books of the Company, which notice shall state the adjusted
Exercise Price and the increased or decreased number of shares purchasable upon
the exercise of the Warrants, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Section 3.4. Effect of Reorganization, Reclassification, Merger, Etc. If
at any time while any Warrant is outstanding there should be any capital
reorganization or reclassification of the capital stock of the Company (other
than the issue of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than a
combination of shares provided for in Section 3.1 hereof) or any consolidation
or merger of the Company with another corporation or any sale, conveyance,
lease or other transfer by the Company of all or substantially all of its
assets to any other corporation, the holder of any Warrant shall, during the
remainder of the period such Warrant is exercisable, be entitled to receive,
upon payment of the Exercise Price, the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such consolidation or merger, or of the corporation to which the
assets of the Company has been sold, conveyed, leased or otherwise transferred,
as the case may be, to which the Common Stock (and any other securities and
property) of the Company, deliverable upon the exercise of such Warrant, would
have been entitled upon such capital reorganization, reclassification of
capital stock, consolidation, merger, sale, conveyance, lease or other transfer
if such Warrant had been exercised immediately prior to such capital
reorganization, reclassification of capital stock, consolidation, merger, sale,
conveyance, lease or other transfer; and, in any such case, appropriate
adjustment (as determined by the Board of Directors of the Company) shall be
made in the application of the provisions set forth in this Warrant Agreement
with respect to the rights and interests thereafter of the Warrantholders to
the end that the provisions set forth in this Warrant Agreement (including the
adjustment of the Exercise Price and the number of shares issuable upon the
exercise of the Warrants) shall thereafter be applicable, as near as may be
reasonably practicable, in relation to any shares or other property thereafter
deliverable upon the exercise of the Warrants as if the Warrants had been
exercised immediately prior to such capital reorganization, reclassification of
capital stock, such consolidation, merger, sale, conveyance, lease or other
transfer and the Warrantholders had carried out the terms of the exchange as
provided for by such capital reorganization, reclassification, consolidation or
merger. The Company shall not effect any such capital reorganization,
consolidation, merger or transfer unless, upon or prior to the consummation
thereof, the successor corporation or the corporation to which the property of
the Company has been sold, conveyed, leased or otherwise transferred shall
assume by written instrument the obligation to deliver to the holder of each
Warrant such shares of stock, securities, cash or property as in accordance
with the foregoing provisions such holder shall be entitled to purchase.
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<PAGE> 6
Section 3.5. Prior Notice as to Certain Events. In case at any time:
(a) The Company shall pay any dividend upon its Common Stock payable
in stock or make any distribution (other than cash dividends) to the
holders of its Common Stock; or
(b) The Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or any
other rights; or
(c) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with, or sale, conveyance, lease or other transfer of all or
substantially all of its assets to, another corporation; or
(d) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then in any one or more of such cases, the Company shall give prior written
notice, by first class mail, postage prepaid, addressed to each registered
Warrantholder at the address of such Warrantholder as shown on the books of the
Company, of the date on which (i) the books of the Company shall close or a
record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
Common Stock of record shall participate in such dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereto.
Section 3.6. Certain Obligations of the Company. The Company will not,
by amendment of its articles of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant Agreement or the Warrant
Certificate, but will at all times in good faith assist in the carrying out of
all such terms. Without limiting the generality of the foregoing, the Company
(a) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares
of such stock upon the exercise of all Warrants from time to time outstanding,
and (b) will not (i) transfer all or substantially all of its properties and
assets to any other person or entity, or (ii) consolidate with or merge into
any other entity where the Company is not the continuing or surviving entity,
or (iii) permit any other entity to consolidate with or merge into the Company
where the Company is the continuing or surviving entity but, in connection with
such consolidation or merger, the Common Stock then issuable upon the exercise
of the Warrants shall be changed into or exchanged for shares or other
securities or property of any other entity unless, in any such case, the other
entity acquiring such properties and assets,
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continuing or surviving after such consolidation or merger or issuing or
distributing such shares or other securities or property, as the case may be,
shall expressly assume in writing and be bound by all the terms of this Warrant
Agreement and the Warrant Certificates.
Section 3.7. Reservation and Listing of Common Stock. The Company will
at all times reserve and keep available, solely for issuance and delivery upon
the exercise of the Warrants, all shares of Common Stock from time to time
issuable upon such exercise. All such shares shall be authorized and, when
issued upon such exercise, shall be validly issued, fully paid and
nonassessable with no liability on the part of the holder thereof. The
Company, at its expense, will list on each national securities exchange on
which any Common Stock may at any time be listed, subject to official notice of
issuance, and will maintain such listing of, the shares of Common Stock from
time to time issuable upon the exercise of the Warrants.
Section 3.8. Registration or Exemption for Common Stock. The Company
will use its best efforts (a) at all times the Warrants are exercisable to
maintain an effective registration statement under the Securities Act of 1933,
as amended (the "Act"), covering Common Stock issuable upon exercise of the
Warrants, (b) from time to time to amend or supplement the prospectus contained
in such registration statement to the extent necessary in order to comply with
applicable law, (c) to qualify for exemption from the registration requirements
of the Act the Common Stock issuable upon exercise of the Warrants, and (d) to
maintain exemptions or qualifications, in those jurisdictions in which the
original registration statement relating to the Warrants was initially
qualified, to permit the exercise of the Warrants and the issuance of the
Common Stock pursuant to such exercise. The Warrant Agent shall have no
responsibility for the maintenance of such exemptions or qualifications or for
liabilities arising from the exercise or attempted exercise of Warrants in
jurisdictions where exemptions or qualifications have not been maintained or
are otherwise unavailable.
ARTICLE IV.
REDEMPTION OF WARRANTS
Section 4.1. Redemption Price. The Warrants may be redeemed at the
option of the Company, at any time after the date hereof following a period of
14 consecutive trading days where the per share average closing bid price of
the Common Stock exceeds $7.00, on notice as set forth in Section 4.2, and at a
redemption price equal to $.01 per Warrant. For purposes of this Section, the
closing bid price of the Common Stock shall be determined by the closing bid
price as reported by Nasdaq so long as the Common Stock is quoted on Nasdaq
and, if the Common Stock is listed on a national securities exchange, shall be
determined by the last reported sale price on the primary exchange on which the
Common Stock is traded.
Section 4.2. Notice of Redemption. In the case of any redemption of
Warrants, the Company or, at its request, the Warrant Agent in the name of and
at the expense of the Company shall give notice of such redemption to the
holders of the Warrants to be redeemed as hereinafter provided in this Section
4.2. Notice of redemption to the holders of Warrants shall be given by mailing
by first-class mail a notice of such redemption not less than 30 days prior to
the date fixed
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for redemption. Any notice which is given in the manner herein provided shall
be conclusively presumed to have been duly given, whether or not the holder
receives the notice. In any case, failure duly to give such notice, or any
defect in such notice, to the holder of any Warrant Certificate shall not
affect the validity of the proceedings for the redemption of Warrants
represented by any other Warrant Certificate. Each such notice shall specify
the date fixed for redemption, the place of redemption and the redemption price
of $.01 at which each Warrant is to be redeemed, and shall state that payment
of the redemption price of the Warrants will be made on surrender of the
Warrants at such place of redemption, and that if not exercised by the close of
business on the date fixed for redemption, the exercise rights of the Warrants
identified for redemption shall expire unless extended by the Company. Such
notice shall also state the current Exercise Price and the date on which the
right to exercise the Warrants will expire unless extended by the Company.
Section 4.3. Payment of Warrants on Redemption; Deposit of Redemption
Price. If notice of redemption shall have been given as provided in Section
4.2, the redemption price of $.01 per Warrant shall, unless the Warrant is
theretofore exercised pursuant to the terms hereof, become due and payable on
the date and at the place stated in such notice. On and after such date of
redemption, provided that cash sufficient for the redemption thereof shall then
be deposited by the Company with the Warrant Agent for that purpose, the
exercise rights of the Warrants identified for redemption shall expire. On
presentation and surrender of Warrant Certificates at such place of payment in
such notice specified, the Warrants identified for redemption shall be paid and
redeemed at the redemption price of $.01 per Warrant. Prior to the date fixed
for redemption, the Company shall deposit with the Warrant Agent an amount of
money sufficient to pay the redemption price of all the Warrants identified for
redemption. Any monies which shall have been deposited with the Warrant Agent
for redemption of Warrants and which are not required for that purpose by
reason of exercise of Warrants shall be repaid to the Company upon delivery to
the Warrant Agent of evidence satisfactory to it of such exercise.
ARTICLE V.
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
Section 5.1. No Rights of Shareholders. The Warrant Certificates shall
be issued in registered form only. No Warrant Certificate shall entitle the
holder thereof to any of the rights of a holder of shares of Common Stock of
the Company, including, without limitation, the right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of holders of Common Stock or any other proceedings of the Company.
Section 5.2. Loss, Theft, Destruction or Mutilation of Warrant
Certificates. Upon receipt by the Warrant Agent of evidence reasonably
satisfactory to the Warrant Agent of the loss, theft, destruction or mutilation
of any Warrant Certificate, and (a) in the case of any such loss, theft, or
destruction, upon delivery to the Warrant Agent of an indemnity bond in form
and amount, and issued by a bonding company, reasonably satisfactory to the
Company, or (b) in the case of any such mutilation, upon surrender to and
cancellation by the Warrant Agent of such Warrant
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Certificate, the Company at its expense will execute and cause the Warrant
Agent to countersign and deliver, in lieu thereof, a new Warrant Certificate of
like tenor.
Section 5.3. Transfer Agent; Cancellation of Warrant Certificates;
Unexercised Warrants. Norwest Bank Minnesota, National Association (and any
successor), as transfer agent (the "Transfer Agent"), is hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued shares of Common Stock as shall be sufficient to permit the exercise
in full of all Warrants from time to time outstanding. The Company will keep a
copy of this Agreement on file with the Transfer Agent. The Warrant Agent, and
any successor thereto, is hereby irrevocably authorized to requisition from
time to time from the Transfer Agent certificates for shares of Common Stock
required for exercise of Warrants. The Company will supply the Transfer Agent
with duly executed certificates for shares of Common Stock for such purpose and
will make available any cash required in settlement of fractional share
interests. All Warrant Certificates surrendered upon the exercise or
redemption of Warrants shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company; such cancelled Warrant Certificates,
with the Purchase Form on the reverse thereof duly filled in and signed, shall
constitute conclusive evidence as between the parties hereto of the numbers of
shares of Common Stock which shall have been issued upon exercises of Warrants.
Promptly after the last day on which the Warrants are exercisable (set forth
in Section 2.1 above), the Warrant Agent shall certify to the Company the
aggregate number of Warrants then outstanding and unexercised. No shares of
Common Stock shall be subject to reservation with respect to Warrants not
exercised prior to the time and date identified in Section 2.1 above as the
last time and date at which Warrants may be exercised.
ARTICLE VI.
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
Section 6.1. Warrant Register; Transfer or Exchange of Warrant
Certificates. The Warrant Agent shall cause to be kept at the principal office
of the Warrant Agent a register (the "Warrant Register") in which, subject to
such reasonable regulations as the Company may prescribe, provisions shall be
made for the registration of transfers and exchanges of Warrant Certificates.
Upon surrender for transfer or exchange of any Warrant Certificates, properly
endorsed, to the Warrant Agent, the Warrant Agent at the Company's expense will
issue and deliver to or upon the order of the holder thereof a new Warrant
Certificate or Warrant Certificates of like tenor, in the name of such holder
or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock called for on the face of the Warrant
Certificate so surrendered. Any Warrant Certificate surrendered for transfer
or exchange shall be cancelled by the Warrant Agent and shall thereafter be
delivered to the Company.
Section 6.2. Identity of Warrantholders. Until a Warrant Certificate is
transferred in the Warrant Register, the Company and the Warrant Agent may
treat the person in whose name the Warrant Certificate is registered as the
absolute owner thereof and of the Warrants represented thereby for all
purposes, notwithstanding any notice to the contrary, except that, if and when
any
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Warrant Certificate is properly assigned in blank, the Company and the
Warrant Agent may (but shall not be obligated to) treat the bearer thereof as
the absolute owner of the Warrant Certificate and of the Warrants represented
thereby for all purposes, notwithstanding any notice to the contrary.
ARTICLE VII.
CONCERNING THE WARRANT AGENT
Section 7.1. Taxes. The Company will, from time to time, promptly pay to
the Warrant Agent, or make provision satisfactory to the Warrant Agent for the
payment of, all taxes and charges that may be imposed by the United States or
any State upon the Company or the Warrant Agent upon the transfer or delivery
of shares of Common Stock upon the exercise of Warrants, but the Company shall
not be obligated to pay any tax imposed in connection with any transfer
involved in the delivery of a certificate for shares of Common Stock in any
name other than that of the registered holder of the Warrant Certificate
surrendered in connection with the purchase thereof.
Section 7.2. Replacement of Warrant Agent in Certain Circumstances.
(a) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder after giving thirty (30)
days' notice in writing to the Company, except that such shorter notice
may be given as the Company shall, in writing, accept as sufficient. The
Company may discharge the Warrant Agent at any time with or without
reason, effective upon thirty (30) days written notice to the Warrant
Agent or such shorter period as the Warrant Agent shall, in writing,
accept as sufficient. If the office of Warrant Agent becomes vacant by
resignation, discharge, incapacity to act or otherwise, the Company shall
appoint in writing a new Warrant Agent, the principal office of which
shall be in Minnesota. If the Company shall fail to make such appointment
within a period of thirty (30) days after it has been notified in writing
of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the holder of a Warrant Certificate, then the holder
of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United
States or of the State of Minnesota, of good standing, and having its
principal office in Minnesota, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or
examination by Federal or State authority. Any new Warrant Agent
appointed hereunder shall execute, acknowledge and deliver to the Company
an instrument accepting such appointment hereunder and thereupon such new
Warrant Agent without any further act or deed shall become vested with all
the rights, powers, duties and responsibilities of the Warrant Agent
hereunder with like effect as if it had been named as the Warrant Agent;
but if for any reason it becomes necessary or expedient to have the former
Warrant Agent execute and deliver any further assurance, conveyance, act
or deed, the same shall be done and shall be legally and validly executed
and delivered by the former Warrant Agent. Not later than the effective
date of any such
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appointment the Company shall file notice thereof with the former Warrant
Agent. The Company shall promptly give notice of any such appointment to
the holders of the Warrant Certificates by mail to their addresses as
shown in the Warrant Register. Failure to file or give such notice, or
any defect therein, shall not affect the legality or validity of the
appointment of the successor Warrant Agent.
(b) Any company into which the Warrant Agent or any new Warrant Agent
may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which
the Warrant Agent shall be a party shall be the successor Warrant Agent
under this Warrant Agreement without any further act; provided that if
such company would not be eligible for appointment as a successor Warrant
Agent under the provisions of paragraph (a) of this Section 7.2 the
Company shall forthwith appoint a new Warrant Agent in accordance with
such provisions. Any such successor Warrant Agent may adopt the prior
countersignature of any predecessor Warrant Agent and deliver Warrant
Certificates countersigned and not delivered by such predecessor Warrant
Agent or may countersign Warrant Certificates either in the name of any
predecessor Warrant Agent or the name of the successor Warrant Agent.
Section 7.3. Remuneration of Warrant Agent. The Company will pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and will reimburse the Warrant Agent upon demand for all expenditures
that the Warrant Agent may reasonably incur in the execution of its duties
hereunder.
Section 7.4. Further Assurances. The Company will perform, exercise,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or performing
by the Warrant Agent of the provisions of this Warrant Agreement.
Section 7.5. Limitations on Liabilities of the Warrant Agent.
(a) The Warrant Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection of the
Warrant Agent as to any action taken or omitted by it in good faith
and in accordance with such opinion.
(b) Whenever, in the performance of its duties under this
Warrant Agreement, the Warrant Agent shall deem it necessary or
desirable that any matter be proved or established, or that any
instructions with respect to the performance of its duties hereunder
be given, by the Company prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively
proved and established, or such instructions may be given, by a
certificate or instrument signed by an officer of the Company and
delivered to the Warrant Agent; and such certificate or instrument
shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this
Warrant Agreement in
11
<PAGE> 12
reliance upon such certificate or instrument; but in its discretion
the Warrant Agent may in lieu thereof accept other evidence of such
matter or may require such further or additional evidence as it may
deem reasonable.
(c) The Warrant Agent shall be liable hereunder only for its
own negligence or willful misconduct. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be determined solely
by the provisions hereof. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all liabilities,
including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of this Warrant
Agreement except as a result of the Warrant Agent's negligence or
willful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Warrant
Agreement or in the Warrant Certificates (except its
countersignature thereof) or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in
respect to the validity or execution of any Warrant Certificate
(except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained
in this Warrant Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any adjustment in the Exercise
Price, or number of shares issuable upon exercise of the Warrant
Certificates or responsible for the manner, method or amount of any
such adjustment or the facts that would require any such adjustment;
nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of
any shares of Common Stock to be issued pursuant to this Warrant
Agreement or any Warrant Certificate or as to whether any shares of
Common Stock or other securities are or will be validly authorized
and issued and fully paid and nonassessable.
Section 7.6. Amendment and Modification. The Warrant Agent may, without
the consent or concurrence of the holders of the Warrant Certificates, by
supplemental agreement or otherwise, join with the Company in making any
changes or corrections in this Warrant Agreement that they shall have been
advised by counsel (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained, (b) add to the obligations of the Company in this
Warrant Agreement further obligations thereafter to be observed by it, or
surrender any right or power reserved to or conferred upon the Company in this
Warrant Agreement, or (c) do not or will not adversely affect, alter or change
the rights, privileges or immunities of the holders of Warrant Certificates not
provided for under this Warrant Agreement; provided, however, that any term of
this Warrant Agreement or any Warrant Certificate may be changed, waived,
discharged or terminated by an instrument in writing signed by each party
against which enforcement of such change, waiver, discharge or termination is
sought, or by which the same is to be performed or observed.
12
<PAGE> 13
ARTICLE VIII.
OTHER MATTERS
Section 8.1. Successors and Assigns. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant
Agent shall bind and inure to the benefit of their respective successors and
assigns.
Section 8.2. Notices. Any notice or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made if
sent by first class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Hotel Discovery, Inc.
7701 France Avenue South, Suite 217
Edina, MN 55435
Any notice or demand authorized by this Warrant Agreement to be given or made
by the holder of any Warrant Certificate or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by first class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Warrant Agent with the Company) as follows:
Norwest Bank Minnesota, National Association
Shareholder Services
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Section 8.3. Governing Law. This Warrant Agreement and the Warrant
Certificates are being delivered in the State of Minnesota and shall be
construed and enforced in accordance with and governed by the laws of such
State.
Section 8.4. No Benefits Conferred. Nothing in this Warrant Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company, the Warrant Agent, and the holders of the
Warrant Certificates, any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
herein; and all covenants, conditions, stipulations, promises and agreements in
this Warrant Agreement contained shall be for the sole and exclusive benefit of
the Company, the Warrant Agent, their respective successors and the holders of
the Warrant Certificates.
Section 8.5. Headings. The descriptive headings used in this Warrant
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
13
<PAGE> 14
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties hereto as of the day and year first above written.
HOTEL DISCOVERY, INC.
By ___________________________________
Its Chairman of the Board
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By ___________________________________
Its _______________________________
14
<PAGE> 15
EXHIBIT A
No. _____________ Certificate for ______ Warrants
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED
EXERCISABLE ON OR BEFORE, AND VOID AFTER,
5:00 P.M. MINNEAPOLIS TIME, ____________, 2001
HOTEL DISCOVERY, INC.
WARRANTS TO PURCHASE COMMON STOCK OF
HOTEL DISCOVERY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that CUSIP _________
or assigns, is the owner of the number of Warrants set forth above, each of
which represents the right to purchase from Hotel Discovery, Inc., a Minnesota
corporation (the "Company"), at any time on or before 5:00 Minneapolis time,
___________, 2001, upon compliance with and subject to the conditions set forth
herein and in the Warrant Agreement hereinafter referred to, one share (subject
to adjustments referred to below) of the Common Stock of the Company (such
shares or other securities or property purchasable upon exercise of the
Warrants being herein called the "Shares"), by surrendering this Warrant
Certificate, with the Purchase Form on the reverse side duly executed, at the
principal office of Norwest Bank Minnesota, National Association, or its
successor, as warrant agent (the "Warrant Agent"), and by paying in full, in
cash or by certified or official bank check payable to the order of the
Company, the exercise price of $6.50 per share.
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
Upon the surrender for transfer or exchange hereof, properly endorsed, to
the Warrant Agent, the Warrant Agent at the Company's expense will issue and
deliver to the order of the holder hereof, a new Warrant Certificate or Warrant
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face hereof.
<PAGE> 16
The Warrant Certificates are issued only as registered Warrant
Certificates. Until this Warrant Certificate is transferred in the Warrant
Register, the Company and the Warrant Agent may treat the person in whose name
this Warrant Certificate is registered as the absolute owner hereof and of the
Warrants represented hereby for all purposes, notwithstanding any notice to the
contrary.
This Warrant Certificate is issued under the Warrant Agreement dated as of
_________, 1997 between the Company and the Warrant Agent. The Warrant
Agreement is hereby incorporated by reference into this Warrant Certificate and
this Warrant Certificate is subject to the terms and provisions contained in
said Warrant Agreement, to all of which terms and provisions the registered
holder of this Warrant Certificate consents by acceptance hereof. Copies of
said Warrant Agreement are on file at the principal office of the Warrant Agent
in Minneapolis, Minnesota, and may be obtained by writing to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants
represented by this Warrant Certificate and the exercise price per share are
subject to adjustment upon the happening of certain events specified in the
Warrant Agreement.
No fractional Shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional Share determined as provided in the Warrant Agreement.
The Warrants may be redeemed at the option of the Company, at any time
following a period of 14 consecutive trading days where the per share average
closing bid price of the Common Stock exceeds $7.00, on notice as set forth in
the Warrant Agreement, and at a redemption price equal to $.01 per Warrant. If
notice of redemption shall have been given as provided in the Warrant Agreement
and cash sufficient for the redemption be deposited by the Company for that
purpose, the exercise rights of the Warrants identified for redemption shall
expire at the close of business on such date of redemption unless extended by
the Company.
This Warrant Certificate shall not entitle the holder hereof to any of the
rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before 5:00 p.m.
Minneapolis time on ___________, 2001, unless extended by the Company.
<PAGE> 17
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized
officers.
HOTEL DISCOVERY, INC.
By ______________________________
Chairman of the Board
By ______________________________
Secretary
COUNTERSIGNED AND REGISTERED:
as Warrant Agent
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By ______________________________
Authorized Officer
<PAGE> 18
[REVERSE OF WARRANT CERTIFICATE]
THE CORPORATION WILL FURNISH ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A
COPY OF THE ARTICLES OF INCORPORATION AND A FULL STATEMENT OF THE DESIGNATIONS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR
SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE
AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
SUBSEQUENT CLASSES OR SERIES.
TO: Hotel Discovery, Inc.
c/o Norwest Bank Minnesota, National Association
Warrant Agent
PURCHASE FORM
(To be Executed by the Registered Holder
in Order to Exercise of Warrant Certificates)
The undersigned hereby irrevocably elects to exercise ________________* of
the Warrants represented by the Warrant Certificate and to purchase for cash
the Shares issuable upon the exercise of said Warrants and requests that
certificates for such Shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
REGISTERED HOLDER OF CERTIFICATE
______________________________________________________________________________
(Print Name)
______________________________________________________________________________
(Address)
______________________________________________________________________________
Dated: __________________________ Signature: ___________________________
* Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof being
exercised), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
<PAGE> 19
ASSIGNMENT FORM
(To be Executed by the Registered Holder
in Order to Transfer Warrant Certificates)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
____________________________________ of the Warrants to purchase shares of
Common Stock represented by this Warrant Certificate unto
______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
______________________________________________________________________________
______________________________________________________________________________
and does hereby irrevocably constitute and appoint
____________________________________
Attorney to transfer this Warrant Certificate on the records of the Company
with full power of substitution in the premises.
Dated:________________________ Signature(s) _________________________
SIGNATURE(S) GUARANTEED:
______________________________
NOTICE
The signature(s) to the Purchase Form or the Assignment Form must
correspond to the name as written upon the face of this Warrant Certificate in
every particular without alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 5
August 22, 1997
Hotel Discovery, Inc.
7701 France Avenue South, Suite 217
Edina, Minnesota 55435
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted on behalf of Hotel Discovery, Inc. (the "Company") in
connection with a Registration Statement on Form SB-2 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
relating to Units (the "Units"), each consisting of one share (the "Unit
Shares") of Common Stock, $.01 par value (the "Common Stock") of the Company and
one Class A Warrant (the "Warrants") to purchase one share of the Common Stock,
and shares (the "Warrant Shares") of the Common Stock issuable upon exercise of
the Warrants, all of which are to be issued by the Company. Upon examination of
such corporate documents and records as we have deemed necessary or advisable
for the purposes hereof and including and in reliance upon certain certificates
by the Company, it is our opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.
2. The Units, the Unit Shares, the Warrants and the Warrant Shares, when
issued and sold as contemplated in the Registration Statement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Maslon Edelman Borman & Brand, LLP
<PAGE> 1
EXHIBIT 10.1
INDENTURE OF LEASE
THIS INDENTURE OF LEASE, made on the 9th day of November, 1994 between
PHILLIP E. STEPHENS, TRUSTEE (hereinafter called "Landlord"), with an address
for receipt of payments at: P.O. Box 930525, Atlanta, Georgia 31193, and an
address for receipt of notices at 5775 Peachtree Dunwoody Road, Suite 200-D,
Atlanta, Georgia 30342, Attn: Counsel, and KENWOOD RESTAURANT, INC., an Ohio
Corporation trading as Hotel Mexico (hereinafter called "Tenant") with a notice
address of: 3655 Michigan Avenue, Cincinnati, Ohio 45208 Attn: President and an
address for receipt of invoices of: 3655 Michigan Avenue, Cincinnati, Ohio
45208 Attn: Accounts Payable.
WITNESSETH:
I. Leased Premises.
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
the store premises (hereinafter referred to as the "Premises" or designated on
the plan attached as Exhibit "A" hereto as Store Number 14 (Main level) erected
as part of a shopping center presently known as Sycamore Plaza at Kenwood
(hereinafter referred to as the "Shopping Center" and presently comprising the
area shown on Exhibit "A") located at 7800 Montgomery Road, Cincinnati, Ohio
45236, being measured and described by the following dimensions which are
measured from the outside building lines of each wall of the Premises or, in
the case of those walls separating the Premises from other stores in the
Shopping Center, from the center lines of such walls:
Frontage: irregular feet
---------
Depth: irregular feet
---------
Total Area: 7,700 square feet
---------
together with the right to the non-exclusive use in common with others entitled
to use same of all such automobile parking areas, driveways, malls, courts,
corridors, footpaths, sidewalks, loading facilities and other facilities as may
be designated by Landlord from time to time, as more fully set forth in and
subject to the terms and conditions of this Indenture of Lease and the Lease
Agreement (hereinafter collectively referred to as the "Lease"), and to such
reasonable rules and regulations for the use thereof as may be prescribed from
time to time by the Landlord in accordance with Section 11.04 of the Lease. The
floor area of the Premises as indicated above shall be subject to confirmation
by Landlord's architect, whose determination shall be binding upon the parties;
if Landlord's architect determines that the actual floor area of the Premises,
as constructed, is different from that set forth above, the Fixed Minimum Rent
and other charges hereunder shall be adjusted accordingly.
II. Term of Lease. (See Rider #1 - Option to Extend)
Tenant's obligation to pay rent and occupy the premises in accordance
with the terms of the Lease shall commence on the earlier of the following
dates (such earlier date being hereinafter called the "Commencement Date"): (1)
six (6) months after delivery of possession by Landlord ("Construction
Period"); or (2) the date on which Tenant shall first open the Premises for
business with the public. The term of this Lease shall be a period of fifteen
(15) years, plus the period, if any, between the Commencement Date if it falls
on a day other than the first day of the month and the first day of the
calendar month in the term (such period being hereinafter referred to as the
"Original Term").
III. Fixed Minimum Rent.
Tenant shall pay to Landlord, in monthly installments, a guaranteed
annual minimum rent ("Fixed Minimum Rent") for each of the following periods
during the term of this Lease, as follows:
<TABLE>
<CAPTION>
TIME PERIOD ANNUAL AMOUNT MONTHLY AMOUNT
<S> <C> <C> <C>
Commencement Date to end of Year 5 $ 154,000.00 $ 12,833.33
Year 6 to end of Year 10 $ 169,400.00 $ 14,116.67
Year 11 to end of Year 15 $ 184,800.00 $ 15,400.00
Year 16 to end of Year 20 (option) $ 200,200.00 $ 16,683.33
Year 21 to end of Year 25 (option) $ 215,600.00 $ 17,966.67
</TABLE>
Each such installment shall be due and payable on or before the first day of
each calendar month in the Original Term of this Lease, in advance, at the
address set forth above, or at such other place as may be designated by Landlord
from time to time, without any prior demand therefor and without any deduction,
reduction, recoupment or set off whatsoever; the first installment shall be paid
on the Commencement Date whether or not the Commencement Date shall be a day
other than the first day of a calendar month. Tenant's first payment of Fixed
Minimum Rent shall be prorated for the fractional month between the
Commencement Date and the first day of the first full calendar month in the
term hereof (if any), on a per diem basis (calculated on a thirty [30] day
month).
Indenture of Lease
Hotel Mexico
Page 1 of 4
<PAGE> 2
IV. Percentage Rent.
In addition to the Fixed Minimum Rent, Tenant, in accordance with
Section 2.01 of the Lease, shall pay to Landlord, as additional rent hereunder
and as part of the consideration for this Lease, for each Lease Year in the
Original Term of this Lease a sum equal to four percent (4 %) of that portion
of Gross Sales (as defined in Section 2.02 of the Lease) during such Lease Year
which is in excess of the applicable Percentage Rent Gross Sales Base
(hereinafter referred to as "Percentage Rent"). The Percentage Rent Gross
Sales Base for the following periods within each Lease Year shall be:
PERCENTAGE RENT
TIME PERIOD GROSS SALES BASE
Commencement Date to end of Year 5 $ 3,850,000.00
Year 6 to end of Year 10 $ 4,235,000.00
Year 11 to end of Year 15 $ 4,620,000.00
Year 16 to end of Year 20 (option) $ 5,004,999.00
Year 21 to end of Year 25 (option) $ 5,390,000.00
V. HVAC Charge.
NO HVAC CHARGE APPLIES: Tenant is responsible for providing,
installing, operating, and maintaining its own individual HVAC unit in
accordance with Landlord's specifications.
VI. Taxes.
In accordance with and subject to the adjustments set forth in Article
III of the Lease, for each "Tax Year" (as defined in Section 3.04) during the
Term, Tenant shall pay Landlord on account of Tenant's share of any "Taxes" (as
defined in such Section), the annual amount (payable in equal monthly
installments) of One and 40/100 Dollars ($1.40) multiplied by the number of
square feet of floor area contained within the Premises.
VII. Costs of Maintenance and Operations.
In accordance with and subject to the adjustments set forth in Section
4.03 of the Lease, for each "Accounting Period" (as defined in Section 4.03)
during the Term, Tenant shall pay Landlord on account of Tenant's share of
"Operating Costs" (as defined in Section 4.02), the annual amount (payable in
equal monthly installments) of Two and 50/100 Dollars ($2.50) multiplied by the
number of square feet of floor area contained within the Premises.
VIII. Marketing and Advertising.
In accordance with and subject to the adjustments set forth in Article
IX of the Lease, for each year during the Term, Tenant shall pay to Landlord
the annual amount (payable in equal monthly installments) of Zero and 10/100
Dollars ($.10) multiplied by the number of square feet of floor area contained
within the Premises (hereinafter referred to as the "Marketing Service Charge").
IX. Proportionate Insurance.
In accordance with and subject to the adjustments set forth in Section
3.05 of the Lease, for each Accounting Period during the Term, Tenant shall pay
Landlord on account of Tenant's share of the cost of Landlord's policies of
insurance (with such extended coverage as the Landlord may deem appropriate)
insuring portions of the Shopping Center, the annual amount (payable in equal
monthly installments) of Zero and 25/100 Dollars ($.25) multiplied by the
number of square feet of floor area contained within the Premises (hereinafter
referred to as the "Insurance Charge").
X. Use of Premises. [See Rider #3]
Subject to the provisions of Article XI of the Lease, Tenant shall use
the Premises solely for the following purpose, and for no other purpose
whatsoever:
For the operation of a full-service restaurant under the name Hotel
Mexico, selling items shown on the menu attached as Exhibit G.
Indenture of Lease
Hotel Mexico
Page 2 of 4
<PAGE> 3
XI. Shopping Center Hours of Operation.
Tenant shall have the Premises open for business with the public for
the following minimum hours:
Monday 11:00 A.M. to 9:00 P.M.
Tuesday 11:00 A.M. to 9:00 P.M.
Wednesday 11:00 A.M. to 9:00 P.M.
Thursday 11:00 A.M. to 9:00 P.M.
Friday 11:00 A.M. to 9:00 P.M.
Saturday 11:00 A.M. to 9:00 P.M.
Sunday 12:00 Noon to 9:00 P.M.
Tenant may remain open as late as 2:30 a.m., subject to Rider #14
XII. Tenant Improvements. [See Rider #2 - Construction Allowance]
In accordance with the provisions of Section 10.02 of the Lease, Tenant
shall complete its Tenant Improvements to the Premises, as therein defined, not
later than six (6) months after delivery of possession by Landlord.
XIII. Security Deposit.
[INTENTIONALLY DELETED]
XIV. Lease Documents.
In addition to the Indenture of Lease and the Lease Agreement,
consisting of 4 and 24 printed pages, respectively, the following are attached
to the Lease and are hereby incorporated and made part of the Lease as fully as
though set forth at length in the Lease:
<TABLE>
<S><C>
Exhibit "A" Lease plan of Shopping Center indicating / / Exhibit 11.05- exception from competition clause
general location of premises Rider
Exhibit "B" Tenant/Landlord Work Guaranty (individual)
Exhibit "C" Electricity Redistribution Charges / / Guaranty (corporate)
/ / Exhibit "D" HVAC Charges Other: Exhibit G- Menu
Exhibit "E" Rules and Regulations Exhibit II - Decorative Stone Wall
Exhibit "F" Sign Criteria
Exhibit 1.01 Commencement Certification
</TABLE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Lease to be duly executed as of the day and year first
above written.
<TABLE>
<S><C>
LANDLORD: STRATEGIC RETAIL TRUST (Formerly Kenwood
Mall Trust)
By: Phillip E. Stephens
--------------------------------------
Phillip E. Stephens, Trustee
Witness: [SIG]
--------------------------------
Print Name: [SIG]
--------------------
Witness: Kimberly R. Poe
--------------------------------
Print Name: Kimberly R. Poe
--------------------
TENANT: KENWOOD RESTAURANT, INC. trading as Hotel
Mexico
By: Stephen D. King
--------------------------------------
witness: Gregory E. Land Title: President
-------------------------------- -------------------------------
Print Name: Gregory E. Land
-------------------- Attest: Stephen D. King
----------------------------------
Witness: Laurie J. Hayden Title: Secretary
-------------------------------- ---------------------------
Print Name: Laurie J. Hayden [CORPORATE SEAL]
--------------------
</TABLE>
<PAGE> 4
ACKNOWLEDGMENTS
FOR LANDLORD:
STATE OF GEORGIA )
S.S.
COUNTY OF FULTON )
On the 11th day of November, 1994, before me, a Notary Public in and
for the jurisdiction aforesaid, personally appeared Phillip E. Stephens, to me
personally known, who by me duly sworn did say that he is the Trustee of
Strategic Retail Trust (Formerly Kenwood Mall Trust); and that the foregoing
instrument was signed by him in his capacity as Trustee; and that he
acknowledged execution of said instrument to be his voluntary act and deed.
(Notarial Seal) [SIG]
--------------------------------------
Notary Public
My Commission Expires: Notary Public, Fulton County, Georgia
My Commission Expires August 22, 1998
FOR TENANT (corporate):
STATE OF OHIO )
S.S.
COUNTY OF HAMILTON )
On the 7th day of November, 1994, before me, a Notary Public in and for
the jurisdiction aforesaid, personally appeared Steven D. King to me personally
known, who by me duly sworn did say that (s)he is the President of Kenwood
Restaurant, Inc., an Ohio corporation, and that the foregoing instrument was
signed on behalf of said corporation by authority of its Board of Directors and
that (s)he acknowledged execution of said instrument to be the voluntary act
and deed of said company.
(Notarial Seal) Laurie J. Hayden
-----------------------------
Notary Public
My Commission Expires: LAURIE J. HAYDEN
Notary Public, State of Ohio
My Commission Expires July 31, 1999
<PAGE> 5
LEASE AGREEMENT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE OR SECTION TITLE PAGE
ARTICLE I TERM
1.01 Confirmation of the Term ...................................................................................... 1
1.02 Expiration; Holding Over ...................................................................................... 1
ARTICLE II PERCENTAGE RENT
2.01 Lease Year and Payment ........................................................................................ 1
2.02 Gross Sales Defined ........................................................................................... 2
2.03 Percentage Rent Statements .................................................................................... 2
2.04 Failure of Tenant to Operate .................................................................................. 2
ARTICLE III TAXES AND INSURANCE
3.01 Taxes Defined ................................................................................................. 2
3.02 Payment as Additional Rent .................................................................................... 3
3.03 Excluded Areas, Leasable Floor Area Defined ................................................................... 3
3.04 Tax Year Defined .............................................................................................. 3
3.05 Proportionate Insurance ....................................................................................... 3
ARTICLE IV COMMON AREAS
4.01 Definition; Control ........................................................................................... 4
4.02 Operating Costs Defined ....................................................................................... 4
4.03 Payment of Tenant's Shares of Operating Costs ................................................................. 5
ARTICLE V ADDITIONAL RENT-GENERAL PROVISIONS
5.01 Additional Rent Defined ....................................................................................... 5
5.02 Late Charges; Bad Checks ...................................................................................... 5
ARTICLE VI ACCOUNTING
6.01 Tenant's Records .............................................................................................. 6
6.02 Audit ......................................................................................................... 6
ARTICLE VII INSURANCE
7.01 Tenant's Insurance ............................................................................................ 6
7.02 Notice to Landlord ............................................................................................ 7
ARTICLE VIII UTILITIES
8.01 Utility Service, Consumption and Charges ...................................................................... 7
ARTICLE IX MARKETING SERVICES
9.01 Marketing Service Charge ...................................................................................... 7
9.02 Merchants' Association ........................................................................................ 8
9.03 Initial Marketing Charge ...................................................................................... 8
ARTICLE X CONDITION AND REMODELING
10.01 Condition of Premises ......................................................................................... 8
10.02 Remodeling of the Premises .................................................................................... 8
10.03 Trade Fixtures ................................................................................................ 10
10.04 Signs, Awnings and Canopies ................................................................................... 10
10.05 Alterations and Mandatory Refurbishment ....................................................................... 11
10.06 Changes and Additions to the Center ........................................................................... 11
ARTICLE XI CONDUCT OF BUSINESS
11.01 Use of Premises ............................................................................................... 12
11.02 Storage on Premises ........................................................................................... 12
11.03 General Condition of Use ...................................................................................... 12
11.04 Rules and Regulations ......................................................................................... 13
11.05 Competition ................................................................................................... 14
11.06 Parking Facilities ............................................................................................ 14
ARTICLE XII MAINTENANCE AND REPAIR; SURRENDER OF PREMISES
12.01 Repairs and Maintenance by Tenant ............................................................................. 14
12.02 Structural Repairs ............................................................................................ 14
12.03 Surrender of Premises ......................................................................................... 15
ARTICLE XIII INDEMNIFICATION; SURROGATION
13.01 Indemnification and Waiver of Claim ........................................................................... 15
13.02 Subrogation ................................................................................................... 15
ARTICLE XIV DESTRUCTION OF PREMISES
14.01 Total or Partial Destruction .................................................................................. 16
14.02 Partial Destruction of Shopping Center ........................................................................ 16
</TABLE>
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<TABLE>
<S><C>
ARTICLE XV EMINENT DOMAIN
15.01 Total Condemnation of Premises ...................................................... 16
15.02 Partial Condemnation of Premises .................................................... 17
15.03 Condemnation of Shopping Center ..................................................... 17
15.04 Condemnation Awards ................................................................. 17
ARTICLE XVI ESTOPPEL CERTIFICATES; SUBORDINATION AND ATTORNMENT
16.01 Execution of Estoppel Certificates .................................................. 17
16.02 Subordination and Attornment ........................................................ 17
ARTICLE XVII ASSIGNMENT AND SUBLETTING
17.01 Transfers Requiring Landlord Consent ................................................ 18
17.02 Grant of Concessions ................................................................ 18
ARTICLE XVIII PAYMENTS AND NOTICES
18.01 Delivery of Payments and Notices; Notice Requirements ............................... 19
ARTICLE XIX EVENTS OF DEFAULT; LANDLORD'S REMEDIES
19.01 Events of Default ................................................................... 19
19.02 Termination ......................................................................... 19
19.03 Right of Possession ................................................................. 19
19.04 Additional Remedies of Landlord ..................................................... 19
19.05 Waivers by Tenant ................................................................... 20
ARTICLE XX SECURITY DEPOSIT
20.01 Security Deposit .................................................................... 20
ARTICLE XXI MISCELLANEOUS PROVISIONS
21.01 Access by Landlord .................................................................. 21
21.02 Excuse of Performance ............................................................... 21
21.03 Successors .......................................................................... 21
21.04 Quiet Enjoyment ..................................................................... 21
21.05 Waiver .............................................................................. 21
21.06 Custom and Usage .................................................................... 22
21.07 Accord and Satisfaction ............................................................. 22
21.08 Performance of Tenant's Covenants ................................................... 22
21.09 Entire Agreement .................................................................... 22
21.10 Relationship of Parties ............................................................. 22
21.11 Captions ............................................................................ 22
21.12 Tenant Defined; Use of Pronoun ...................................................... 22
21.13 Negation of Personal Liability ...................................................... 23
21.14 Liability of Landlord's Management Agent ............................................ 22
21.15 Governmental Limitation on Rents and Other Charges .................................. 23
21.16 Partial Invalidity; Separate Covenants .............................................. 23
21.17 Recording ........................................................................... 23
21.18 Brokerage Commission ................................................................ 23
21.19 Construction ........................................................................ 23
21.20 Hazardous Material .................................................................. 24
21.21 Tenant-Requested Documentation ...................................................... 24
21.22 Warranties of Tenant ................................................................ 24
21.23 Submission of Lease to Tenant ....................................................... 24
</TABLE>
EXHIBITS: As listed on the Indenture of Lease
(ii)
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LEASE AGREEMENT
ARTICLE I
TERM
SECTION 1.01 CONFIRMATION OF THE TERM.
(a) Within a reasonable time after the Commencement Date of the
Lease, the Tenant shall execute and deliver to Landlord a Commencement
Certification, in the form attached hereto as Exhibit 1.01. Upon execution by
Landlord, a copy of the Commencement Certification shall be sent to Tenant for
its records.
(b) The period commencing on the date hereof and terminating on the
date immediately prior to the Commencement Date is herein referred to as the
"Pre-Commencement Period". For the purposes of this Lease, the word "Term"
shall be deemed to mean the Pre-Commencement Period and the Original Term of
this Lease and all extensions or renewals thereof. During the Pre-Commencement
Period, all of the terms, covenants and conditions hereof shall be in full
force and effect, but Tenant's rental payment obligations hereunder shall be
abated until the Commencement Date.
SECTION 1.02. EXPIRATION; HOLDING OVER.
(a) This Lease and the tenancy hereby created shall create and
terminate at the end of the Term without the necessity of any notice from
either Landlord or Tenant to terminate the same. Tenant hereby waives notice to
vacate the Premises and agrees that Landlord shall be entitled to the benefit
of all provisions of law respecting the summary recovery of possession of
Premises from a tenant holding over to the same extent as if statutory notice
had been given.
(b) Should Tenant hold over in possession of the Premises after the
expiration of the Term without the execution of a new lease agreement of
extension or renewal agreement, Tenant, at the option of Landlord, shall be
deemed to be occupying the Premises from month to month, subject to such
occupancy being terminated by either party upon at least thirty (30) days
written notice, at one hundred fifty percent (150%) of the rental, including,
but not limited to, Fixed Minimum Rent, Percentage Rent, Tax Rent, Tenant's
proportionate share of Operating Costs, the HVAC Charge, Marketing Service
Charge, and additional charges provided for herein, all calculated, from time
to time, as though the Term had continued and otherwise subject to all of the
other terms, covenants and conditions of the Lease insofar as the same may be
applicable to a month to month tenancy.
ARTICLE II
PERCENTAGE RENT
SECTION 2.01. LEASE YEAR AND PAYMENT.
(a) Percentage Rent shall be payable without prior demand and without
any recoupment, setoff or deduction whatsoever at the times set forth
hereinafter at the place then fixed for the payment of Fixed Minimum Rent.
(b) Not later than thirty (30) days after the expiration of the first
"Lease Year" (hereinafter defined) of the Term, and thereafter not later than
thirty (30) days after the expiration of each subsequent Lease Year in the
Term, Tenant shall pay to Landlord the Percentage Rent due for the Lease Year
in question.
(c) Whenever used in this Lease the words "Lease Year" shall mean the
twelve (12) full calendar months of the Term commencing with January 1st
immediately following the Commencement Date and ending December 31st of such
calendar year, and each succeeding twelve (12) month period; provided, however,
that the first Lease Year shall commence on the Commencement Date and
terminate on the immediately following thirty-first (31st) day of December and
the last Lease Year shall terminate on the last day of the Term. In the event
that the first or last Lease Year shall consist of other than twelve (12) full
calendar months, the Percentage Rent Gross Sales Base for such Lease Year shall
be multiplied by a fraction, the numerator of which shall be the number of days
contained in such Lease Year and the denominator of which shall be three
hundred sixty-five (365). In the event the amount of the Percentage Rent Gross
Sales Base set forth herein is subject to adjustments during the Term, and the
date on which any such adjustment is to occur (hereinafter referred to as the
"Rental Adjustment Date") is other than the first day of a Lease Year, the
Percentage Rent Gross Sales Base for the Lease Year in which the Rental
Adjustment Date shall fall shall be the sum of: (1) the lesser Percentage Rent
Gross Sales Base set forth in the Indenture of Lease multiplied by a fraction,
the numerator of which shall be the number of days in the period commencing
on the first day of the Lease Year in which the Rental Adjustment Date shall
fall and ending on the day immediately prior to the Rental Adjustment Date and
the denominator of which shall be three hundred sixty-five (365); and (2) the
greater Percentage Rent Gross Sales Base set forth in the Indenture of Lease
multiplied by a fraction, the numerator of which shall be the number of days
in the period commencing on the Rental Adjustment Date and ending on the last
day of the Lease Year in which the Rental Adjustment Date shall fall and the
denominator of which shall be three hundred sixty-five (365).
(d) If pursuant to any other section of this Lease, Tenant should be
entitled to an abatement, apportionment or suspension of the Fixed Minimum Rent
payable hereunder, Tenant shall continue to pay to Landlord the Percentage Rent
during the period in which the Fixed Minimum Rent shall have been abated,
apportioned, suspended; and during any and all Lease Years in which there shall
be one or more such periods, the Percentage Rent Gross Sales Base shall be
reduced in the same proportion as the Fixed Minimum Rent shall have abated,
apportioned or suspended. If during any Lease Year the Premises shall not be
open for business on one or more days on which Tenant is obligated to conduct
business pursuant to this Lease and for which days Tenant shall not be entitled
to an abatement, apportionment or suspension of the Fixed Minimum Rent, the
Percentage Rent Gross Sale Base shall be deemed to be reduced to zero
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for such days. In the event that any reduction of the Percentage Rent Gross
Sales Base is applicable to one or more days during a Lease Year, the Percentage
Rent Gross Sales Base to be used in calculating the Percentage Rent for such
Lease Year shall be determined by averaging on a daily basis the Percentage Rent
Gross Sales Base applicable during such Lease Year.
SECTION 2.02 Gross Sales Defined.
(a) The words "Gross Sales" as used herein shall mean the gross amount of
all revenue generated by sales, rental, performance of services, or otherwise by
Tenant and/or by any subtenant, licensee or concessionaire made or originating
in, at or from the Premises (including, but not limited to, catalogue sales made
at or from the Premises), whether for cash, credit or other consideration (with
such other consideration being determined at fair market value) and financing
charges on all Gross Sales (without reserve or deduction for inability or
failure to collect). Gross Sales also shall include all deposits not refunded
to purchasers. Each sale upon installment or credit shall be treated as a sale
for the full price in the month during which such sale shall be made,
irrespective of the time when Tenant shall receive payment therefor.
(b) The following shall be excluded from Gross Sales, or if originally
included therein, deducted from Gross Sales, provided separate records are
supplied supporting such deductions or exclusions: (1) any exchange of
merchandise between stores of Tenant where such exchange is made solely for the
convenient operation of Tenant's business and not for the purpose of
consummating a sale made in, at or from the Premises; (2) returns to shippers or
manufacturers; (3) cash or credit refunds to customers on transactions otherwise
included in Gross Sales; (4) sales of fixtures, machinery and equipment after
use thereof in the conduct of Tenant's business in the Premises (except where
Tenant is in the business of selling such fixtures, machinery or equipment); (5)
amounts collected and paid by Tenant for any sales tax imposed by any duly
constituted governmental authority, provided such tax is both added to the
selling price as a separate and distinct amount in addition to the regular price
of Tenant's merchandise and paid to the taxing authority by Tenant (but not by
any vendor of Tenant); (6) the amount of any discount on sales to employees; and
(7) receipts from the permitted pay telephone and vending machines referred to
in Section 11.03(q). No value added tax, franchise tax, capital stock tax,
income, gross receipts or similar tax based upon income, profits or gross
receipts shall be deducted from Gross Sales.
SECTION 2.03. Percentage Rent Statements.
(a) Not later than the fifteenth (15th) day after the end of each calender
quarter during the Term, Tenant shall submit to Landlord an itemized and
accurate written statement signed by Tenant, its duly authorized officer or duly
authorized representative, reflecting the full amount of Gross Sales made during
the preceding calender month. If the Commencement Date hereof shall not be the
first day of a calender quarter the period between the Commencement Date and the
first day of the first full calender quarter in the Term and Tenant's Gross
Sales during such period shall be added to the first calendar quarter for both
the purpose of the computation of Percentage Rent and the purpose of reporting
of Gross Sales. Quarterly statements shall be submitted at the end of March,
June, September, and December.
(b) Not later than the date set forth in Section 2.01(b) hereof, Tenant
shall submit to Landlord a complete written statement of Tenant's Gross Sales
for the preceding Lease Year in such reasonable detail as requested by Landlord,
accompanied by a statement signed and certified by Tenant, or its duly
authorized officer or representative stating that the Gross Sales reported by
Tenant are in accord with the amount thereof set forth on Tenant's regularly
maintained books and records. Simultaneously with the delivery of the statement
referred to in the preceding sentence, Tenant shall pay to Landlord the
Percentage Rent due and payable for such Lease Year, if any.
(c) The acceptance by Landlord of payments of Percentage Rent or reports
thereof shall be without prejudice, and shall in no event constitute a waiver of
Landlord's rights to claim a deficiency of such Percentage Rent or to audit
Tenant's books and records as set forth in Section 6.01 hereof.
(d) If Tenant shall fail to deliver the statement required by Section
2.03(b) within the period set forth therein and such failure shall continue for
ten (10) days after the date of written notice of such failure from Landlord,
Landlord shall have the right thereafter to employ as accountant to make such
examination of Tenant's books and records as may be necessary to certify the
amount of Tenant's Gross Sales for said Lease Year. The certification so made
shall be binding upon Tenant and Tenant shall promptly pay to Landlord the cost
of the examination, together with the full balance of Percentage Rent due and
payable for said Lease Year, if any. In the event such certification reveals a
refund due to Tenant, the cost of such examination shall reduce such refund and,
if not fully paid by such reduction, shall be promptly paid by Tenant to
Landlord.
SECTION 2.04. Failure of Tenant to Operate.
It is expressly understood and agreed that Percentage Rent expected from
Tenant will not be effectively generated unless the Tenant continuously operates
its business during all hours required by this Lease. In the event Tenant fails
to do so, Tenant shall pay to Landlord, as liquidated damages and not as a
penalty, an amount equal to $500.00 per day for each day or fraction of a day
that Tenant is not open, in addition to all other amounts due and payable under
this Lease. Notwithstanding the payment of such damages, as Tenant's failure to
operate also causes damages to other tenants and to the public image of the
Shopping Center, if such event reoccurs after written notice from Landlord,
Landlord shall have the right to treat such event as an Event of Default
hereunder.
ARTICLE III
TAXES AND INSURANCE
SECTION 3.01. Taxes Defined.
For the purposes of this Section, the word "Taxes" shall include: all taxes
attributable to improvements now or hereafter made to the Shopping Center or any
part thereof; or to the present or future installation in the Shopping Center or
any part thereof of fixtures, machinery or equipment; all real estate taxes,
assessments, water and sewer and other governmental impositions and charges of
every kind
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and nature whatsoever, nonrecurring as well as recurring, special or
extraordinary as well as ordinary, foreseen, and unforeseen, and each and every
installment thereof, which shall or may during the term of this Lease be levied,
assessed or imposed, or become due and payable or become liens upon, or arise
in connection with the use, occupancy or possession of, or any interest in,
the Shopping Center or any part thereof, or any land, buildings or other
improvements there, less amounts paid, if any, as taxes to Landlord or the
taxing authority by the occupants of any "Excluded Areas" (as hereinafter
defined in Section 3.03). The word "Taxes" shall not include any charge, such
as water meter charge and sewer rent based thereon, which is measured by the
consumption by the actual user of the item or service for which the charge is
made. If at any time during the term of this Lease, under the laws of any one
or more jurisdictions in which the Shopping Center is located, a tax,
imposition, charge, assessment, levy, excise or license fee is levied on,
imposed against or measured, computed or determined, in whole or in part, by:
(1) rents payable hereunder (Fixed Minimum, Percentage, Tax and/or additional);
or (2) the value of any lien placed against the Shopping Center or against the
real property comprising the Shopping Center or any obligations secured thereby;
or if any other tax (except income tax), imposition, charge, assessment, levy,
excise or license fee, however described or denoted, shall be levied or imposed
by any such jurisdiction, to the extent that the cost of any of the foregoing
shall be imposed, either directly or indirectly, on Landlord, such tax,
imposition, charge, assessment, levy, excise or license fee, shall be deemed to
be included as "Taxes" for the purposes of this Section 3.01. In the event the
Landlord shall retain any consultant to negotiate the amount of taxes, tax rate,
assessed value and/or other factors influencing the amount of Taxes, and/or
shall institute any administrative and/or legal proceedings challenging the tax
rate, assessed value or other factors influencing the amount of taxes, whether
or not such action results in a reduction in the amount of taxes, Taxes shall
include all such reasonable fees, reasonable attorneys' and appraisers' fees
and all disbursements, court costs and other similar items paid or incurred by
Landlord during the applicable Tax Year with respect to such proceedings.
Tenant shall not institute any proceedings with respect to the assessed
valuation of the Shopping Center or any part thereof for the purpose of seeking
or securing a tax reduction.
SECTION 3.02. Payment as Additional Rent.
For each "Tax Year" (as hereinafter defined) during the Original Term of
this Lease, Tenant shall pay to Landlord as additional rent (hereinafter called
"Tax Rent"), the amount obtained by multiplying the total of all Taxes payable
during such Tax Year by a fraction, the numerator of which shall be the square
feet of floor area of the Premises and the denominator of which shall be the
total amount of square feet of "Leasable Floor Area" (as defined and computed
pursuant to Section 3.03 hereof) in the Shopping Center in effect at the time
of such proration. Tenant shall pay monthly, in advance, as additional rent,
together with each monthly installment of Fixed Minimum Rent, without demand
or setoff, Tax Rent in an amount equal to one-twelfth (1/12th) of the annual
amount payable as Tax Rent, as set forth in the paragraph of the Indenture of
Lease entitled "Taxes", for each square foot of floor area contained within
the Premises. Such amount may be adjusted by Landlord at any time during the
Term to an amount equal to one-twelfth (1/12th) of the Tax Rent payable by
Tenant for the preceding Tax Year. If Tenant's payment of Tax Rent for any
Tax Year exceeds the actual amount payable by Tenant as Tax Rent for such Tax
Year (for whatever reason, including receipt by Landlord of any refund of
amounts paid, which amount shall be reduced by Landlord's costs in obtaining
such refund), Landlord shall refund such excess to Tenant within thirty (30)
days, provided Tenant has fully performed all of its obligations under this
Lease, is not indebted to Landlord and, if such Tax Year is the last Tax Year
in the Term, further provided that Tenant has vacated the Premises in
accordance with the provisions hereof. In the event Tenant is indebted to
Landlord for any reason whatsoever, Landlord may deduct such amount owed from
such overpayment. Tenant shall pay any balance of its Tax Rent for any Tax
Year within thirty (30) days' after receipt of notice from Landlord of the
amount due. In the event of any dispute as to amounts owed, a copy of the
invoice, bill, assessment, levy or notice of imposition from the applicable
taxing authority shall be conclusive evidence and binding on the parties.
SECTION 3.03. Excluded Areas, Leasable Floor Area Defined.
As used in this Lease, the term "Excluded Areas" shall mean portions of
the Shopping Center used as office space, storage areas and mezzanines,
basement space, outdoor sales areas, corridors and hallways, mechanical,
electrical and other utility service areas and equipment rooms, loading dock
areas, out-parcels and any buildings thereon, and any portions of additions to
the Shopping Center referred to in Section 10.06(b) which Landlord hereafter
designates as an Excluded Area. Further, for the purpose of allocating
liability for Operating Costs relating directly to the interior common areas,
Excluded Areas shall include the floor area of any tenant in excess of 60,000
square feet, and any tenant in excess of 20,000 square feet not having an
entrance on the enclosed mall. For purposes of this Lease, the words "Leasable
Floor Area" shall mean the square feet of floor area in enclosed buildings
which are erected on portions of the Shopping Center, other than Excluded
Areas. In the event of any dispute as to the floor area or Leasable Floor Area
in the Shopping Center or any portion thereof (other than the Premises which
shall be determined by the provisions of the Indenture of Lease), the
determination of Landlord shall be binding upon the parties.
SECTION 3.04. Tax Year Defined.
For the purpose of this Lease, the words "Tax Year" shall mean the
twelve (12) full calendar months of the term commencing with the January 1st
immediately following the Commencement Date and ending December 31st of such
calendar year, and each succeeding twelve (12) month period thereafter
commencing in the Term; provided, however, the first Tax Year shall commence on
the Commencement Date and terminate on the immediately succeeding December
31st. If the Original Term hereof commences or terminates (other than by
reason of Tenant's default) on a day other than the first or last day,
respectively, of a Tax Year, Tenant's Tax Rent for such Tax Year shall be
equitably prorated.
SECTION 3.05. Proportionate Insurance.
For each "Accounting Period" (as hereinafter defined in Section 4.03[f])
or portion thereof during the Term hereof, Tenant shall pay to Landlord, as
additional rent, as Tenant's share of the cost of Landlord's policy or policies
of fire insurance with extended coverage insuring the Shopping Center, other
than such cost relating to the Common Areas (as hereinafter defined in Section
4.01) a sum equal to the number of square feet of floor area of the Premises
multiplied by the charge per square foot set forth in the paragraph of the
Indenture of Lease captioned "Proportionate Insurance" (such charge being
referred to hereinafter as the "Insurance Charge"). The Insurance Charge shall
be paid to Landlord on the first day of each calendar month in the Term, in
advance without demand, recoupment or setoff, in equal monthly installments. If
the Term commences or terminates (other than by reason of Tenant's default) on
a date other
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than the first or last day, respectively, of an Accounting Period, Tenant's
Insurance Charge shall be equitably prorated for such period. Landlord may
adjust the Insurance Charge amount at any time during an Accounting Period to
reflect Landlord's actual cost of such insurance per square foot of Leasable
Floor Area and, upon receipt of such notice, Tenant shall commence payment of
such increased sum and shall continue to pay the same until a subsequent
adjustment is made hereunder. Although Tenant shall pay the Insurance Charge,
as aforesaid, in addition to, and not as a component of, its share of Operating
Costs (as hereinafter defined in Section 4.02), for the purpose of Article XIX
and Sections 1.02(b) and 17.01 of this Lease, the words "Operating Costs" shall
be deemed to include such Insurance Charge.
ARTICLE IV
COMMON AREAS
SECTION 4.01. Definition; Control.
All areas, space, facilities, equipment and signs, to the extent made
available from time to time by Landlord for the common and joint use and benefit
of Landlord, Tenant and other tenants and occupants of the Shopping Center, and
their respective employees, agents, subtenants, concessionaires, licensees,
customers and other invitees, are collectively referred to herein as the "Common
Areas". If and to the extent made available by Landlord, Common Areas shall
include, but not be limited to, the sidewalks, parking areas, access roads and
drives, driveways, entranceways, parking decks, bridges, landscaped areas, truck
service ways, tunnels, loading docks, open and enclosed pedestrian walkways,
corridors and malls, courts, stairs, ramps, elevators, escalators, comfort and
first aid stations, public washrooms, community hall or auditorium, parcel
pick-up stations, utility lines and utility rooms. All Common Areas in or about
the Shopping Center shall be subject to the exclusive control of Landlord.
Landlord shall operate, manage, equip, police, light, surface, repair and
maintain the Common Areas all in such manner as Landlord, in its sole
discretion, may determine from time to time (including, without limitation, the
right to keep any enclosed mall open only during the hours designated by
Landlord) and Landlord shall have the sole right and exclusive authority to
employ and discharge all personnel with respect thereto. Landlord hereby
expressly reserves the right from time to time to construct, maintain and
operate lighting and other facilities, equipment and signs on all of the Common
Areas; to police and maintain security for the Common Areas; to use and allow
others to use the Common Areas for any purpose; to change the size, area, level,
location and arrangement of the Common Areas; to build multi-story and/or
subterranean parking facilities; to regulate parking by tenants and other
occupants of the Shopping Center and their respective employees, agents,
subtenants, concessionaires and licensees; to enforce parking charges (by
operation of meters or otherwise) with appropriate provisions for parking ticket
validation for tenants; to close temporarily all or any portion of the Common
Areas for the purpose of making repairs, changes or alterations thereto or
performing necessary maintenance in connection with any emergency, in connection
with closings resulting from adverse weather conditions or for any other purpose
whatsoever, whether such purpose is similar or dissimilar to the foregoing; to
discourage non-customer parking; to establish, modify and enforce reasonable
rules and regulations with respect to the Common Areas and the use to be made
thereof. For the Term, Tenant is hereby given the non-exclusive license in
common with all others to whom Landlord has or may hereafter grant rights to use
the Common Areas as they may from time to time exist; provided, however, that if
such license shall at any time be revoked, in whole or in part, or the size,
area, level, location or arrangement of such Common Areas or if the type of
facilities shall at any time forming a part thereof be changed, altered,
rearranged or diminished, Landlord shall not be subject to any liability
therefor, nor shall Tenant be entitled to any compensation or diminution or
abatement of rent therefor, nor shall such alteration, rearrangement,
revocation, change or diminution of such Common Areas be deemed a constructive
or actual eviction or otherwise be grounds for terminating or modifying this
Lease. In order to establish that the Shopping Center or any portion thereof is
and will continue to remain private property and to prevent a dedication thereof
or the accrual of any rights to any person or to the public therein, Landlord
hereby reserves the unrestricted right, in Landlord's sole discretion, to close
all or any portion of the Common Areas to such extent as, in the opinion of the
Landlord's counsel, may be legally sufficient to prevent such dedication thereof
or accrual of any rights to any person or the public therein; provided, however,
Landlord reserves the right at any time and from time to time to dedicate to
public use part or all of the ring roads, access roads, drives and utility
lines, together with all easements required to effectuate such dedications, as
it may see fit.
SECTION 4.02. Operating Costs Defined.
Subject to reimbursement as set forth in Section 4.03, Landlord will at
its expense operate and maintain, or cause to be operated and maintained, the
Common Areas. For the purposes of this Lease, "Operating Costs" shall be those
costs of operating, repairing, maintaining, upgrading, improving, and
replacing the Common Areas in a manner deemed by Landlord to be reasonable and
appropriate including, but not limited to, all costs and expenses, whether
expended or incurred, of operating, repairing, replacing, lighting, cleaning,
painting and maintaining (including, but not limited to preventive
maintenance) such Common Areas and the Shopping Center and insuring the same
with such policies and companies and in such limits as selected by Landlord
(including, but not limited to, fire insurance with extended coverage, liability
insurance covering personal injury, deaths and property damage with a personal
injury endorsement covering false arrest, detention or imprisonment, malicious
prosecution, libel and slander, and wrongful entry or eviction, worker's
compensation insurance, plate glass insurance, contractual liability insurance
and fidelity bonds, plus the amount of any deductible paid by Landlord, but
excluding the insurance referred to in Section 3.05 hereof); removing snow,
ice, rubbish and debris; inspecting, policing, providing security and
regulating traffic; rental of sweepers, trucks and other equipment;
depreciation (over a period not exceeding sixty [60] months) of machinery and
equipment and other non-real estate assets used in the operation and
maintenance of the Shopping Center; repairing and/or replacing of paving,
parking areas, roofs, curbs, walkways, entranceways, landscaping, drainage,
on-site water lines, sanitary sewer lines, storm water lines, heating,
ventilating and air-conditioning systems, floors, floor coverings, canopies,
skylights, lighting fixtures, lamps, decorative coverings, fountains,
escalators, electrical lines and other equipment serving the property on which
the Shopping Center or any part thereof is constructed; heating, ventilating
and air-conditioning enclosed Common Areas at the same rate Landlord charges to
tenants; uniforms and replacement of uniforms; the rental of music programs,
services and loudspeaker systems including the furnishing of electricity
therefor; all costs incurred by Landlord in compliance with any environmental or
other similar laws, rules, regulations, guidelines or orders, including the
cost of removing hazardous materials from the Shopping Center; the cost of
obtaining and operating public transportation or shuttle bus systems used in
connection with bringing customers to the Shopping Center; the gross
compensation and fringe benefits of the mall manager, the mall office personnel
and all other on-site personnel required to supervise and accomplish
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the foregoing; and an administrative charge equal to fifteen percent (15%) of
the total of all Operating Costs (exclusive of such administrative charge).
Operating Costs shall not include depreciation other than as specifically
referred to herein. In the event of any dispute as to whether an item
represents an expense or a capital item, Landlord's accounting practices shall
be determinative and binding on the parties and Landlord reserves the right to
amortize, without interest, any item or group of related items of substantial
expense over a period not to exceed sixty (60) months if Landlord deems such
amortization to be in the best interests of the Shopping Center or its tenants.
In the event of such amortization, Tenant shall be responsible for its share of
same notwithstanding that the actual cost to which it relates may have been
incurred prior to the commencement of the Term.
SECTION 4.03. Payment of Tenant's Share of Operating Costs.
(a) For each "Accounting Period" (as defined in Section 4.03(f) during
the Term, Tenant shall pay to Landlord, as additional rent, Tenant's share of
the Operating Costs in an amount equal to the product obtained by multiplying
(1) the total Operating Costs for such Accounting Period, less all
contributions thereto actually made by occupants of any Excluded Areas, by (2)
a fraction, the numerator of which shall be the square feet of floor area of
the Premises, and the denominator of which shall be the total amount of square
feet of Leasable Floor Area in the Shopping Center in effect on the last day
of such Accounting Period.
(b) On the first day of each calendar month during that portion of the
Term falling within the first Accounting Period during the Term hereof, Tenant
shall pay to Landlord, in advance, without demand and without any setoff,
offset, deduction or recoupment, as an estimated payment on account of Tenant's
share of the Operating Costs, an amount equal to one-twelfth (1/12th) of the sum
obtained by multiplying the number of square feet of floor area of the Premises
by the minimum annual charge per square foot set forth in the paragraph of the
Indenture of Lease captioned "Costs of Maintenance and Operation". If the
Commencement Date hereof shall not be the first day of a calendar month,
Tenant's payment of its proportionate share of Operating Costs for the
fractional month between the Commencement Date and the first day of the first
full calendar month in the Term shall be prorated on a per diem basis
(calculated on a thirty [30] day month) and shall be paid together with the
first payment of Fixed Minimum Rent.
(c) After the first Accounting Period, Tenant shall continue to pay
such estimated amount of Tenant's proportionate share of Operating Costs on the
first day of each month in advance without demand and without any setoff,
offset, recoupment or deduction, but the aforesaid estimated amount of Tenant's
share of Operating Costs may be adjusted and revised by Landlord after the end
of each Accounting Period during the Term on the basis of either, in Landlord's
sole discretion, the actual Operating Costs for the immediately preceding
Accounting Period, or the budgeted Operating Costs for the current Accounting
Period. Upon receipt by Tenant of a statement from Landlord setting forth such
revised estimated Operating Costs, Tenant shall pay to Landlord such revised
estimated share in equal monthly installments, each such installment to be a
sum equal to one-twelfth (1/12th) of such revised estimated share of Operating
Costs, in advance on the first day of each calendar month thereafter until the
next succeeding revision in such estimate.
(d) Following the end of each Accounting Period, Landlord shall furnish
to Tenant a written statement in reasonable detail covering the most recently
expired Accounting Period showing the total Operating Costs for such Accounting
Period, the amount of Tenant's share thereof and payments made by Tenant with
respect thereto. All subsequent monthly payments on account of Tenant's share
of Operating Costs made by Tenant during such Accounting Period after receipt of
such statement shall be applied by Landlord as payment on account of Tenant's
obligation for its share of Operating Costs for the next ensuing Accounting
Period and shall not reduce Tenant's obligation to pay the balance due Landlord
pursuant to such statement. In making the computation as aforesaid, Landlord's
statement shall be presumptive evidence of Operating Costs. See Rider.
(e) If Tenant's share of Operating Costs exceeds Tenant's payments with
respect to any Accounting Period, Tenant shall pay the deficiency to Landlord
within thirty (30) days after the date of the furnishing of the statement by
Landlord; if Tenant's payments exceed Tenant's share of the Operating Costs and
Tenant is not in default hereunder or otherwise indebted to Landlord, Landlord
shall apply such excess to future payments due to Landlord from Tenant for
Operating Costs or other rent items and shall give notice to Tenant of such
application; provided, if such overpayment is for the last Accounting Period,
Landlord shall refund to Tenant the amount of such overpayment at such time and
only in the event Tenant has fully performed all of its obligations under this
Lease, is not indebted to Landlord and has vacated in accordance with the
provisions of this Lease. In the event Tenant is indebted to Landlord for any
reason whatsoever, Landlord may deduct such amount owed from such overpayment.
(f) For the purpose of this Lease, the words, "Accounting Period" mean
the period consisting of twelve (12) consecutive calendar months, commencing on
a date determined by Landlord from time to time and each succeeding twelve (12)
calendar month period during the Term. If the Term commences or terminates
(other than by reason of an Event of Default by Tenant) during an Accounting
Period, Tenant's obligation for Tenant's proportionate share of Operating Costs
for such Accounting Period shall be equitably prorated.
ARTICLE V
ADDITIONAL RENT - GENERAL PROVISIONS
SECTION 5.01. Additional Rent Defined.
All sums of money or charges required to be paid by Tenant under this
Lease, but not limited to Tax Rent, Percentage Rent, Fixed Minimum Rent,
Proportionate Insurance, HVAC Charge, Operating Costs, Marketing Service
Charge, and charges for utilities, whether or not the same are designated
"additional rent", shall be additional rent and shall for all purposes
hereunder be deemed to be, and shall be paid by Tenant as, rent without
recoupment, deduction or setoff.
SECTION 5.02. Late Charges, Bad Checks.
If such amounts or rent or charges are not paid at the time provided in
this Lease, they shall nevertheless, if not paid when due, be collectible as
rent with the next installment of Fixed Minimum Rent thereafter falling due
hereunder together with a late charge equal
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to two percent (2%) of the amount outstanding for each month or part of a month
from the due date thereof to the date of payment; provided that Landlord shall
not be obligated to accept any late payment and further provided that Landlord
shall not be deemed to have waived such late charge by acceptance of any
subsequent rent payment which fails to include such charge. In the event any
check tendered by Tenant to Landlord is not honored on initial presentation,
Tenant shall pay Landlord the greater of Twenty Five Dollars ($25.00) or the
amount Landlord's bank charges Landlord for processing such returned check. All
past due rent shall, in addition, bear interest at the rate of twelve percent
(12%) per annum or, if less, the highest rate allowed by law.
ARTICLE VI
ACCOUNTING
SECTION 6.01. Tenant's Records.
Tenant covenants and agrees that the business records of Tenant and of
any subtenant, licensee or concessionaire upon the Premises shall be maintained
in accordance with generally accepted accounting practices. Furthermore, Tenant
shall keep at all times during the Term, at the Premises or at the central
offices of Tenant, full, complete and accurate books of account and records in
accordance with generally accepted accounting practices with respect to all
operations of the business to be conducted in or from the Premises including,
without limitation, the recording of Gross Sales and the receipt of all
merchandise into and the shipment of all merchandise from the Premises during
the Term. Tenant shall retain such books and records, copies of all tax
reports submitted to the appropriate taxing authorities, as well as copies of
contracts, vouchers, checks, inventory records, dated cash register tapes and
other documents and papers in any way relating to the operation of such
business (all of which are hereinafter collectively referred to as "books and
records") for at least three (3) years from the end of the Lease Year to which
they are applicable, or, if an audit is commenced or if a controversy should
arise between the parties hereto regarding the rent payable hereunder, until
such audit or controversy is terminated even though such retention period may
be after the expiration of the Term of, or earlier termination of, this Lease.
Such books and records shall be open at all reasonable times during the
aforesaid retention period, after prior written notice to Tenant, to the
inspection of Landlord or its duly authorized representatives, who shall have
full and free access to such books and records, the right to audit such books
and records and the right to require of Tenant, its agents and employees, such
information or explanation with respect to such books and records as may be
necessary for a proper examination and/or audit thereof. If for any reason
Tenant does not fully comply with the above obligations on the date designated
by Landlord for an inspection and/or audit of Tenant's books and records, and
Landlord agrees to reschedule such inspection and/or audit, Tenant shall
reimburse Landlord, on demand, for Landlord's out of pocket expenses relating
to such rescheduling, if any.
SECTION 6.02. Audit.
If the examination and/or audit referred to in Section 6.01 discloses
that Tenant has understated its Gross Sales by three percent (3%) or more for
any Lease Year during the period being examined, Tenant shall pay to Landlord,
upon demand, the cost of such examination and/or audit, in addition to the
deficiency in Percentage Rent, which shall be payable in any event. In
addition, Landlord may treat the existence of such liability as an Event of
Default.
ARTICLE VII
INSURANCE
SECTION 7.01. Tenant's Insurance.
(a) Tenant will keep in force with companies licensed to do business in
the state where the Shopping Center is located, at Tenant's expense, at all
times during the Term, and during such other times as Tenant occupies the
Premises or any part thereof:
(1) comprehensive general liability insurance with respect to
the Premises, the sidewalks, if any, abutting and adjoining the Premises, and
the business operated by Tenant and any subtenants, licensees and
concessionaires of Tenant in or from the Premises, with minimum limits of One
Million Dollars ($1,000,000.00) on account of bodily injuries to or death of
one person, and Two Million Dollars ($2,000,000.00) on account of bodily
injuries to or death of more than one person as the result of any one accident
or disaster, and property damage insurance with minimum limits of One Hundred
Thousand Dollars ($100,000.00). If the nature of Tenant's operation is such as
to place any or all of its employees under the coverage of local worker's
compensation or similar statutes, Tenant shall also keep in force, at its own
expense, worker's compensation or similar insurance affording statutory
coverage and containing statutory limits. Such liability insurance shall, in
addition, extend to any liability of Tenant arising out of the indemnities
provided in this Lease; and
(2) Fire insurance, with standard broad form extended coverage
endorsement covering: (i) all of Tenant's stock in trade, trade fixtures,
furniture, furnishings, and such equipment as is not affixed to the Premises:
and (ii) Tenant's interest in all of the improvements and betterments installed
in the Premises by or for Tenant; in each case to the extent of at least eighty
percent (80%) of their collective insurable value, without co-insurance.
(b) Upon request, Tenant will deposit with Landlord policies of
insurance required by the provisions of this Section 7.01 or certificates
thereof, together with satisfactory evidence of the payment of the required
premium or premiums therefor. The insurance required hereby may be maintained
by means of a policy or policies of blanket insurance so long as the provisions
of this Section 7.01 are fully satisfied. The insurance company or companies
providing the insurance for Tenant as required by this Section 7.01 shall be
subject to the reasonable approval of Landlord.
(e) If for any reason whatsoever Tenant fails to provide and keep in
force any or all of the insurance policies set forth in Section 7.01 hereof,
then in such event Tenant shall indemnify and hold Landlord harmless against
any loss which would have been covered by such insurance. Such failure shall
constitute an Event of Default.
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SECTION 7.02. Notice to Landlord.
All policies of insurance required to be carried by Tenant shall
provide that the policy shall not be subject to cancellation, termination or
change except after not less than twenty (20) days' prior written notice to
Landlord, and the policy referred to in Section 7.01(a)(1) shall name Landlord
and Landlord's management agent (and any other person or entity as may be
requested by Landlord in writing) as named insureds as their respective
interests may appear, and shall be primary, non-contributory, and not in excess
of any other coverage maintained by Landlord or any other party. In addition,
such policies of insurance shall contain a provision substantially as follows:
"It is understood and agreed that the insurance afforded by this policy or
policies for more than one named insured shall not operate to increase the
limits of the companies' liability, but otherwise shall not operate to link or
void the coverage of any one named insured as respects claims against the same
named insured by any other named insured or the employees of such other named
insured."
ARTICLE VIII
UTILITIES; CONSUMPTION AND CHARGES
SECTION 8.01. Utility Service; Consumption and Charges.
(a) Tenant shall make all appropriate applications to the local utility
companies at such times as shall be necessary to ensure that utilities are
available at the Premises no later than the Commencement Date, and shall pay
all required deposits, connection fees and/or charges for meters within the
applicable time period set by the local utility company.
(b) Tenant shall be solely responsible for and promptly pay all charges
for heat, water, electricity, sewer rents or charges, and any other utility
used or consumed in the Premises or in providing heating and air-conditioning
to the Premises, including in each instance, all sales and other taxes
applicable to the sale or supply of such utilities, said responsibility
commencing on the earlier of the Commencement Date or the date Tenant first
enters the Premises for any reason. Should Landlord elect or be required to
supply or make available any utility used or consumed at the Premises, Tenant
agrees to purchase and pay for same, as additional rent, every month during the
Term. During the Term, Tenant agrees to purchase from Landlord and pay for
electricity to be used by Tenant at the Premises in accordance with Exhibit "C"
attached hereto. During the Term, Tenant agrees to purchase from Landlord and
pay for the heating and/or cooling medium supplied by Landlord to the Premises,
to be used by Tenant for heating and air-conditioning the Premises, as
additional rent, upon presentation of bills therefor, at the rate set forth in
the paragraph in the Indenture of Lease captioned "HVAC Charge", subject to
adjustment in accordance with Landlord's Charge Rate Adjustment Schedule
attached hereto as Exhibit "D".
(c) In the event that Tenant does not have a water meter installed in
the Premises, Tenant will pay to Landlord, as additional rent, every month
during the Term, the minimum charge for the size of the water line installed in
the Premises in accordance with the rates established from time to time by the
company or authority supplying water to the Premises. In the event that the
local authority, municipality, utility or other body collects for the water
and/or sewerage or sanitary service and/or consumption, as aforesaid, Tenant
covenants and agrees to pay the water and sewer rent charge (both minimum and
otherwise) and any other tax, rent, levy, connection fee or meter or other
charge which now or hereafter is assessed, imposed or may become a lien upon
the Premises, or the realty of which they are a part, pursuant to law, order or
regulation made or issued in connection with the use, consumption, maintenance
or supply of water, or the water or sewerage connection or system.
(d) Tenant must install and operate heating and cooling equipment in
accordance with Landlord's Design Criteria to maintain the Premises at such
temperatures as will prevent the freezing or bursting of pipes and the draining
of heated and chilled air from any enclosed sections of the Shopping Center.
(e) Landlord may, after thirty (30) days notice to Tenant, cease to
furnish any one or more of the utility services to the Premises, without any
responsibility to Tenant, except to connect, at Tenant's sole cost and expense,
Tenant's distribution facilities therefor with another source for the utility
service so disconnected.
(f) In no event shall Landlord be liable to Tenant in damages or
otherwise for any interruption, curtailment or suspension of any of the
foregoing utility services whether resulting from an Event of Default by Tenant
under this Lease, repair or maintenance activity at the Premises or the
Shopping Center, actions of any third party not controlled by Landlord,
accident, action of public authority, strikes, acts of God or public enemy, or
any other cause, whether similar or dissimilar to the aforesaid. See Rider
ARTICLE IX
MARKETING SERVICES
SECTION 9.01. Marketing Service Charge.
Landlord shall establish a marketing service (hereinafter referred to
as the "Marketing Service") to furnish and maintain sales promotion and
advertising efforts for the benefit of the Shopping Center. Tenant shall pay,
as its share of the cost of the Marketing Service for each Year, the amount set
forth in Article VIII of the Indenture (hereinafter referred to as the
"Marketing Service Charge"). The Marketing Service Charge for any partial Lease
Year shall be determined by multiplying Tenant's Marketing Service Charge by a
fraction, the numerator of which shall be the number of days contained in such
partial year and the denominator of which shall be three hundred sixty-five
(365). Tenant shall contribute to the Marketing Service, in advance, without
demand, recoupment, deduction or offset, one-twelfth (1/12th) of the Marketing
Service Charge (as adjusted at the time and in the manner provided below) on
the first day of each calendar month throughout the Term. Tenant's Marketing
Service Charge may be increased by Landlord, in its sole and absolute
discretion, once per Lease Year during the Term by the greater of (i) eight
percent (8%) of the previous year's payment, or (ii) the increase in the actual
marketing expenditures for the previous year over the next previous year. The
Marketing Service Charge shall be used to pay all costs and expenses associated
with the formulation and execution of an ongoing program for the promotion and
advertising of the Shopping Center, as determined by Landlord in its sole
discretion and control. The Marketing Service Charge may be used to
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defray the cost of administration of such marketing activities, including the
salary or payments and reimbursements due such organizations and personnel,
rent, travel expenses and other business expenses. Such reasonable amount of
space within the Shopping Center as may be necessary to carry out the Marketing
Service will be assessed in line with the rentals for similarly sized
commercial office space.
SECTION 9.02. Merchants' Association.
Landlord may, from time to time in Landlord's sole discretion, require
that Tenant participate in a merchants' association for the Shopping Center
sponsored or designated by Landlord. In such case: (1) Tenant shall participate
as an active member in such association; (2) Tenant shall continue to pay the
Marketing Service Charge to Landlord and such Marketing Service Charge shall be
deemed to satisfy any obligations of Tenant to pay regular monthly dues to such
association; (3) Landlord shall turn over such Marketing Service Charge to the
association or, at Landlord's option, shall continue to use the same or a
portion thereof in conjunction with or on behalf of the association for the
purpose of promoting, advertising and marketing the Shopping Center; and (4)
Tenant shall pay any special assessments and participate in any joint
advertising or promotional events sponsored by such association and shall comply
with all other requirements of the association.
SECTION 9.03. Initial Marketing Charge.
In addition to the Marketing Service Charge, Tenant shall also pay to
Landlord within sixty (60) days before the date that Landlord has set for the
Grand Opening or Grand Re-Opening of the Shopping Center (hereinafter the
"Grand Opening Date"), or upon execution of the Lease if less than sixty (60)
days prior to the Grand Opening Date, or if after the Grand Opening Date (or if
no Grand Opening or Grand Re-Opening is scheduled), upon the Commencement Date,
an initial advertising charge (hereinafter referred to as the "Initial
Marketing Charge") in an amount equal to Fifteen Cents ($0.15) per square foot
of floor area in the Premises. Said payment by the Tenant shall be due and
payable regardless of whether Tenant is obligated to be open for business on
the Grand Opening Date. Nothing herein shall require Landlord to expend more in
advertising and promoting such Grand or Grand Re-Opening than the amount equal
to that which Landlord collects from occupants of the Shopping Center for such
promotion. Landlord may charge all costs and expenses of promoting the Grand
Opening or Re-Opening against such aggregate sum. The failure of any other
tenant to pay the Initial Marketing Charge shall not affect Tenant's
obligations hereunder.
ARTICLE X
CONDITION AND REMODELING
SECTION 10.01. Condition of Premises.
*, subject to the completion of Landlord's Work, as described in the Rider
Tenant has had the opportunity to examine the Premises and hereby
agrees to accept them in the "as is" condition existing on the Commencement
Date*. Tenant further acknowledges that Landlord has not made any
representations as to the present or future condition of the Premises, the
presence or absence of Hazardous Materials (as hereinafter defined in Section
21.20) therein or what items the prior occupant of such Premises is required to
or may leave in the Premises. Landlord shall not be liable for any inability to
deliver possession of the Premises to Tenant by the Commencement Date, except
that any such inability shall extend the Commencement Date by a period of time
equal to the period between the Commencement Date and the date Landlord
delivers possession; provided, however, if Landlord has not turned over
possession by a date which is one year from the date hereof, at either party's
option, this Lease shall be null and void and neither party shall have any
liability hereunder to the other. Notwithstanding any conversations which may
have taken place prior to the negotiation and execution of this Lease regarding
the condition of the Premises, Tenant understands and accepts that it is solely
responsible for securing such contractors, inspectors, architects or such other
agents as Tenant may deem necessary or appropriate to ascertain the condition
of the Premises, the utilities serving the Premises and any facilities contained
within the Premises for connection thereto and the suitability of the Premises
for the construction of Tenant's improvements. This obligation of Tenant set
forth above shall not in any manner limit the right of Landlord to approve
Tenant's plans and specifications or to require changes thereto as Landlord
deems appropriate or necessary for the Premises, nor shall Landlord's voluntary
furnishings of any as-built drawings, architectural or engineering reports or
similar information regarding the construction or condition of the Premises in
any manner relieve Tenant of its responsibility hereunder. See Rider
SECTION 10.02. Remodeling of the Premises.
See Rider
(a) Tenant shall fully and completely remodel the Premises in
accordance with the plans and specifications referred to below, such work to be
completed by the date specified in the paragraph of the Indenture of Lease
captioned "Tenant Improvements". Such work shall include installation of a new
storefront and a complete refurbishment of the interior of the Premises to the
extent specified by Landlord and shall be consistent with Landlord's design
criteria. Not later than thirty (30) days after the date hereof, Tenant shall
deliver to Landlord detailed plans and specifications (which shall include
cooling and heating load calculations, electrical panelboard schedules and
loads and such other details as may be required by Landlord's engineer)
prepared by Tenant's licensed architect, disclosing the remodeling of the
Premises. Landlord shall review such plans and specifications and advise Tenant
of any changes required by Landlord; Tenant shall promptly revise such plans
and specifications to incorporate Landlord's required changes and redeliver
revised plans to Landlord within twenty (20) days after being advised of
Landlord's changes. Landlord may require further changes in such plans and
Tenant shall similarly revise and resubmit the same to Landlord within an
additional period of twenty (20) days. Tenant shall commence such renovations
within ten (10) days after Landlord has approved Tenant's plans and
specifications and has turned over possession of the Premises. All such work
shall be promptly commenced and thereafter continued with due diligence to the
end that it shall be fully completed and the Premises opened for business in
accordance with the provisions hereof not later than the Commencement Date.
Tenant shall perform no work in the Premises until such plans and
specifications have been approved by Landlord. Together with the initial
submission of plans and specifications (i) for the remodeling required by this
Lease and (ii) relating to any other work in the Premises which Tenant desires
or is required to perform, Tenant shall pay Landlord or Landlord's management
agent, as directed, the "Plan Review Charge" set forth below to defray the cost
of reviewing Tenant's plans and specifications. The Plan Review Charge shall be
equal to Fifty Cents ($.50) per square foot of floor area in the Premises,
with a minimum charge of Five Hundred Dollars ($500.00) and a maximum
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charge of Two Thousand Dollars ($2,000.00). The foregoing Plan Review Charge
shall not apply to the initial construction of the Premises.
(b) All work required under this Section 10.02 and all other
alterations to the Premises performed by Tenant pursuant to this Lease
(including, without limitation, any work required by Section 21.20) are
collectively referred to as "Tenant's Work". All of Tenant's Work shall be
completed at Tenant's sole cost and expense. In performing Tenant's Work,
Tenant shall comply with the following requirements:
1. In addition to, and not in lieu of the other policies of
insurance required by this Lease, at all times between the start and completion
of Tenant's Work (such period is herein referred to as "Tenant's Construction
Period"), Tenant, at its own cost and expense, shall maintain in effect with an
insurance company reasonably acceptable to Landlord, a policy of "All Risk"
Builder's Risk Insurance in the standard form for the State of Ohio. Said
insurance shall cover the full replacement value of all work done and fixtures
and equipment installed or to be installed at the Premises by Tenant, without
co-insurance and without any deductible clauses, and shall list Landlord and
Landlord's management agent as additional insureds as their respective
interests may appear.
2. At all times during Tenant's Construction Period, Tenant's
contractors and subcontractors shall maintain in effect worker's compensation
insurance as required by the laws of the State of Ohio. Tenant's contractor
shall also provide to Landlord proof of general liability insurance in an
amount not less than $500,000.00 per person and $1,000,000.00 per occurrence.
3. Repair and/or reconstruction of all or any portion of
Tenant's Work damaged or destroyed by any casualty occurring during Tenant's
Construction Period shall be commenced by Tenant as soon as possible after such
casualty; provided that if all or any portion of Landlord's Work (as defined in
Exhibit "B" attached hereto; if no such Exhibit "B" is attached, Landlord's
Work shall be deemed to be only structural portions of the Premises), if any,
is also damaged or destroyed by such casualty, Landlord shall notify Tenant
when repairs or reconstruction of Landlord's Work is substantially completed
and, within fifteen (15) days after receipt of such notice, Tenant shall
diligently pursue such repair and/or reconstruction to completion.
4. Any approval of or consent to any or all of Tenant's
criteria, systems, plans, specifications or drawings shall neither constitute
an assumption of responsibility by Landlord for any aspect of such criteria,
systems, plans, specifications or drawings including, but not limited to, their
accuracy or efficiency, nor obligate Landlord in any manner with respect to
Tenant's Work, and Tenant shall be solely responsible for any deficiency in
design or construction of all portions of Tenant's Work.
5. Tenant shall obtain and pay for all necessary permits and
shall pay all other fees required by public authorities or utility companies
with respect to Tenant's Work.
6. Tenant shall maintain the Premises and the Common Areas
adjoining the same in a clean and orderly condition during construction. Tenant
shall promptly remove all unused construction materials, equipment shipping
containers, packaging, debris and waste from the Shopping Center, and deposit
it in receptacles, if any, provided by Landlord or otherwise remove the same
from the Shopping Center. Tenant shall contain all construction materials,
equipment, fixtures, merchandise, shipping containers and debris within the
Premises. Arcades, public corridors, service corridors and the exterior of the
Shopping Center shall be clear of Tenant's equipment, merchandise, refuse, and
debris at all times.
7. To the end that there shall be no labor disputes which would
interfere with any construction occurring in the Shopping Center or the
operation thereof, or any part thereof including, but not limited to, the
Premises, in performing any Tenant's Work, Tenant agrees to engage the services
of only such contractors or subcontractors as will work in harmony and without
causing any labor dispute with each other, with Landlord's employees,
contractors and subcontractors and with the employees, contractors and
subcontractors of all others working in or upon the Shopping Center or any part
thereof, and Tenant shall require its contractors and subcontractors to employ
only such labor as will work in harmony and without causing any labor dispute
with each other, with Landlord's employees, contractors and subcontractors and
with the employees, contractors, and subcontractors of all others working in or
upon the Shopping Center or any part thereof. Furthermore, only those
contractors and subcontractors as have been duly licensed by the authority
having jurisdiction over the appropriate profession and which have been approved
in writing by Landlord may perform any portion of Tenant's Work for Tenant in or
upon the Premises. Nothing contained herein shall require Tenant to utilize
union labor in connection with its construction of the Premises.
8. At any time, and from time to time, during the performance
of Tenant's Work, Landlord, Landlord's management agent, Landlord's architect
and/or Landlord's general contractor may enter upon the Premises and inspect
the work being performed by Tenant and take such steps as they may deem
necessary or desirable to assure the proper performance by Tenant of Tenant's
Work and/or for the protection of the Shopping Center and/or any premises
adjacent to the Premises. In addition, Tenant's Work shall be performed in a
thoroughly first-class and workmanlike manner, shall incorporate only new
materials which are free from asbestos or other hazardous material and shall
be in good and usable condition at the date of completion.
9. Tenant's Work shall be coordinated with all work being
performed or to be performed by Landlord and other occupants of the Shopping
Center to the end that Tenant's Work will not interfere with the operation of
the Shopping Center or interfere with or delay the completion of any other
construction within the Shopping Center, and each such contractor and
subcontractor shall comply with all procedures and regulations prescribed by
Landlord for integration of Tenant's Work with that to be performed in
connection with any construction in the Shopping Center and with the operation
of the Shopping Center.
10. Neither Tenant nor its contractors or subcontractors may
use any space within the Shopping Center (except the Premises) for storage,
handling and moving of materials and equipment, and if Tenant or such
contractors and/or subcontractors shall use any space in the Shopping Center
(except the Premises) for any of the aforesaid purposes without obtaining
Landlord's prior written consent thereto, Landlord shall have the right to
terminate such use or remove all of Tenant's and such contractor's or
subcontractor's material, equipment and other property from such space without
Landlord being liable to Tenant and/or such contractors or subcontractors, and
the cost of such termination and/or removal shall be paid by Tenant to Landlord
promptly upon demand therefor. It shall be Tenant's
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responsibility to cause each contractor and subcontractor to maintain
continuous protection of adjacent property and improvements against damage by
reason of Tenant's Work. No materials delivered to the Premises for Tenant's
Work shall be delivered through the public areas of the Shopping Center during
the normal operating hours of the Shopping Center.
11. Tenant shall promptly pay all contractors and materialmen so as to
minimize the possibility of a lien or claim of lien being filed with respect
to the Premises or the Shopping Center, and should any such lien be made or
filed, Tenant shall cause the same to be discharged by bond or otherwise within
thirty (30) days after written request by Landlord. If Tenant shall fail to
cause such lien or claim of lien to be bonded against or to be discharged
within the period aforesaid, then, in addition to any other right or remedy
which Landlord may have under this Lease, at law or in equity, Landlord may,
but shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien of claim of lien
by deposit or by bonding proceedings and, in any event, Landlord shall be
entitled, if Landlord so elects, to compel the prosecution of any action for
the foreclosure of such lien or claim of lien by the lienor with interest,
costs and expenses. Any amount so paid by Landlord and all costs and expenses
incurred by Landlord in connection therewith or in connection with insuring the
title to the Shopping Center or any interest herein free of such lien or claim
of lien together with interest at the rate of fifteen percent (15%) per annum
from the respective dates of Landlord's making of the payment and incurring of
the cost and expense, shall constitute additional rent payable by Tenant under
this Lease and shall be paid by Tenant to Landlord on demand.
12. Landlord shall supply to Tenant, or directly to Tenant's
contractor, a copy of the rules, regulations and requirements of the Shopping
Center pertaining to Tenant's Work. Tenant agrees to make its best effort to
secure its contractor's acknowledgement of receipt of such rules, regulations
and requirements and to ensure the contractor's compliance therewith.
13. In the event the fire protection (sprinkler) system in place in
the Shopping Center has to be or is shut down, whether intentionally or
inadvertently, by Tenant or its contractors, subcontractors, agents or
employees, more than once during construction of Tenant's Work, Tenant shall
pay to Landlord, upon demand, a shut down fee of $100.00 for each such event.
(c) Within thirty (30) days after initially opening the Premises for
business with the public, Tenant shall supply to Landlord the following:
1. An executed and acknowledged final waiver and release of mechanics'
liens with respect to the Premises executed by Tenant's general contractor and
by every subcontractor and supplier of labor and/or materials engaged in
Tenant's Work.
2. Properly issued certificates evidencing acceptance or approval of
the Premises by appropriate governmental authorities, including the
underwriter's approval of Tenant's sprinkler installation and electrical
system.
3. A set of "as-built" plans and specifications for Tenant's Work
prepared and sealed by Tenant's architect, together with names and addresses of
Tenant's electrical, plumbing, and other contractors.
(d) Nothing in this Lease shall be construed as in any way constituting a
consent or request by Landlord, express or implied, by inference or otherwise,
to any contractor, subcontractor, laborer, or materialman for the performance
of any labor or the furnishing of any materials for any specific or general
improvement, alteration, or repair of or to the Premises or to any buildings or
improvements thereon, or to any part thereof. Notwithstanding anything in this
Lease, or in any other writing signed by Landlord to the contrary, neither this
Lease nor any other writing signed by Landlord shall be construed as
evidencing, indicating, or causing an appearance that any erection,
construction, alteration or repair to be done, or caused to be done, by Tenant
is or was in fact for the immediate use and benefit of Landlord.
SECTION 10.03. Trade Fixtures.
All trade fixtures, signs and other personalty hereafter installed by
Tenant in the Premises shall be new or reconditioned and "like new", shall be
and remain the property of Tenant and shall be removed by Tenant at the
expiration or earlier termination of the Term, provided that: (a) Tenant shall
not at such time be in default under this Lease; and (b) Tenant shall promptly
restore the damage done to the Premises by the installation and/or removal
thereof. Should Tenant fail to so remove Tenant's trade fixtures and/or to so
restore the Premises, Landlord may at Landlord's option, do so, collecting the
cost and expense thereof, as additional rent, upon demand. Any such trade
fixtures which are not removed by Tenant at or prior to any termination of this
Lease, including, but not limited to, a termination by Landlord pursuant to an
Event of Default by Tenant hereunder, unless Landlord gives Tenant notice to
remove any or all of such trade fixtures, shall be and become the property of
Landlord (without any obligation by Landlord to pay compensation for such trade
fixtures). In the event Landlord gives Tenant such notice to remove any or all
of such trade fixtures, Tenant shall promptly remove such of the trade fixtures
as may be specified by Landlord in such notice. Notwithstanding anything herein
contained to the contrary or any decision of any court to the contrary, the
term "trade fixtures" shall not include any air-conditioning, heating,
lighting, electrical and plumbing equipment installed by Tenant in the
Premises, nor any wiring or other apparata related thereto.
SECTION 10.04. Signs, Awnings and Canopies.
(a) Tenant shall neither place nor maintain nor suffer to be placed or
maintained on the exterior of the Premises, or on the glass of any window or
door of the Premises which shall be visible from the exterior thereof (other
than neatly lettered signs of reasonable size placed on the floor of the
display window identifying articles offered for sale and the price thereof) any
sign, awning, canopy, decoration, lettering, advertising matter or any other
thing without in each instance first obtaining Landlord's written approval
thereof; and Tenant further agrees to design and to maintain such sign,
decoration, lettering, advertising matter or other thing as may be approved in
good condition and repair at all times in compliance with the requirements of
the "Sign Criteria" attached hereto, made a part hereof and marked Exhibit "F".
Notwithstanding the provisions of Sections 10.03 and 10.04, Tenant's plans and
specifications, once approved by Landlord, shall deemed to be in compliance
with the Lease provisions.
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(b) Tenant shall not paint or decorate any part of the exterior of the
Premises, or any part of the Premises which shall be visible from the exterior
thereof, without first obtaining Landlord's written approval of such painting or
decoration.
(c) Tenant shall install and maintain at all times, subject to the other
provisions of this Section 10.04, displays of seasonable merchandise in the show
windows (if any) of the Premises; and Tenant further agrees that all articles
and the arrangement, style, color and general appearance thereof, in the
interior of the Premises which shall be visible from the exterior thereof,
including, but not limited to, window displays, advertising matter, signs,
merchandise and store fixtures, shall be maintained in the Premises so as to
be in keeping with the character and standards of the Shopping Center.
SECTION 10.05. Alterations and Mandatory Refurbishment.
(a) Tenant may, without Landlord's consent, make alterations to the
interior of the Premises which do not alter, modify or in any other manner
whatsoever affect the structural portions of the Premises and/or the roof of the
building of which the Premises shall form a part and/or the exterior of the
Premises (included, but not limited to, the storefront) and/or the structural
integrity of the building of which the Premises shall form a part, and/or the
plumbing, electrical, heating, ventilating, air-conditioning, or mechanical
systems and installations in the Premises, provided that any such single
alteration (or series of such related alterations) does not involve a cost in
excess of Fifty Thousand Dollars ($50,000.00), provided that Tenant shall give
Landlord notice of any alterations which include changes to the wall, floor or
ceiling materials within the Premises. Tenant agrees that it will not make any
other alterations (whether structural or otherwise), improvements, additions or
changes to the interior or exterior of the Premises (including, but not limited
to, the storefront of the Premises) during the term of this Lease without in
each instance obtaining Landlord's prior written consent. Furthermore, Tenant
will not, except for installation of fixtures or other work specified on
Tenant's approved plans and specifications referred to in Section 10.02 hereof
or to the extent permitted by the first sentence of this Section 10.05(a), cut
or drill into or secure any fixture, apparatus or equipment of any kind to any
part of the Premises without in each instance first obtaining Landlord's written
consent. Together with each request for such consent, Tenant shall present to
Landlord detailed plans and specifications for such proposed alterations,
improvements, additions or changes as required by Section 10.02 hereof and
Tenant shall comply with such section in performing such approved alterations.
See Rider
SECTION 10.06. Changes and Additions to the Center.
(a) Landlord hereby reserves the exclusive right at any time, and from time
to time, to use all or any part of the roof, exterior walls and air space above
the finished ceiling of the Premises for any purpose; to erect scaffolds,
protective barriers or other aids to construction on, around and about the
exterior of the Premises, provided that access to the Premises shall not be
substantially denied. Landlord also reserves the right, after written notice to
Tenant, to enter the Premises (except that in the event of an emergency, no
notice shall be required), at any time, and from time to time, for the following
purposes: to make such repairs, additions or alterations as it may deem
necessary or desirable to the Premises, to the building in which the Premises is
contained, or to the Shopping Center in general; to shore the foundations and/or
walls thereof and/or to install, maintain, use, repair, inspect and replace
foundations, columns, pipes, ducts, conduits and wires leading through or
located adjacent to the Premises and serving other parts of the Shopping Center.
Landlord shall use reasonable efforts to install such pipes, ducts, conduits or
wires in the space above Tenant's finished ceiling (or if Tenant does not have
finished ceiling, then in the space above the height where, in Landlord's
opinion, a finished ceiling would otherwise exist) or another location which
does not materially interfere with Tenant's use of the Premises. Tenant shall
not remove or tamper with any such pipes or other apparatus installed by
Landlord and agrees to cooperate with Landlord in effecting any such maintenance
or improvements, including providing store personnel on hand during extended
hours if Landlord reasonably deems such presence to be in the best interest of
the Premises, the Tenant or the Shopping Center. Landlord's rights hereunder may
be exercised by Landlord's designee.
(b) Landlord hereby reserves the right at any time to make alterations or
additions to, and to build additional stories on, and to build adjoining any
buildings in the Shopping Center, including the building in which the Premises
are contained, and to construct other buildings or improvements in the Shopping
Center, and Tenant shall have no interest of any kind whatsoever in the said
additions or additional stories, adjoining buildings or other expansions of the
Shopping Center. Landlord also reserves the right to reduce or enlarge the area
of the Shopping Center by excluding portions of the ground therefrom or adding
additional ground thereto from time to time and, whether or not so reduced or
enlarged, to construct multi-deck, elevated or subterranean parking facilities,
and to make changes in access roads, entryways or other physical characteristics
of the Shopping Center. Landlord may also change the name of the Shopping Center
at any time in its sole and absolute discretion.
(c) If any excavation shall be made or authorized to be made upon land
adjacent to the Premises, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the Premises for the
purpose of doing such work as Landlord shall deem necessary to preserve the
walls or the building of which the Premises form a part from injury or damage
and to support the same by proper foundations, without any claim for damages or
indemnification against Landlord or diminution or abatement of rent. See Rider
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ARTICLE XI
CONDUCT OF BUSINESS
SECTION 11.01. Use of Premises.
(a) Except as otherwise specifically provided herein, commencing on the
Commencement Date and thereafter for the balance of the Term, Tenant shall
continuously occupy and use the Premises solely for conducting the business
specified in the Indenture of Lease as the permitted use, and will not use or
permit or suffer the use of the Premises for any other business or purpose. In
addition, Tenant agrees that Tenant shall not operate or cause or permit to be
operated any catalogue, mail, or telephone order sales in or from the Premises
except the incidental sale of merchandise which Tenant is permitted to sell
over the counter to customers in the Premises pursuant to the permitted use set
forth in the Indenture of Lease, nor shall Tenant divert elsewhere any business
which would ordinarily be transacted by Tenant at, in, on or from the Premises.
The authorization of the use of the Premises for the business purposes set
forth in the Indenture of Lease does not constitute a representation or
warranty by Landlord that any particular use of the Premises is now or will
continue to be permitted under applicable laws or regulations. Tenant shall
secure and, at all times during the Term, maintain any and all licenses,
permits or other registrations required by any municipality, state or federal
government or any other regulatory body for the proper operation of Tenant's
business in the Premises.
(b) Tenant shall not permit, allow or cause to be conducted in the
Premises any public or private auction, or any sale which would indicate to the
public that Tenant is bankrupt, is going out of business, or has lost its
lease. Tenant shall not use or permit any use of the Premises, except in a
manner consistent with the general high standards of merchandising in the
Shopping Center, nor shall Tenant's advertising indicate or imply that Tenant
is operating its business in a manner which is not consistent with the general
high standards of merchandising in the Shopping Center. Nothing contained in
this Section 11.01(b) shall affect or is intended to affect Tenant's pricing
policies.
(c) Notwithstanding anything contained herein to the contrary, including
the provisions of the clause of the Indenture of Lease captioned "Use of
Premises", Tenant is specifically prohibited from selling or distributing
tobacco papers, pipes of the type and nature commonly associated with the
smoking of marijuana (e.g. "water pipes"), "roach clips", cocaine spoons and
other types of smoker's novelty items, materials or paraphernalia which are, or
may reasonably be construed to be, intended for use in connection with narcotics
or other unlawful substances; any print, visual, audio or other materials which
are or could be reasonably considered pornographic under any applicable
municipal, state or federal law or any other items which are in violation of any
municipal, state or federal law, ordinance or regulation.
(d) Because the adequacy of the rental hereunder is dependent upon
Tenant's Gross Sales whether or not Percentage Rent is payable hereunder,
Tenant agrees that commencing with the Commencement Date and thereafter
throughout the Term, Tenant will continuously, actively and diligently operate
or cause the permitted business to be operated in good faith and in an
efficient, businesslike and respectable manner, maintaining in the Premises a
full staff of employees and a full stock of seasonable merchandise of the
quality, kind, type and breadth which Tenant usually sells, and employing
Tenant's best continual efforts and abilities to the end that the maximum Gross
Sales which can reasonably be produced from the Premises shall be produced.
(e) Throughout the Term, Tenant shall cause its store to remain open
each day of the week during at least the hours set forth in the paragraph of
the Indenture of Lease captioned "Shopping Center Hours of Operation". Tenant
acknowledges that Landlord may specifically require that the Premises be closed
on certain days or during certain hours (other than the hours on the Indenture).
(f) Tenant shall operate and advertise the business operated at or
from the Premises only under the trade name set forth in the first page of the
Indenture of Lease, unless and until the use of another trade name is permitted
in writing by Landlord.
SECTION 11.02. Storage on Premises.
Tenant shall warehouse, store and/or stock in the Premises only such
goods, wares and merchandise as Tenant is permitted and intends to offer for
sale at retail, at or from the Premises. This shall not preclude occasional
transfers of merchandise to other stores of Tenant, if any, not located within
the Shopping Center.
SECTION 11.03. General Conditions of Use.
Tenants covenants and agrees that Tenant, at its own cost and expense:
(a) will keep all exterior and interior storefront surfaces clean and
will maintain the rest of the Premises and all corridors and loading areas
immediately adjoining the Premises in a clean and orderly condition and free of
insects, rodents, vermin and other pests;
(b) will not permit accumulation of any refuse, but will remove the
same and keep such refuse in odor-proof, rat-proof containers within the
interior of the Premises shielded from the view of the general public (or in
such other area designated specifically by Landlord for such use) until removed
and will not burn any refuse whatsoever but will cause all such refuse to be
removed by such persons or companies, including Landlord, as may be designated
in writing by Landlord and will pay all charges therefor, which shall in all
events be competitive within the same geographical area for similar services
performed by a reputable person or company; provided however, that Landlord may
decline to designate any such person or company in which event all such refuse
shall be removed by such person or company as Tenant, subject to Landlord's
prior written approval, shall select. In the event that Landlord institutes a
recycling program in the Shopping Center as to any refuse produced or disposed
of by Tenant, Tenant agrees to participate in and cooperate with Landlord and
other tenants in such program if and when so requested;
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(c) will replace promptly with glass of a like kind and quality any
plate glass or window glass of the Premises which may become cracked or broken;
(d) will not, without the Landlord's prior written consent, place or
maintain any merchandise or other articles in any vestibule or entry of the
Premises or the footwalks adjacent thereto or elsewhere on the exterior thereof;
(e) will not use or permit the use of any apparatus for sound
reproduction or transmission, or any musical instrument, in such manner that
the sound so reproduced, transmitted or produced shall be audible beyond the
confines of the Premises, and will not use any other advertising medium,
including without limitation flashing lights or search lights, which may be
heard or experienced outside of the Premises;
(f) will keep all mechanical apparatus free of vibration and noise
which may be transmitted beyond the confines of the Premises;
(g) will not cause or permit objectionable odors to emanate or be
dispelled from the Premises;
(h) will not solicit business, distribute handbills or other
advertising matter or hold demonstrations in the parking areas or other
Common Areas;
(i) will not permit the parking of delivery vehicles so as to
interfere with the use of any driveway, walk, parking area, or other portion of
the Common Areas in the Shopping Center;
(j) will comply with all laws, rules, regulations, guidelines, orders
and ordinances of applicable federal, state and local governmental authorities,
commissions, boards and agencies with respect to this Lease, the use of the
Premises, the removal of asbestos, asbestos containing material or any other
hazardous material from the Premises, or any work to be performed in the
Premises by Tenant, and Tenant shall secure and keep in force all permits,
licenses and approvals required for Tenant's use of the Premises. In addition,
Tenant shall comply with all recommendations of the Association of Fire
Underwriters, Factory Mutual Insurance Companies, the Insurance Services
Organization, or other similar body establishing standards for fire insurance
ratings with respect to the use or occupancy of the Premises by Tenant, and will
participate in periodic fire brigade instruction and drills at the request of
Landlord and will supply, maintain, repair and replace for the Premises any
fire extinguishers or other fire prevention equipment and safety equipment
(including installation of approved hoods and ducts if cooking activity is
conducted on the Premises) required by the aforementioned rules, regulations
and recommendations in order to obtain insurance at the lowest available
premium rate throughout the term of this Lease;
(k) will not receive or ship articles of any kind except through the
facilities provided for that purpose by Landlord and will not permit any
delivery of goods, supplies, merchandise, or fixtures to or from the Premises
to be made through any of the enclosed malls unless the Premises have no
entrance other than on such a mall, in which latter case Tenant shall use its
best efforts to schedule such deliveries outside Shopping Center business
hours, except with Landlord's approval in emergency situations;
(l) will light the show windows of the Premises and exterior signs
each day of the year to the extent which shall be required by Landlord but in
no event later than one hour after the close of the Shopping Center;
(m) will keep the sidewalk in front of Tenant's entrance (but limited
to the area within ten feet of the door to the Premises) free from ice and snow
and Tenant hereby agrees that Tenant is solely liable for any accidents
occurring on said sidewalk areas due or alleged to be due to any accumulation
of ice and snow;
(n) will refer to the name of the Shopping Center in all advertising
done to promote sales at its store or stores in the geographical area in which
the Shopping Center is located;
(o) will not use the plumbing facilities for any other purpose
than that for which they are constructed and will not permit any foreign
substance of any kind to be thrown therein, and the expense of repairing any
breakage, stoppage, seepage or damage, whether occurring on or off the Premises,
resulting from a violation of this provision by Tenant or Tenant's employees,
agents or invitees shall be borne by Tenant. All grease traps and other
plumbing traps shall be kept clean and operable by Tenant at Tenant's own cost
and expense. Tenant shall keep the floor of the Premises and all penetrations
through said floor properly sealed and caulked so that water or other
substances in use in the Premises shall not leak from the premises to any
Common Area or adjoining premises or premises located below the Premises;
(p) will not permit any shopping carts in the Common Areas even if
taken there by customers; and
(q) will not place or cause or permit to be placed within the
Premises, pay telephones, vending machines (except those for the exclusive use
of Tenant's employees) or amusement devices of any kind without the prior
written consent of Landlord.
SECTION 11.04. Rules and Regulations.
(a) Landlord reserves the right from time to time to adopt and
promulgate reasonable rules and regulations applicable to the Premises and the
Shopping Center and to amend and supplement such rules and regulations. Notice
of such rules and regulations and of any amendment and supplements thereto
shall be given to Tenant and Tenant agrees thereupon to comply with and observe
all such rules and regulations, provided that, to the extent practicable, the
same shall be applied uniformly to substantially all non-department store
retail tenants of the Shopping Center. The rules and regulations, if any, in
effect as of the date of execution of this Lease, are attached hereto as
Exhibit "E" and made a part of this agreement. No changes may be made in the
rules and regulations which materially adversely affect the operation of
Tenant's business or which changes the economic Terms of the Lease.
(b) Landlord's rights and remedies in the event Tenant shall fail to
comply with and observe such rules and regulations shall be the same as though
such rules and regulations were set forth in Section 11.03 of this Lease.
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SECTION 11.05. Competition.
(a) Tenant acknowledges that Landlord's ability to obtain a fair and
equitable rental is dependent upon Tenant concentrating all of its business
efforts within the geographical area in which the Shopping Center is located
upon Tenant's business at the Premises so as to maximize Tenant's Gross Sales,
and Tenant further acknowledges that any activity by Tenant within such
geographical area in operating or participating in the operation of a similar or
competing business must necessarily have an adverse effect on the volume of
Gross Sales by Tenant at the Premises to the detriment of Landlord and will
deprive Landlord of the fair rental to which the parties agreed. Accordingly,
in the event that during the Term either Tenant or Tenant's management, or any
person or entity controlled by Tenant or controlling Tenant, or controlled by
the same person or entity or persons or entities who control Tenant, directly or
indirectly owns, operates, is employed in, directs or serves any other place
of business, the same, or similar to, or competitive with, Tenant's business as
set forth herein, within a radius of four (4) miles from the outside boundary
of the Shopping Center (measured from the boundary nearest to such other
location), which distance shall be measured in a straight line without reference
to road mileage, then Landlord may: (a) cancel this Lease upon thirty (30) days
prior written notice to Tenant; or (b) include the Gross Sales of any such
other place of business in the Gross Sales made from the Premises to determine
the Percentage Rent due under this Lease, as fully as though such Gross Sales
had actually been made from the Premises; or (c) increase the annual amount of
Fixed Minimum Rent payable thereafter, and each component thereof if the Fixed
Minimum Rent is otherwise subject to increase, by an amount equal to the
highest Percentage Rent payable by Tenant in any calender year prior to the
opening of such other business. In the event Landlord so elects, all of the
provisions of Articles II and VI hereof shall be applicable to the Gross Sales
of, and all the books and records pertaining to, such competing store.
(B) Any permitted exceptions to this Section for presently existing or
anticipated stores shall be specifically identified by Tenant on a list to be
attached hereto as Exhibit 11.05 if approved by Landlord.
SECTION 11.06. Parking Facilities.
Tenant and its employees shall park their cars only in those portions
of the parking area designated for that purpose by Landlord. Tenant shall
furnish Landlord with automobile license numbers assigned to Tenant's car and
cars of its employees within five (5) days after each and every request
therefor.
ARTICLE XII
MAINTENANCE AND REPAIR; SURRENDER OF PREMISES
SECTION 12.01. Repairs and Maintenance by Tenant.
(a) Tenant, at all times, at its own expense, shall keep and maintain
all portions of the Premises not required to be maintained by Landlord
pursuant to Section 12.02 hereof, in good order and repair and in a neat,
safe, clean and orderly condition, including, but not limited to, reasonable
periodic painting and making all non-structural, ordinary and extraordinary,
foreseen and unforeseen repairs and replacements to the Premises and its
component systems. The foregoing sentence shall obligate Tenant to repair,
maintain and replace, without limitation, all entrances to the Premises, the
storefront, the glass in all doors and windows of the Premises, all interior
portions of the Premises, all trade fixtures, fixtures, signs and all walls
thereof (except to the extent set forth in Section 12.02[a]), as well as
plumbing, electrical, sprinkler, heating, ventilation and air conditioning
systems, escalators and elevators, if any, mechanical systems, and sewer lines
within the Premises or under the floor slab thereof, including free flow to
the main sewer line, as well as all other apparatus or equipment which were
installed by Tenant outside the Premises. Tenant shall not overload the
electrical wiring serving the Premises or within the Premises, and will
install, at its own expense, but only after obtaining Landlord's written
approval, any additional electrical wiring which may be required in connection
with the Premises. If Landlord, Landlord's management agent or affiliates
thereof elect to provide heating, ventilating and air-conditioning inspection,
adjustment, cleaning and repair services to Tenant, Tenant shall utilize such
services and pay for the same at rates which are competitive within the same
geographical area for similar services performed by others; if Landlord elects
not to perform such services, the Tenant shall contract for such services with
a qualified service contractor.
(b) Tenant will repair promptly at its own expense any damage (whether
structural or non-structural) to the Premises caused by any construction or
alterations performed by Tenant or bringing into the Premises any property for
Tenant's use, or by the installation or removal of such property, regardless
of fault or by whom such damage shall be caused, unless caused solely by the
negligence of Landlord or its servants or employees.
SECTION 12.02. Structural Repairs.
(a) Except as otherwise provided by 12.01(b), structural columns,
structural portions of the floors (excluding floor tile, carpet or other floor
coverings), the roof of the Shopping Center and exterior walls thereof will be
repaired by Landlord, provided Tenant gives Landlord notice specifying the need
for and nature of such repairs. Notwithstanding the foregoing, if Landlord is
required to make any repairs to such portions of the Premises by reason, in
whole or in part, of the negligent act or failure to act by Tenant or Tenant's
agents, servants, employees, contractors or subcontractors, or by reason of any
unusual use of the Premises by Tenant (whether or not such use is a permitted
use hereunder), Landlord may collect the cost of such repairs, as additional
rent, upon demand. For the purpose of this Lease, any difference in floor
level, shifting of floor slab, or deviation in finished floor height resulting
from the insertion or construction of an expansion joint strip in the floor slab
shall not be deemed a structural defect requiring repair by Landlord, but
rather, a normal construction practice which shall be Tenant's responsibility to
appropriately plan for in its construction and use of the Premises. The
provisions of this subsection shall not apply in the case of any casualty or
condemnation in which event the provisions of Articles XIV or XV, as the case
may be, shall control.
(b) If, without Landlord's prior written consent, Tenant performs any
alterations, additions, improvements, changes, affixations or chattels or
other work which affects the structural portions of the Premises and/or the roof
of the building of which the Premises are a part and/or that portion of the
exterior of the Shopping Center which Landlord is obligated to repair pursuant
to Section 12.02(a) or
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which affects the structural integrity of the building of which the Premises
shall form a part, such action by Tenant shall release and discharge Landlord
as of the commencement of such alteration, addition, improvement, affixation or
other work of and from such repair obligation, and thereafter Tenant agrees to
be solely responsible for the maintenance, repair and replacement of any or all
such structural portions, roof, exterior and building which have been affected
as aforesaid, provided, in the event Tenant shall default in the performance, to
Landlord's satisfaction, of such responsibilities, Landlord, in addition to
Landlord's other remedies under this Lease, at law or in equity, may (but shall
not be obligated to) cure such default at Tenant's cost without any liability
of Landlord, its agents, servants, employees, contractors or subcontractors for
damage to Tenant's merchandise, fixtures or other property or to Tenant's
business by reason thereof. For the purposes of the foregoing, if Tenant
performs any such alterations, additions, improvements, changes, affixations or
other work in a manner not consistent with Landlord's prior written consent
thereto, such work shall be deemed to have been performed without Landlord's
consent.
SECTION 12.03. Surrender of Premises.
(a) At the expiration of the Term or earlier termination of this
Lease, Tenant shall peaceably surrender the Premises, broom clean, free of
debris, in good order, condition and state of repair as required hereby,
ordinary wear and tear excepted to the extent the Premises is not required to
be repaired and/or maintained by Tenant and damage by unavoidable casualty
excepted to the extent that the same is covered by Landlord's fire insurance
policy with extended coverage endorsement, and Tenant shall surrender all keys
for the Premises to Landlord and shall notify Landlord in writing of all
combinations of locks, safes and vaults, if any, in the Premises. Tenant shall
comply with the provisions of Section 10.03 respecting the removal of its trade
fixtures before surrendering the Premises as aforesaid. Any property remaining
in the Premises after the expiration or early termination of this Lease shall
be deemed abandoned by the Tenant and may be disposed of by Landlord without
any liability to Tenant. Tenant hereby indemnifies and agrees to hold harmless
Landlord from any actions resulting from said disposal.
(b) Whether or not approved by or subject to approval of Landlord,
all alterations, improvements, additions, or changes made by Tenant and all
air-conditioning, heating, lighting, electrical and plumbing equipment and
fixtures, and all wiring and other apparatus related to air-conditioning,
heating, lighting, electrical and plumbing equipment installed by Tenant
(whether such be installed prior to or subsequent to the Commencement Date) at
the Premises (whether or not such equipment and fixtures are affixed to the
Premises as to be removable without destroying the chattels themselves or the
property to which they are affixed, and whether or not such equipment and
fixtures are real property or personalty) shall remain upon the Premises at the
expiration of the Term or earlier termination of this Lease and shall become
the property of Landlord immediately upon the installation thereof and shall
remain the property of the Landlord without any obligation of Landlord to pay
compensation therefor.
ARTICLE XIII
INDEMNIFICATION; SUBROGATION
SECTION 13.01. Indemnification and Waiver of Claim.
See Rider
(a) Tenant will defend and will indemnify Landlord and Landlord's
management agent and save them harmless from and against any and all claims,
actions, damages, liability and expense (including, but not limited to,
reasonable attorneys' fees and disbursements) in connection with any and all
loss of life, personal injury or damage to property or business arising from,
related to, or in connection with the performance of Tenant's Work, the
occupancy of the Premises or any part of Landlord's property or the Shopping
Center, or occasioned wholly or in part by any act or omission of Tenant, its
contractors, subcontractors, subtenants, licensees or concessionaires, or its or
their respective agents, servants or employees. Tenant shall not, however, be
liable for damages or injury occasioned by the negligence or willful acts of
Landlord, or Landlord's management agent, or their respective agents, employees,
or servants, unless such damage or injury arises from perils against which
Tenant is required by this Lease to insure. Tenant shall also pay all costs,
expenses and reasonable attorneys' fees that may be expended or incurred by
Landlord and/or Landlord's management agent in successfully enforcing the
covenants and agreements of this Lease.
(b) Unless, and then solely to the extent that, such damage is caused
by the negligent acts or omissions of Landlord, or Landlord's management agent,
or their respective principals, agents, servants, contractors and employees,
neither Landlord nor Landlord's management agent, nor their respective
principals, agents, servants, employees or contractors, shall be liable for, and
Tenant, in consideration of Landlord's execution of this Lease, hereby waives
and releases all claims for loss of life, personal injury or damage to property
or business sustained by Tenant or any person claiming through Tenant resulting
from any fire, accident, occurrence or condition in or upon the Shopping Center
or any part thereof (including, without limitation, the Premises and the
building of which the same is a part), including, but not limited to, such
claims for loss of life, personal injury or damage resulting from (1) any
defect in or failure of plumbing, heating or air conditioning equipment,
electrical wiring or installation thereof, water pipes, stairs, railings or
walks; (2) any equipment or appurtenances being out of repair; (3) the
bursting, leaking or running of any tank, washstand, water closet, waste pipe,
drain or any other pipe or tank in, upon or about the Shopping Center, (4) the
backing up of any sewer pipe; (5) the escape of steam or hot water; (6) water,
snow or ice being upon or coming through the roof or any other place upon or
near the Premises or the building of which the same is a part or otherwise; (7)
the falling of any fixture, plaster, ceiling tile or stucco; (8) broken glass;
and (9) any act or omission of other tenants or other occupants of the Shopping
Center.
SECTION 13.02. Subrogation.
In the event the Premises or its contents are damaged or destroyed by
fire or other insured casualty: (a) Landlord, to the extent of the coverage of
Landlord's policies of fire insurance with extended coverage endorsements,
hereby waives its rights, if any, against Tenant with respect to such damage or
destruction, even if said fire or other casualty shall have been caused, in
whole or in part, by the negligence of Tenant, its agents, servants or
employees; and (b) Tenant, to the extent of coverage of Tenant's policies of
fire insurance with extended coverage endorsements, hereby waives its rights,
if any, against Landlord with respect to such damage or destruction, even if
said fire or other casualty shall have been caused, in whole or in part, by the
negligence of Landlord, its agents, servants or employees;
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provided however, such waivers of subrogation shall only be effective with
respect to loss or damage occurring during such time as Landlord's or Tenant's
policies of fire insurance with extended coverage endorsements (as the case may
be) shall contain a clause or endorsement providing in substance that the
aforesaid waiver of subrogation shall not prejudice the type and amount of
coverage under such policies or the right of Landlord or Tenant (as the case
may be) to recover thereunder. If, at any time, Landlord's or Tenant's
insurance carrier refuses to write insurance which contains a consent to the
foregoing waiver of subrogation, Landlord or Tenant, as the case may be, shall
notify the other party thereof in writing, and upon the giving of such notice,
the provisions of this Section 13.02 shall be null and void as to any casualty
which occurs after such notice.
ARTICLE XIV
DESTRUCTION OF PREMISES
SECTION 14.01. Total or Partial Destruction.
(a) If the Premises shall be damaged by fire or other casualty covered
by Landlord's policies of fire and broad form extended coverage insurance but
are not thereby rendered untenantable in whole or in part, subject to the
limitations hereafter set forth, Landlord, at its own expense, shall cause such
damage to be repaired, and the rent due hereunder shall not be abated. If, by
reason of such occurrence, the Premises shall be rendered untenantable in whole
or in part, subject to the limitations hereafter set forth, Landlord, at its
own expense, shall cause the damage to be repaired and the Fixed Minimum Rent
shall be abated proportionately as to the portion of the Premises rendered
untenantable until the completion of Landlord's repairs thereto. If the
Premises shall be damaged or destroyed by a fire or casualty not covered by
Landlord's policies of fire and broad form extended coverage insurance and the
Landlord, at its option, decides not to repair and restore the Premises,
Landlord shall have the right, to be exercised by notice in writing delivered
to Tenant within sixty (60) days from and after the occurrence of such damage
or destruction, to cancel and terminate this Lease. Either party shall have
the right, to be exercised by notice in writing, delivered to the other within
thirty (30) days from and after any occurrence which renders the Premises
wholly untenantable to cancel this Lease, if said destruction of the Premises
occurs within the last three (3) years of the Term, said cancellation to take
effect ninety (90) days from and after the receipt of such notice by the other
party, and in such event the Lease and the tenancy hereby created shall cease
as of the aforesaid date (except that such cancellation shall not affect the
obligations of the parties which have accrued theretofore and remain unpaid)
and the rent due hereunder shall be adjusted as of such date; provided,
however, that if Landlord shall commence repairs or reconstruction of the
destroyed Premises during the period prior to the cancellation date, the
tenancy shall remain in effect and said notice of cancellation shall be
considered void. In no event shall Landlord be obligated to expend for any
repairs or reconstruction pursuant to this Section 14.01 an amount in excess
of the insurance proceeds recovered by Landlord and allocable to the damage to
the Premises, after deducting therefrom Landlord's reasonable expenses in
obtaining such proceeds and any amounts required to be paid to Landlord's
Mortgagee (as defined in Section 16.02 below). Nothing in this Section 14.01
shall be construed to permit the abatement in whole or in part of the
Percentage Rent, and the calculation of Percentage Rent shall be governed
solely by Section 2.01 hereof. The provisions hereof are subject to the terms
of Section 14.02 below.
(b) If the Landlord is required to repair or reconstruct the Premises
pursuant to the provisions of this Section, its obligation shall be limited to
the construction of the structural demising walls (without drywall) and roof of
the Premises. Tenant shall submit to Landlord for Landlord's approval detailed
plans and specifications for all other work not required to be done by Landlord.
Upon approval of such plans and specifications, and within fifteen (15) days
after the Tenant has been notified that the Landlord has completed its work on
the Premises, Tenant shall re-enter the Premises and diligently pursue to
completion such work at Tenant's expense, and immediately after completion
Tenant shall commence doing business, all in accordance with the provisions of
this Lease. Landlord shall not be liable for delays occasioned by adjustment of
losses with insurance carriers or by any other cause, so long as Landlord shall
proceed in good faith.
(c) Notwithstanding anything set forth herein to the contrary, Tenant shall
be responsible for all repairs and replacements of damage and/or destruction of
the Premises necessitated by burglary or attempted burglary, or any other
illegal or forcible entry into the Premises.
(d) Tenant covenants that it will give notice to Landlord of any accident
or damage, whether such damage is caused by insured or uninsured casualty,
occurring in, on or about the Premises as soon as possible but in no event later
than seventy-two (72) hours after Tenant has knowledge of such accident or
damage. If Tenant breaches its covenant set forth in this Section 14.01(d),
Landlord, in addition to all other rights and remedies under this Lease, at law
or in equity shall, at its option, be relieved of any of its obligations under
Section 14.01.
SECTION 14.02. Partial Destruction of Shopping Center.
In the event that fifty percent (50%) or more of the Leasable Floor Area of
the Shopping Center shall be damaged or destroyed by fire or other cause,
notwithstanding that the Premises may be unaffected by such fire or other cause,
Landlord shall have the right, to be exercised by notice in writing delivered to
Tenant within sixty (60) days after said occurrence, to cancel and terminate
this Lease. Upon the giving of such notice, the Term shall expire by lapse of
time upon the fifteenth (15th) day after such notice is given and Tenant shall
vacate the Premises and surrender the same to Landlord.
ARTICLE XV
EMINENT DOMAIN
SECTION 15.01. Total Condemnation of Premises.
If the whole of the Premises shall be taken by any public or quasi-public
authority under the power of eminent domain, condemnation or expropriation or in
the event of a conveyance in lieu thereof, then this Lease shall terminate as of
the date on which possession of the Premises is required to be surrendered to
the condemning authority, and Tenant shall have no claim against Landlord or the
condemning authority for the value of the unexpired Term.
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SECTION 15.02. Partial Condemnation of Premises.
If any part of the Premises shall be taken or conveyed, and if such partial
taking or conveyance shall render the Premises unsuitable for the business of
Tenant, then the Term shall cease and terminate as of the date on which
possession of the Premises is required to be surrendered to the condemning
authority and Tenant shall have no claim against Landlord or the condemning
authority for the value of the unexpired Term. In the event such partial taking
or conveyance is not extensive enough to render the Premises unsuitable for the
business of Tenant, this Lease shall continue in full force and effect except
that the Fixed Minimum Rent and the Percentage Rent Gross Sales Base shall each
be reduced in the same proportion that the floor area of the Premises so taken
or conveyed bears to such floor area immediately prior to such taking or
conveyance, such reduction commencing as of the date Tenant is required to
surrender possession of such portion and, with respect to the days during which
the Premises are not open for business, the calculation of Percentage Rent shall
be adjusted in accordance with Section 2.01(d) hereof. Landlord shall promptly
restore the Premises, to the extent of condemnation proceeds available for such
purpose, as nearly as practicable to a condition comparable to their condition
at the time of such condemnation less the portion lost in the taking or
conveyance, and Tenant shall promptly make all necessary repairs, restoration
and alterations of Tenant's fixtures, equipment and furnishings and shall
promptly re-enter the Premises and commence doing business in accordance with
the provisions of this Lease. For purposes of determining the amount of funds
available for restoration of the Premises from the condemnation award, said
amount will be deemed to be that part of the award which remains after payment
of Landlord's reasonable expenses incurred in recovering same and of any amounts
due to any Mortgagee of Landlord, and which represents a portion of the total
sum so available (excluding any award or other compensation for land) which is
equitably allocable to the Premises.
SECTION 15.03. Condemnation of Shopping Center.
If: (a) more than one-third (1/3) of the Leasable Floor Area of the
Shopping Center or more than one-third (1/3) of the Common Areas shall be so
taken or conveyed; or (b) if any part of the parking area in the Shopping
Center is so taken or conveyed and, as a result of such partial taking or
conveyance the size, layout or location of the remaining parking facilities
will violate the requirements of the applicable zoning or similar law (or any
permitted variance or exception thereto), then in any or all such events,
notwithstanding the fact that the Premises are not so taken or conveyed,
Landlord shall have the right and power, at its option to be exercised by
written notice to Tenant, to terminate this Lease effective either the date
title vests in the condemning authority or the date Landlord is required to
deliver possession of the part so taken or conveyed; provided, however, in the
event of a taking or conveyance described in clause (b) above, if Landlord
shall take immediate steps towards eliminating such violation, this Lease shall
be unaffected and remain in full force and effect. In any event, Tenant shall
have no claim against Landlord or the condemning authority for the value of any
unexpired Term.
SECTION 15.04 Condemnation Awards.
In the event of any condemnation or taking as hereinabove provided, whether
whole or partial and whether the award is based on diminution of the leasehold
or fee, Tenant shall not be entitled to any part of the award as damages or
otherwise for such condemnation and Landlord and any Mortgagee of Landlord are
to receive the full amount of such award, as their respective interests may
appear. Tenant hereby expressly waives any right or claim to any part thereof
and assigns to Landlord any such right or claim to which Tenant might become
entitled. Notwithstanding the above, Tenant shall have the right, to the extent
that same shall not diminish the Landlord's or such mortgagee's award, to claim
and recover from the condemning authority, but not from Landlord or such
Mortgagee, such compensation as may be separately awarded or recoverable by
Tenant under the applicable eminent domain code in effect where the Shopping
Center is located in Tenant's own right for or on account of, and limited solely
to, any cost that Tenant incurs in removing Tenant's merchandise, furniture,
fixtures and equipment.
ARTICLE XVI
ESTOPPEL CERTIFICATES; SUBORDINATION AND ATTORNMENT
SECTION 16.01. Execution of Estoppel Certificates.
At any time, and from time to time, upon the written request of Landlord or
any Mortgagee (as defined in Section 16.02), Tenant, within twenty (20) days of
the date of such written request, shall execute and deliver to Landlord and/or
such Mortgagee, without charge and in a form satisfactory to Landlord and/or
such Mortgagee, a written statement, to the extent true: (a) ratifying this
Lease; (b) confirming the commencement and expiration dates of the Term; (c)
certifying that Tenant is in occupancy of the Premises, and that the Lease is in
full force and effect and has not been modified, assigned, supplemented or
amended except by such writings as shall be stated; (d) certifying that all
conditions and agreements under this Lease to be satisfied or performed by
Landlord have been satisfied and performed except as shall be stated; (e)
certifying that Landlord is not in default under the Lease and there are no
defenses or offsets against the enforcement of this Lease by Landlord, or
stating the defaults and/or defenses claimed by Tenant; (f) reciting the amount
of advance rent, if any, paid by Tenant and the date to which such rent has been
paid; (g) reciting the amount of security deposited with Landlord, if any; and
(h) any other information which Landlord or the Mortgagee shall reasonably
require.
SECTION 16.02 Subordination and Attornment
See Rider
Tenant agrees: (a) that except as hereinafter provided, this Lease is,
and all of Tenant's rights hereunder are and shall always be, subject and
subordinate to any first mortgage, ground lease pursuant to which Landlord has
derived its interest in the Shopping Center, installment sales agreement or
other instrument of encumbrance heretofore or hereafter placed upon any or all
of the estate of the Landlord or Landlord's lessor(s) in the Shopping Center
and all renewals, replacements, consolidations, amendments and extensions
thereof (collectively called "Mortgage") and to all advances made or to be made
thereunder and to the interest thereon; and (b) that, in the event Landlord's
interest under the Mortgage shall terminate for any reason, and if the holder
of any such Mortgage (hereinafter called the "Mortgagee"), the grantee of a
deed in lieu of foreclosure, or if the purchaser at any foreclosure sale or at
any sale under a power of sale contained in any Mortgage shall at its sole
option so request, Tenant will attorn to and recognize such Mortgagee, grantee
or purchaser, as the case may be, as Landlord under this Lease for the balance
then remaining of the Term, subject to all terms and conditions of this
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Lease; and (c) that the aforesaid provisions shall be self operative and no
further instrument or document shall be necessary unless required by any such
Mortgagee, grantee or purchaser. Notwithstanding anything to the contrary set
forth above, any Mortgagee may at any time subordinate its Mortgage to this
Lease, without Tenant's consent, by execution of a written document
subordinating such Mortgage to this Lease to the extent set forth therein, and
thereupon this Lease shall be deemed prior to such Mortgage to the extent set
forth in such written document, without regard to their respective dates of
execution, delivery and/or recording. In that event, to the extent set forth
in such written document, such Mortgagee shall have the same rights with
respect to this Lease as though this Lease had been executed and a memorandum
thereof recorded prior to the execution, delivery and recording of the Mortgage
and as though this Lease had been assigned to such Mortgagee. Should Landlord
or any Mortgagee, grantee or purchaser desire confirmation of either such
subordination or such attornment, as the case may be, Tenant, upon written
request and from time to time, will execute and deliver, without charge and in
form satisfactory to Landlord, the Mortgagee, grantee or purchaser all
instruments and/or documents in recordable form that may be requested to
acknowledge such subordination and/or agreement to attorn.
ARTICLE XVII
ASSIGNMENT AND SUBLETTING
SECTION 17.01. Transfers Requiring Landlord Consent.
See Rider
(a) Tenant shall not voluntarily, involuntarily, or by operation of
law, assign, transfer, mortgage or otherwise encumber this Lease or any
interest of Tenant herein, in whole or in part, nor sublet the whole or any
part of the Premises, nor permit the Premises or any part thereof to be used or
occupied by others (herein collectively referred to as an "Assignment"),
without first obtaining in each and every instance the prior written consent of
Landlord which consent may be given or withheld in Landlord's sole and absolute
discretion. Any consent by Landlord to an Assignment shall be held to apply
only to the specific transaction thereby authorized and shall not constitute a
waiver of necessity for such consent to any subsequent Assignment, including,
but not limited to, a subsequent Assignment by any trustee, receiver or
liquidator, or personal representative of Tenant, nor shall the references
anywhere in this Lease to subtenants, licensees and concessionaires be
construed as a consent by Landlord to an Assignment. If this Lease or any
interest herein is assigned or if the Premises or any part thereof is sublet or
used or occupied by anyone other than Tenant, whether Landlord's consent is
required hereby or has been given or denied for such Assignment, Landlord may
nevertheless collect rent (including, but not limited to, Fixed Minimum Rent,
Percentage Rent, HVAC Charge, Tax Rent, Tenant's proportionate share of
Landlord's Operating Costs, and additional rent) from the assignee, subleasee,
user or occupant and apply the net amount collected to the rents herein
reserved. In any event, Tenant shall pay to Landlord monthly, as additional
rent, the excess of the consideration received or to be received during such
month for such Assignment (whether or not denoted as rent) over the rental
reserved for such month in this Lease applicable to such portion of the
Premises subject to the Agreement. No such Assignment and/or collection shall
be deemed a waiver of the covenant herein against Assignment, or the acceptance
of the assignee, subtenant, user or occupant as Tenant hereunder, or constitute
a release of Tenant from the further performance by Tenant of the terms and
provisions of this Lease. If this Lease or any interest of Tenant herein is
assigned, or if the whole or any part of the Premises be sublet or used or
occupied by others, Tenant, after having obtained Landlord's prior written
consent thereto, shall nevertheless remain fully liable for the full
performance of all obligations under this Lease to be performed by Tenant, and
Tenant shall not be released therefrom in any manner. In addition to the
rights above, Landlord may condition its consent on the payment by Tenant to
Landlord's management agent of a reasonable amount, but not less than Five,
Hundred Dollars ($500.00), to defray Landlord's management agent's
administrative costs, overhead and counsel fees in connection with the
consideration, review or document preparation in connection with any
Assignment.
(b) If, at any time during the Term, any part or all of the corporate
shares of Tenant, or of a parent corporation of which the Tenant is a direct or
indirect subsidiary, shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other disposition so as to result in a change
in the present effective voting control of Tenant or of such parent
corporation by the person or persons owning or controlling a majority of the
shares of Tenant or of such parent corporation on the date of this Lease,
Tenant shall promptly notify Landlord in writing of such change, and such
change in voting control shall constitute an Assignment of this Lease for all
purposes of this Section 17.01; provided, however that this provision shall not
apply in the event that over fifty percent (50%) of the voting power of the
Tenant corporation or of such parent corporation is held by fifty (50) or more
unrelated shareholders or distributed to such number of unrelated shareholders
in a public distribution of securities.
(c) If Tenant is a partnership and if at any time during the Term any
person who at the time of the execution of this Lease directly or through
control of a corporation or other partnership owns a general partner's interest
ceases to own such general partner's interest, such cessation of ownership
shall constitute an Assignment of this Lease for all purposes of this Section
17.01.
(d) Upon the occurrence of any such events as described in Section
17.01(a), 17.01(b), or 17.01(c) hereof, whether voluntary, involuntary, by
operation of law, or otherwise, without the prior written consent of Landlord
(whether or not Tenant shall have given notice thereof to Landlord), Landlord
may treat any such occurrence as an Event of Default.
(e) Tenant's sole remedy for Landlord's failure or refusal to consent
to a proposed assignment or sublease shall be to seek specific performance or
injunctive or declaratory relief, Tenant hereby waiving any claims for damages
claimed to arise therefrom.
SECTION 17.02. GRANT OF CONCESSIONS
The provision against subletting above shall be applicable so as to
prohibit Tenant from granting concessions without the consent of Landlord for
the operation of one or more departments of the business of Tenant, and any
grant of concessions consented to by Landlord shall be subject to the
conditions that: (a) each such concession which may be granted by Tenant shall
be subject to all the terms and provisions of this Lease; (b) the Gross Sales
from the operation of each such concession shall be deemed to be a part of the
Gross Sales of Tenant for the purpose of determining the Percentage Rent
payable to Landlord; (c) all of the provisions hereof applying to the business
of Tenant including, but not limited to, the provisions of Articles II and VI
shall apply to each such concession; (d) unless otherwise approved in writing
by Landlord, such department or departments shall be operated only as part of
the business operation
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generally conducted by Tenant on the Premises and under the advertised trade
name of Tenant; and (c) at least seventy-five percent (75%) of the sales floor
area of the Premises shall at all times be operated directly by Tenant.
ARTICLE XVIII
PAYMENTS AND NOTICES
Section 18.01. Delivery of Payments and Notices; Notice Requirements.
All payments of rent and any and all other monetary obligations of Tenant
accruing hereunder, whether or not denoted as rent, shall be payable at the
address set forth in the Indenture of Lease above for such purpose, unless and
until Tenant is notified otherwise in writing, and all notices given to
Landlord hereunder shall be in writing and forwarded to Landlord at the
address set forth in the Indenture of Lease for such purpose, unless and until
Tenant is notified otherwise in writing. All notices shall be sent by
registered or certified mail, postage pre-paid, return receipt requested or by
expedited delivery services such as Federal Express. All notices to Tenant
shall be forwarded to it at the address set forth in the Indenture of Lease by
postage prepaid, registered or certified mail, return receipt requested or by
expedited deliver service such as Federal Express or by delivery in person and
in the event of a delivery in person, the affidavit of the person making such
delivery shall be conclusive proof of the delivery and of the date and time of
such delivery. All changes of notice address requested by Tenant shall only be
valid and binding on Landlord if executed by a duly authorized officer,
partner or owner of Tenant and acknowledged in writing by an officer of
Landlord or Landlord's management agent. All notices shall be deemed to have
been given three (3) business days after the date when deposited with the U.S.
Postal Service (as evidenced by the postmark affixed thereto) as aforesaid or,
in the case of notices delivered by expedited delivery service, when received or
in the case of notices delivered in person to Tenant, when so delivered. Notices
by the Landlord may be given on its behalf by Landlord's management agent or by
any attorney for Landlord or Landlord's management agent.
ARTICLE XIX
EVENTS OF DEFAULT; LANDLORD'S REMEDIES
Section 19.01. Events of Default.
The following shall constitute Events of Default under this Lease:
(a) if Tenant defaults in the payment of any sum of money (whether Fixed
Minimum Rent, Percentage Rent, Tax Rent, Tenant's proportionate share of
Operating Costs, the HVAC Charge, Marketing Service Charge, additional rent or
otherwise) and fails to cure such default for a period in excess of ten (10)
days following written notice from Landlord; or
(b) except as to acts, defaults, omissions and/or occurrences specified in
subsections (a) and (c) of this Section 19.01, if Tenant defaults in fulfilling
any of the other covenants of this Lease on Tenant's part to be performed
hereunder and such default shall continue for the period within which
performance is required to be made by specific provision of this Lease, or, if
no such period is so provided, for twenty (20) days after the date of written
notice from Landlord to Tenant specifying the nature of said default, or, if the
default so specified shall be of such a nature that the same cannot be
reasonably cured or remedied within said twenty (20) day period, if Tenant
shall not in good faith commence to cure or remedy such default within such
twenty (20) day period and thereafter diligently proceed to completion; or
(c) if any execution or attachment shall be issued against Tenant or any
of Tenant's property and shall not be discharged or vacated within thirty (30)
days after the issuance thereof.
SECTION 19.02. Termination.
Upon or after the occurrence of any one or more of such Events of
Default, if the Term shall have not commenced, Landlord may immediately cancel
this Lease by written notice to Tenant, or if the Term shall have commenced,
Landlord may serve upon Tenant a written notice that this Lease will terminate
on a date specified therein, and in either event, Tenant shall have no right
to avoid the cancellation or termination by payment of any sum due or by other
performance of any condition, term or covenant broken. Upon the date specified
in the aforesaid notice of termination, this Lease shall terminate and come to
an end as fully and completely as if such date were the day herein definitely
fixed for the end and expiration of this Lease, and Tenant shall then quit and
surrender the Premises to Landlord, but notwithstanding any statute, rule of
law, or decision of any court to the contrary, Tenant shall remain liable as
set forth hereinafter.
Section 19.03. Right of Possession.
Upon or after any one or more Events of Default, or if the notice provided
for above in Section 19.02 hereof shall have been given and this Lease shall be
terminated, or if the Premises become vacant or deserted, then in all or any of
such events, in addition to, and not in lieu of, all other remedies of Landlord,
Landlord may without notice terminate all services (including, but not limited
to, the furnishing of utilities) and/or re-enter the Premises, either by force
or otherwise, and/or by summary proceedings or otherwise dispossess Tenant and
the legal representative of Tenant or other occupant of the Premises, and
remove their effects and repossess and enjoy the Premises, together with all
alterations, additions and improvements, all without being liable to prosecution
or damages therefor.
Section 19.04. Additional Remedies of Landlord.
(a) In the event of any Event of Default, re-entry, termination and/or
dispossession by summary proceedings or otherwise, in addition to, and not in
lieu of, all other remedies which Landlord has under this Lease, at law or in
equity: (i) the Fixed Minimum Rent
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and all additional rent shall become due thereupon and be paid up to the time
of such re-entry, dispossession and/or expiration: (ii) Landlord may relet
the Premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term which may at Landlord's option be less than or exceed the
period which would otherwise have constituted the balance of the Term, and may
grant concessions or free rent: (iii) Tenant or the legal representative of
Tenant shall also pay Landlord, at Landlord's option and whether or not
Landlord has terminated or cancelled this Lease, as liquidated damages for the
failure of Tenant to observe and perform said Tenant's covenants herein
contained, for each month of the period which would otherwise have constituted
the balance of the Term, the excess, if any, of the sum of one monthly
installment of Fixed Minimum Rent, one-twelfth (1/12th) of the annual average
Percentage Rent payable hereunder for the three (3) Lease Years immediately
preceding (or for the entire preceding portion of the Term if less than three
(3) Lease Years), the monthly portion of the payment of Tax Rent that would
have been payable for the period in question but for such re-entry or
termination, the HVAC Charge payable for such month computed on the basis of
the average monthly charge for the said three (3) preceding Lease Years or the
entire preceding portion of the Term, as the case may be, the monthly payment
of Tenant's current proportionate share of Operating Costs, the Marketing
Service Charge computed on a monthly basis over the net amount, if any, of the
rents actually collected on account of the lease or leases of the Premises for
such month; and Tenant shall also pay Landlord the unamortized amount of sums
extended by Landlord and not repaid by Tenant in connection with preparing or
improving the Premises to Tenant's specifications. Such payment shall be in
an amount equal to the unamortized balance of such sums on the date of said
default, determined by multiplying the total amount actually expended by
Landlord times a fraction, the numerator of which shall be the number of full
calendar months remaining in the Term from the date of default and the
denominator of which shall be the number of full calendar months in the
Original Term. The refusal, failure or inability of Landlord to relet the
Premises or any part or parts thereof shall not release or affect Tenant's
liability for damages, the Tenant hereby specifically waiving any duty on the
part of Landlord to mitigate damages that may be imposed by law. In computing
such liquidated damages, there shall be added to the said deficiency all
expenses Landlord may incur in connection with reletting, such as court costs,
reasonable attorneys fees and disbursements, brokerage and management fees and
commissions, cost of putting and keeping the Premises in good order and costs
of preparing the Premises for reletting as hereinafter provided. Any such
liquidated damages shall be paid in monthly installments by Tenant on the day
specified in this Lease for the payment of Fixed Minimum Rent and any action
brought to collect the amount of deficiency for any month shall not prejudice
in any way either the rights of Landlord to collect the deficiency for any
subsequent month by a similar proceeding, or the rights of Landlord to elect
to collect liquidated damages calculated by the formula set forth in Section
19.04(b) hereof. Landlord, at Landlord's option, may make such alterations,
repairs, replacements and/or decorations in the Premises as Landlord, in
Landlord's sole judgment, considers advisable and necessary for the purpose of
reletting the Premises; and the making of such alterations and/or decorations
shall not operate or be construed to release Tenant from liability hereunder
as aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to relet the Premises, or in the event that the Premises are relet,
for failure to collect the rent under such reletting.
(b) In any of the circumstances mentioned in the foregoing Section
19.04(a) in which Landlord shall have the right to hold Tenant liable as
therein provided, Landlord shall have the election, in place and instead of
holding Tenant so liable, forthwith to recover against Tenant, as liquidated
damages for loss of the bargain and not as a penalty, a sum equal to the monthly
amount of Fixed Minimum Rent and all additional rent multiplied by the number
of months and fractional months which would have constituted the balance of the
Term but not longer than two (2) years (or such lesser time period specified
by Landlord), all discounted to present worth at the then-current prime lending
rate of Provident National Bank, together with costs and reasonable attorneys'
fees. Notwithstanding the formulas set forth in Section 19.04(a) and the
preceding sentence, in the event the Landlord has not recovered from Tenant the
total incurred by Landlord for improvements to the Premises, in no event shall
the liquidated damages recovered by Landlord be less than the balance due
therefrom together with all other actual costs incurred by Landlord relating
to the Premises or Tenant's occupancy or use thereof.
(c) In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention
in this Lease of any particular remedy shall not preclude Landlord from any
other remedies under this Lease, or now or hereafter existing at law or in
equity or by statute. The provisions of this Section 19.04(c) shall not apply
to Landlord's rights under Section 11.05 which shall be limited to the
provisions set forth therein.
(d) Tenant hereby expressly waives the service of notice of intention
to re-enter or to institute legal proceedings to that end and any and all
rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed for any cause, or in any event of
Landlord obtaining possession of the Premises by reason of the violation by
Tenant of any of the covenants and conditions of this Lease or otherwise. The
words "re-enter" and "re-entry" as used in this Lease are not restricted to
their technical legal meaning.
(e) In the event legal action by Landlord is required to enforce
performance by Tenant of any condition, obligation or requirement of this
Lease, Tenant agrees to pay all actual attorneys' fees and costs so expended by
or charged to Landlord.
SECTION 19.05. Waivers by Tenant.
Tenant expressly waives: the right to assert any non-compulsory
counterclaim in connection with any action by Landlord for possession of the
Premises.
ARTICLE XX
SECURITY DEPOSIT
SECTION 20.01. Security Deposit.
Tenant shall pay to Landlord, promptly after execution of this Lease
and prior to the Commencement Date, the sum set forth
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in the Indenture of Lease to be held as security for the payment of any rent and
all other sums of money payable by Tenant under this Lease and for the faithful
performance of all covenants of Tenant hereunder. The amount of such security
deposit, without interest, shall be refunded to Tenant after termination of this
Lease, provided Tenant shall have made all such payments and performed all such
covenants. Upon any default by Tenant hereunder, all or part of such security
deposit may, at Landlord's option, be applied on account of such default, and
thereafter Tenant shall restore the resulting deficiency in such security
deposit upon demand. Tenant hereby waives the benefit of any provision of law
requiring such security deposit to be held in escrow or in trust, and such
security deposit shall be deemed to be the property of Landlord and may be
commingled with Landlord's other funds. Landlord may deliver the security
deposit to any purchaser of Landlord's interest in the Premises, in the event
that such interest is sold, and thereupon Landlord shall be discharged from any
further liability with respect to such security deposit, and Tenant agrees to
look solely to such purchaser for the return of such security deposit.
ARTICLE XXI
MISCELLANEOUS PROVISIONS
SECTION 21.01. Access by Landlord.
Landlord, Landlord's management agent and their employees and
representatives may at all reasonable times during the Term enter to inspect the
Premises and/or may show the Premises, and the building of which the Premises
form a part, to others. At any time within ninety (90) days immediately
preceding the expiration of the Term, and at any time after Tenant has received
a notice of default or termination. Landlord and Landlord's management agent
shall have the right to show the Premises and all parts thereof to prospective
tenants between the hours of 9:00 A.M. and 9:00 P.M. on any day except days on
which Tenant shall be closed for business as permitted by this Lease.
SECTION 21.02. Excuse of Performance.
Notwithstanding anything in this Lease to the contrary, if Tenant shall
be delayed or hindered in or prevented from performance of any act required
hereunder by reason of any strike, lock-out, labor dispute, civil commotion,
warlike operation, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, failure of power, inability to
obtain any material or service, Act of God or other reasons of a like nature not
related to the fault of Tenant, then performance of such act by Tenant shall be
excused for the period of such delay, provided, however, that Tenant shall give
Landlord written notices of the reason for and extent of such delay within a
reasonable time after its resolution and provided, further, that the foregoing
shall not excuse Tenant from the prompt payment of Fixed Minimum Rent,
Percentage Rent, Tax Rent, additional rent or any other payments required by the
terms of this Lease, nor delay the date on which Tenant's obligation to commence
such payment shall begin. Notwithstanding anything in this Lease to the
contrary, Landlord shall not be deemed in default with respect to the
performance of any of the terms, covenants and conditions of this Lease if
Landlord's failure to perform such terms, covenants and conditions is due to any
strike, lockout, labor dispute, civil commotion, war-like operation, invasion,
rebellion, hostilities, military or usurped power, sabotage, governmental
regulations or controls, failure of power, inability to obtain any material,
service or financing, Act of God, fire or other casualty or other cause,
whether similar or dissimilar to those enumerated in this Section 21.02. which
is beyond the reasonable control of Landlord.
SECTION 21.03. Successors.
All rights, obligations and liabilities herein given to or imposed upon
the respective parties hereto shall extend to and bind the several respective
heirs, executors, administrators, trustees, receivers, legal representatives,
successors and assigns of the said parties; and if there shall be more than one
Tenant, they shall all be bound jointly and severally by the terms, covenants
and agreements herein. No rights, however, shall inure to the benefit of any
assignee, legal representative, trustee, receiver, legates or other personal
representative of Tenant unless the Assignment to such party has been approved
by Landlord in writing as provided in Section 17.01(a) hereof. Landlord shall
have the unrestricted right to assign this Lease and upon any such assignment,
Landlord shall automatically be released from all liability hereunder from and
after the date of such assignment. All of Tenant's obligations accruing during
the Term pursuant to Sections 2.01, 2.03, 3.02, 3.05, 4.03, 6.01, 10.02, 10.03,
13.01 and 21.22 shall survive the expiration of the Term or earlier termination
of this Lease.
SECTION 21.04. Quiet Enjoyment.
So long as Tenant shall pay the rents herein provided within the
respective times provided therefor, and provided and so long as Tenant observes
and performs all the covenants, terms and conditions on Tenant's part to be
observed and performed hereunder, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by Landlord or
any other person or persons lawfully claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease. Landlord's
liability under this Section 21.04 shall cease upon a conveyance by Landlord
of the Premises.
SECTION 21.05. Waiver.
The waiver by Landlord any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or a waiver of any other term, covenant or condition herein contained.
The subsequent acceptance by Landlord of rent due hereunder or any or all other
monetary obligations of Tenant hereunder, whether or not denoted as rent
hereunder, shall not be deemed to be waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than the failure of
Tenant to make the particular payment so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent. No
covenant, term or condition of this Lease shall be deemed to have been waived
by Landlord, unless such waiver be in writing and executed by Landlord.
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SECTION 21.06. Custom and Usage.
Any law, usage or custom to the contrary notwithstanding, Landlord shall
have the right at all times to enforce the covenants and conditions of this
Lease in strict accordance with the terms hereof, notwithstanding any conduct or
custom on the part of Landlord in refraining from so doing at any time or times
with respect to the Tenant hereunder or with respect to other tenants of the
Shopping Center. The failure of Landlord at any time to enforce its rights
under said covenants and provisions strictly in accordance with the same shall
not be construed as having created a custom in any way or manner contrary to
specific terms, provisions and covenants of this Lease or as having in any way
or manner modified the same.
SECTION 21.07. Accord and Satisfaction.
No payment by Tenant or receipt by Landlord of a lesser amount than any
payment of rent or additional rent herein stipulated shall be deemed to be other
than on account of the earliest stipulated rent or additional rent then due and
payable. Tenant is hereby advised that Landlord may instruct Tenant to forward
all sums due Landlord to a "lock box" account maintained by Landlord which will
result in such checks being automatically deposited to Landlord's account
without review or inspection prior to the same being deposited. Accordingly,
Tenant agrees that Landlord shall not be bound by any endorsement or statement
on any check or any letter accompanying any check or payment and no such
endorsement, statement or letter shall be deemed an accord and satisfaction,
whether such check or letter is forwarded to Landlord's "lock box" or directly
to Landlord, Landlord's management agent or elsewhere, and Landlord or
Landlord's bank may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy provided in
this Lease, at law or in equity.
SECTION 21.08. Performance of Tenant's Covenants.
Tenant covenants and agrees that it will perform all agreements and observe
all covenants herein expressed on its part to be performed and observed and that
it will promptly, upon receipt of written notice specifying action required by
this Lease, comply with such notice, and further, that if Tenant shall not
comply with any such notice to the satisfaction of Landlord prior to the date on
which such non-compliance would constitute an Event of Default, in addition to,
and not in lieu of or in limitation of any other remedy which Landlord may have
pursuant to this Lease, at law or in equity, Landlord may, but shall not be
obligated to, enter upon the Premises and do the things specified in such
notice. Landlord shall have no liability to Tenant for any loss or damage
resulting in any way from such action and Tenant agrees to pay upon demand, as
additional rent, any sums or costs incurred by Landlord in taking such action,
plus administrative costs of Landlord in an amount equal to twenty percent (20%)
of such sums and/or costs. Notwithstanding the foregoing, Landlord's
performance of any or all of Tenant's covenants shall not release Tenant from
liability for non-performance.
SECTION 21.09. Entire Agreement.
The Indenture of Lease, the Lease Agreement, the Exhibits, Rider and
Guaranty, if any, attached hereto set forth all the covenants, agreements,
conditions, representations, promises and understandings between Landlord and
Tenant concerning the Premises and there are no covenants, agreements,
conditions, representations, promises or understandings, either oral or written,
between them other than as herein set forth. All prior communications,
negotiations, arrangements, representations, agreements and understandings,
whether oral, written or both, between the parties hereto, and their
representatives, are merged herein and extinguished, this Lease superseding and
cancelling the same. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and executed by both parties. If
any provision contained in any rider hereto is inconsistent with any printed
provisions of this Lease, the provision contained in such rider shall supersede
said printed provision. Tenant hereby acknowledges that: (a) this Lease
contains no restrictive covenants or exclusives in favor of Tenant; (b) this
Lease shall not be deemed or interpreted to contain, by implication or
otherwise, any warranty, representation or agreement on the part of Landlord
that any department store or regional or national chain store or any other
merchant shall open for business or occupy or continue to occupy any premises in
or adjoining the Shopping Center during the Term or any part thereof and Tenant
hereby expressly waives all claims with respect thereto and acknowledges that
Tenant is not relying on any such warranty, representation or agreement by
Landlord either as a matter of inducement in entering into this Lease or as a
condition of this Lease or as a covenant by Landlord.
SECTION 21.10. Relationship of Parties.
Landlord does not, in any way or for any purpose, become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant. The provisions of this Lease relating
to the Percentage Rent payable hereunder are included solely for the purpose of
providing a method whereby adequate rent is to be measured and ascertained. No
estate shall pass out of Landlord as a result of this Lease; Tenant has only a
usutruct which is not subject to levy and sale and is not assignable by Tenant
except as expressly herein set forth.
SECTION 21.11. Captions.
The captions appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections or articles of this Lease nor in any way affect this
Lease.
SECTION 21.12. Tenant Defined; Use of Pronoun.
The word "Tenant" shall be deemed and taken to mean each and every person
or party mentioned as a Tenant herein, whether the same shall be one or more;
and if there shall be more than one Tenant, any notice required or permitted by
the terms of this Lease may be given by or to any one thereof, and shall have
the same force and effect as if given by or to all thereof. The use of the
neuter singular pronoun to refer to Landlord or Tenant shall be deemed a proper
reference even though Landlord or Tenant may be an individual, a partnership, a
corporation, or a group of two or more individuals or corporations. The
necessary grammatical change required to make
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the provisions of this Lease apply in the plural number where there is more than
one Landlord or Tenant and to either corporations, associations, partnerships
or individuals, males or females, shall in all instances be assumed as though
in each case fully expressed.
SECTION 21.13. Negation of Personal Liability.
Notwithstanding anything contained herein to the contrary, Tenant agrees
that Landlord shall have no personal liability with respect to any of the
provisions of this Lease and Tenant shall look solely to the estate and
property of Landlord in the land and buildings comprising the Shopping Center
of which the Premises forms a part for the satisfaction of Tenant's remedies,
including without limitation, the collection of any judgment or the enforcement
of any other judicial process requiring the payment or expenditure of money by
Landlord in the event of any default or breach by Landlord with respect to any
of the terms and provisions of this Lease to be observed and/or performed by
Landlord, subject, however, to the prior rights of any holder of any Mortgage
covering all or part of the Shopping Center, and no other assets of Landlord or
any principal of Landlord shall be subject to levy, execution or other judicial
process for the satisfaction of Tenant's claim and in the event Tenant obtains
a judgment against Landlord, the judgment docket shall be so noted. This
Section 21.13 shall inure to the benefit of Landlord's successors and assigns
and their respective principals.
SECTION 21.14. Liability of Landlord's Management Agent.
Landlord's management agent shall act as agent only and in such capacity
shall not in any event be held liable to the Landlord or to Tenant for the
fulfillment or non-fulfillment of any of the terms, covenants or conditions of
this Lease or for any action or proceedings that may be taken by Landlord
against Tenant, or by Tenant against Landlord. Any waiver of Landlord's
liability hereunder, including any waiver of subrogation rights, shall apply
with equal force and effect to such agent.
SECTION 21.15. Governmental Limitation on Rents and Other Charges.
In the event that any law, decision, rule or regulation of any governmental
body having jurisdiction shall have the effect of limiting for any period of
time the amount of rent or other charges payable by Tenant to any amount less
than that otherwise provided by this Lease, the following amounts shall
nevertheless be payable by Tenant: (a) throughout such period of limitation,
Tenant shall remain liable for the maximum amount of rent and other charges
which are legally payable (without regard to any limitation of the amount
hereof expressed in this Lease, except that all amounts payable by reason of
this Section 21.15 shall not in the aggregate exceed the total of all amounts
which would otherwise be payable by Tenant pursuant to the terms of this Lease
for the period of limitation); (b) at the termination of such period of
limitation, Tenant shall pay to Landlord, on demand but only to the extent
legally collectible by Landlord, any amounts which would have been due from the
Tenant during the period of limitation but which were not paid because of such
limiting law, decision, rule or regulation; and (c) for the balance of the Term
following the period of limitation, Tenant shall pay to Landlord all amounts
due for such portion of the Term in accordance with the terms hereof, calculated
as though there had been no intervening period of limitation.
SECTION 21.16. Partial Invalidity; Separate Covenants.
If any term, covenant or condition of this Lease or the application thereof
to any person or circumstance shall be invalid or unenforceable, to any extent,
the remainder of this Lease or the application of such term, covenant or
condition to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each term, covenant
and condition of this Lease shall be valid and be enforced to the fullest
extent permitted by law. Furthermore, each covenant, agreement, obligation and
other provision contained in this Lease is, and shall be, deemed and construed
as a separate and independent covenant of the party bound by, undertaking or
making the same, and not dependent on any other provision of this Lease unless
expressly so provided.
SECTION 21.17. Recording.
Tenant shall not record this Lease without the written consent of Landlord.
If Landlord requests, the parties shall execute and acknowledge a short form of
lease for recording purposes which shall be recorded at Landlord's expense.
SECTION 21.18. Brokerage Commission.
Each party represents and warrants to the other that the representing party
has had no dealing, negotiations or consultations with respect to the Premises,
the Shopping Center or this transaction with any broker or finder except
Landlord's management agent and that, with the exception of Landlord's
management agent, no broker or finder called the Premises or any other spaces in
the Shopping Center to Tenant's attention for lease. In the event that any
other broker or finder other than Landlord's management agent claims to have
submitted the Premises or any other space in the Shopping Center to Tenant, to
have induced Tenant to lease the Premises or to have taken part in any
dealings, negotiations or consultations with respect to the Premises, the
Shopping Center or this transaction, Tenant will be responsible for and will
defend, indemnify and save Landlord and Landlord's management agent harmless
from and against all costs, fees (including without limitation attorneys' fees),
expenses, liabilities and claims incurred or suffered by Landlord and/or
Landlord's management agent as a result thereof, unless such party claims to
have acted on behalf of Landlord, in which case Landlord shall similarly
indemnify Tenant.
SECTION 21.19. Construction.
It is the intent of the parties hereto that if any term, covenant,
condition or agreement of this Lease is capable of two or more constructions,
one or more of which would render the provision void, and the other or others
of which would render the provision valid, then the provision shall have the
meaning or meanings which would render it valid. Although the printed
provisions of this Lease were drawn by Landlord, this Lease shall not be
construed for or against Landlord or Tenant, but shall be interpreted in
accordance with the
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general tenor of the language in an effort to reach the intended result. The
Landlord and Tenant agree that time is of the essence with respect to the
performance of the respective obligations set forth in this Lease.
SECTION 21.20. Hazardous Material.
(a) As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material or waste (including, without limitation, asbestos)
which, now or in the future, is determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property and/or the use and/or disposal of which is regulated by any
governmental authority, including any hazardous substance or waste as defined
by the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et
seq., as amended ("RCRA") or the Comprehensive Environmental Response,
Compensation and Liability Act., 42 U.S.C. Sections 9601 et seq., as amended
("CERCLA"), and any rules and regulations now or hereafter promulgated under
either of such acts. If the Premises, any equipment, trade fixtures or other
mechanical apparatus therein contains any Hazardous Material, Landlord, at its
election, shall have the right to (i) cause Tenant to remove and properly
dispose of same, all at Tenant's sole cost and expense and in compliance with
the provisions hereof, or (ii) perform the removal and disposal thereof itself,
in which event Tenant shall reimburse Landlord, on demand, for the cost
incurred by Landlord in doing so and securing the certifications referred to
below. Tenant shall not cause or permit any Hazardous Material to be brought
upon, generated, treated, kept or used in or about the Premises by Tenant, its
agents, employees, contractors or invitees.
(b) If Landlord requires Tenant to remove the Hazardous Material, Tenant
shall retain the services of any environmental engineer and contractor, both of
whom must be previously approved in writing by Landlord. Tenant shall submit
to Landlord for approval the insurance certificates of Tenant's environmental
engineer and contractor, a written removal plan and detailed plans and
specifications which shall disclose, without limitation, the dates on which
such work is to be performed and the steps to be taken to protect the public,
all public areas in the Shopping Center, and the HVAC, water, sanitary and
storm systems from contamination during the removal and disposal process. No
work disclosed in the removal plan shall be commenced until Landlord has
approved all aspects of such removal and disposal process and Tenant shall only
perform such work in strict accordance with the process as approved by
Landlord. Tenant shall close for business while such work is being performed.
Landlord reserves the right to monitor the performance of such work from time
to time and, if Landlord believes that such work is being done in a manner
which permits Hazardous Material to escape from the Premises or otherwise
constitutes an unsafe condition, at Landlord's direction, Tenant shall
immediately cease such work until such problem has been corrected to Landlord's
satisfaction. Tenant shall replace any contaminated equipment or materials
removed from the Premises with new equipment or material performing the same
function. If asbestos is removed from the Premises, prior to replacing the
asbestos with an approved fire retardant material, Tenant shall cause its
consulting engineer to perform an air quality test in the Premises and to
certify the results thereof in a letter directed from such engineer to
Landlord. Tenant shall not install such fire retardant or reopen for business
until the results of such air quality test are accepted by Landlord. Tenant
shall perform such further acts as may be required to make such results
acceptable to Landlord. Upon Landlord's acceptance of the air quality test,
Tenant shall install the fire retardant material and promptly reopen for
business.
(c) If Landlord elects to perform the removal of the Hazardous Material
from the Premises, Landlord shall so notify Tenant of Landlord's anticipated
commencement date of such work and Tenant shall close for business not later
than such date and remain closed until notified by Landlord to reopen,
whereupon Tenant shall promptly reopen for business. If Landlord performs such
work, it shall do so in compliance with all applicable codes, laws and
governmental requirements. If directed to do so by Landlord, Tenant shall
remove such of its merchandise, personal property and trade fixtures as shall
be required by Landlord for the completion of such work or Landlord, its
contractors and subcontractors, may relocate the same within the Premises or
elsewhere in the Shopping Center during the performance of such work; neither
Landlord, Landlord's management agent, nor their contractors of subcontractors
shall be liable to Tenant in any regard for any damage to or loss of such item
or for any other acts occurring in the Premises during the performance of such
work.
SECTION 21.21. Tenant-Requested Documentation.
In the event Tenant shall request an amendment to this Lease, or in the
event Tenant shall request a subordination of any rights of Landlord, or the
rights of any Mortgagee or ground lessor, or any other documentation requiring
review and/or execution by Landlord, in addition to having the independent
discretion to approve or reject any such request, Landlord shall have the
further right to condition approval upon the payment by Tenant, in advance, of
a reasonable fee, in the minimum amount of Five Hundred and no/100 Dollars
($500.00), to reimburse Landlord for Landlord's administrative expense in
handling such request and obtaining legal review of all documents submitted.
SECTION 21.22. Warranties of Tenant.
If Tenant is a corporation or partnership, Tenant warrants and represents
that the person signing this Lease on behalf of Tenant has full power and
authority to do so and that Tenant is qualified to do business in the
jurisdiction in which the Shopping Center is located.
SECTION 21.23. Submission of Lease of Tenant.
THE SUBMISSION BY LANDLORD TO TENANT OF THIS LEASE SHALL HAVE NO BINDING
FORCE OR EFFECT, SHALL NOT CONSTITUTE AN OPTION FOR THE LEASING OF THE
PREMISES, NOR CONFER ANY RIGHTS OR IMPOSE ANY OBLIGATIONS UPON EITHER PARTY
UNTIL THE EXECUTION THEREOF BY LANDLORD AND THE DELIVERY OF AN EXECUTED
ORIGINAL COPY THEREOF TO TENANT OR ITS REPRESENTATIVE.
24
<PAGE> 31
[PICTURE]
Landlord reserves the right, at any time and from time to time, to alter, or
otherwise modify the locations and/or dimensions of all buildings, parking
areas, roads, entrances, exits, malls, other common area of the Shopping
Center, landscaping, decorative items, and structures and areas for retail
sales and promotional activities, and to construct, lease, operate and maintain
buildings, structures, and other facilities not shown on this Exhibit "A",
provided, however, that Landlord does not violate any rights expressly
reserved to Tenant in this Lease.
<PAGE> 32
EXHIBIT B
LANDLORD/TENANT WORK
In lieu of Exhibit B, "Tenant Design Criteria Manual" for Sycamore
Plaza at Kenwood, Issue #1, dated March 2, 1994, is hereby incorporated by
reference to this Lease.
Notwithstanding anything to the contrary contained in the Design
Manual, Landlord shall deliver the Premises to Tenant with the following work
complete: an earthen slab, graded to within one foot of final grade, and ready
for Tenant's construction. Landlord shall make utilities available within one
hundred feet of the Premises lease line.
<PAGE> 33
EXHIBIT C
Electricity Redistribution Charges
Tenant's Electric Charge shall be based on Tenant's actual consumption
as confirmed by sub-meter readings. Tenant shall pay based on Landlord's
Electricity Redistribution Rate Schedule, as modified from time to time, but
the rates charged by Landlord shall not exceed the rate schedule that would be
applied by the public utility company or authority to Tenant's level of
consumption, together with any fuel adjustment charges, taxes, surcharges, and
all other charges, no matter how denoted, that Tenant, as a retail customer,
would be required to pay to the public utility company or authority to obtain
electricity service, whether such utility company or authority would retain
such charge, tax, surcharge or other sum, or would be required to pay all or
any part thereof to any governmental body, taxing authority or other
governmental or quasi-governmental agency or authority. Landlord may adjust the
Electricity Redistribution Rate Schedule, and Tenant's Electric Charge, at any
time throughout the term to reflect any rate increases or other additional
taxes, charges, surcharges, or other costs or liabilities imposed on Landlord
by the public utility company or authority.
Tenant shall pay the Electric Charge in advance in equal monthly installments
due on the first day of each month. The first year's Electric Charge shall be
based on Landlord's good-faith estimate of Tenant's projected annual
consumption of electricity. Landlord shall use reasonable efforts to deliver to
Tenant notice of the amount of the first-year Electric Charge on or before the
Commencement Date.
At the end of each Accounting Period, Landlord shall deliver to Tenant a
statement of Tenant's actual consumption, the total amount to be charged to
Tenant, the amount paid to date, and any amount due to or from Tenant. If
Tenant has overpaid, Landlord shall credit the excess against Tenant's future
Electric Charges, or (for the final Accounting Period in the Term only) shall
refund the excess to Tenant promptly, after deducting any amounts owed to
Landlord under this Lease. Any amount due to Landlord shall be paid within
fifteen (15) days after the date of Landlord's invoice. Thereafter, Tenant
shall pay its Electric Charge for the then-current Accounting Period based on
the actual electric consumption for the previous Accounting Period. Together
with its payment of any shortfall for the previous Accounting Period, Tenant
shall also submit payment to reflect the increased monthly estimate for the
then-current Accounting Period, applied retroactively to the beginning of the
Accounting Period.
Tenant shall be responsible for maintenance of its electric service lines to
the nearest common utility server, including the submeter. Landlord shall be
responsible for maintenance of electric lines into the common utility server.
<PAGE> 34
RULES AND REGULATIONS
1. Tenant shall advise and cause its vendors to deliver all merchandise
before noon on Mondays through Fridays, not at other times.
2. All deliveries are to be made to designated service or receiving areas
and Tenant shall request delivery trucks to approach their service or receiving
areas by designated service routes and drives.
3. Tractor Trailers which must be unhooked or parked must use steel
plates under dolly wheels to prevent damage to the asphalt paving surface. In
addition, wheel blocking must be available for use. Tractor trailers are to be
removed from the loading areas after unloading. No parking or storing of such
trailers will be permitted in the Shopping Center.
4. Except for small parcel packages, no deliveries will be permitted
through the malls unless the Tenant does not have a rear service door. In such
event, prior arrangements must be made with the Resident Mall Supervisor for
delivery at such Premises. Merchandise being received shall immediately be
moved into Tenant's Premises and not be left in the service or receiving areas.
5. Tenant is responsible for storage and removal of his trash, refuse and
garbage. Tenant shall not dispose of the following items in sinks or commodes:
plastic products (plastic bags, straws, boxes); sanitary napkins; tea bags;
cooking fats, cooking oils; any meat scraps or cutting residue; petroleum
products (gasoline, naphtha, kerosene, lubricating oils); paint products
(thinner, brushes); or any other item which the same are not designed to
receive. All Store Floor Area of Tenant, including vestibules, entrances and
returns, doors, fixtures, windows and plate glass, shall be maintained in a
safe, neat and clean condition.
6. Other than as permitted under the provisions of Section 10.4 or Exhibit
"F", Tenant shall not permit or suffer any advertising medium to be placed on
mall walls, on Tenant's mall or exterior windows, on standards in the mall, on
the sidewalks or on the parking lot areas or light poles. No permission,
expressed or implied, is granted to exhibit or display any banner, pennant,
sign, and trade or seasonal decoration of any size, style or material within
the shopping center, outside the Premises.
7. Tenant shall not permit or suffer the use of any advertising medium
which can be heard or experienced outside of the Premises, including, without
limiting the generality of the foregoing, flashing lights, searchlights, loud
speakers, phonographs, radios or television. No radio, television, or other
communication antenna equipment or device is to be mounted, attached, or
secured to any part of the roof, exterior surface, or anywhere outside the
Premises, unless Landlord has previously given its written consent.
8. Tenant shall not permit or suffer merchandise of any kind at any time
to be placed, exhibited or displayed outside its Premises, nor shall Tenant
use the exterior sidewalks or exterior walkways of its Premise to display,
store or place any merchandise. No sale of merchandise by tent sale, truck
load sale or the like, shall be permitted on the parking lot or other common
areas.
9. Tenant shall not permit or suffer any portion of the Premises to be
used for loading purposes.
10. Tenant shall not, in or on any part of the Common Area:
(a) Vend, peddle or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet or other matter
whatsoever.
(b) Exhibit any sign, placard, banner, notice or other written
material, except for activities as approved by Landlord.
(c) Distribute any circular, booklet, handbill, placard or other
material, except for activities as approved by Landlord.
(d) Solicit membership in any organization, group or association or
contribution for any purpose.
(e) Create a nuisance.
(f) Use any Common Area (including the Enclosed Mall) for any purpose
when none of the other retail establishments within the Center is open for
business or employment, except for activities as approved by landlord.
(g) Throw, discard or deposit any paper, glass or extraneous matter
of any kind except in designated receptacles, or create litter or hazards of
any kind.
(h) Deface, damage or demolish any sign, light standard or fixture,
landscaping materials or other improvement within the Center, or the property
of customers, business invitees or employees situated within the Center.
EXHIBIT "E"
<PAGE> 35
EXHIBIT F
Sign Criteria
In lieu of Exhibit F, "Tenant Design Criteria Manual" for Sycamore
Plaza at Kenwood, Issue #1, dated March 2, 1994, is hereby incorporated by
reference to this Lease.
<PAGE> 36
Mall:
Landlord:
Tenant:
Premises:
Certification
This document is executed pursuant to Section 1.01(a) of the Lease
Agreement among the parties dated ________________, 19__ (the "Lease") for the
purpose of certifying the following:
1. The Lease is in full force and effect as of this date;
2. The Commencement Date, as defined in the Lease (being the earlier
of an identified date or the date on which the Tenant opens for business) is:
______________________________________________________;
3. The Lease has an Original Term of _____ years, plus the number of
days from the Commencement Date to the first day in the next calendar month, if
any, and therefore the Original Term of Lease terminates on __________________,
______.
4. Tenant certifies that all of Tenant's Work, as defined in the
Lease, has been completed and paid for in full by Tenant and Tenant knows of no
contractor, subcontractor or supplier claiming or possessing any lien against
the Premises.
Tenant:
By: ______________________________
Title: ___________________
Date: ____________________________
Landlord:
By: ______________________________
Title: ___________________
Date: ____________________________
EXHIBIT 1.01
<PAGE> 37
RIDER TO LEASE
This Rider to Lease ("Rider") is attached to and forms a part of that
certain Lease, dated November 9th, 1994, by and between PHILLIP E. STEPHENS,
TRUSTEE ("Landlord") and KENWOOD RESTAURANT, INC. trading as Hotel Mexico
("Tenant"), with respect to Space No. 14 at SYCAMORE PLAZA AT KENWOOD,
Cincinnati, Ohio.
1. RIDER TO INDENTURE, ARTICLE II (Extension of Term)
Provided that Tenant is not in default under the Lease at the time of
exercise of the respective options, Tenant shall have two (2) additional
options to extend the term of the Lease for periods of five (5) years each. The
second option may not be exercised unless the first option has been exercised.
Each of the options must be exercised, if at all, not earlier than twelve (12)
months nor later than six (6) months prior to the expiration of the initial
term or first option period, as applicable, by written notice delivered to
Landlord, TIME BEING OF THE ESSENCE. All terms and conditions of this Lease
shall continue to apply through the option term(s).
2. RIDER TO INDENTURE, ARTICLE II (Contingency Period)
(a) Provided that Tenant uses diligent efforts to satisfy the
Contingencies (defined hereinbelow), Tenant shall have a period of not less
than one hundred thirty (130) days from the date of this Lease until the
commencement of the Construction Period ("Contingency Period"). The
Contingencies shall be:
(i) Tenant has received zoning board approval, if required;
(ii) Tenant has received building permits;
(iii) Landlord has approved Tenant's plans and specification,
including signage (provided that Landlord shall be under no
obligation to approve any items which are inconsistent with
the Tenant Design Criteria Manual); and
(iv) Tenant has obtained a commitment for Financing (defined
hereinbelow).
(b) As used herein, the term "Financing" shall mean equity or debt
financing, or a combination of the two, in the amount of up to eighty percent
(80%) of the total construction cost of Tenant's improvements to the Premises,
but not more than Two Million Dollars ($2,000,000.00).
(c) In the event that the Contingencies have not been satisfied or
waived by Tenant within the Contingency Period, despite Tenant's diligent
efforts, then the commencement of the Construction Period shall be delayed for a
period of up to fourteen (14) days for the Contingencies to be satisfied. At
the end of the 14-day period, Landlord may terminate this Lease upon written
notice delivered at any time prior to receipt of written notice from Tenant
that the Contingencies have been satisfied or waived by Tenant. In the event
that the Contingencies have not been satisfied or waived by Tenant within sixty
(60) days following the expiration of the Contingency Period, despite Tenant's
diligent efforts, then Tenant shall have the right to terminate this Lease by
delivery of written notice within ten (10) days following the end of the 60-day
period.
RIDER
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<PAGE> 38
(d) In the event that the parties are unable to agree on the initial plans
and specifications for the Premises within the Contingency Period, then either
party may terminate this Lease within thirty (30) days following the expiration
of the Contingency Period. The parties agree to negotiate in good faith to
resolve any disputes regarding disapproval of plans by Landlord.
3. RIDER TO INDENTURE, ARTICLE X (Use of Premises)
(a) Notwithstanding Article X, Tenant may change the specific items sold
on the menu provided that (i) the theme of the restaurant shall not change and
(ii) no exclusive granted to another Tenant of the Shopping Center is violated.
Further, Tenant may change the trade name and use to any high-end restaurant
concept, provided that (i) Landlord receives at least sixty (60) days prior
written notice of such change, including the proposed trade name and menu, and
(ii) no exclusive granted to another Tenant of the Shopping Center is violated.
Tenant hereby acknowledges the exclusive granted to Johnny Rockets for any use
expected to derive more than twenty percent (20%) of its Gross Sales from the
sale of hamburgers.
(b) Provided that Tenant continuously operates its business, as required
by this Lease, under the Hotel Mexico trade name, Landlord shall lease no other
space in the Shopping Center to any tenant whose primary use shall be the sale
of Mexican food items ("Tenant's Exclusive"). In the event that Landlord
violates Tenant's Exclusive, and fails to cure such default within sixty (60)
days after notice from Tenant, then Tenant may pay four percent (4%) of Gross
Sales in lieu of Fixed Minimum Rent and Percentage Rent ("Alternate Rent"),
retroactive to the date of Tenant's notice, until such default on the part of
Landlord is cured. Alternate Rent shall be payable monthly in arrears by the
twentieth (20th) of each month. If Landlord fails to cure such default within
one (1) year from the date of Tenant's notice, and Tenant's Gross Sales have
fallen ten percent (10%) or more during such one-year period, as compared with
the previous twelve months, then Tenant may terminate this Lease upon not less
than one hundred eighty (180) days prior written notice delivered within sixty
(60) days following the end of such twelve-month period. Tenant acknowledges
that the Max & Erma's use shall not be a violation of Tenant's Exclusive.
4. RIDER TO INDENTURE, ART. XI (Shopping Center Hours of Operation)
Landlord shall have the right to demand reimbursement from Tenant for
Tenant's proportionate share (based on floor area and opening hours of the other
tenants also open beyond normal hours) of the additional Operating Costs
associated with Tenant's extended hours beyond normal Shopping Center operating
hours. Tenant shall pay any such amount within thirty (30) days after receipt of
an invoice therefor.
5. RIDER TO SECTION 3.01 (Taxes)
Landlord agrees to reasonably cooperate with Tenant (at no expense to
Landlord) in any appeal of Taxes or assessments, provided that Tenant has
presented to Landlord a petition signed by tenants occupying not less than sixty
percent (60%) of the leasable floor area of the Shopping Center supporting such
appeal. Tenant shall be entitled to its proportionate share of any refund or
reduction obtained through such appeal, and shall be responsible
RIDER
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<PAGE> 39
for the full amount of any increase in Taxes or assessments made as a result of
such appeal. Except as set forth herein, Tenant shall have no right to appeal
Taxes or assessments.
6. RIDER TO SECTION 3.03 (Leasable Floor Area)
In the event that Landlord constructs new buildings or enlarges existing
buildings in the Shopping Center, such expansion areas shall be included in
Leasable Floor Area upon the initial imposition by the taxing authority of
additional Tax liability with respect thereto; no such area, once completed, may
be excluded from Leasable Floor Area, even though the area may not be actually
leased or offered for lease.
7. RIDER TO SECTION 4.01 (Common Areas)
Landlord shall use reasonable efforts to maintain the Common Areas in a
clean and orderly condition, consistent with first-class "power centers" in the
Cincinnati metropolitan area.
8. RIDER TO SECTION 4.03 (Cap on Increases in Operating Costs)
Notwithstanding the provisions of the Lease, Tenant's share of Operating
Costs shall not be increased in any Accounting Period (after the first full
Accounting Period) by greater than eight percent (8%) over the previous year's
charge, provided that if charge increases by less than eight percent (8%) in any
Accounting Period, such unused portion of the "cap" may be carried forward to
subsequent Accounting Period(s) so that Tenant's share of Operating Costs may be
increased by greater than eight percent (8%) over the previous year's charges in
such future Accounting Period(s); and provided further that if Tenant's
proportionate share (before applying the eight percent cap) increases more than
eight percent (8%) in any given year, then the excess of Tenant's proportionate
share before applying the "cap" amount may be carried over to be charged to
Tenant in future Accounting Period(s) to the extent that Tenant's proportionate
share of Operating Costs for such future Accounting Period(s) does not exceed
108% of the previous year's charge. However, it is the intention of the parties
that the average increase over the term of the Lease (after the first full
Accounting Period) shall not be greater than eight percent (8%) per Accounting
Period.
9. RIDER TO SECTION 7.01 (Dram Shop Insurance)
If Tenant is permitted to engage in the sale of beer, wine or other
alcoholic beverages, in addition to the insurance coverage mentioned under the
provisions of Article VII, Tenant shall (except as hereinafter provided) also
secure and keep in force, commencing as of the date Tenant opens for business
with the public, Liquor Liability (dram shop) Insurance with a minimum limit of
liability in an amount of Three Million Dollars ($3,000,000.00) on an occurrence
basis, covering all bodily injury and death to one or more persons, and Five
Hundred Thousand Dollars ($500,000.00) in connection with property damages.
Tenant may carry such insurance as $1,000,000.00 primary coverage and
$2,000,000.00 excess liability coverage. Neither the provisions of this Rider
nor the failure of the Landlord to enforce the provisions hereof shall be deemed
to impose any liability upon Landlord, its managing agent, employees, agents or
contractors to any other party claiming a benefit under the requirements of this
Rider or the obligations arising hereunder.
RIDER
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<PAGE> 40
10. RIDER TO SECTION 8.01(f) (Utility Interruptions)
Notwithstanding Section 8.01(f), in the event that utilities are
interrupted for a period in excess of twenty-four (24) consecutive hours due to
the negligence or willful misconduct of Landlord, and such interruption in
utilities prevents Tenant from operating, then Fixed Minimum Rent shall abate
until service is restored.
11. RIDER TO SECTION 10.02 (Construction Allowance)
Landlord agrees to reimburse to Tenant, as consideration for certain
alterations and improvements which Tenant will make to the Premises pursuant to
Tenant's approved plans and specifications (hereinafter referred to as
"Tenant's Work"), an amount equal to up to TWO HUNDRED THOUSAND AND 00/100
Dollars ($200,000.00) (such amount hereinafter referred to as "Construction
Allowance"). The Construction Allowance shall be paid within thirty (30) days
after all of the following conditions have been satisfied: (a) Tenant is not in
default under this Lease, (b) the Premises are open for business, (c) Tenant's
Work has been fully completed, and (d) Tenant has submitted to Compass Retail,
Inc. ("Agent"), as managing agent for Landlord, the following information and
materials together with its request for payment:
(i) a summary of all costs, certified by an authorized officer of
Tenant and the Tenant's general contractor;
(ii) a copy of Tenant's certificate of occupancy for the Premises
and any other licenses or permits necessary for Tenant to open
and operate its business at the Premises;
(iii) final lien waivers and releases (in such form as has been
approved by Landlord), properly executed by Tenant's general
contractor and all subcontractors and suppliers indicating
that all amounts due to the general contractor, subcontractors
and suppliers have been paid in full;
(iv) if requested by Landlord, copies of all invoices, work orders
or other evidence of amounts claimed to be spent in completion
of Tenant's Work; and
(v) any additional documentation reasonably requested by Landlord.
Notwithstanding anything to the contrary contained herein, Landlord hereby
reserves the right to have Landlord's or Agent's architect confirm Tenant's
statement as to the amount of work completed within the Premises prior to
making any payment to Tenant. Landlord shall not be liable for any amounts
incurred by Tenant in excess of the Construction Allowance. The Construction
Allowance, or any portion thereof, may be used by Landlord to offset any
amounts to be paid from Tenant to Landlord that are past due under this Lease.
RIDER
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<PAGE> 41
12. RIDER TO SECTION 10.05 (Alterations and Mandatory Refurbishment)
Tenant shall replace all worn surfaces (including without limitation, paint
and wall coverings, carpet and floor coverings, trade fixtures and signage) as
necessary throughout the Term, and shall make such other alterations as are
necessary or appropriate to maintain the premises in a first-class condition and
appearance.
13. RIDER TO SECTION 10.06 (Common Areas)
(a) Except as shown on Exhibit A, Landlord shall construct no permanent
buildings in the "No-Build-Area" identified on Exhibit A. Tenant acknowledges
that Landlord plans to construct a decorative stone wall, as shown on Exhibit H,
in certain portions of the No-Build Area.
(b) In exercising its rights in the Common Areas, Landlord shall take no
action which materially adversely affects the availability of parking in the No
Build Area.
(c) In exercising its rights in the Common Areas, Landlord shall use
reasonable efforts to avoid material interference with the operation of
Tenant's business.
14. RIDER TO ARTICLE XI (Operation of Business)
Tenant shall be responsible for the acts of Tenant's patrons in the Common
Areas. In acknowledgement of Tenant's extended hours and alcoholic beverage
service, Tenant shall use diligent efforts to prevent any unruliness, violence
or disturbances on the part of its patrons in the Common Areas. Tenant shall
supply, at sole cost and expense, additional security services to implement the
provisions of this Rider, upon written request by Landlord supported by a
reasonable demonstration of the need therefor.
15. RIDER TO SECTION 13.01 (Indemnification)
Landlord will indemnify and hold harmless Tenant and its principals, agents
and employees from loss, claims, actions, liability, expense or damage,
including reasonable attorney fees and court costs (collectively "Claims")
arising out of Landlord's negligence in connection with the use, operation and
maintenance of the Common Areas, except to the extent such Claims are caused by
the negligence of Tenant or its agents, employees, licensees, subtenants or
contractors. Such indemnity shall be conditioned upon Tenant providing to
Landlord prompt notice of any such potential Claim and permitting Landlord to
assume the defense of such Claim, including settlement and compromise of such
Claim, in the sole discretion of Landlord.
16. RIDER TO SECTION 14.02 (Partial Destruction of Shopping Center)
In the circumstances contemplated by Section 14.02, if Landlord fails to
terminate this Lease, Tenant shall have the right to terminate if Landlord has
not substantially completed reconstruction of the Shopping Center "base
building" construction (subject to Landlord's right to reconfigure the Shopping
Center) within twelve (12) months following such event of casualty. Upon
written request by Tenant following such event of casualty, Landlord shall
notify Tenant whether Landlord reasonably expects to be able to complete such
work within the stipulated time period.
RIDER
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<PAGE> 42
If Landlord does not expect to be able to complete such work within such
period, Tenant may terminate this Lease. Tenant's notice to terminate pursuant
to this Rider shall be delivered within thirty (30) days following (a) the end
of the twelve-month period or (b) receipt of Landlord's notice that it does not
reasonably expect to complete the work, as the case may be.
17. RIDER TO SECTION 16.02 (Subordination and Non-disturbance)
In the event that a Mortgage is recorded subsequent to the effective
date of this Lease, Landlord, upon request by Tenant, shall use reasonable
efforts to obtain from such Mortgagee a written agreement, in form and
substance reasonably satisfactory to Tenant, that such Mortgagee shall not
disturb Tenant's possession so long as Tenant is not in default hereunder
beyond any applicable cure period. Tenant's obligation to subordinate this
Lease to any Mortgage shall be conditioned upon such Mortgagee delivering to
Tenant a written non-disturbance agreement providing that Tenant's rights under
this Lease shall be recognized by such Mortgage upon foreclosure and Tenant's
possession shall not be disturbed so long as Tenant is not in default
hereunder, subject to the provisions of this Lease.
18. RIDER TO SECTION 17.01 (Assignment)
(a) Tenant may execute a collateral assignment of this lease to secure
loans for construction of the Premises without imposition of the rights of
Landlord pursuant to this Section 17.01.
(b) Tenant shall have the right to assign this Lease to any corporation
acquiring all of the assets of Tenant, provided that such assignee corporation
has a tangible net worth as of the date of assignment in the amount of not
less than Five Hundred Thousand Dollars ($500,000.00), as demonstrated in
certified financial statements audited by certified public accountants
reasonably acceptable to Landlord, and provided further that the parties
promptly deliver to Landlord written notice of such assignment, together with an
instrument in which the assignee agrees to assume the obligations of Tenant
hereunder and to be bound thereafter by all terms and conditions of the Lease.
19. RIDER TO ARTICLE XIX (Landlord Default)
In the event that Landlord fails to perform any of the repairs and
maintenance required by Section 12.02, or fails to perform repairs and
maintenance to the No-Build-Area, consistent with the Rider to Section 4.01,
and such failure continues for twenty (20) days after written notice
from Tenant (or such longer period as may be required to complete such work,
provided that Landlord diligently pursues such work to completion) and
materially adversely affects the operation of Tenant's business, then
thereafter Fixed Minimum Rent shall abate, until such condition is cured, in
proportion to the extend that the Premises are not usable.
20. RIDER TO SECTION 21.22 (Hazardous Materials)
(a) Notwithstanding the provisions of Section 21.22, Tenant shall not be
responsible for abatement of Hazardous Materials (a) introduced into the
Premises by Landlord or its agents, or (b) present in the Premises as of the
date of delivery of possession and discovered during the performance of Tenant's
Work as approved by Landlord pursuant to Section 10.02. In the event that such
RIDER
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Hazardous Materials are present in the Premises, Landlord shall
be responsible for removal of such Hazardous Materials to the extent
required by applicable legal requirements, and Fixed Minimum Rent and
all other charges under this Lease shall abate for the period that
Tenant is required to be closed for such abatement.
(b) Tenant acknowledges receipt of that certain Environmental
Site Assessment, prepared for Compass Retail, Inc. by ATEC
Environmental Consultants on September 30, 1993.
RIDER
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<PAGE> 44
UNCONDITIONAL GUARANTY OF PAYMENT
AND PERFORMANCE OF LEASE OBLIGATIONS
(Individual Guarantor)
For and in consideration of, and as a material inducement for, the
granting, execution and delivery by Phillip E. Stephens, Trustee, ("Landlord",
which term shall be deemed to include the named Landlord and its successors,
successors-in-title and assigns), of that certain Lease Agreement, dated
___________, 1994 (the "Lease"), between Landlord and Kenwood Restaurant, Inc.,
an Ohio corporation trading as Hotel Mexico (individually and collectively, if
more than one, "Tenant"), covering certain premises in Sycamore Plaza at Kenwood
(formerly Kenwood Mall) located in Cincinnati, Ohio, and in further
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration paid by Landlord to the undersigned, the receipt and sufficiency
of which are hereby acknowledged, Steve King, an unmarried resident of the
State of Ohio (individually and collectively, if more than one, "Guarantor"),
Guarantor, jointly and severally, if more than one, hereby unconditionally and
absolutely guarantees to Landlord the full and prompt payment when due of all
sums now or hereafter payable by Tenant to Landlord pursuant to the terms of
the Lease, including, without limitation, all "Fixed Minimum Rent", "Percentage
Rent", additional rent and all other sums, fees and charges of every
description payable by Tenant under the terms of the Lease (collectively, the
"Rents"), and the full and prompt performance of all obligations, covenants,
and conditions to be observed and performed by Tenant under the terms of the
Lease. If at any time Tenant shall default in the payment of any Rents, or in
the performance and observance of any of the obligations, covenants and
conditions set forth in the Lease, Guarantor shall immediately pay such Rents
to Landlord, and shall immediately and faithfully perform and fulfill all of
such obligations, covenants and conditions, and also shall pay to Landlord all
damages that may arise in consequence of any default by Tenant under the Lease,
including, without limitation, all reasonable attorney's fees and expense
suffered or incurred by Landlord and resulting from, incident to, or otherwise
arising out of or in connection with a default by Tenant under the Lease, or
the enforcement of the Lease or the enforcement of this Guaranty.
This Guaranty shall be a continuing guaranty, and the liability of
Guarantor hereunder shall not be affected, modified or diminished in any way by
reason of (a) any modification, amendment, assignment, subletting, extension or
renewal of the Lease; (b) any release, compromise or indulgence now or
hereafter granted by Landlord with respect to the Lease, or to any person or
entity now or hereafter liable thereunder or hereunder; (c) any consent,
action, inaction or omission under or in respect of the Lease; (d) any
bankruptcy, insolvency, reorganization, liquidation, arrangement, assignment
for the benefit of creditors, receivership, trusteeship or similar proceeding
affecting Tenant; or (e) the assertion or the failure to assert by Landlord
against Tenant of any of the rights or remedies reserved to Landlord pursuant
to the Lease, or which otherwise may be available to a landlord at law or in
equity. No such action which Landlord shall take or fail to take in connection
with the Lease, nor any course of dealing with Tenant or any other person,
shall release Guarantor's obligations hereunder, affect this Guaranty in any
way or afford Guarantor any recourse against Landlord. The provisions of this
Guaranty shall extend and be applicable to all renewals, extensions,
amendments, modifications, assignments and subleases of the Lease, and any and
all references herein to the Lease shall be deemed to include any such
renewals, extensions, amendments, modifications, assignments and subleases
thereof.
This Guaranty is an absolute and unconditional guaranty of payment and
performance of all obligations of Tenant to Landlord under the Lease, and not
of collection. The liability of Guarantor under the Guaranty shall be direct
and immediate and not conditioned or contingent upon the pursuit of any
remedies against Tenant or any other person. Guarantor expressly agrees that
this Guaranty shall be enforceable against Guarantor without the necessity of
any suit or proceeding on Landlord's part of any kind or nature whatsoever
against Tenant and without the necessity of any notice of nonpayment,
nonperformance or nonobservance or any notice of acceptance of this Guaranty or
of any other notice or demand to which Guarantor might otherwise be entitled,
all of which Guarantor hereby expressly waives. In the event of a default under
the Lease or this Guaranty, Landlord shall have the right to enforce its
rights, powers and remedies thereunder or hereunder in any order, and all
rights, powers and remedies available to Landlord in such event shall be
nonexclusive and cumulative of all other rights, powers and remedies now or
hereafter provided thereunder or hereunder or by law or in equity; and no
exercise or partial exercise of any such right or remedy under the Lease or
this Guaranty is or shall be construed to be exclusive of or a waiver of any
other right or remedy. No delay on the part of Landlord in exercising any
right, power or privilege under the Lease or this, Guaranty, or failure to
exercise the same, shall operate as a waiver of or otherwise affect any such
right, power or privilege, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. If the obligations guaranteed hereby are partially
paid by reason of the election of Landlord to pursue any of the remedies
available to Landlord, or if such obligations are otherwise partially paid or
performed, this Guaranty shall nevertheless remain in full force and effect,
and Guarantor shall remain liable for the entire unpaid balance of the Rents
and the performance of all other obligations of Tenant guaranteed hereby, even
though any rights which Guarantor may have against Tenant may be destroyed or
diminished by the exercise of any such remedy. Until all of the obligations of
Tenant to Landlord under the Lease have been paid and performed in full,
Guarantor shall have no right of subrogation to Landlord against Tenant, and
Guarantor hereby waives any rights to enforce any remedy which Landlord may
have against Tenant.
Guarantor warrants and represents to Landlord that all financial statements
heretofore and hereafter delivered by him or her to Landlord are and shall be
true, correct and complete in all respects, and fully and accurately present the
financial condition of Guarantor as of the date(s) thereof. Upon the request of
Landlord, Guarantor agrees to deliver to Landlord a current financial statement
of Guarantor, which shall be prepared in all reasonable detail and in accordance
with generally accepted accounting principles consistently applied.
Guarantor shall, at any time and from time to time, upon ten (10) days'
written request from Landlord, execute, acknowledge and deliver to Landlord or
its designee(s) a statement certifying that this Guaranty is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified, and stating such modifications). Guarantor
agrees that any such certificate may be relied upon by Landlord and its
designee(s), including any prospective purchaser or any existing or prospective
mortgagee of Landlord's interest in the "Shopping Center" (as such term is
defined in the Lease) or any part thereof.
If Guarantor defaults in the performance or observance of any provision
contained herein, or breaches any warranty or representation contained herein,
or makes a general assignment for the benefit of creditors, or petitions or
applies to any tribunal for the appointment of a trustee or receiver of the
whole or any substantial part of the business, estate or assets of Guarantor, or
commences any proceedings relating to Guarantor under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or if
any such petition or application is filed or any such proceedings are commenced
against Guarantor and Guarantor by any act consents thereto or acquiesces
therein, or an order is entered appointing any such trustee or receiver, or
adjudicating Guarantor bankrupt or insolvent, or approving a petition in any
such proceedings, and such order remains in effect for more than sixty (60)
days, then, at the option of Landlord, and in addition to constituting a default
hereunder, the same shall constitute an "Event of Default" under and as defined
in the Lease, and Landlord shall thereupon have all remedies contemplated under
the Lease upon the occurrence of an Event of Default thereunder.
This Guaranty may not be changed orally, and no obligation of Guarantor can
be released or waived by Landlord or any officer or agent of Landlord, except by
a writing signed by a duly authorized officer of Landlord and bearing the seal
of Landlord; nor shall any
<PAGE> 45
such release or waiver be applicable except in the specific instance for which
given. This Guaranty shall be irrevocable by Guarantor so long as the Lease
shall remain in effect and until all obligations guaranteed hereby have been
paid and performed in full in accordance with the terms of the Lease.
In the event a court of competent jurisdiction shall find that Tenant
is not liable under the Lease because the act of creating the obligations
thereunder is ultra vires, or the officers or persons creating same acted in
excess of their authority, and for these reasons, any sums due to Landlord or
obligations required to be performed pursuant to the Lease cannot be enforced
against Tenant, such fact shall in no manner affect Guarantor's liability
hereunder, but Guarantor shall be liable to the same extent as Guarantor would
have been if all of the terms, conditions, covenants and agreements of said
Lease had been enforceable against Tenant.
If for any reason Landlord is required to refund or pay the amount of
any payment paid by Tenant to Landlord to any other party, such payment paid or
due from Tenant to Landlord shall not constitute a release of Guarantor from
any liability hereunder, but Guarantor agrees to pay such amount to Landlord
upon demand.
This Guaranty shall be governed and construed in accordance with the
law of the State or Commonwealth in which the Shopping Center is located.
Guarantor hereby submits to personal jurisdiction in the State or Commonwealth
in which the Shopping Center is located for the enforcement of this Guaranty,
and waives any and all personal rights under the law of any state to object to
jurisdiction within such State for the purposes of litigation to enforce this
Guaranty. Nothing contained herein, however, shall prevent Landlord from
bringing any action or exercising any rights against Guarantor, or against any
property of Guarantor, within any other state.
If any provision of this Guaranty or the application thereof to any
person or circumstance shall be held void, invalid or unenforceable to any
extent, the remainder of this Guaranty, and the application of such provision to
persons or circumstances other than those as to which it is held void, invalid
or unenforceable, shall not be affected thereby, and each provision of this
Guaranty shall be valid and enforceable to the fullest extent permitted by law.
The liability of Guarantor hereunder is co-extensive with that of
Tenant under the Lease, and with any other guarantor who may have guaranteed or
who hereafter may guarantee the obligations of Tenant under the Lease, and
Landlord may release or settle with any one or more such guarantors at any time
or from time to time without affecting the continuing liability of Guarantor
hereunder. This Guaranty shall in no event be impaired by any change which may
arise by reason of this dissolution, liquidation or merger of Tenant, if a
corporation or partnership, or the death of Tenant or Guarantor, if
individuals.
Nothwithstanding the foregoing, Guarantor's liability hereunder shall
be limited to rent and charges for a period of two (2) years following recovery
of possession of the Premises by Landlord.
This Guaranty shall terminate upon notice from Guarantor following
delivery to Landlord of financial statements of Tenant, certified as true and
correct by independent certified public accountants reasonably acceptable to
Landlord, demonstrating that Tenant has attained a tangible net worth of more
than Five Hundred Thousand Dollars ($500,000.00).
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
under seal as of the 7th day of Nov., 1994.
[Sig] [Sig] (SEAL)
- ----------------------- -----------------------
Witness
Print or Type Name: Steve King, an
unmarried resident of the state of Ohio
Lauri Mayden Social Security Number: 298420423
- ----------------------- -----------------
Witness
Address:
--------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
<PAGE> 46
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 3rd day of May, 1995 between
PHILLIP E. STEPHENS, TRUSTEE (hereinafter called "Landlord") and KENWOOD
RESTAURANT, INC., an Ohio corporation (hereinafter called "Tenant").
1. Recitals.
On November 9, 1994 Landlord and Tenant entered into an Indenture of Lease
(the "Lease"), including a Rider to Lease of the same date (the "Rider"), with
respect to Store No. 14 in a shopping center known as Sycamore Plaza at Kenwood
located at 7800 Montgomery Road, Cincinnati, Ohio 45236. Landlord and Tenant
have agreed to certain modifications to the Lease as provided herein.
2. Terms of Addendum.
The Landlord and Tenant hereby agree as follows:
(a) Landlord hereby waives its right to terminate the Lease pursuant
to Sections 2(c) and 2(d) of the Rider.
(b) Tenant hereby waives the contingencies contained in Section
2(a)(i), (ii) and (iii) of the Rider and its rights to terminate the Lease for
failure of such contingencies to be satisfied. Section 2(a)(iv) is the sole
remaining contingency under Section 2 of the Rider.
(c) Notwithstanding Article II of the Lease, the "Commencement Date"
of the Lease shall be the earlier of the opening of the Premises for business
with the public or November 1, 1995. The designation of the "Commencement Date"
herein does not waive or alter tenant's right to terminate the Lease pursuant to
Section 2(a)(iv) of the Rider.
3. No Other Amendment.
Except as specifically provided in this Addendum, all of the other terms
and conditions of the Lease shall remain in full force and effect without
amendment or modification.
LANDLORD:
STRATEGIC RETAIL TRUST
(formerly Kenwood Mall Trust)
Laura S. Collins By: Phillip E. Stephens
- -------------------------- --------------------------
Witness Phillip E. Stephens, Trustee
Kevin B. Polston
- --------------------------
Kevin B. Polston
Witness
<PAGE> 47
TENANT:
KENWOOD RESTAURANT, INC.
[SIG] By: Stephen D. King
- -------------------- --------------------------
Witness Stephen D. King, President
Rosa L. Williams
- --------------------
Witness
STATE OF GEORGIA )
) SS:
COUNTY OF FULTON )
Sworn to before me and subscribed in my presence this 5th day of May, 1995
by Phillip E. Stephens, Trustee.
Yolanda L. Smith
----------------------------
Notary Public Notary Public,
Dekkalb County,
Georgia
My Commission Expires Jan. 5,
1999
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Sworn to before me and subscribed in my presence this 3rd day of May, 1995
by Stephen D. King, President of Kenwood Restaurant, Inc.
Suzanne P. Land
----------------------------
Notary Public
[SEAL] Suzanne P. Land,
Attorney at Law
Notary Public - State of Ohio
My Commission has No
Expiration Date
Section 147.03
-2-
<PAGE> 48
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 3rd day of May, 1995 between
PHILLIP E. STEPHENS, TRUSTEE (hereinafter called "Landlord") and KENWOOD
RESTAURANT, INC., an Ohio corporation (hereinafter called "Tenant").
1. Recitals.
On November 9, 1994 Landlord and Tenant entered into an Indenture of
Lease (the "Lease"), including a Rider to Lease of the same date (the "Rider"),
with respect to Store No. 14 in a shopping center known as Sycamore Plaza at
Kenwood located at 7800 Montgomery Road, Cincinnati, Ohio 45236. Landlord and
Tenant have agreed to certain modifications to the Lease as provided herein.
2. Terms of Addendum.
The Landlord and Tenant hereby agree as follows:
(a) Landlord hereby waives its right to terminate the Lease
pursuant to Sections 2(c) and 2(d) of the Rider.
(b) Tenant hereby waives the contingencies contained in Section
2(a)(i), (ii) and (iii) of the Rider and its rights to terminate the Lease for
failure of such contingencies to be satisfied. Section 2(a)(iv) is the sole
remaining contingency under Section 2 of the Rider.
(c) Notwithstanding Article II of the Lease, the "Commencement
Date" of the Lease shall be the earlier of the opening of the Premises for
business with the public or November 1, 1995. The designation of the
"Commencement Date" herein does not waive or alter tenant's right to terminate
the Lease pursuant to Section 2(a)(iv) of the Rider.
3. No Other Amendment.
Except as specifically provided in this Addendum, all of the other
terms and conditions of the Lease shall remain in full force and effect without
amendment or modification.
LANDLORD:
STRATEGIC RETAIL TRUST
(formerly Kenwood Mall Trust)
Laura S. Collins Phillip E. Stephens
- -------------------- ----------------------------
Laura S. Collins Phillip E. Stephens, Trustee
Witness
Kevin B. Polston
- --------------------
Kevin B. Polston
Witness
<PAGE> 49
TENANT:
KENWOOD RESTAURANT, INC.
[SIG]
- --------------------------- BY: Stephen D. King
Witness --------------------------
Stephen D. King, President
Rosa L. Williams
- ---------------------------
Witness
STATE OF GEORGIA)
) SS:
COUNTY OF FULTON)
Sworn to before me and subscribed in my presence this 5th day of May,
1995 by Phillip E. Stephens, Trustee.
Yolanda L. Smith
----------------------------
Notary Public Dekalb County, Georgia
My Commission Expires Jan 5, 1999
STATE OF OHIO )
) ss:
COUNTY OF HAMILTON)
Sworn to before me and subscribed in my presence this 3rd day of May,
1995 by Stephen D. King, President of Kenwood Restaurant, Inc.
[NOTARIAL SEAL STATE OF OHIO]
SUZANNE P. LAND
-----------------------------
Notary Public
-2-
<PAGE> 50
SECOND AMENDMENT TO LEASE
This Agreement entered into as of _________________, 1996, by and between
PHILLIP E. STEPHENS, Trustee (hereinafter called "Landlord"), with an address
for receipt of payments at P.O. Box 930525, Atlanta, Georgia 31193, and an
address for receipt of notices at 5775 Peachtree, Dunwoody Road, Suite 200-D,
Atlanta, Georgia 30342, Attention: Counsel, and KENWOOD RESTAURANT LIMITED
PARTNERSHIP, an Ohio limited partnership, lease assignee of KENWOOD RESTAURANT,
INC., an Ohio corporation, d/b/a Hotel Mexico (hereinafter called "Tenant"),
with a notice address of 3655 Michigan Avenue, Cincinnati, Ohio 45202,
Attention: President, and an address for receipt of invoices of 3655 Michigan
Avenue, Cincinnati, Ohio 45208, Attention Accounts Payable.
RECITALS
A. Landlord and Tenant entered into a certain Lease Agreement and
Indenture of Lease, each dated November 9, 1994, under which Landlord let
certain premises known as Store No. 14 (main level) within the retail complex
known as Sycamore Plaza at Kenwood, which retail complex is more particularly
described as Schedule A attached hereto and made a part hereof, as amended by a
certain First Amendment to Lease dated May 3, 1995, by and between Landlord and
Tenant, together with certain side letter agreement referenced in the
Landlord's Statement delivered to Tenant concurrent with this Second Amendment
to Lease, which are incorporated herein and made a part hereof. (collectively
the "Lease").
B. Tenant has requested PNC Bank, Ohio National Association ("PNC") to
extend financing for the construction of Tenant's Improvements, as hereinafter
defined, and other expenses incurred in the preparation of the Premises its
conduct of business therein (the "PNC Financing").
C. PNC, among other things, has required certain amendments to the Lease,
as one condition of several, to extending the PNC Financing to Tenant.
D. Landlord and Tenant have agreed to make said amendments to the Lease
as hereinafter provided.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are irrevocably
acknowledged, Landlord and Tenant hereby agree as follows:
1. Section 10.05 contained in the Lease Agreement is hereby amended by
the addition of the following provision:
Notwithstanding anything contained herein to the contrary, in the
event that Lender or a Lender Party, as either term is hereinafter defined,
acquires Tenant's interest in the Premises, by foreclosure, deed in lieu of
foreclosure or otherwise, or takes possession of the Premises, it shall be
entitled to make
<PAGE> 51
interior changes to the Premises consistent with the intended purpose
which the Premises shall be used, and to replace all identification
signs with those for any successor occupant of the Premises, without the
prior written consent of Landlord, provided that such alterations and
signage are otherwise in compliance with the provisions of the Lease.
2. Section 11.01 of the Lease Agreement and Article X of the Indenture of
Lease are hereby amended by the addition of the following provision:
In the event that Tenant, after the expiration of any grace
period, ceases its business operations within the Premises or otherwise
violates the provisions of Section 11.01(e) of the Lease Agreement, then
the continuous operation covenant contained in Section 11.01(e) of the
Lease Agreement shall be suspended for up to six (6) months from the
date of closing so long as Lender, or a Lender Party, as hereinafter
defined, is diligently taking action to foreclose its leasehold
mortgage, or to effect a transfer in lieu of foreclosure, and gives
Landlord written notice, and makes the rent payments to the Landlord and
performs or causes to be performed all other obligations required of the
Tenant under the Lease during such period, which can reasonably be
performed while Lender (or a Lender Party) is not in possession of the
Premises. If the Lender, or a Lender Party, takes occupancy of the
Premises and resumes business within such six (6) month period, the
cessation of business operations by the Tenant shall not constitute a
default under the Lease Agreement. If the Lender, or a Lender Party, is
unable to obtain occupancy of the Premises and resume business
operations within such six (6) month period and during such six (6)
month period or thereafter Landlord terminates the Lease, then Landlord
shall offer to enter into a new lease with Lender or Lender Party, upon
the same terms and conditions of the Lease, including any renewal terms,
for the remainder of the term of the Lease, including without
limitation, any renewal terms; provided that Lender pay all sums which
would have been otherwise due and payable by Tenant under the Lease, if
it had not been terminated, up to the date the new lease becomes
effective. Lender shall have fourteen (14) days after receiving such
offer to accept or reject the offer in writing. Lender shall be
entitled to extend said fourteen (14) day period by two (2) successive
thirty (30) day periods immediately thereafter by written notice of its
election to utilize said thirty (30) day period, and payment of Fixed
Minimum Rent and all additional rents for said thirty (30) day period
equal to that payable immediately prior to the termination of the Lease,
which notice and payment must be sent to Landlord prior to the
commencement of each applicable thirty (30) day period. If Lender fails
to give Landlord written notice of acceptance of the offer within such
period, the Lender's rights under this paragraph shall cease and be
void, time being of the essence. At the time the new lease becomes
effective, such lease of the Premises shall include all of the
Improvements, subject to Landlord's reversionary interest therein
effective upon the expiration of termination of the new lease. If this
-2-
<PAGE> 52
Lease terminates or expires, Landlord shall not demolish or materially
alter any of the Improvements during the applicable time period during
which Lender may enter into a new lease with Landlord as provided
herein. In the event that Lender, a Lender Party or its designee shall
take occupancy of the Premises as provided in this paragraph or
pursuant to Article XVII(b) hereof, then the use clause provided in
Section 11.01 shall be amended pursuant to Section 8(i) of that certain
Second Amendment to Lease dated ______________, 1996, by and between
Landlord and Tenant. Notwithstanding anything contained herein to the
contrary, the fee simple title to the Improvements of the Tenant shall
automatically be extinguished, and shall revert to Landlord, effective
upon the termination or expiration of this Lease, subject to the rights
and interest of Lender therein as provided in this Section 11.01.
3. Article XV of the Lease Agreement is hereby deleted in its entirety and
the following are substituted in lieu thereof:
Section 15.01. In the event that more than 25% of the Premises by area
as is taken by reason or is under threat of eminent domain proceedings
("Condemnation") and Tenant in good faith and in its reasonable business
judgement determines that the Premises as a result thereof are unsatisfactory
for its continued use, Tenant may terminate this Lease by giving Landlord
written notice of termination within thirty (30) days after the taking, time
being of the essence. The term "Condemnation" shall include conveyances made
in anticipation or lieu of an actual taking. If the lease is not terminated by
reason of Condemnation, the Fixed Minimum Rent shall be reduced by the ratio
that the square footage of the area of the affected portion of the Premises
taken bears to the total square footage of Premises existing prior to the
Condemnation. In such an event, Landlord and Tenant, within thirty (30) days
after a Condemnation, shall enter into a lease amendment, in form and
substance reasonably satisfactory to Landlord and Tenant, modifying the Fixed
Minimum Rent for and legal description of the Demised Premises to reflect such
a reduction in area. All other provisions of the Lease shall remain in full
force and force and effect and shall not be affected by the lease amendment.
Section 15.02. Notwithstanding termination of the Lease in accordance
with Section 15.01, any award or payment ("Award") from a Condemnation which
covers the Tenant's Improvements and all other improvements made by Tenant to
the Premises, (collectively, the "Improvements") shall be paid to Tenant and
any Award which covers Landlord's interest in the balance of the Shopping
Center shall be paid to Landlord. If the Award fails to make an allocation to
the value of the Improvements, such value shall be the unamortized cost to
Tenant of such Improvements depreciated on a straight-line basis over the
Original Term of the Lease.
Section 15.03. Any Award received by Landlord, which is allocable to
the Premises shall be used to restore the affected portion of the Premises to
the extent reasonably practicable and to the extent such Award is not applied
by the Mortgagee to retire indebtedness secured by the Mortgage.
-3-
<PAGE> 53
4. Section 16.02 of the Lease Agreement, and all references thereto, are
hereby revised by the addition of the following provision:
Notwithstanding anything contained in Section 16.02 to the contrary,
if Tenant is not in default of this Lease beyond the applicable grace
period, Mortgagee shall not disturb Tenant's use and enjoyment of the
Premises and its rights in and to the Common Area in accordance with this
Lease, and shall recognize any Security Documents, as hereinafter defined,
for the benefit of Lender, and this Lease shall remain in full force and
effect, notwithstanding the enforcement of any of the rights, remedies or
interests of Mortgagee under the Mortgage or any deed in lieu of
foreclosure or other transfer of Landlord's interest in the Shopping
Center to Mortgagee or any party claiming through Mortgagee. Landlord, at
Tenant's or Lender's request, shall furnish an agreement, in form and
substance reasonably satisfactory to Mortgagee and Tenant or Lender, as
applicable, under which Mortgagee shall confirm the provisions of this
non-disturbance agreement, which may be incorporated into a Subordination,
Non-Disturbance and Attornment Agreement which shall be executed by and
among Landlord, Tenant, Lender and Mortgagee.
5. Article XVII is hereby amended by the addition of the following provision:
(a) Landlord acknowledges that Tenant may encumber the Improvements with
a mortgage, deed of trust or other lien ("Security Documents") offered as
security for financing or refinancing ("Financing") the construction or
alteration of the Improvements, and/or its leasehold interest in the
Improvements. In such an event, Tenant shall furnish Landlord with the name and
address of the holder of the Security Documents ("Lender"). Any party that
claims an interest in the Premises through Lender (including without limitation
an assignee from the Lender following a foreclosure, a purchaser in a
foreclosure proceeding, or a transferee in lieu of foreclosure) is referred to
herein as a "Lender Party". Landlord shall have the right to first approve the
identity of a Lender Party, except in the case of a subsidiary or parent of
Lender or a subsidiary of Lender's parent, if the Lender Party succeeds to the
interest of Lender and takes assignment of Tenant's interest in this Lease;
provided that such approval shall not be unreasonably withheld or delayed (not
to exceed thirty (30) days after receipt of notice of the name and identity of
the Lender Party, including financial condition and operating experience, and
such other information as may be reasonably requested by Landlord), and further
provided no such approval shall be required if the Lender Party complies with
the provisions of clause 8(ii) hereof; in which case, only prior written notice
shall be required. Nothing contained herein shall obligate Landlord to encumber
its fee simple interest in the Premises to the lien of any Security Documents.
(b) If Tenant is in default of the Lease, Landlord shall give Lender
written notice at least thirty (30) days prior to terminating the Lease. So
long as Lender commences action to foreclose its leasehold mortgage, or to
effect a transfer in lieu of foreclosure, within such thirty (30) day period,
gives Landlord written notice thereof, and thereafter makes the rent payments
-4-
<PAGE> 54
to Landlord and performs or caused to be performed all obligations required of
the Tenant under the Lease, which can reasonably be performed while Lender (or
a Lender Party) is not in possession of the Premises, the Landlord's right to
terminate the Lease shall be suspended for up to six (6) months from the date
of Landlord's notice of default to the Lender as provided herein. If Lender or
a Lender Party takes occupancy of the Premises during such six (6) month
period and thereafter performs the duties of the Tenant under the Lease,
Landlord's right to terminate in connection with such prior default by Tenant
shall be waived. If the Lender, or a Lender Party, is unable to obtain
occupancy of the Premises and resume business operations within such six (6)
month period, and during such six (6) month period or thereafter Landlord
terminates the Lease, Landlord shall offer to enter into a new lease with
Lender or Lender Party upon the same terms and conditions of the Lease,
including any renewal terms, for the remainder of the term of the Lease;
provided that Lender or Lender Party pay all sums which would have been
otherwise due and payable by Tenant under the Lease, if it had not been
terminated, up to the date the new lease becomes effective. Lender shall have
thirty (30) business days after receiving such offer to accept or reject the
offer in writing. If Lender fails to give Landlord written notice of acceptance
of the offer within such period, the Lender's rights under this paragraph shall
cease and be void, time being of the essence. At the time the new lease becomes
effective, Landlord shall execute a bill of sale or other instrument, in form
and substance reasonably satisfactory to Lender, which conveys to Lender the
Landlord's interest in the Improvements, subject to Landlord's reversionary
interest therein effective upon the expiration or termination of the new
lease.
(c) In the event that the Lease is terminated prior to the expiration
of the term then in effect for any reason whatsoever, including without
limitation, rejection or disaffirmance in accordance with any law affecting
bankruptcy or creditor's right, Landlord shall furnish Lender written notice
and a statement of any and all sums which would have been due under the Lease
but for its termination. Lender shall be entitled to enter into a new lease
with the Landlord upon the same terms and conditions of the Lease, including
any renewal terms, for the remainder of the term of the Lease, provided that
Lender Pay all sums under the Lease up to the date the new lease becomes
effective. Lender may elect to enter into such new lease by giving Landlord
written notice thereof within thirty (30) business days after Lender receives
written notice from Landlord of the rejection or disaffirmance of the Lease. If
Lender fails to give Landlord written notice within such period, the Lender's
right under this paragraph shall cease and be void, time being of the essence.
At the time the new lease becomes effective Landlord shall execute a bill of
sale or other instrument, in form and substance reasonably satisfactory to
Lender, which conveys to Lender Landlord's interest in the Improvements,
subject to Landlord's reversionary interest therein effective upon the
expiration or termination of the new lease.
(d) Landlord shall serve Lender with a copy of all notices, including a
notice of default, under the Lease at the address with which Landlord has been
previously furnished. Landlord shall have no right to pursue any termination of
this Lease unless Lender has received a copy of the notice of default and the
applicable grace period provided in the Lease has lapsed, without the curing of
such default, and any grace period for Lender's benefit shall not commence
until Lender has received such copy.
-5-
<PAGE> 55
(e) Except as otherwise provided in the Lease, the Lease shall not be
modified, cancelled or surrender, without the prior written approval of the
Lender.
(f) If Landlord or Tenant acquires the interest of the other in the
Premises, there shall be no merger of the leasehold estate into the fee simple
estate in the Premises.
(g) In the event that Lender or Lender Party acquires Tenant's interest
in the Premises its liability under this Lease shall be nonrecourse and shall
be limited to its interest in the Improvements, net income from operation of the
Improvements on the Premises, and proceeds from any sale of Lender's interest
in the Improvements or leasehold in the Premises.
(h) Each party hereto, at the request of the other party, Lender or a
Lender Party, shall execute and return to the other party, Lender or Lender
Party, a certificate, in form and substance satisfactory to the parties,
confirming that the Lease is in full force and effect and free of default by
either party within twenty (2) days after receipt of same, provided that the
matters contained in the certificate are true and correct, and stating the
particulars of any matter under the Lease which is in default by a party
hereto, and further provided that Landlord shall not be required to deliver
estoppel certificates more often than twice in any 12 month period.
6. In the event that the Lender, or a Lender Party, or its designee as
provided above succeeds to the interest of Tenant under this Lease, it may
undertake, without the prior consent of Landlord but with prior written notice,
(i) a change in the use of the Premises to a different upscale, casual
restaurant which is directed to a market similar to the other
restaurant-tenants of the Shopping Center and which is not similar in concept
or substantially similar in menu items to the other restaurant-tenants of the
Shopping Center; and (ii) an assignment of the Lease to another person or
entity, or principal thereof, which has at least comparable experience in
restaurant management as that of Stephen D. King, and a net worth of One
Million Dollars ($1,000,000.00) or more. Otherwise, it must obtain the prior
approval of Landlord to any assignment of this Lease to another person or
entity, other than Lender's parent or subsidiary, or a subsidiary of Lender's
parent, which approval shall not be unreasonably withheld or delayed (not to
exceed thirty (30) days after receipt of the name and identity of the proposed
lease assignee). The failure by Landlord to approve or disapprove a proposed
lease assignee within said thirty (30) day period shall constitute Landlord's
approval of such lease assignee.
7. The Lease, except as amended herein, remains unmodified and is in full
force and effect. Landlord and Tenant represent and warrant to the other party
that neither party is in default of the Lease.
WITNESSES: LANDLORD:
[SIG] Phillip E. Stephens
- ------------------------------------- ----------------------------
Print Name: [SIG] Phillip E. Stephens, Trustee
-6-
<PAGE> 56
[SIG]
- ------------------------
Print Name: [SIG] TENANT:
------------
KENWOOD RESTAURANT LIMITED PARTNERSHIP,
By: Kenwood Restaurant, Inc, Its General Partner
[SIG]
- ------------------------ By: [SIG]
Print Name: [SIG] ---------------------------------
------------ Print Name: [SIG]
-------------------------
Title: [SIG]
------------------------------
STATE OF GEORGIA )
) SS:
COUNTY OF FULTON )
The foregoing instrument was acknowledged before me, a notary public,
this 8th day of October, 1996 by PHILLIP E. STEPHENS, Trustee.
[SIG]
--------------------------------------
Notary Public, DeKalb County, Georgia
My Commission Expires Jan. 5, 1999
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me, a notary public,
this 10th day of October, 1996 by Stephen D. King, the President of Kenwood
Restaurant, Inc. the G.P. of KENWOOD RESTAURANT LIMITED PARTNERSHIP, By:
Kenwood Restaurant, Inc., Its General Partner on behalf of such limited
partnership.
[SIG]
----------------------------------
Notary Public
[SEAL]
<PAGE> 57
SECOND AMENDMENT TO AGREEMENT
This Amendment is entered into this 18th day of October, 1996 by and
between Phillip E. Stephens, Trustee ("Landlord") and Kenwood Restaurant Limited
Partnership, an Ohio limited partnership ("Tenant").
1. Landlord and Tenant are parties to an Indenture of Lease dated November
9, 1994 with respect to Store No. 14 of the Sycamore Plaza at Kenwood, 7800
Montgomery Road, Cincinnati, Ohio 45236 (the "Premises"). On June 28, 1996, the
parties entered into an Agreement (the "Agreement") concerning the completion
date for a restaurant building being constructed on the Premises by the Tenant
(the "Building"). On September 20, 1996, the parties entered into an Amendment
to Agreement (the "Amendment"). The parties wishing to further amend the
Agreement, as previously modified by the Amendment, as provided herein.
2. Sections 3(a), (b) and (c) of the Lease are hereby revised to read in
their entirety as follows:
(a) Tenant agrees that construction of the Building not including
fixtures, interior decoration, trim or design shall be completed on or
before November 30, 1996. In the event such construction is not completed
by August 31, 1996 (notwithstanding the later completion date stated above)
Tenant shall pay to Landlord liquidated damages of $250.00 per day for each
day until completion of such items for each day after August 31, 1996 up to
September 11, 1996, the liquidated damages shall be $500.00 per day for
each day after September 10, 1996 up to October 31, 1996. If such
completion does not occur by November 1, 1996, the liquidated damages shall
be $1,000.00 per day for each day after October 31, 1996 until completion
of such items.
(b) Tenant agrees that the furnishings, fixtures and equipment for
the restaurant to be operated in the Building shall be completed and
installed on or before December 15, 1996 and a certificate of occupancy
(permanent or temporary) shall be issued. In the event that such
installation and completion is not performed and a certificate of
occupancy is not issued by October 31, 1996 (notwithstanding the later
completion date stated above), Tenant shall pay to Landlord liquidated
damages of $250.00 per day for each day after October 31, 1996 that such
certificate of occupancy is not issued until November 10, 1996. If a
certificate of occupancy is not issued by November 10, 1996, the liquated
damages shall be $500.00 per day for each day after November 10, 1996 up
to November 15, 1996 until issuance of such certificate of occupancy. If
such certificate of occupancy
<PAGE> 58
is not issued by November 15, 1996, the liquidated damages shall
be $1,000.00 per day for each day after November 15, 1996 until
issuance of such certificate of occupancy.
(c) Tenant agrees that the restaurant to be located in
the Building shall open on or before December 31, 1996. In the
event that the opening does not occur by November 15, 1996
(notwithstanding the later opening date stated above), Tenant
shall pay to Landlord liquidated damages of $500.00 per day for
each day after November 15, 1996 up to November 25, 1996. If
such opening does not occur by November 25, 1996, the liquidated
damages shall be $1,000.00 per day for each day after November
25, 1996 until such opening.
3. In consideration for this Amendment, the Tenant agrees to
pay to Landlord the sum of $58,000.00 as a credit against liquidated damages
due under Section 2 above. In the event that an amount in excess of such sum
is payable under this Agreement, Tenant shall promptly pay to Landlord such
additional sums. In the event that less than such sum is due under the
Agreement. Tenant shall be entitled to a refund of the balance. This Section
3 shall supersede and render void Section 3 of the Amendment.
4. Except as provided herein, there shall be no further
amendments or modifications to the Agreement.
KENWOOD RESTAURANTS INC. KENWOOD RESTAURANT LIMITED
PARTNERSHIP
BY: KENWOOD RESTAURANTS, INC.,
its general partner
By: [SIG]
---------------------
Stephen D. King,
President
By: [SIG]
---------------------------
Stephen D. King, President
[SIG]
--------------------------------
Stephen D. King
[SIG]
--------------------------------
Phillip E. Stephens, Trustee
-2-
<PAGE> 59
ADDENDUM TO SECOND AMENDMENT TO LEASE
This Addendum to Second Amendment to Lease is entered into as of October
18, 1996 by and between Phillip E. Stephens, Trustee (hereinafter called
"Landlord"), and Kenwood Restaurant Limited Partnership, an Ohio limited
partnership (hereinafter called "Tenant").
1. Recitals. Landlord and Tenant entered into a certain Lease Agreement
and Indenture of Lease (including a Rider attached thereto), each dated November
9, 1994 (the "Lease"), under which Landlord let certain premises known as Store
14 (main level) within the retail complex known as Sycamore Plaza at Kenwood, as
amended by a certain First Amendment of Lease dated May 3, 1995. On __________,
1996, Landlord and Tenant entered into a Second Amendment to Lease (the "Second
Amendment"), and the parties wish to make an Addendum to the Second Amendment as
provided herein. All of the capitalized terms used herein which are not
otherwise defined, shall have the same definitions as the Second Amendment.
2. Section 18(b) of the Rider to Lease between Landlord and Tenant dated
November 9, 1994 is hereby amended to read in its entirety as follows:
(b) Tenant shall have the right to assign this Lease to any
corporation acquiring all the assets of Tenant, provided that such assignee
corporation has a tangible net worth as of the date of assignment in the
amount of not less than $500,000.00 in the event that the personal guaranty
of the Lease by Stephen D. King (the "King Guaranty") is in effect as of
the date of such assignment, or $2,500,00.00 in the event that the King
Guaranty is not in effect on such date, as demonstrated in certified
financial statements audited by certified public accountants reasonably
acceptable to Landlord, and provided further that the parties promptly
deliver to Landlord written notice of such assignment, together with an
instrument in which the assignee agrees to assume the obligation of Tenant
hereunder and be bound thereunder by all terms and conditions of the Lease.
Nothing contained herein shall be considered a limitation, modification or
amendment to the rights of the Lender, a Lender Party, or its designee to
make assignments as provided in Section 6 of the Second Amendment to Lease.
<PAGE> 60
3. The parties acknowledge that Landlord has approved the
installation of additional improvements in the area in front of the Premises
and the relocation of the access road to the Shopping Center in connection
therewith (collectively, "Drive Lane Reconfiguration"). Such approval is
reflected in that certain letter from John Schupp to Stephen D. King, dated
August 13, 1996, based on conceptual plans submitted by Tenant's architect,
RamFx. Tenant acknowledges that Landlord has disclosed that certain other
tenants of the Shopping Center may have rights to control changes in the area
affected by the Drive Lane Reconfiguration. Landlord agrees to use reasonable,
good-faith efforts to resolve any dispute with such third-party tenants that
may arise as a result of the Drive Lane Reconfiguration. In the event that
Landlord is unable to resolve any such dispute, despite such efforts, Tenant
agrees, promptly upon demand by Landlord, to remove the Drive Lane
Reconfiguration and restore the area to its original condition. Such
restoration shall be performed in accordance with plans and specifications
submitted by Tenant for Landlord's approval, and in such a manner as to
minimize disruption to the operation of the Shopping Center to the extent
reasonably practicable.
4. No other amendments or changes are made to the Lease or the
Second Amendment.
[SIG] [SIG]
- -------------------- ------------------------------
[SIG] Phillip E. Stephens, Trustee
- --------------------
Print Name
[SIG]
- --------------------
[SIG]
- --------------------
Print Name
KENWOOD RESTAURANT LIMITED
PARTNERSHIP
BY: KENWOOD RESTAURANTS INC.,
its General Partner
[SIG] By: [SIG]
- --------------------- ---------------------------
[SIG] Stephen D. King, President
- ---------------------
Print Name
[SIG]
- ---------------------
[SIG]
- ---------------------
Print Name
-2-
<PAGE> 61
STATE OF Georgia, Fulton COUNTY, SS.
On this 17th day of October, 1996, before me, a Notary Public in and for
said County, personally came Phillip E. Stephens, Trustee, the Landlord in the
foregoing Addendum to Second Amendment to Lease, and acknowledged the signing
thereof to be his voluntary act and deed.
Witness my official signature and seal on the day last above mentioned
[SEAL]
Julie Choppee
-------------
Notary Public
STATE OF Ohio, Hamilton COUNTY, SS.
On this 18 day of October, 1996, before me, a Notary Public in and for said
County, personally came Kenwood Restaurant Limited Partnership, the Tenant in
the foregoing Addendum to Second Amendment to Lease, by Stephen D. King, the
President of Kenwood Restaurants Inc., it General Partner, and acknowledged
the signing thereof to be his voluntary act and deed.
Witness my official signature and seal on the day last above mentioned.
Monica Leavitt
--------------
Notary Public
[SEAL] M. MONICA LEAVITT
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES OCT. 18, 1999
<PAGE> 1
EXHIBIT 10.2
LEASE
BY AND BETWEEN
MALL OF AMERICA COMPANY,
A MINNESOTA GENERAL PARTNERSHIP
AND
HOTEL MEXICO, INC.,
d/b/a HOTEL DISCOVERY
<PAGE> 2
Mall of America
Lease
THIS LEASE made this 4th day of August, 1997, by and between MALL OF
AMERICA COMPANY, a Minnesota General Partnership, ("Landlord"), and HOTEL
MEXICO, INC., d/b/a HOTEL DISCOVERY ("Tenant"):
WITNESSETH THAT, in consideration of the rents, covenants and
agreements hereinafter set forth, such parties enter into the following
agreement:
ARTICLE I
EXHIBITS
The exhibits listed below and attached to this Lease are incorporated
herein by this reference:
EXHIBIT "A" Legal description of real estate to be developed by
the Landlord as a mixed use project, consisting of a
retail mail and entertainment center ("Retail Space")
and a hotel ("Hotel Space"), as well as a parking deck
("Parking Space") (hereinafter called "Total Tract").
The Total Tract with existing and future improvements
being hereinafter called the "Center".
EXHIBIT "B" Plot Plan of that area of the Retail Space upon which
is located the space herein leased to Tenant. This
Exhibit is provided for informational purposes only,
and shall not be deemed to be a warranty,
representation or agreement by Landlord that the
Center or buildings and/or any stores will be exactly
as indicated on the Exhibit, or that the other tenants
which may be drawn on said Exhibit will be occupants
in the center. Landlord reserves unto itself the
unlimited right to modify the configuration of Total
Tract at any time for the purpose of incorporating
additional department stores and other buildings
within the Center.
EXHIBIT "C" Description of Tenant's Work.
EXHIBIT "D" Rules and Regulations applicable to Tenant.
EXHIBIT "E" Sign Criteria applicable to Tenant.
EXHIBIT "F" INTENTIONALLY DELETED.
Notwithstanding Exhibits A or B or anything else in this Lease
contained, Landlord reserves the right to change or modify and add to or
subtract from the size and dimensions of the Center or any part thereof, the
number, location and dimensions of buildings and stores, the size and
configuration of the parking areas, entrances, exits and parking aisle
alignments, dimensions of hallways, malls and corridors, the number of floors in
any building, the location, size and number of tenants' spaces and kicsks which
may be erected in or fronting on any mall or otherwise, the identity, type and
location of other stores and tenants, and the size, shape, location and
arrangement of common Areas (hereinafter defined), and to design and decorate
any portion of the Center as it desires, but the general character of the
Center, the approximate location, access, visibility and identification of the
Premises (as hereinafter defined) in relation to the major department stores
shall not be substantially changed.
ARTICLE II
LEASED PREMISES AND TERM
Section 2.1 Leased Premises
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
the space (in the Center) designated as Space S-320 outlined in red on Exhibit
"B" (hereinafter called "the Premises"), measured to the center line of all
party or common walls, to the exterior faces of all other walls and to the
building line where there is no wall, containing approximately 16,215 square
feet. When the Premises are completed, Landlord shall deliver to Tenant a
certificate stating Landlord's determination of the actual number of square feet
in the Premises (hereinafter called the "Store Floor Area"). Provided,
however, within sixty (60) days of Tenant's receipt of such certificate,
Tenant's architect may remeasure the Store Floor Area in the Premises. In the
event of a dispute as to the Store Floor Area in the premises, the parties
agree to have the Store Floor Area remeasured by a mutually acceptable,
independent, third-party architect or engineer whose determination as to Store
Floor Area shall be final, binding and conclusive absent manifest error. The
fee for such third-party architect or engineer shall be shared equally by the
parties.
Section 2.2 Roof and Walls
Landlord shall have the exclusive right to use all or any part of the
roof, side and rear walls of the Premises for any purpose, including but not
limited to erecting signs or other structures on or over all or any part of the
same, erecting scaffolds and other aids to the construction and installation of
the same, and installing, maintaining, using, repairing and replacing pipes,
ducts, conduits and wires leading through, to or from the Premises and serving
other parts of the Center in locations which do
1
<PAGE> 3
not materially interfere with Tenant's use of the Premises. Tenant shall have
no right whatsoever in the exterior of exterior walls or the roof of the
Premises. In all non-stockroom areas of the Premises, Landlord agrees that all
pipes, ducts, conduits and wires leading through, to or from the Premises will
be located above the finished ceiling, within columns, within walls or under
the finished floor. Further, should Landlord erect any scaffolds or other aids
to construction which adversely interferes with access to the Premises,
visibility of the Premises or identification of the Premises for a period of
more than five (5) consecutive business days, then rent shall thereafter abate
until such time as such interference is removed.
Section 2.3 Lease Term.
The term of this Lease (hereinafter called "Lease Term") shall commence
upon the earlier of (a) the day following the last day allowed herein to Tenant
for completion of Tenant's Work (hereinafter defined) hereinafter called
"Required Completion Date." or (b) the day on which Tenant opens for business,
the applicable date being hereinafter called "Commencement Date." The term of
this Lease shall end on the last day of the twelfth (12th) Lease Year
(hereinafter defined) after the Commencement Date unless sooner terminated as
herein provided.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS LEASE TO THE CONTRARYS TENANT
IS REQUIRED TO OPEN FOR BUSINESS TO THE PUBLIC IN THE PREMISES ON OR BEFORE
NOVEMBER XXXXXX
Section 2.4. Lease Year Defined.
"Lease Year," as used herein, means a period of twelve (12) consecutive
calendar months during the Lease Term commencing on the Commencement Date. If
the Commencement Date is other than February 1, then the first Lease Year shall
commence on the Commencement Date and end on the last day of January which shall
be more than six (6) months but not more than eighteen (18) months after the
Commencement Date. "Partial Lease Year" means that portion of the Lease Term
prior to the first Lease Year.
Section 2.5 Relocation of Premises. INTENTIONALLY DELETED.
ARTICLE III
TENANT'S WORK
Section 3.1 Tenant's Work.
Tenant agrees to accept delivery of the Premises in its present "AS IS,
WHERE IS" condition except that Tenant is to completely remodel the Premises at
Tenant's expense not later than the Required Completion Date (hereinafter
defined) in accordance with plans and specifications submitted by Tenant and
approved by Landlord (hereinafter referred to as "Tenant's Plans") which plans
shall become a part hereof by this reference as Exhibit "C-2". Further
alterations to the Premises, if any, shall be performed by Tenant (hereinafter
called "Tenant's Work") including but not limited to all work designated as
Tenant's Work in Exhibit "C", and Tenant shall do and perform at its expense
all of Tenant's Work diligently and promptly and in accordance with the
following provisions.
Section 3.2. Tenant's Obligations Before Commencement Date.
As soon as reasonably possible hereafter, Landlord shall deliver to
Tenant a drawing of the Premises and a copy of the Tenant Handbook prepared by
Landlord's architect (hereinafter referred to as "Tenant Handbook"). Within
sixty (60) days after the date of this Lease, Tenant will submit to Landlord
one (1) reproducible set (sepia) and 4 copies of Tenant's Plans and
specifications, prepared by a registered architect or engineer, of all Tenant's
Work to be done within the Premises, prepared in conformity with Exhibit "C"
and the Tenant Handbook. Within thirty (30) days after receipt of Tenant's
Plans, Landlord shall notify Tenant of any failures of Tenant's Plans to
conform to Exhibit "C," the Tenant Handbook or otherwise to meet with
Landlord's approval. Tenant shall within thirty (30) days after receipt of any
such notice cause Tenant's Plans to be revised to the extent necessary to
obtain Landlord's approval and resubmitted for Landlord's approval. When
Landlord has approved the original or revised Tenant's Plans, Landlord shall
initial and return one (1) set of approved Tenant's Plans to Tenant and the
same shall become a part hereof by this reference as Exhibit "C-2." Approval of
plans and specifications by Landlord shall not constitute the assumption of any
responsibility by Landlord for their accuracy or sufficiency, or compliance
with applicable codes and Tenant shall be solely responsible for such plans and
specifications. Tenant shall not commence any of Tenant's Work until Landlord
has approved Exhibit "C-2," unless prior Landlord approval has been obtained in
writing. Landlord's review and approval of Tenant's Plans shall not be
unreasonably withheld or delayed.
Within fifteen (15) days after the later of the date of this Lease or the
date Tenant's Plans have been approved by Landlord, Landlord shall notify
Tenant that Tenant can commence Tenant's Work; and Tenant shall commence such
work not later than the date specified in such notice, complete the same in
strict accordance with Exhibits "C" and "C-2," install all store and trade
fixtures, equipment, stock in trade, merchandise and inventory, and open for
business therein not later than the 150th day after the last to occur of the
following: (i) a fully-executed copy of this Lease has been delivered to
Tenant, (ii) Tenant's Plans have been approved by Landlord provided Tenant
timely submits the same to Landlord for Landlord's review, (iii) Landlord has
notified Tenant that the Premises are ready for the commencement of Tenant's
Work, (iv) Tenant has received a building permit provided Tenant promptly
applies for such building permit and diligently pursues such application for
approval, and (v) Tenant has received an On-Sale Liquor License from the City
of Bloomington provided Tenant promptly applies for such liquor license and
diligently pursues such application for approval, which applicable day shall be
the Required Completion Date. Tenant hereby releases Landlord and its
contractors from any claim whatsoever for damages against Landlord or its
contractors for any delay in the date on which the Premises shall be ready for
delivery to Tenant or for any delay in commencing or completing any work
Landlord is to perform or is authorized by Tenant to perform under Exhibit "C",
or with respect to the Center or any other part or all of the Total
2
<PAGE> 4
Tract. Notwithstanding anything herein which may be to the contrary, in the
event of any conflict between Exhibit "C" and Tenant's Plans, as approved by
Landlord, Tenant's Plans, as approved by Landlord shall take precedence over
Exhibit "C" in resolving such conflict.
Section 3.3. Failure of Tenant to Perform.
Because of the difficulty or impossibility of determining Landlord's
damages resulting from Tenant's failure to open for business fully fixtured,
stocked and staffed by the Required Completion Date, including, but not limited
to, damages from loss of Percentage Rent (hereinafter defined) from Tenant and
other tenants, diminished saleability, leaseability, mortgageability or
economic value of the Center, if Tenant fails to commence Tenant's Work within
the time provided above and proceed with the same diligently, or to open for
business fully fixtured, stocked and staffed on or before the Required
Completion Date or to perform any of its obligations to be performed prior to
the Required Completion Date, Landlord may, with notice in addition to the
right to exercise any other remedies and rights herein or at law provided,
collect rent from the Required Completion Date in an amount equal to the
Minimum Annual Rent (hereinafter defined) and other additional rent and other
amounts payable by Tenant hereunder, and, in addition thereto, if Tenant shall
fail to open for business in the Premises within thirty (30) days after the
Required Completion Date, Tenant shall also pay to Landlord an amount equal to
$150.00 per day for each day thereafter that Tenant has failed to open for
business. In addition, commencing on the thirty-first (31st) day after the
Required Completion Date and provided Tenant has failed to open for business in
the Premises by such date, Landlord may thereafter (a) do and perform any of
Tenant's Work or other obligations of Tenant hereunder, at Tenant's expense,
preparing such drawings and doing such things as Landlord deems advisable,
collecting all of Landlord's expenses pursuant to this Section. All remedies
in this Lease or at law provided shall be cumulative and not exclusive and
shall survive the expiration of the Lease Term or the earlier termination of
this Lease. Notwithstanding the foregoing, Tenant shall not be liable or
responsible for any delays and applicable periods for performance shall be
extended accordingly due to strikes, lockouts, riots, acts of God, shortages of
labor or materials, national emergency, acts of a public enemy, governmental
restrictions, including but not limited to, the Tenant being able to obtain all
necessary governmental licenses (provided Tenant timely applies for the same
and diligently pursues such license applications for approval), or any other
cause or causes, whether similar or dissimilar to those enumerated, beyond
Tenant's reasonable control.
Section 3.4. Condition of Premises.
Tenant's taking possession of the Premises shall be conclusive evidence of
Tenant's acceptance thereof in good order and satisfactory condition.
Provided, however, Tenant shall have the right, to be exercised within thirty
(30) days after the date possession of the Premises has been delivered to
Tenant with Landlord's Work therein completed, to submit to Landlord a
punchlist of incomplete or defective construction within the Premises, and
Landlord will perform such punchlist to the extent the listed items were
Landlord's Work under Exhibit "C" and were not performed by Landlord in
accordance therewith. Tenant agrees that no representations respecting the
condition of the Premises or the existence or non-existence of Hazardous
Materials (hereinafter defined) in, on or about the Premises, no warranties or
guarantees, expressed or implied, with respect to workmanship or any defects in
material, and no promise to decorate, alter, repair or improve the Premises
either before or after the execution hereof, have been made by Landlord or its
agents to Tenant unless the same are contained herein.
ARTICLE IV
RENT
Section 4.1. Minimum and Percentage Rent.
Tenant covenants and agrees to pay to Landlord, without notice or demand,
at Landlord's address for notice (Landlord's and Tenant's notice addresses
being the addresses specified in Section 24.7 hereof), as rent for the Premises:
(i) A "Minimum Annual Rent" of $25.00 per square foot of Store Floor Area,
or Four Hundred Five Thousand Three Hundred Seventy Five and no/100
Dollars ($405,375.00) per annum (based upon the approximated Store
Floor Area set forth in Section 2.1 hereof), payable in equal monthly
installments, in advance upon the first day of each and every month of
the Lease Term commencing upon the Commencement Date (such monthly
installment being hereinafter called "Minimum Monthly Rent"); and
(ii) The amount by which six percent (6%) of Gross Sales (hereinafter
defined) during each Lease Year or Partial Lease Year exceeds the
Minimum Monthly Rent for such period (hereinafter call "Percentage
Rent").
When Store Floor Area is determined in accordance with Section 2.1, the
Minimum Annual Rent and Minimum Monthly Rent shall be deemed automatically
increased or decreased based upon the Store Floor Area as thus determined, and
any overpayments or underpayments of Minimum Monthly Rent to Landlord shall be
adjusted accordingly.
<PAGE> 5
Tract. Notwithstanding anything herein which may be to the contrary, in the
event of any conflict between Exhibit "C" and Tenant's Plans, as approved by
Landlord, Tenant's Plans, as approved by Landlord, shall take precedence over
Exhibit "C" in resolving such conflict.
Section 3.3. Failure of Tenant to Perform.
Because of the difficulty or impossibility of determining Landlord's
damages resulting from Tenant's failure to open for business fully fixtured,
stocked and staffed by the Required Completion Date, including, but not limited
to, damages from loss of Percentage Rent (hereinafter defined) from Tenant and
other tenants, diminished saleability, leaseability, mortgageability or
economic value of the Center, if Tenant fails to commence Tenant's Work within
the time provided above and proceed with the same diligently, or to open for
business fully fixtured, stocked and staffed on or before the Required
Completion Date or to perform any of its obligations to be performed prior to
the Required Completion Date. Landlord may, with notice, in addition to the
right to exercise any other remedies and rights herein or at law provided,
collect rent from the Required Completion Date in an amount equal to the
Minimum Annual Rent (hereinafter defined) and other additional rent and other
amounts payable by Tenant hereunder, and, in addition thereto, if Tenant shall
fail to open for business in the Premises within thirty (30) days after the
Required Completion Date, Tenant shall also pay to Landlord an amount equal to
$150.00 per day for each day thereafter that Tenant has failed to open for
business. In addition, commencing on the thirty-first (31st) day after the
Required Completion Date and provided Tenant has failed to open for business in
the Premises by such date, Landlord may thereafter (a) do and perform any of
Tenant's Work or other obligations of Tenant hereunder, at Tenant's expense,
preparing such drawings and doing such things as Landlord deems advisable,
collecting all of Landlord's expenses pursuant to this Section. All remedies
in this Lease or at law provided shall be cumulative and not exclusive and
shall survive the expiration of the Lease Term or the earlier termination of
this Lease. Notwithstanding the foregoing, Tenant shall not be liable or
responsible for any delays and applicable periods for performance shall be
extended accordingly due to strikes, lockouts, riots, acts of God, shortages of
labor or materials, national emergency, acts of a public enemy, governmental
restrictions, including but not limited to, the Tenant being able to obtain all
necessary governmental licenses (provided Tenant timely applies for the same
and diligently pursues such license applications for approval), or any other
cause or causes, whether similar or dissimilar to those enumerated, beyond
Tenant's reasonable control.
Section 3.4. Condition of Premises.
Tenant's taking possession of the Premises shall be conclusive evidence of
Tenant's acceptance thereof in good order and satisfactory condition.
Provided, however, Tenant shall have the right, to be exercised within thirty
(30) days after the date possession of the Premises has been delivered to
Tenant with Landlord's Work therein completed, to submit to Landlord a
punchlist of incomplete or defective construction within the Premises, and
Landlord will perform such punchlist to the extent the listed items were
Landlord's Work under Exhibit "C" and were not performed by Landlord in
accordance therewith. Tenant agrees that no representations respecting the
condition of the Premises or the existence or non-existence of Hazardous
Materials (hereinafter defined) in, on or about the Premises, no warranties or
guarantees, expressed or implied, with respect to workmanship or any defects in
material, and no promise to decorate, alter, repair or improve the Premises
either before or after the execution hereof, have been made by Landlord or its
agents to Tenant unless the same are contained herein.
ARTICLE IV
RENT
Section 4.1 Minimum and Percentage Rent.
Tenant covenants and agrees to pay to Landlord, without notice or demand,
at Landlord's address for notice (Landlord's and Tenant's notice addresses
being the addresses specified in Section 24.7 hereof), as rent for the
Premises:
(i) A "Minimum Annual Rent" of $25.00 per square foot of Store Floor Area,
or Four Hundred Five Thousand Three Hundred Seventy Five and no/100
Dollars ($405,375.00) per annum (based upon the approximated Store
Floor Area set forth in Section 2.1 hereof), payable in equal monthly
installments, in advance upon the first day of each and every month
of the Lease Term commencing upon the Commencement Date (such monthly
installment being hereinafter called "Minimum Monthly Rent"): and
(ii) The amount by which six percent (6%) of Gross Sales (hereinafter
defined) during each Lease Year of Partial Lease Year exceeds the
Minimum Monthly Rent for such period (hereinafter called "Percentage
Rent").
When Store Floor Area is determined in accordance with Section 2.1 the
Minimum Annual Rent and Minimum Monthly Rent shall be deemed automatically
increased or decreased based upon the Store Floor Area as thus determined, and
any overpayments or underpayments of Minimum Monthly Rent to Landlord shall be
adjusted accordingly.
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Notwithstanding anything herein in this Section 4.1 which may be to the
contrary, so long as Tenant is not in default hereunder beyond any applicable
grace period and provided no liens have attached or may attach to the Premises
or the Center or Landlord's interest therein as a result of Tenant's Work in
the Premises (with reasonable time for Tenant to satisfy or bond over), Tenant
may retain the sum of Twenty Five and no/100 Dollars ($25.00) per square foot
of Store Floor Area as Landlord's contribution to Tenant's Work in the
Premises. Such sum shall only be retained from the Minimum Monthly Rent due and
payable by Tenant to Landlord hereunder until such time as the entire sum of
Twenty Five and no/100 Dollars ($25.00) per square foot of Store Floor Area and
no more has been retained by Tenant. Thereafter, no amount otherwise due and
payable by Tenant to Landlord hereunder as rent may be retained by Tenant. For
purposes of calculating Percentage Rent, if any, during the period of time
Tenant is allowed to retain the Minimum Monthly Rent as hereinabove provided,
the Minimum Monthly Rent paid by Tenant shall be deemed to be the Minimum.
Monthly Rent amount determined in accordance with Section 4.1 (l)
notwithstanding Tenant's right to retain such Minimum Monthly Rent pursuant to
this paragraph. Additional rent shall be paid as and when due in accordance
with the other terms and conditions of this Lease. The foregoing sum of Twenty
Five and no/100 Dollars ($25.00) per square foot of Store Floor Area which
Tenant is allowed to retain from Minimum Monthly Rent is in addition to the
amount set forth as Landlord's contribution to Tenant's Work set forth in
Section 24.20 below.
Section 4.2 Miscellaneous Rent Provisions.
Any rent or other amounts to be paid by Tenant which are not paid when due
shall bear interest as of the tenth (10th) day after the date on which any sum
is due and owing at the maximum rate of interest permitted in the State of
Minnesota, or if there is no such maximum, at a rate equal to two percent (2%)
over the prime rate announced by Citibank, N.A. If the Commencement Date is
other than the first day of a month, Tenant shall pay on the Commencement
Date a prorated partial Minimum Monthly Rent for the period prior to the first
day of the next calendar month, and thereafter Minimum Monthly Rent payments
shall be made not later than the first day of each calendar month. For the
purposes of this Lease, a "Major Tenant" is herein defined as a single tenant
occupying at least 40,000 contiguous square feet of floor area.
Section 4.3. Percentage Rent.
Tenant shall (i) not later than the fifteenth (15th) day after the
close of each calendar month, deliver to Landlord a written statement certified
under oath by Tenant or an officer of Tenant, showing Gross Sales made in such
calendar month; and (ii) no later than sixty (60) days after the end of each
Lease Year or Partial Lease Year, deliver to Landlord a statement of Gross
Sales for such Lease Year or Partial Lease Year the correctness of which is
certified to by Tenant's Chief Financial Officer. If Tenant fails to prepare
and deliver any statement of Gross Sales required hereunder, within the time or
times specified above, then Landlord shall have the right, in addition to the
other right and remedies set forth in this Lease, (a) to collect from Tenant a
sum which shall be $100.00 per calender day for each day that Gross Sales
reports are not so submitted, and (b) to estimate Tenant's Gross Sales for any
non-reported period and bill Tenant's Percentage Rent accordingly. Landlord
reserves the right, at Landlord's option, to adjust Percentage Rent billings
when actual Gross sales reports are received. Landlord agrees that any
information obtained by Landlord as a result of such audit or examination of
Tenant's Gross Sales shall be held in strict confidence by Landlord, except in
any litigation or arbitration proceedings, and except further, that Landlord
may disclose such financial information to its mortgagee or mortgagees and to
prospective buyers and lenders.
On or before the fifteenth (15th) day of each May, August, November and
February, Tenant shall pay Landlord the amount by which six percent (6%) of
Gross Sales of Tenant during the three (3) months (or less in a Partial Lease
Year) ending on the last day of the month preceding such payment date exceeds
the total Minimum Monthly Rent Tenant was obligated to pay for such period.
Within thirty (30) days after the later of (i) the due date for Tenant's annual
report of Gross Sales, or (ii) the date of Landlord's receipt of such annual
report, if Tenant has paid Landlord for such Lease Year or Partial Lease Year
Percentage Rent greater than Tenant is obligated to pay for such period,
Landlord shall refund such excess, and if Tenant has paid less than the
Percentage Rent required to be paid for such period, Tenant shall pay Landlord
such difference.
Tenant will preserve for at least three (3) years at Tenant's notice
address all original books and records disclosing information pertaining to
Gross Sales and such other information respecting Gross Sales as Landlord
requires, including, but not limited to, all computerized records routinely
kept by the Tenant in the ordinary course of Tenant's business (and provided
such computerized records are kept in accordance with generally accepted
accounting principles), gross income and sales tax returns, bank deposit
records, sales journals and other supporting data. Landlord and its agents
shall have the right upon prior written notice to Tenant during business hours
to examine and audit such books and records preserved by Tenant. If such
examination or audit discloses a liability for Percentage Rent 5% or more in
excess of the Percentage Rent paid by Tenant for any period or if Tenant's
Gross Sales cannot be verified due to the insufficiency or inadequacy of
Tenant's records. Tenant shall promptly pay landlord the cost of said audit.
Tenant shall, in any event, pay to Landlord the amount of any deficiency in
rents which is disclosed by such audit plus interest at two percent (2%) over
the prime rate announced by Citibank, N.A. as of the first day of the month on
which any sum was due and owing.
Section 4.4. Gross Sales Defined.
As used herein, Gross Sales means the sale prices of all goods, wares and
merchandise sold and the charges for all services performed by Tenant or any
other person or entity in, at, or from the Premises for cash, credit or
otherwise, without reserve or deduction for uncollected amounts except as
hereinafter specifically provided, including but not limited to sales and
services (i) where the orders originate in, at or from the Premises, regardless
from whence delivery or performance is made, (ii) pursuant to mail, telephone,
telegraph or otherwise received or filled at the Premises, (iii) resulting from
transactions originating in, at or from the Premises, and deposits not refunded
to customers. Excluded from Gross Sales shall be: (i)
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exchanges of merchandise between Tenant's stores made only for the convenient
operation of Tenant's business and not to consummate a sale made in, at or from
the Premises, (ii) returns to manufacturers, (iii) refunds or allowances made on
merchandise claimed to be defective or unsatisfactory to customers (but only to
the extent included in Gross Sales), (iv) sales of fixtures, machinery and
equipment after use in Tenant's business in the Premises, (v) all sales to
employees of Tenant while on duty which sales shall be at no less than any
discounted price allowed employees in accordance with Tenant's then-existing
policies, provided, however, the discounted portion of such sales to employees
not included in Gross Sales shall not exceed two percent (2%) of Tenant's annual
Gross Sales, (vi) bad debts, not to exceed two percent (2%) of Tenant's annual
Gross Sales, provided such bad debts were originally included in Gross Sales
when made and provided, further, any subsequent collection or recovery thereof
shall be included in Gross Sales in the year of collection or recovery, and
(vii) sales, excise or similar tax imposed by governmental authority and
collected from customers and paid out by Tenant. No other taxes shall be
deducted from Gross Sales. Gross Sales from vending devices located on the
Premises shall be limited to net proceeds from such vending devices received by
Tenant.
Section 4.5. Real Estate Taxes.
A. Definition. Landlord shall pay or cause to be paid all Real Estate
Taxes (as hereinafter defined) assessed or imposed upon the Center and the
Total Tract which become due or payable during the Lease Term. As used in this
Section 4.5 the term Real Estate Taxes shall mean and include all real estate
taxes, public and governmental charges and assessments, including all
extraordinary or special assessments, or assessments against any of Landlord's
personal property now or hereafter located in the Center, all costs, expenses
and attorney's fees incurred by Landlord in contesting or negotiating with
public authorities (Landlord having the sole authority to conduct such a
contest or enter into such negotiations) as to any of the same and all sewer
and other taxes and charges, but shall not include taxes on Tenant's business
in the Premises, machinery, equipment, inventory or other personal property or
assets of Tenant. Tenant agreeing to pay, before delinquency, all taxes upon or
attributable to such excluded items without apportionment.
B. Tenant's Share. Tenant shall pay to Landlord, as Additional Rent, its
proportionate share of all Real Estate Taxes upon the Center and the Total
Tract which become due or payable during the Lease Term, such proportionate
share to be prorated for periods at the beginning and end of the Lease Term
which do not constitute full calendar months or calendar years. Landlord shall
endeavor to have the Retail Space and Hotel Space separately assessed. If this
cannot be accomplished then Landlord, in its sole discretion, shall allocate
Real Estate Taxes among the Retail Space and Hotel Space based on its
determination of the assessed value of each such Space. This determination
shall control except in case of manifest error. Real Estate Taxes allocated by
Landlord to the Retail Space are referred to herein as "Retail Space Real
Estate Taxes". Tenant's proportionate share of any such Retail Space Real
Estate Taxes shall be that portion of such Retail Space Real Estate Taxes which
bears the same ratio to the total Retail Space Real Estate Taxes as the Store
Floor Area bears to the Rentable Floor Area rented or occupied in the Retail
Space (hereinafter called "Retail Rentable Floor Area") as of the Commencement
Date or the first day of the calendar year in which such taxes are due or
payable. The floor area of (i) a Major Tenant, (ii) any tenant in a free
standing Premises who is obligated to pay real estate taxes specifically upon
specific improvements or specific parcel of land, and (iii) Common Areas, as
hereinafter defined, shall not be included in the Retail Rentable Floor Area,
and any contributions to Real Estate Taxes received by Landlord from such
tenants shall be deducted from Retail Space Real Estate Taxes prior to the
calculation of Tenant's proportionate share.
C. Payment by Tenant. Tenant's proportionate share of Retail Space Real
Estate Taxes shall be paid in monthly installments commencing with the
Commencement Date, in amounts initially estimated by Landlord, one (1) such
installment being due on the first day of each full or partial month of each
full or partial calendar year during the Lease Term. Such monthly installments
shall increase or decrease upon notice from Landlord given after the actual or
anticipated amounts of Real Estate Taxes due or payable in a particular
calendar year are determined. Following the close of each full or partial
calendar year during the Lease Term, the actual amount of Retail Space Real
Estate Taxes due or payable shall be computed by Landlord and any excess paid
by Tenant during such calendar year over the actual amount Tenant is obligated
to pay hereunder shall be credited to Tenant within thirty (30) days, and
within thirty (30) days after written notice from Landlord any deficiency owed
shall be paid in full by Tenant. Tenant acknowledges and stipulates that
Landlord has made no representation or agreement of any kind as to the total
dollar amount of such real estate taxes, actual or estimated, or Tenant's
dollar share thereof.
D. Other Taxes. Tenant's proportionate share of any governmental tax or
charge (other than income tax, penalties, fines or additional interest which
are incurred as a result of Landlord's acts or omissions) levied, assessed, or
imposed on account of the payment by Tenant or receipt by Landlord, or based in
whole or in part upon, the rents in this Lease reserved or upon the Center or
the value thereof shall be paid by Tenant.
E. Larger Parcel. If the land under the Center is a part of a larger parcel
of land for assessment purposes (the "Larger Parcel"), the taxes and
assessments allocable to the land in the Center for the purpose of determining
Real Estate Taxes under this Section shall be deemed a fractional portion of
the taxes and assessments levied against the Larger Parcel, the numerator of
which is the acreage in the Center and the denominator of which is the acreage
in the Larger Parcel.
Section 4.6. Sprinkler System.
Landlord has installed and will maintain a sprinkler system in the
Premises and Tenant shall pay to Landlord as additional rent twenty-five cents
(25c) per square foot of Store Floor Area per Lease Year, prorated for Partial
Lease Years, in equal monthly installments in advance on the first day of each
full calendar month during the Lease Term.
Section 4.7. Additional Rent.
All amounts required or provided to be paid by Tenant under this Lease
other than Minimum Annual Rent and Percentage Rent shall be deemed additional
rent and Minimum Annual Rent, Percentage Rent and additional rent shall in all
events be deemed rent.
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Section 4.8. Landlord's Expenses.
If Landlord pays any monies or incurs any expenses to correct a breach of
this Lease as defined in Section 18.1 of this Lease by Tenant or to do anything
in this Lease required to be done by Tenant, or incurs any expense (including,
but not limited to reasonable attorneys' fees and court costs), as a result of
Tenant's failure to perform any of Tenant's obligations under this Lease, all
amounts so paid or incurred shall, on written notice to Tenant, be considered
additional rent payable in full by Tenant with the first Minimum Monthly Rent
installment thereafter becoming due and payable, and may be collected as by
law provided in the case of rent.
ARTICLE V
PARKING AND COMMON AREAS AND FACILITIES
Section 5.1. Common Areas.
All parking areas, access roads and facilities furnished, made available or
maintained by Landlord in or near the Center, including employee parking areas,
truck ways, driveways, loading docks and areas, delivery areas, multi-story
parking facilities, package pickup stations, elevators, escalators, pedestrian
sidewalks, malls, including the Enclosed Mall (as indicated for identification
purposes on Exhibit "B"), courts and ramps, landscaped areas, retaining walls,
stairways, bus stops, first-aid and comfort stations, lighting facilities,
sanitary systems, utility lines, water filtration and treatment facilities and
other areas in the Center (all herein called "Common Areas") shall at all times
be subject to the exclusive control and management of Landlord, and Landlord
shall have the right, from time to time, to establish, modify and enforce
reasonable rules and regulations with respect to all Common Areas. Tenant
agrees to comply with all rules and regulations set forth in Exhibit "D"
attached hereto and all reasonable and uniformly enforced amendments thereto.
Provided, however, in exercising its rights hereunder, Landlord shall not
permanently reduce the parking areas below code requirements.
Landlord shall have the right from time to time to: change or modify
and add to or subtract from the sizes, locations, shapes and arrangements of
parking areas, entrances, exits, parking aisle alignments and other Common
Areas; restrict parking by Tenant's employees to designated areas; construct
surface, sub-surface or elevated parking areas and facilities; establish and
from time to time change the level or grade of parking surfaces; enforce
parking charges (by meters or otherwise); add to or subtract from the buildings
in the Center; and do and perform such other acts in and to said Common Areas
as Landlord in its sole discretion, reasonably applied, deems advisable for the
use thereof by tenants and their customers. Provided, however, in exercising
its rights hereunder, Landlord shall not adversely and materially affect access
to the Premises, visibility of the Premises or identification of the Premises.
Section 5.2. Use of Common Areas.
Tenant and its business invitees, employees and customers shall have
the nonexclusive right, in common with Landlord and all others to whom Landlord
has granted or may hereafter grant rights, to use the Common Areas subject to
such reasonable regulations as Landlord may from time to time impose and the
rights of Landlord set forth above. Tenant agrees to fully advise its
employees of Landlord's parking rules, regulations and restrictions and
possible ensuing consequences in the event of a violation thereof and to
cooperate with Landlord in enforcing the obligation of Tenant's employees to
park their vehicles in designated employee parking areas. Landlord may tow or
cause to be towed any car of Tenant, a concessionaire, employee or agent of
Tenant from the Center that is parked outside any area designated by Landlord
for employee parking and Tenant shall indemnify and hold Landlord harmless with
respect thereto. Tenant shall abide by all rules and regulations and cause its
concessionaires, officers, employees and agents to abide thereby. Landlord may
at any time close temporarily any Common Areas to make repairs or changes,
prevent the acquisition of public rights therein, discourage noncustomer
parking, or for other reasonable purposes. Tenant shall furnish Landlord
license numbers and descriptions of cars used by Tenant and its
concessionaires, officers and employees. Tenant shall not interfere with
Landlord's or other tenants' rights to use any part of the Common Areas.
ARTICLE VI
COST AND MAINTENANCE OF COMMON AREAS
Section 6.1. Expense of Operating and Maintaining the Common Facilities.
Landlord will operate, manage, maintain and repair or cause to be
operated, managed, maintained or repaired, the Common Areas of the Center to
the extent the same is not done by any Major Tenant. "Landlord's Common Area
Costs" shall mean all costs of operating and maintaining the Common Areas in a
manner deemed by Landlord appropriate for the best interests of tenants and
other occupants in the Center. Included among the costs and expenses which
constitute Landlord's Common Area Costs, but not limited thereto, shall be, at
the option of Landlord, all costs and expenses of protecting, operating,
managing the Center (including attorneys' fees and other professional fees),
repairing, repaving, lighting, cleaning, painting, striping, insuring
(including but not limited to fire and extended coverage insurance on Common
Areas, insurance protecting Landlord against liability for personal injury,
death and property damage and workers' compensation insurance), removing of
snow, ice and debris, police protection, security and security patrol, fire
protection, regulating traffic, inspecting, repairing and maintaining of
machinery and equipment, depreciation of machinery and equipment, providing
heating, ventilating and air conditioning machinery and equipment, depreciation
of machinery and equipment, providing heating, ventilating and air conditioning
for the interior Common Areas initially determined and thereafter adjusted in
the manner described in Section 7.2 herein, cost and expense of inspecting,
maintaining, repairing and replacing storm and sanitary drainage systems,
sprinkler and other fire protection systems, electrical, gas, water, telephone
and irrigation systems, cost and
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expense of maintaining, repairing and replacing the Enclosed Mall and the
exterior of the buildings in the Center, including, but not limited to floors,
roofs, skylights, escalators, elevators, walls, stairs and signs, cost and
expense of installing, maintaining and repairing burglar or fire alarm systems
on the Retail Space, if installed, cost and expense of landscaping and
shrubbery, expenses of utilities, and administrative and overhead costs equal
to fifteen percent (15%) of all of the foregoing and all other of Landlord's
Common Area Costs.
Notwithstanding the foregoing, Tenant's Share of Landlord's Common Area
Costs shall not include the following:
1. Interest and financing charges on any debt service, amortization
payments on any mortgage and rent under any ground lease;
2. Wages, salaries, fees and fringe benefits paid or provided to
administrative or executive personnel or officers or partners of
Landlord above the grade of mall manager unless employed at competitive
rates as independent contractors, and except there may be included
wages, salaries, fees and fringe benefits of regional management of the
Common Areas to the extent the same are reasonable and proportionate to
the services rendered;
3. Costs of decorating, redecorating or special planning or other services
provided to an individual tenant and not provided to substantially all
tenants of the Center;
4. Landlord's income taxes, excess profits taxes, franchise taxes or
similar taxes on Landlord's business;
5. Costs relating to activities for the solicitation and execution of
leases of space in the Center including, but not limited to, leasing
commissions and attorneys' fees;
6. The costs of correcting defects in the construction of the Center or in
the equipment servicing the Center, except that conditions (not
occasioned by construction defects) resulting from ordinary wear and
tear will not be deemed defects for purposes hereof;
7. The costs of any repairs made by Landlord because of the total or
partial destruction of the Center or the condemnation of a portion of
the Center to the extent such costs are covered by Landlord's insurance
or by a damage award in a condemnation proceeding;
8. Any insurance premium to the extent Landlord is entitled to be
reimbursed for such insurance premium by Tenant under any other Section
of this Lease;
9. The costs of any items for which Landlord is reimbursed by insurance or
otherwise compensated by parties other than tenants of the Center;
10. The costs of any repairs, alterations, additions, changes,
replacements and any other items which under generally accepted
accounting principles are properly classified as expenditures for
capital improvements to the extent they upgrade or improve the Center
as opposed to repairing or replacing existing items which have worn out
except for capital improvements required: (i) by one of Landlord's
insurance carriers then insuring some aspect of the Center; (ii) by any
law, statute, rule, regulation, code, ordinance or order of a
governmental authority having jurisdiction over the Center; or (iii) to
reduce Landlord's Common Area Costs, but only to the extent Tenant's
proportionate share of Landlord's Common Area Costs is thereby
decreased. The cost of any such capital improvement which is included
in Landlord's Common Area Costs shall be amortized over the useful life
of such improvement. The cost of the repair or replacement of an
existing capital item that is included in Landlord's Common Area Costs
need not be amortized but may be included in its entirety in the
calendar year in which incurred.
11. Any operating expense representing an amount paid to a related
corporation, entity or person which is in excess of the amount which
would have been paid in the absence of such relationship;
12. The cost of overtime or other expense to Landlord in curing its defaults
or performing work expressly provided for in this Lease to be borne at
Landlord's expense.
Section 6.2. Tenant to Bear Pro Rata Share of Expenses.
Tenant will pay Landlord, in addition to all other amounts in this Lease
provided, such portion of Landlord's Common Area Costs for each calendar year
during the Lease Term (pro rated accordingly for a partial calendar year) which
bears the same ratio to the total of Landlord's Common Area Costs as fifty
percent (50%) of the Store Floor Area at the commencement of such calendar year
bears to all Rentable Floor Area rented or occupied by tenants in the Retail
Space. The floor area of (i) a Major Tenant, (ii) any tenant in a freestanding
Premises who is obligated to maintain specific areas or a specific parcel of
land, and (iii) Common Areas shall not be included in Rentable Floor Area, and
any contributions to Landlord's Common Area Costs received by Landlord from
such tenants shall be deducted from Landlord's Common Area Costs prior to the
calculation of Tenant's proportionate share.
Tenant's share of Landlord's Common Area Costs shall be paid in monthly
installments in amounts estimated from time to time by Landlord, one (1) such
installment being due on the first day of each month of each calendar year.
After the end of each calendar year the total Landlord's Common Area Costs for
such year (and at the end of the Lease Term, the total Landlord's Common Area
Costs for the period since the end of the immediately next preceding calendar
year) shall be determined by Landlord and Tenant's share paid for such period
shall immediately, upon such determination, be adjusted by credit of any excess
or payment of any deficiency. Within ninety (90) days after the end of each
calendar year, Landlord
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shall deliver to Tenant a statement showing Landlord's Common Area Costs for
the immediately preceding year including calculations showing how tenant's
share of Landlord's Common Area Costs was determined.
Tenant may audit Landlord's Common Area Costs in order to verify the
accuracy thereof, provided that: (a) Tenant specifically designates the year
Tenant intends to audit, which shall be a year during the Lease Term that is
also within three (3) years of the date of the audit; (b) such audit is
conducted only during regular business hours at the office where Landlord
maintains expense records of Landlord's Common Area Costs; (c) Tenant gives
Landlord fourteen (14) days prior written notice of Tenant's request to audit
and Tenant shall deliver to Landlord a copy of the results of such audit within
ten (10) days of its receipt by Tenant; (d) such audit must be conducted by
Tenant's employees or an independent nationally recognized accounting firm that
is not being compensated on a contingency fee basis; (e) no audit shall be
conducted if Tenant has previously conducted an audit for the same time period;
(f) such audit shall be at Tenant's sole cost and expense; and (g) any
financial or other information provided by Landlord or obtained by Tenant as a
result of such audit shall only be pursuant to duly executed confidentiality
agreements between Landlord, Tenant and Tenant's agents and employees to whom
disclosure is made. Tenant acknowledges that the Landlord considers its
financial and other operating information to be confidential and will not
disclose such information to any third party without Landlord's prior written
consent except to prospective buyers or lenders, Tenant's accountants and
attorneys, or in the case of compliance with a subpoena or other legal process
provided Tenant gives Landlord at least ten (10) days prior written notice of
Tenant's receipt of such subpoena or legal process and Tenant's intent to
disclose pursuant thereto. If the audit discloses that Tenant has underpaid,
Tenant shall promptly reimburse Landlord any amount owed. If the audit
accurately discloses that Tenant has overpaid, Landlord shall promptly refund
such excess.
ARTICLE VII
UTILITIES AND SERVICES
Section 7.1. Utilities.
Tenant shall not install any equipment which can exceed the capacity of
any utility facilities serving the Center and if any equipment installed by
Tenant requires additional utility facilities, the same shall be installed at
Tenant's expense in compliance with all code requirements and plans and
specifications which must be approved in writing by Landlord which consent
shall not be unreasonably withheld or delayed. Tenant shall be solely
responsible for and promptly pay all charges for its use or consumption of
sewer, gas, electricity, water and all other utility services. Landlord may
make electrical service available to the Premises as provided in Exhibit "C,"
and so long as Landlord continues to provide such electrical service Tenant
agrees to purchase the same from Landlord and pay Landlord for the electrical
service (based upon Landlord's determination from time to time of Tenant's
consumption of electricity), as additional rent, on the first day of each month
in advance (and prorated for partial months), commencing on the Commencement
Date at the same cost as would be charged to Tenant from time to time by the
utility company which otherwise would furnish such services to the Premises if
it provided such services and metered the same directly to the Premises, but in
no event at a cost which is less than the cost Landlord must pay in providing
such electrical service. Landlord may supply water and other utilities to the
Premises, and so long as Landlord continues to provide water or such other
utilities Tenant shall pay Landlord for same at the same cost as would be
charged to Tenant by the utility company which otherwise would furnish such
service to the Premises if it provided such service and metered the same
directly to the Premises, but in no event at a cost which is less than the cost
Landlord must pay in providing such service, and in no event less than the
minimum monthly charge which would have been charged by the utility company in
providing such service. Subject to the applicable rules and regulations of the
Minnesota Public Service Commission, Landlord may provide a shared tenant
telephone service to the Premises and so long as Landlord continues to provide
such telephone service Tenant agrees to purchase the same from Landlord and pay
Landlord for the telephone service at the same cost as would be charged to
Tenant by the utility company which otherwise would furnish such service to the
Premises if it provided such service directly to the Premises, but in no event
at a cost which is less than the cost Landlord must pay in providing such
telephone service.
Landlord may make additional services, including but not limited to, pest
control, trash compactor/trash removal, cleaning, and security, available to the
Premises and, in such event Tenant shall utilize such services, at Tenant's
expense.
Tenant shall operate its heating and air conditioning so that the
temperature in the Premises will be the same as that in the adjoining mall, and
set Tenant's thermostat at the same temperature as that thermostat in the mall
which is nearest the Premises. Tenant shall be responsible for the
installation, maintenance, repair and replacement of air conditioning, heating
and ventilation systems within and specifically for the Premises, including all
components such as air handling units, air distribution systems, motors,
controls, grilles, thermostats, filters and all other components. Tenant shall
operate ventilation so that the relative air pressure in the Premises will be
the same as or less than that in the adjoining mall as required by the
Landlord.
In the event Tenant requires the use of telecommunication services,
including, but not limited to, credit card verification and/or other data
transmission, then Tenant shall contract for such services with one of the
service providers available at the Center, provided such cost is competitive in
the industry in the geographic location of the Center.
Section 7.2. Air Conditioning of Premises.
Landlord will provide and maintain a central plant and a system of chilled
media to the Premises installed at a point determined by Landlord. Tenant
agrees to purchase the chilled media services from Landlord and pay Landlord
annually therefor as additional rent, in equal monthly installments, in advance
on the first day of each month the current Adjusted HVAC Plant Charge (which
shall consist of the Minimum Charge of $1.95 per square foot of Store Floor
Area per year, increased in the manner hereinafter provided).
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The Adjusted HVAC Plant Charge shall be recalculated from time to time
on dates selected by the Landlord (but no less often annually, each time the
Landlord's utility costs are changed, and/or each time field verification
indicates that Tenant's use of the system has changed.)
The current Adjusted HVAC Plant Charge shall be calculated by
multiplying the Minimum Charge by a series of adjusting multipliers as follows:
Adjusted HVAC Plant Charge = Minimum Charge xM xM xM xM
1 2 3 4
(a) M = Capacity Multiplier
1
The capacity multiplier shall be the greater of 1 or the
multiplier arrived at by applying the following formula:
M = 1+[0.6[BTUH/33-1]]
1
The factor "BTUH" shall mean BTUH/per Sq. Ft. of Store Floor Area and
shall be the calculated peak design total heat gain as determined in
accordance with ASHRAE procedures. Tenant's outdoor air or exhaust that is
derived via the Landlord's system, and total heat gain from the roof, lights,
fan motors and other items, shall be included in calculating the BTUH/per Sq.
Ft. factor of this section for purposes of determining the capacity multiplier.
The peak total heat gain shall be calculated using the same sun time hour as is
used by Landlord in determining the peak building heat gain. (Typically 1600
hours).
(b) M = Hours Multiplier
2
The hours multiplier shall be the greater of 1 or the
multiplier arrived at by applying the following formula:
M = 1+[Extra Hours/Regular Hours]
2
The term "Extra Hours" shall mean Tenant's hours use of
system during times other than the originally established regular weekly hours
of the Center. The term "Regular Hours" shall mean originally established
regular weekly hours of the Center.
(c) M = Utility Cost Multiplier
3
The utility cost multiplier shall be the multiplier arrived at
by applying the following formula:
M = 1+[0.5[Current Cost/Original Cost-1]]
3
The term "Current Cost" shall mean "Utility Cost" based on
rates in effect on the selected date. The term "Original Cost" shall
mean Utility Cost based on rates in effect on March 31, 1994. The term
"Utility Cost" shall mean the cost to Landlord of the utilities necessary for
furnishing chilled media to the Premises, including all charges made to
Landlord by the public utilities furnishing the same and based on the original
consumption and demands estimated for the Central HVAC System and building.
(d) M = Maintenance Cost Multiplier
4
The Maintenance Cost Multiplier shall be the greater of 1 or
the multiplier arrived at by applying the following formula:
M = 1+[0.1[Current CPI/Original CPI-1]]
4
The term "Current CPI" shall mean the "Consumer Price Index" on the
selected date. The term "Original CPI" shall mean the "Consumer Price Index"
for February 1, 1996. The term "Consumer Price Index" as used in this Section
7.2 and in Section 14.1 herein shall mean the Consumer Price Index All Items
for All Urban Consumers (CPI-U, 1982-4=100)" published by the Bureau of Labor
Statistics of the U.S. Department of Labor. If the publication of the Consumer
Price Index of the U.S. Bureau of Labor Statistics is discontinued, comparable
statistics on the purchasing power of the consumer dollar published by a
responsible financial periodical selected by Landlord shall be used for making
such computations.
Section 7.3. Enforcement and Termination
In the event of any default by Tenant, Landlord reserves the right,
upon at least ten (10) days prior written notice to Tenant, in addition to all
other rights and remedies available to Landlord, to cut off and discontinue,
without notice or liability to Tenant, any utilities or services provided in
accordance with the provisions of this Article VII. Landlord shall not be
liable to Tenant in damages or otherwise if any utilities or services, whether
or not furnished by Landlord hereunder, are interrupted or terminated because
of repairs, installation or improvements, or any cause beyond Landlord's
reasonable control, nor shall any such termination relieve Tenant of any of its
obligations under this Lease. Tenant shall operate the Premises in such a way
as shall note waste fuel, energy or natural resources. If Landlord provides
any utilities or services under Section 7.1 or 7.2 of this Lease to tenants.
Landlord may, upon written direction, require Tenant to obtain such services
from a third party provider without liability for the same. No discontinuance
of any utilities or services shall constitute a constructive eviction.
Notwithstanding anything in this Section 7.3 to the contrary, if any utility or
service provided by Landlord is interrupted by Landlord (other than due to
Tenant's default) for a period of more than three (3) consecutive business
days, rent shall be fairly and equitably abated to the extent such interruption
in service adversely affects Tenant's business operation in the
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Premises. Such abatement period shall be retroactive to the date the
respective utility or service was initially interrupted and continue until such
time as such utility or service is restored or an adequate alternate utility or
service is provided. Rent shall not abate if the interruption in such utility
or service is three (3) consecutive business days or less in duration.
ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
Section 8.1. Use of Premises.
The Premises shall be occupied and used by Tenant solely for the purpose
of conducting therein the business of a full service sit-down restaurant with a
predominantly "adventure" or "discovery" theme, including the sale of liquor
for on-premises consumption. Tenant's menu will feature American,
International, and Mexican entrees. Tenant shall not use or permit or suffer
the use of the Premises for any other business or purpose. Tenant is hereby
specifically prohibited from selling, offering for sale, giving away or
displaying Mall of America merchandise or any other merchandise or items that
bear the Mall of America name, trademark, service mark or logo thereon without
Landlord's prior written consent thereto which consent may be given or withheld
by Landlord in Landlord's sole and absolute discretion and Landlord's failure
to give such consent shall not be deemed unreasonable.
Section 8.2. Prompt Occupancy and Use.
Tenant will occupy the Premises upon the Commencement Date and thereafter
continuously operate and conduct in one hundred percent (100%) of the Premises
during each hour of the entire Lease Term when Tenant is required under this
Lease to be open for business the business permitted under Section 8.1 hereof,
with a full staff and full stock of merchandise, using only such minor portions
of the Premises for storage and office purposes as are reasonably required.
The parties agree that: Landlord has relied upon Tenant's occupancy and
operation in accordance with the foregoing provisions; because of the difficulty
or impossibility of determining Landlord's damages which would result from
Tenant's violation of such provisions, including but not limited to damages
from loss of Percentage Rent from Tenant and other tenants, and diminished
saleability, mortgageability and economic value, Landlord shall be entitled to
liquidated damages if it elects to pursue such remedy; therefore for any day
that Tenant does not fully comply with the provisions of this Section 8.2 the
Minimum Annual Rent, prorated on a daily basis, shall be increased by
twenty-five percent (25%), such increased sum representing the damages which
the parties agree Landlord will suffer by Tenant's noncompliance. In addition
to all other remedies, Landlord shall have the right to obtain specific
performance by Tenant upon Tenant's failure to comply with the provisions of
this Section 8.2.
Notwithstanding the foregoing, Tenant may temporarily cease operating its
business in the Premises for reasonable periods as approved by Landlord (which
approval shall not be unreasonably withheld) in which Tenant is carrying on
remodeling activities (which includes the repair or replacement of equipment),
provided Tenant gives Landlord's Center manager at least ten (10) days prior
notice of the anticipated dates Tenant will be closed and provided such
remodeling activities have Landlord's prior approval. Rent shall not abate
while Tenant is closed for remodeling.
Section 8.3. Conduct of Business.
Such business shall be conducted (a) under the name HOTEL DISCOVERY unless
another name is previously approved in writing by the Landlord; and (b) in such
manner as shall assure the transaction of a maximum volume of business in and
at the Premises. Tenant's store shall be and remain open at least from 10:00
A.M. until 9:00 P.M. each day of the week (except Tenant may remain open until
Midnight with Landlord's prior approval), except Sunday, on Sunday from 12:00
P.M. until 6:00 P.M., and in addition, during all days, nights and hours
(including Sundays as permitted by law) but, in any event, not before 10:00
A.M., that any Major Tenant in the Center (as referred to in Section 4.2 above)
is open for business, and such other days, nights and hours as Landlord shall
require or approve in writing.
Section 8.4. Operation by Tenant.
Tenant covenants and agrees that it will: not place or maintain any
merchandise, vending machines or other articles in any vestibule or entry of
the Premises or outside the Premises; store garbage, trash, rubbish and other
refuse in rat-proof and insect-proof containers inside the Premises, and remove
the same frequently and regularly and, if directed by Landlord, by such means
and methods and at such times and intervals as are designated by Landlord, all
at Tenant's expense; not permit any sound system audible, or objectionable
advertising medium visible, outside the Premises; keep all mechanical equipment
free of vibration and noise and in good working order and condition; not commit
or permit waste or a nuisance upon the Premises; not permit or cause noxious
odors to emanate or be dispelled from the Premises; not solicit business in the
Common Areas nor distribute advertising matter to, in or upon any Common Areas;
not permit the loading or unloading or the parking or standing of delivery
vehicles outside any area designated therefor, nor permit any use of vehicles
which will interfere with the use of any Common Areas; comply with all laws,
recommendations, ordinances, rules and regulations of governmental, public,
private and other authorities and agencies, including those with authority over
insurance rates, with respect to the use or occupancy of the Premises, and
including but not limited to the Williams-Steiger Occupational Safety and
Health Act; light the show windows of the Premises and all signs each night of
the year for not less than one (1) hour after the Premises is permitted to be
closed; not permit any noxious, toxic or corrosive fuel or gas, dust, dirt or
fly ash on the Premises; not place a load on any floor in the Center which
exceeds the floor load per square foot which such floor was designed to carry.
Section 8.5. Storage.
Tenant shall store in the Premises only merchandise which Tenant intends
to sell at, in or from the Premises, within a reasonable time after receipt
thereof.
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Section 8.6. Painting, Decorating, Displays, Alterations.
Tenant will not paint, decorate or change the architectural treatment of
any part of the exterior of the Premises nor any part of the interior of the
Premises visible from the exterior nor make any structural alterations,
additions or changes in the Premises without Landlord's written approval
thereto, and will promptly remove any paint, decoration, alteration, addition
or changes applied or installed without Landlord's approval and restore the
Premises to an acceptable condition or take such other action with respect
thereto as Landlord directs. Notwithstanding the foregoing, Tenant shall be
permitted to paint, decorate, alter, add or change the interior of the Premises
(but not change the general "adventure" or "discovery" theme) without
Landlord's prior approval thereto provided such work does not exceed Twenty
Thousand and 00/100 Dollars ($20,000.00) in cost in any twelve (12) month
period and provided further such work shall be non-storefront, non-mechanical,
non-utility and non-structural in nature.
Tenant will install and maintain at all times, subject to the other
provisions of this Section 8.6, merchandise displays in any show windows on the
Premises; the arrangement, style, color and general appearance thereof and of
displays in the interior of the Premises which are visible from the exterior,
including, but not limited to, window displays, advertising matter, signs,
merchandise and store fixtures, shall be maintained in keeping with the
character and standards of the Center.
Section 8.7. Other Operations.
If during the Lease Term Tenant directly or indirectly operates, manages
or has any interest whatsoever in any other store or business operated for a
purpose or business substantially similar to the business permitted under
Section 8.1 hereof within a radius of five (5) miles of the Center (excluding
downtown Minneapolis), it will injure Landlord's ability and right to receive
Percentage Rent (such ability and right being a major consideration for this
Lease and the construction of the Center). Accordingly, if Tenant operates,
manages or has such interest in any such store or business within such radius,
100% of all sales made from any such other store or business shall be included
in the computation of Gross Sales for the purpose of determining Percentage
Rent under this Lease as though said Gross Sales had actually been made at, in
or from the Premises. Landlord shall have all rights of inspection of books
and records with respect to such stores or businesses as it has with respect to
the Premises; and Tenant shall furnish to Landlord such reports with respect to
Gross Sales from such other store or business as it is herein required to
furnish with respect to the Premises.
Section 8.8. Emissions and Hazardous Materials.
Tenant shall not, without the prior written consent of Landlord, cause or
permit, knowingly or unknowingly, any Hazardous Material (hereinafter defined)
to be brought or remain upon, kept, used, discharged, leaked, or emitted in or
about, or treated at the Premises or the Center. As used in this Lease,
"Hazardous Material(s)" shall mean any hazardous, toxic or radioactive
substance, material, matter or waste which is or becomes regulated by any
federal, state or local law, ordinance, order, rule, regulation, code or any
other governmental restriction or requirement, and shall include asbestos,
petroleum products and the terms "Hazardous Substance" and "Hazardous Waste" as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), as amended, 42 U.S.C. Section 9601 et seq., and the Resource
Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. Section 6901 et
seq. However, "Hazardous Materials" shall not include substances which are
used in the ordinary course of a business similar to Tenant's business as
permitted pursuant to Section 8.1 of this Lease provided, however, that such
substances are used, handled, transported, stored and disposed of in strict
compliance with any applicable federal, state or local law, statute, rule,
regulation, code, ordinance or any other governmental restriction or
requirement. If such substances are not so used, handled, transported, stored
or disposed of then they shall be deemed "Hazardous Materials" for purposes of
this Lease. To obtain Landlord's consent, Tenant shall prepare an
"Environmental Audit" for Landlord's review. Such Environmental Audit shall
list: (1) the name(s) of each Hazardous Material and a Material Safety Data
Sheet (MSDS) as required by the Occupational Safety and Health Act; (2) the
volume proposed to be used, stored and/or treated at the Premises (monthly);
(3) the purpose of such Hazardous Material; (4) the proposed on-premises
storage location(s); (5) the name(s) of the proposed off-premises disposal
entity; and (6) an emergency preparedness plan in the event of a release.
Additionally, the Environmental Audit shall include copies of all required
federal, state, and local permits concerning or related to the proposed use,
storage, or treatment of any Hazardous Material(s) at the Premises. Tenant
shall submit a new Environmental Audit whenever it proposes to use, store, or
treat a new Hazardous Material at the Premises or when the volume of existing
Hazardous Materials to be used, stored, or treated at the Premises expands by
ten percent (10%) during any thirty (30) day period. If Landlord in its
reasonable judgment finds the Environmental Audit acceptable, then Landlord
shall deliver to Tenant Landlord's written consent. Notwithstanding such
consent, Landlord may revoke its consent upon: (1) Tenant's failure to remain
in full compliance with applicable environmental permits and/or any other
requirements under any federal, state, or local law, ordinance, order, rule,
regulation, code or any other governmental restriction or requirement
(including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C. Section 9601
et seq., and the Resource Conservation and Recovery Act ("RCRA"), as amended,
42 U.S.C. Section 6901 et seq.) related to environmental safety, human health,
or employee safety; (2) the Tenant's business operations pose or potentially
pose a human health risk to other Tenants; or (3) the Tenant expands its use,
storage, or treatment of any Hazardous Material(s) in a manner inconsistent
with the safe operation of a shopping center. Should Landlord consent in
writing to Tenant bringing, using, storing or treating any Hazardous
Material(s) in or upon the Premises or the Center, Tenant shall strictly obey
and adhere to any and all federal, state or local laws, ordinances, orders,
rules, regulations, codes or any other governmental restrictions or
requirements (including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C.
Section 9601 et seq., and the Resource Conservation and Recovery Act ("RCRA"),
as amended, 42 U.S.C. Section 6901 et seq.) which in any way regulate, govern
or impact Tenant's possession, use, storage, treatment or disposal of said
Hazardous Material(s). In addition, Tenant represents and warrants to Landlord
that (1) Tenant shall apply for and remain in compliance with any and all
federal, state or local permits in regard to Hazardous Materials; (2) Tenant
shall report to any and all applicable governmental authorities any release of
reportable quantities of any Hazardous Material(s) as required by any and all
federal, state or local laws, ordinances, orders, rules, regulations, codes or
any other governmental restrictions or requirements; (3) Tenant, within five
(5) days of receipt, shall send to Landlord a copy of any notice, order,
inspection report, or other document issued by any governmental authority
relevant to the Tenant's compliance status with environmental or
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health and safety laws; and (4) Tenant shall remove from the Premises all
Hazardous Materials at the termination of this Lease.
In addition to, and in no way limiting, Tenant's duties and obligations
as set forth in Section 11.6 of this Lease, should Tenant breach any of its
duties and obligations as set forth in this Section 8.8 of this Lease, or if
the presence of any Hazardous Material(s) on the Premises results in
contamination of the Premises, the Center, any land other than the Center, the
atmosphere, or any water or waterway (including groundwater), or if
contamination of the Premises or of the Center by any Hazardous Material(s)
otherwise occurs for which Tenant is otherwise legally liable to Landlord for
damages resulting therefrom. Tenant shall indemnify, save harmless and, at
Landlord's option and with attorneys approved in writing by Landlord, defend
Landlord, and its contractors, agents, employees, partners, officers, directors,
and mortgagees, if any, from any and all claims, demands, damages, expenses,
fees, costs, fines, penalties, suits, proceedings, actions, causes of action,
and losses of any and every kind and nature (including, without limitation,
diminution in value of the Premises or the Center, damages for the loss or
restriction on use of the rentable or usable space or of any amenity of the
Premises or the Center, damages arising from any adverse impact on marketing
space in the Center, and sums paid in settlement of claims and for attorney's
fees, consultant fees and expert fees, which may arise during or after the
Lease Term or any extension thereof as a result of such contamination). This
includes, without limitation, costs and expenses, incurred in connection with
any investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of Hazardous Material(s) on or
about the Premises or the Center, or because of the presence of Hazardous
Material(s) anywhere else which came or otherwise emanated from Tenant or the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material(s) on or about the Premises or the Center caused or permitted by
Tenant results in any contamination of the Premises or the Center, Tenant
shall, at its sole expense, promptly take all actions and expense as are
necessary to return the Premises and/or the Center to the condition existing
prior to the introduction of any such Hazardous Material(s) to the Premises or
the Center; provided, however, that Landlord's approval of such actions shall
first be obtained in writing.
Section 8.9. Sales and Dignified Use.
No public or private auction or any fire, "going out of business,"
bankruptcy or similar sales or auctions shall be conducted in or from the
Premises and the Premises shall not be used except in a dignified and ethical
manner consistent with the general high standards of merchandising in the
Center and not in a disreputable or immoral manner or in violation of national,
state or local laws. The foregoing shall not, however, restrict Tenant from
conducting periodic sales of retail merchandise from the Premises.
ARTICLE IX
MAINTENANCE OF LEASED PREMISES
Section 9.1. Maintenance by Landlord.
Landlord shall keep or cause to be kept the foundations, roof and
structural portions of the walls of the Premises in good order, repair and
condition except for damage thereto due to the acts or omissions of Tenant, its
agents, employees or invitees. Landlord shall commence required repairs as
soon as reasonably practicable after receiving written notice from Tenant
thereof. This Section 9.1 shall not apply in case of damage or destruction by
fire or other casualty or condemnation or eminent domain, in which events the
obligations of Landlord shall be controlled by Article XVI and XVII. Except as
provided in this Section 9.1 Landlord shall not be obligated to make repairs,
replacements or improvements of any kind upon the Premises unless caused by
the negligent or intentional acts or omissions of Landlord, or to any
equipment, merchandise, stock in trade, facilities or fixtures therein, all of
which shall be Tenant's responsibility, but Tenant shall give Landlord prompt
written notice of any accident, casualty, damage or other similar occurrence in
or to the Premises or the Common Areas of which Tenant has knowledge. In
performing its work hereunder, Landlord agrees that it shall comply with all
laws, ordinance, rules, regulations and orders of governmental bodies and
agencies having jurisdiction thereover applicable as of the date such work is
performed or caused to be performed by Landlord.
Section 9.2. Maintenance by Tenant.
Tenant shall at all times keep the Premises (including all entrances
and vestibules) and all partitions, window and window frames and mouldings,
glass, store fronts, doors, door openers, fixtures, equipment and appurtenances
thereof (including lighting, heating, electrical, plumbing, ventilating and air
conditioning fixtures and systems and other mechanical equipment and
appurtenances) and all parts of the Premises, and parts of Tenant's Work not on
the Premises, not required herein to be maintained by Landlord, in good order,
condition and repair and clean, orderly, sanitary and safe, damage by
unavoidable casualty excepted, (including but not limited to doing such things
as are necessary to cause the Premises to comply with applicable laws,
ordinances, rules, regulations and orders of governmental and public bodies and
agencies, such as but not limited to the Williams-Steiger Occupational Safety
and Health Act). If replacement of equipment, fixtures and appurtenances
thereto is necessary, Tenant shall replace the same with new or completely
reconditioned equipment, fixtures and appurtenances, and repair all damages
done in or by such replacement. If Tenant fails to perform its obligations
hereunder, Landlord with notice may, but shall not be obligated to, perform
Tenant's obligations or perform work resulting from Tenant's acts, actions or
omissions and add the cost of the same to the next installment of Minimum
Monthly Rent due hereunder to be repaid in full.
Section 9.3. Surrender of Premises.
At the expiration or earlier termination of the Lease Term, Tenant
shall surrender the Premises in the same condition as they were required to be
in on the Required Completion Date, reasonable wear and tear and damage by
unavoidable casualty excepted, and deliver all keys for, and all combinations on
locks, safes and vaults in, the Premises to Landlord at Landlord's notice
address as specified in Section 24.7 or, at Landlord's option, to the office of
the Center's general manager.
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ARTICLE X
SIGNS, AWNINGS, CANOPIES, FIXTURES, ALTERATIONS
Section 10.1. Fixtures.
All fixtures installed by Tenant shall be new. At least every five (5)
years, upon the request of Landlord, Tenant shall refurbish all or any portion
of the interior of the Premises so that the furnishings, furniture, flooring,
wall fixtures and coverings, equipment and other appurtenances in the Premises
shall be in keeping with the contemporary decor of the Center.
Section 10.2. Removal and Restoration by Tenant.
All alterations, changes and additions and all improvements (excluding
Tenant's furniture, trades fixtures and equipment and other personal property
not belonging to Tenant), including leasehold improvements, made by Tenant, or
made by Landlord on Tenant's behalf, whether part of Tenant's Work or not and
whether or not paid for wholly or in part by Landlord, shall remain Tenant's
property for the Lease Term. Any alterations, changes, additions and
improvements shall immediately upon the termination of this Lease become
Landlord's property, be considered part of the Premises, and not be removed at
or prior to the end of the Lease Term without Landlord's written consent. If
Tenant fails to remove any shelving, decorations, equipment, trade fixtures or
personal property from the Premises prior to the end of the Lease Term, they
shall become Landlord's property and Tenant shall repair or pay for the repair
of any damage done to the Premises resulting from removing same but not for
painting or redecorating the Premises.
Section 10.3. Tenant's Liens.
A. Tenant shall not suffer any mechanics' or materialmen's lien to be
filed against the Premises or the Center by reason of work, labor, services or
materials performed or furnished to Tenant or anyone holding any part of the
Premises under Tenant. If any such lien shall at any time be filed as
aforesaid. Tenant may contest the same in good faith, but, notwithstanding such
contest, Tenant shall, within thirty (30) days (or such shorter period of time
as may be reaonably necessary if Landlord's or Landlord's mortgagee's interest
in the Premises or the Center is in immediate jeopardy or if Landlord's
ability to sell, finance or re-finance the Center or any portion thereof is
adversely affected as a result of such lien) after the filing thereof, cause
such lien to be released of record by payment, bond, order of a court of
competent jurisdiction, or otherwise in a manner satisfactory to Landlord and
its mortgagee. In the event of Tenant's failure to release of record any such
lien within the aforesaid period, Landlord, any affiliate of Landlord or any
party who delivered a guaranty with respect to any financing of the Center or
the Premises may remove said lien by paying the full amount thereof or by
bonding or in any other manner Landlord, any affiliate of Landlord or any
party who delivered a guaranty with respect to any financing of the Center or
the Premises deems appropriate, without investigating the validity thereof,
and irrespective of the fact that Tenant may contest the propriety or the
amount thereof, and Tenant, upon demand, shall pay Landlord the amount so paid
out by Landlord in connection withe the discharge of said lien, together with
interest thereon at the rate set forth in Section 4.2 herein and reasonable
expenses incurred in connection therewith, including reasonable attorneys'
fees, which amounts are due and payable in full to Landlord as additional rent
on the first day of the next following month. Nothing contained in this Lease
shall be construed as a consent on the part of Landlord to subject Landlord's
estate in the Premises to any lien or liability under the lien laws of the
State of Minnesota. Tenant's obligation to observe and perform any of the
provisions of this Section 10.3 shall survive the expiration of the Lease Term
or the earlier termination of this Lease.
B. Tenant shall not create or suffer to be created a security interest or
other lien against any improvements, additions or other construction
made by Tenant in or to the Premises or against any equipment or fixtures
installed by Tenant therein (other than Tenant's property), and should any
security interest be created in breach of the foregoing, Landlord, any
affiliate of Landlord or any party who delivered a guaranty with respect to any
financing of the Center or the Premises shall be entitled to discharge the same
by exercising the rights and remedies afforded it under paragraph A of this
Section. Notwithstanding anything herein in this Section 10.3B, which may be
to the contrary, Tenant shall have the right, at any time during the Lease
Term, to grant to a bona-fide third party lender or other financial institution
a lien or security interest on all or a part of Tenant's personal property,
furniture, inventory, trade fixtures (but not permanently affixed leasehold
improvements which by the terms of this Lease become Landlord's property),
business equipment and other chattels for fianancing purposes. Landlord hereby
waives any lien or security interest it may have in Tenant's personal property,
furniture, inventory, trade fixtures (but not permanently affixed leasehold
improvements which by the terms of this Lease become Landlord's property),
business equipment and other chattels used by Tenant as collateral or security
for financing purposes, and upon Tenants, written request, if no default exists
hereunder, Landlord agrees to execute an instrument confirming the same. In no
event shall Tenant be permitted to use the Lease as collateral or security for
financing purposes and in no event whatsoever shall Landlord be obligated or
required to consent to or recognize a collateral assignment of this Lease by
Tenant.
Section 10.4. Signs, Awnings and Canopies.
Tenant will not place or permit on any exterior door or window or any
exterior wall of the Premises any sign, awning, canopy, advertising matter,
decoration, lettering or other thing of any kind which does not comply with the
Sign Criteria set forth in Exhibit "E" attached hereto.
ARTICLE XI
INSURANCE
Section 11.1. By Landlord.
Landlord shall carry public liability insurance on those portions of the
Common Areas included in the Total Tract providing coverage of not less than
$5,000,000.00 against liability for bodily injury including death and personal
injury for
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any one (1) occurrence and $1,000,000.00 property damage insurance, or combined
single limit insurance in the amount of $5,000,000.00.
Landlord shall also carry insurance for fire, extended coverage, vandalism,
malicious mischief and other endorsements deemed advisable by Landlord, insuring
all improvements on the Total Tract, including the Premises and all leasehold
improvements thereon and appurtenances thereto (excluding Tenant's merchandise,
trade fixtures, furnishings, equipment, personal property and excluding plate
glass) for the full insurable value thereof, with such deductibles as Landlord
deems advisable, such insurance coverage to include improvements provided by
Tenant as set forth in Exhibit "C" and "C-2" as Tenant's Work (excluding wall
covering, floor covering, carpeting and drapes) and Landlord's Work as defined
in Exhibit "C"; Tenant agrees to pay Landlord, as additional rent, 25 cents per
year for each square foot of Store Floor Area payable in equal installments on
the first day of every calendar month during the Lease Term, as Tenant's share
of the cost of the premiums for such insurance described above in this sentence.
At the end of the first Partial Lease Year and each Lease Year thereafter, the
amount thus to be paid by Tenant shall be adjusted upward or downward (but shall
never be less than the above amount) in direct ratio to the increase or decrease
in the cost of the premiums paid by Landlord for such insurance coverage. Upon
Tenant's written request therefor, Landlord shall provide Tenant with a copy of
the bill for Landlord's insurance premiums.
Section 11.2. By Tenant.
Tenant agrees to carry public liability insurance on the Premises during
the Lease Term, covering the Tenant and naming the Landlord, Simon DeBartolo
Group, Inc. and M.S. Management Associates, Inc., as additional named insured,
with terms and companies satisfactory to Landlord, for limits of not less than
$5,000,000.00 for bodily injury, including death, and personal injury for any
one (1) occurrence, $1,000,000.00 property damage insurance or a combined
single limit of $5,000,000.00. Tenant's insurance will include contractual
liability coverage recognizing this Lease, products and completed operations
liability and providing that Landlord and Tenant shall be given a minimum of
sixty (60) days written notice by the insurance company prior to cancellation,
termination or change in such insurance. Tenant also agrees to carry insurance
against fire and such other risks as are from time to time required by
Landlord, including, but not limited to, a standard "All-Risk" policy of
property insurance protecting against all risk of physical loss or damage,
including without limitation, sprinkler leakage coverage and plate glass
insurance covering all plate glass in the Premises (including store fronts), in
amounts not less than the actual replacement cost, covering all of Tenant's
merchandise, trade fixtures, furnishing, wall covering, floor covering,
carpeting, drapes, equipment and all items of personal property of Tenant
located on or within the Premises. Tenant shall provide Landlord with
certificates evidencing that such insurance is in full force and effect and
stating the terms thereof. The minimum limits of the comprehensive general
liability policy of insurance shall in no way limit or diminish Tenant's
liability under Section 11.6 hereof and shall be subject to increase at any
time, and from time to time. Within ten (10) days after demand therefor by
Landlord, Tenant shall furnish Landlord with evidence that it has complied with
such demand.
Section 11.3. Mutual Waiver of Subrogation Rights.
Landlord and Tenant and all parties claiming under them mutually release
and discharge each other from all claims and liabilities arising from or caused
by any casualty or hazard covered or required hereunder to be covered in whole
or in part by insurance on the Premises or in connection with property on or
activities conducted on the Premises, and waive any right of subrogation which
might otherwise exist in or accrue to any person on account thereof and
evidence such waiver by endorsement to the required insurance policies,
provided that such release shall not operate in any case where the effect is to
invalidate or increase the cost of such insurance coverage (provided, that in
the case of increased cost, the other party shall have the right, within thirty
(30) days following written notice, to pay such increased cost, thereby keeping
such release and waiver in full force and effect).
Section 11.4. Waiver.
Except for the intentional misconduct or negligence of Landlord, its
agents or employees, Landlord, its agents and employees, shall not be liable
for, and Tenant waives all claims for, damage, including but not limited to
consequential damages, to person, property or otherwise, sustained by Tenant or
any person claiming through Tenant resulting from any accident or occurrence in
or upon any part of the Center including, but not limited to, claims for damage
resulting from: (a) any equipment or appurtenances becoming out of repair; (b)
Landlord's failure to keep any part of the Center in repair; (c) injury done or
caused by wind, water, or other natural element; (d) any defect in or failure
of plumbing, heating or air conditioning equipment, electric wiring or
installation thereof, gas, water, and steam pipes, stairs, porches, railings or
walks; (e) broken glass; (f) the backing up of any sewer pipe or downspout; (g)
the bursting, leaking or running of any tank, tub, washstand, water closet,
waste pipe, drain or any other pipe or tank in, upon or about the Premises; (h)
the escape of steam or hot water; (i) water, snow or ice upon the Premises; (j)
the falling of any fixture, plaster or stucco; (k) damage to or loss by theft
or otherwise of property of Tenant or others; (l) acts or omissions of persons
in the Premises, other tenants in the Center, occupants of nearby properties,
or any other persons; and (m) any act or omission of owners of adjacent or
contiguous property. All property of Tenant kept in the Premises shall be so
kept at Tenant's risk only and Tenant shall save Landlord harmless from claims
arising out of damage to the same, including subrogation claims by Tenant's
insurance carrier.
Section 11.5. Insurance - Tenant's Operation.
Tenant will not do or suffer to be done anything which will contravene
Landlord's insurance policies or prevent Landlord from procuring such policies
in amounts and companies selected by Landlord. If anything done, omitted to be
done or suffered to be done by Tenant in, upon or about the Premises shall
cause the rates of any insurance effected or carried by Landlord on the
Premises or other property to be increased beyond the regular rate from time to
time applicable to the Premises for use for the purpose permitted under this
Lease, or such other property for the use or uses made thereof, Tenant will pay
the amount of such increase promptly upon Landlord's demand and Landlord shall
have the right to correct any such condition at Tenant's expense. In the event
that this Lease so permits and Tenant engages in the preparation of food or
packaged foods or engages in the use, sale or storage of inflammable or
combustible material, Tenant shall install chemical
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extinguishing devices (such as ansul) approved by Underwriters Laboratories
and Factory Mutual and the installation thereof must be approved by the
appropriate local authority. Tenant shall keep such devices under service as
required by such organizations. If gas is used in the Premises, Tenant shall
install gas cut-off devices (manual and automatic).
Section 11.6. Indemnification.
Except to the extent caused by the negligent act or intentional
misconduct of Landlord, its partners, agents, employees or property manager,
Tenant shall save harmless, indemnify, and at Landlord's option, defend
Landlord, its agents and employees, and mortgagee, if any, from and against any
and all liability, liens, claims, demands, damages, expenses, fees (including
reasonable attorneys' fees), costs, fines, penalties, suits, proceedings,
actions and causes of action of any and every kind and nature arising or
growing out of or in any way connected with Tenant's use, occupancy, management
or control of the Premises or Tenant's operations, conduct or activities in the
Center.
Except to the extent caused by the negligent act or intentional
misconduct of Tenant, its partners, agents, employees or store manager, and
except for claims waived by Tenant pursuant to Section 11.4 above, Landlord
shall save harmless, indemnify, and at Tenant's option, defend Tenant, its
agents and employees from and against any and all liability, liens, claims,
demands, damages, expenses, fees (including reasonable attorneys' fees), costs,
fines, penalties, suits, proceedings, actions and causes of action of any and
every kind and nature arising or growing out of or in any way connected with
Landlord's use, occupancy, management or control of the Common Areas or
Landlord's operations, conduct or activities in the Center.
Section 11.7. Dramshop Insurance.
The Tenant agrees that it will purchase and maintain so-called
"dramshop" insurance insuring both Landlord and Tenant with adequate limits in
the event the State of Minnesota now has, or hereafter enacts a statute which
provides that a judgment obtained against a retailer, or any other person or
entity, who dispenses alcoholic beverages to unauthorized persons, as defined
by said statute, shall be a lien against the real estate from which said
alcoholic beverages were illegally dispensed (sometimes referred to as a dram
shop act).
ARTICLE XII
OFFSET STATEMENT, ATTORNMENT, SUBORDINATION
Section 12.1. Offset Statement.
With ten (10) days after either party's written request the other
party shall deliver, executed in recordable form a declaration to any person
designated by such party (a) ratifying this Lease; (b) stating the commencement
and termination dates; and (c) certifying (i) that this Lease is in full force
and effect and has not been assigned, modified, supplemented or amended (except
by such writings as shall be stated), (ii) that all conditions under this Lease
to be performed by Landlord or Tenant (as the case may be) have been satisfied
(stating exceptions, if any), (iii) that to the best of such party's knowledge,
without further inquiry, no defenses or offsets against the enforcement of this
Lease by Landlord exist (or stating those claimed): (iv) as to advance rent, if
any, paid by Tenant, (v) the date to which rent has been paid, (vi) as to the
amount of security deposited with Landlord, and such other information as the
requesting party reasonably requires. Persons receiving such statements shall
be entitled to rely upon them.
Section 12.2. Attornment.
Tenant shall, in the event of a sale or assignment of Landlord's
interest in the Premises or the building in which the Premises is located or
this Lease or the Total Tract, or if the Premises or such building comes into
the hands of a mortgagee, ground lessor or any other person whether because of a
mortgage foreclosure, exercise of a power of sale under a mortgage, termination
of the ground lease, or otherwise, attorn to the purchaser or such mortgagee or
other person and recognize the same as Landlord hereunder. Tenant shall
execute, at Landlord's request, any reasonable attornment agreement required by
any mortgagee, ground lessor or other such person to be executed, containing
such provisions as such mortgagee, ground lessor or other person reasonably
requires so long as Tenant's rights under this Lease are not reduced or
obligations increased.
Section 12.3. Subordination.
A. Mortgage. This Lease shall be secondary, junior and inferior at
all times to the lien of any mortgage and to the lien of any deed of trust or
other method of financing or refinancing (hereinafter collectively referred to
as "mortgage") now or hereafter existing against all or a part of the Total
Tract, and to all renewals, modifications, replacements, consolidations and
extensions thereof, and Tenant shall execute and deliver all reasonable
documents requested by any mortgagee or security holder to effect such
subordination so long as Tenant's rights under this Lease are not reduced or
obligations increased.
B. Construction, Operation and Reciprocal Easement Agreements. This
Lease is subject and subordinate to one (1) or more construction, operation,
reciprocal easement or similar agreements (hereinafter referred to as
"Operating Agreements") entered into or hereafter to be entered into between
Landlord and other owners or lessees of real estate (including but not limited
to owners and operators of department stores) within or near the Center (which
Operating Agreements have been or will be recorded in the official records of
the County wherein the Center is located) and to any and all easements and
easement agreements which may be or have been entered into with or granted to
any persons heretofore or hereafter, whether such persons are located within or
upon the Center or not, and Tenant shall execute such reasonable instruments as
Landlord requests to evidence such subordination.
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Section 12.4 Failure to Execute Instruments.
Tenant's failure to execute instruments or certificates provided for in
this Article XII within thirty (30) days after the mailing by Landlord of a
written request shall be a default under this Lease.
Section 12.5. Non-Disturbance.
Upon Tenant's written request, Landlord agrees to request from its
mortgagee or other security holder whose interest in the Premises is superior
to Tenant's interest therein a non-disturbance agreement which shall provide
that in the event Landlord defaults under such mortgage or other security
instrument, Tenant's possession of the Premises shall not be disturbed so long
as Tenant is not in breach of or default of this Lease. Landlord shall not be
liable or responsible for any fees or expenses charged by such mortgagee or
security holder in attempting to secure such non-disturbance agreement.
Further, any mortgagee's or security holder's failure or refusal to execute a
non-disturbance shall not be deemed to be a breach or default of this Lease by
Landlord.
ARTICLE XIII
ASSIGNMENT, SUBLETTING AND CONCESSIONS
Section 13.1. Consent Required.
Tenant shall not sell, assign, mortgage, pledge or in any manner transfer
this Lease or any interest therein, nor sublet all or any part of the Premises,
nor license concessions nor lease departments therein, without Landlord's prior
written consent in each instance which consent shall not be unreasonably
withheld or delayed, provided Tenant and its proposed assignee, sublessee or
other transferee comply with and satisfy the terms, conditions and provisions
of subparagraphs #1 through #6 below. Consent by Landlord to any assignment or
subletting shall not waive the necessity for consent to any subsequent
assignment or subletting. This prohibition shall include a prohibition against
any subletting or assignment by operation of law. If this Lease is assigned or
the Premises or any part sublet or occupied by anybody other than Tenant,
Landlord may collect rent from the assignee, subtenant or occupant and apply
the same to the rent herein reserved, but no such assignment, subletting,
occupancy or collection of rent shall be deemed a waiver of any restrictive
covenant contained in this Section 13.1 or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Tenant from the performance by
Tenant of any covenants on the part of Tenant herein contained. Any assignment
(a) as to which Landlord has consented; or (b) which is required by reason of a
final nonappealable order of a court of competent jurisdiction; or (c) which is
made by reason of and in accordance with the provisions of any law or statute,
including, without limitation, the laws governing bankruptcy, insolvency or
receivership shall be subject to all terms and conditions of this Lease, and
shall not be effective or deemed valid unless, at the time of such assignment:
1. Each assignee or sublessee shall agree, in a written agreement
satisfactory to Landlord, to assume and abide by all of the terms and
provisions of this Lease, including those which govern the permitted
uses of the Premises described in Article VIII herein; and
2. Each assignee or sublessee has submitted a current financial
statement, prepared by a certified public accountant, showing a net
worth at least equal to Tenant's net worth as of the date of this
Lease or the date immediately preceding the date of such assignment or
subletting, whichever is greater; and
3. Each assignee or sublessee has submitted, in writing, evidence
satisfactory to Landlord of retailing or restaurant experience in
regional shopping centers; and
4. The business reputation of each assignee or sublessee shall meet or
exceed generally acceptable commercial standards; and
5. The use of the Premises by each assignee or sublessee shall not
violate, or create any potential violation of applicable laws, codes or
ordinances, nor violate any other agreements affecting the Premises,
Landlord or other tenants in the Center.
6. Tenant shall pay Landlord an Assignment Fee as reimbursement for
administrative and legal expenses incurred by Landlord in connection
with any assignment or subletting. The Assignment Fee initially will
be One Thousand and 00/100 Dollars ($1,000.00) and shall increase by
One Hundred and 00/100 Dollars ($100.00) at the end of each full Lease
Year of the Lease Term.
In the event of any assignment or subletting as provided above, there shall
be paid to Landlord, in addition to the Minimum Annual Rent and other charges
due Landlord pursuant to this Lease, such additional consideration as shall be
attributable to the right of use and occupancy of the Premises, whenever the
same is receivable by Tenant, together with, as additional rent, the excess, if
any, of the rent and other charges payable by the assignee or sublessee over
the Minimum Annual Rent and other charges payable under the Lease to Landlord
by Tenant pursuant to this Lease. Such additional rent shall be paid to
Landlord concurrently with the payments of Minimum Annual Rent required under
this Lease, and Tenant shall remain primarily liable for such payments.
Notwithstanding any assignment or subletting, Tenant shall remain fully liable
on this Lease and for the performance of all terms, covenants and provisions of
this Lease.
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Anything contained in the foregoing provisions of this Section to the
contrary notwithstanding, neither Tenant nor any other person having an
interest in the possession, use, occupancy or utilization of the Premises shall
enter into any lease, sublease, license, concession or other agreement for use,
occupancy or utilization of space in the Premises which provides for rental or
other payment for such use, occupancy or utilization based, in whole or part,
on the net income or profits derived by any person from the Premises leased,
used, occupied, or utilized (other than an amount based on a fixed percentage
or percentages of receipts or sales), and any such purported lease, sublease,
license, concession or other agreement shall be absolutely void and ineffective
as a conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
Section 13.2. Change in Ownership.
If Tenant or the guarantor of this Lease, if any, is a corporation the
stock of which is not traded on any national securities exchange (as defined in
the Securities Exchange Act of 1934, as amended) or the NASDAQ Stock Market,
then the following shall constitute an assignment of this Lease for all
purposes of this Article XIII: (i) the merger, consolidation or reorganization
of such corporation; and/or (ii) the sale, issuance, or transfer, cumulatively
or in one transaction, of any voting stock, by Tenant or the guarantor of this
Lease or the stockholders of record of either as of the date of this Lease,
which results in a change in the voting control of Tenant or the guarantor of
this Lease, except any such transfer by inheritance or testamentary
disposition. If Tenant or the guarantor of this Lease, if any, is a joint
venture, partnership, or other association, then for all purposes of this
Article XIII, the sale, issuance or transfer, cumulatively or in one
transaction, of either voting control or of a fifty percent (50%) interest, or
the termination of any joint venture, partnership or other association, shall
constitute an assignment, except any such transfer by inheritance or
testamentary disposition.
ARTICLE XIV
MARKETING FUND AND ADVERTISING
Section 14.1. Provisions Relating to Marketing Fund.
Landlord may, at its option, create and maintain a marketing fund
(hereinafter referred to as the "Fund"), the primary purpose of which is to
provide sums necessary for professional marketing services which benefit the
tenants in the Center. In the event Landlord does create and maintain the
Fund, Tenant agrees to contribute to such Fund, beginning upon the later to
occur of (a) the Commencement Date, or (b) the date the Fund is created, $0.50
per square foot of Store Floor Area, during each calendar year of the Lease Term
(hereinafter referred to as "Fixed Contribution") payable in equal monthly
installments, in advance, on the first day of each and every month (pro rated
for partial months). Landlord shall contribute an amount equal to 1/4 of the
monies collected from all tenants in the Center during each calendar year,
which sum may be paid in whole or in part by Landlord, at its option, by
providing the services of a Marketing Director or other person or persons under
Landlord's exclusive control to help organize and implement marketing programs
using assets from the Fund. Any overpayment or underpayment of such amount by
Landlord shall be adjusted annually. The Fixed Contribution shall be increased
annually commencing with the creation of the Fund based upon the increase of the
Consumer Price index (as defined in Section 7.2 above) during the preceding
twelve (12) month period. In addition to its other obligations contained
herein, Tenant agrees that it shall participate and cooperate in all special
sales and promotions sponsored by the Fund. The failure of any other tenant or
any department store to contribute to the Fund shall not affect Tenant's
obligations hereunder.
Section 14.2. Advertising.
Tenant shall furnish to Landlord an annual statement at the end of each
Lease Year showing the amounts spent by Tenant on white space advertising,
other advertising media, and local store marketing or promotions. Each such
annual statement shall be made a part of the Gross Sales annual report required
to be furnished by Tenant under Section 4.3. If Tenant's annual statement
shows that Tenant has expended for such advertising, during the preceding Lease
Year, less than one percent (1%) of its Gross Sales for said period, Tenant
shall within thirty (30) days after the required delivery date of its annual
statement contribute to the Marketing Fund referred to in Section 14.1 above
the difference between the amount actually expended for such advertising and
one percent (1%) of such Gross Sales. Contributions or other payments payable
by Tenant to the said Marketing Fund shall not be deemed an amount expended for
advertising within the meaning of this Section 14.2. All expenditures made by
Tenant for advertising in connection with Tenant's other stores, if any, within
a fifteen (15) mile radius from the nearest perimeter boundary of the whole
Center, may be included by Tenant to comply with this Section 14.2, provided
such advertising in all instances includes the Premises and encompasses or is
distributed to the geographical trade area in which the whole Center is
located.
Section 14.3. Media Fund.
Landlord may, at its option, create and maintain a Media Fund, the
exclusive purpose of which shall be to pay all costs and expenses associated
with the purchase of electronic, print or outdoor advertising for the promotion
of the Center. In the event Landlord does create and maintain the Media Fund,
Tenant agrees to contribute to such Fund, beginning upon the later to occur of
(a) the Commencement Date or (b) the date the Media Fund is created, a sum
equal to $0.50 per square foot of Store Floor Area during each calendar year of
the Lease Term (hereinafter referred to as "Media Fund Charge"), payable in
equal monthly installments, in advance, on the first day of each and every
month (pro rated for partial months).
The Media Fund Charge shall be adjusted annually by a percentage equal to
the percentage increase or decrease in the electronic, print and outdoor
advertising rates of the media used for advertising and promotions in the
preceding calendar year in the media market in which the Center is located,
provided, however that said charge shall not be less than as originally set
forth herein. Within ninety (90) days following the close of each calendar
year, Landlord shall furnish Tenant a statement for the preceding calendar year
showing the amounts expended by Landlord for media advertising. Tenant hereby
authorizes Landlord to use Tenant's trade name and a brief description of
Tenant's business in connection with any media advertising purchased pursuant
to this Section.
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Section 14.4. Merchants' Association.
Landlord may, at its option, create and maintain a Merchants' Association
(the "Association") in lieu of the Fund and the Media Fund. In that event,
Tenant agrees to contribute to the Association, beginning upon the later to
occur of (a) the Commencement Date or (b) the date the Association is created,
the sum of the amounts Tenant would be obligated to contribute to the Fund and
the Media Fund under Section 14.1 and 14.3 had Landlord created and maintained
the Fund and the Media Fund. Such amount shall be payable by Tenant to the
Association in equal monthly installments, in advance, on the first day of each
and every month (prorated for partial months). Landlord shall contribute to the
Association during each calendar year an amount equal to the amount Landlord
would otherwise be required to contribute to the Fund in accordance with Section
14.1 above. Any overpayment or underpayment of such amount by Landlord shall be
adjusted annually.
ARTICLE XV
SECURITY DEPOSIT
Section 15.1. Amount of Deposit. INTENTIONALLY DELETED.
ARTICLE XVI
DAMAGE AND DESTRUCTION
If the premises are hereafter damaged or destroyed or rendered partially
untenantable for their accustomed use by fire or other casualty insured under
the coverage which Landlord is obligated to carry pursuant to Section 11.1
hereof, Landlord shall promptly repair the same to substantially the condition
which they were in immediately prior to the happening of such casualty
(excluding stock in trade, fixtures, furniture, furnishings, carpeting, floor
covering, wall covering, drapes, ceiling and equipment), and from the date of
such casualty until the Premises are so repaired and restored, the Minimum
Monthly Rent payments payable hereunder shall abate in such proportion as the
part of said Premises thus destroyed or rendered untenantable bears to the total
Premises; and in the event the kitchen area in the Premises is rendered unusable
as a result of such damage or destruction, all rent, except Real Estate Taxes,
shall abate (unless such damage or destruction was caused by the Tenant, its
agents, employees or contractors in which event rent shall not abate) until the
kitchen area is again rendered usable; provided, however, that Landlord shall
not be obligated to repair and restore if such casualty is not covered by the
insurance which Landlord is obligated to carry pursuant to Section 11.1 hereof
and no portion of the Minimum Monthly Rent and other payments payable hereunder
shall abate, and provided, further, that Landlord shall not be obligated to
expend for any repair or restoration an amount in excess of the insurance
proceeds recovered by Landlord therefor, and provided, further, that if the
Premises be damaged, destroyed or rendered untenantable for their accustomed
uses by fire or other casualty to the extent of more than fifty percent (50%) of
the cost to replace the Premises during the last three (3) years of the Lease
Term, then Landlord or Tenant shall have the right to terminate this Lease
effective as of the date of such casualty by giving to the other party within
sixty (60) days after the happening of such casualty, written notice of such
termination. If such notice be given, this Lease shall terminate and Landlord
shall promptly repay to Tenant any rent theretofore paid in advance which was
not earned at the date of such casualty. Any time that Landlord repairs or
restores the Premises after damage or destruction, then Tenant shall promptly
repair or replace its stock in trade, fixtures, furnishings, furniture,
carpeting, wall covering, floor covering, drapes, ceiling and equipment to the
same condition as they were in immediately prior to the casualty, and if Tenant
has closed its business, Tenant shall promptly reopen for business upon the
completion of such repairs.
Notwithstanding anything to the contrary set forth herein, in the event all
or any portion of the Center shall be damaged or destroyed by fire or other
cause (notwithstanding that the Premises may be unaffected thereby), to the
extent the cost of restoration thereof would exceed fifteen percent (15%) of the
amount it would have cost to replace the Center in its entirety at the time such
damage or destruction occurred, then Landlord may terminate this Lease by giving
Tenant thirty (30) days prior notice of Landlord's election to do so, which
notice shall be given, if at all, within ninety (90) days following the date of
such occurrence. In the event of the termination of this Lease as aforesaid,
this Lease shall cease thirty (30) days after such notice is given, and the rent
and other charges hereunder shall be adjusted as of that date.
Notwithstanding anything to the contrary set forth herein, in the event all
or any portion of the Center shall be damaged or destroyed by fire or other
cause (notwithstanding that the Premises may be unaffected thereby), to the
extent the cost of restoration thereof would exceed thirty-five percent (35%) of
the amount it would have cost to replace the Center in its entirety at the time
such damage or destruction occurred, then Tenant may terminate this Lease by
giving Landlord thirty (30) days prior notice of Tenant's election to do so,
which notice shall be given, if at all, within ninety (90) days following date
of such occurrence. In the event of the termination of this Lease as aforesaid,
this Lease shall cease thirty (30) days after such notice is given, and the rent
and other charges hereunder shall be adjusted as of that date.
ARTICLE XVII
EMINENT DOMAIN
Section 17.1. Condemnation.
If ten percent (10%) or more of the Store Floor Area or fifteen percent
(15%) or more of the Center (excluding land not currently developed) shall be
acquired or condemned by right of eminent domain for any public or quasi
public use or purpose, or if an Operating Agreement is terminated as a result
of such an acquisition or condemnation, then Landlord or Tenant at its election
may terminate this Lease by giving notice to Tenant of its election, and in such
event rentals shall be apportioned and adjusted as of the date of termination.
If the Lease shall not be terminated as aforesaid, then it shall continue
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in full force and effect, and Landlord shall within a reasonable time after
possession is physically taken (subject to delays due to shortage of labor,
materials or equipment, labor difficulties, breakdown of equipment, government
restrictions, fires, other casualties or other causes beyond the reasonable
control of Landlord) repair or rebuild what remains of the Premises for
Tenant's occupancy; and a just proportion of the Minimum Annual Rent shall be
abated, according to the nature and extent of the injury to the Premises until
such repairs and rebuilding are completed and thereafter for the balance of the
Lease Term.
Section 17.2. Damages.
Landlord reserves, and Tenant assigns to Landlord, all rights to damages on
account of any taking or condemnation or any act of any public or quasi public
authority for which damages are payable. Tenant shall execute such instruments
of assignment as Landlord requires, join with Landlord in any action for the
recovery of damages, if requested by Landlord, and turn over to Landlord any
damages recovered in any proceeding. If Tenant fails to execute instruments
required by Landlord, or undertake such other steps as requested. Landlord shall
be deemed the duly authorized irrevocable agent and attorney-in-fact of Tenant
to execute such instruments and undertake such steps on behalf of Tenant.
However, Landlord does not reserve any damages payable for trade fixtures
installed by Tenant at its own cost which are not part of the realty. However,
Landlord shall not be entitled to the award made to Tenant for loss of business,
relocation, depreciation to and costs of removal of stock and fixtures installed
by Tenant at its own cost which are not part of the realty or other losses
Tenant may be entitled to recover other than diminution in value of the
leasehold; provided, however, any claim for the same is made against the
condemning authority and not against the Landlord or Landlord's mortgagee and
provided, further, Tenant's claim for losses or damages shall not diminish any
award made to Landlord or Landlord's mortgagee therefor.
ARTICLE XVIII
DEFAULT BY TENANT
Section 18.1. Right to Re-Enter.
The following shall be considered for all purposes to be defaults under and
breaches of this Lease: (a) any failure of Tenant to pay any rent or other
amount within five (5) days after Tenant's receipt of written notice from
Landlord that the same is past due hereunder; (b) any failure by Tenant to
perform or observe any other of the terms, provisions, conditions and covenants
of this Lease for more than thirty (30) days after written notice of such
failure or such longer period of time as may be reasonably required provided
Tenant has commenced to cure the same within such thirty (30) day period and is
diligently pursuing such cure to completion; (c) a determination by Landlord
that Tenant has submitted any materially false report required to be furnished
hereunder; (d) anything done by Tenant upon or in connection with the Premises
or the construction of any part thereof which directly or indirectly interferes
in any way with, or results in a work stoppage in connection with, construction
of any part of the Center or any other tenant's space and Tenant fails to
promptly take such action as Landlord shall specify, orally or in writing from
Landlord or Landlord's authorized representative, in order to promptly prevent,
avoid or terminate such interference or work stoppage (or the threat thereof) in
connection with construction of any part of the Center or any other tenant's
space; (e) the bankruptcy or insolvency of Tenant or the filing by or against
Tenant of a petition in bankruptcy or for reorganization or arrangement or for
the appointment of a receiver or trustee of all or a portion of Tenant's
property, or Tenant's assignment for the benefit of creditors; (f) if Tenant
abandons or vacates or does not do business in the Premises when required to do
so under this Lease, or (g) this Lease or Tenant's interest herein or in the
Premises or any improvements thereon or any property of Tenant are executed upon
or attached; or (h) the Premises come into the hands of any person other than
expressly permitted under this Lease (i) repetition or continuation of any
failure to pay rent or other sums due hereunder where such failure shall
continue or be repeated for two consecutive months or a total of four months in
any period of twelve consecutive months. In any such event, and without any
additional grace period (except as provided in this Lease), demand or notice
(the same being hereby waived by Tenant), Landlord, in addition to all other
rights or remedies it may have, shall have the right thereupon or at any time
thereafter to terminate this Lease by giving notice to Tenant stating the date
upon which such termination shall be effective, and shall have the right, either
before or after any such termination, to re-enter and take possession of the
Premises, remove all persons and property from the Premises, store such property
at Tenant's expense, and sell such property if necessary to satisfy any
deficiency in payments by Tenant as required hereunder, all without notice or
resort to legal process and without being deemed guilty of trespass or
constructive eviction or becoming liable for any loss or damage occasioned
thereby. Nothing herein shall be construed to require Landlord to give any
notice before exercising any of its rights and remedies provided for in Section
3.3 of this Lease. Notwithstanding anything to the contrary herein contained,
if Tenant commits any non-monetary default hereunder for or precedent to which
or with respect to which notice is herein required, and commits such defaults
within twelve (12) months thereafter, no notice shall thereafter be required to
be given by Landlord as to or precedent to any such subsequent default during
such twelve (12) month period (as Tenant hereby waiving the same) before
exercising any or all remedies available to Landlord.
Section 18.2. Right to Relet.
If Landlord re-enters the Premises as above provided, or if it takes
possession pursuant to legal proceedings or otherwise, it may either terminate
this Lease or it may, from time to time, without terminating this Lease, make
such alterations and repairs as it deems advisable to relet the Premises, and
relet the Premises or any part thereof for such term or terms (which may extend
beyond the Lease Term) and at such rentals and upon such other terms and
conditions as Landlord in its sole discretion deems advisable; upon each such
reletting all rentals received by Landlord therefrom shall be applied, first, to
any indebtedness other than rent due hereunder from Tenant to Landlord; second,
to pay any costs and expenses of reletting, including without limitation,
brokers and attorneys' fees and costs of advertising, alterations and repairs;
third, to rent due hereunder, and the residue, if any, shall be held by Landlord
and applied in payment of future rent as it becomes due hereunder.
If rentals received from such reletting during any month are less than that
to be paid during that month by Tenant hereunder, Tenant shall immediately pay
any such deficiency to Landlord. No re-entry or taking possession of the
Premises by
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Landlord shall be construed as an election to terminate this Lease unless a
written notice of such termination is given by Landlord.
Notwithstanding any such reletting without termination, Landlord may at any
time thereafter terminate this Lease for any prior breach or default. If
Landlord terminates this Lease for any breach, or otherwise takes any action on
account of Tenant's breach or default hereunder, in addition to any other
remedies it may have, it may recover from Tenant all damages incurred by reason
of such breach or default, all costs of retaking the Premises and including the
excess, if any, of the total rent and charges reserved in this Lease for the
remainder of the Lease Term over the then reasonable rental value of the
Premises for the remainder of the Lease Term, all of which shall be immediately
due and payable by Tenant to Landlord. Further, if Tenant defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and Landlord places the enforcement of all
or any part of this Lease, the collection of any rent due or to become due or
the recovery of possession of the Premises in the hands of an attorney, or if
Landlord incurs any fees or out-of-pocket costs in any litigation, negotiation
or transaction in which Tenant causes Landlord to be involved or concerned,
Tenant agrees to reimburse Landlord for the reasonable attorneys' fees and costs
incurred thereby, whether or not suit is actually filed. In determining the
rent payable by Tenant hereunder subsequent to default, the Minimum Annual Rent
for each year of the unexpired portion of the Lease Term shall equal the average
Minimum Annual and Percentage Rents which Tenant was obligated to pay from the
commencement of the Lease Term to the time of default, or during the preceding
three (3) full calendar years, whichever period is shorter.
Section 18.3. Counterclaim.
If Landlord commences any proceedings for non-payment of rent (Minimum
Annual Rent, Percentage Rent or additional rent), Tenant will not interpose any
counterclaim of any nature or description in such proceedings. This shall not,
however, be construed as a waiver of Tenant's right to assert such claims in a
separate action brought by Tenant. The covenants to pay rent and other amounts
hereunder are independent covenants and Tenant shall have no right to hold back,
offset or fail to pay any such amounts for default by Landlord or any other
reason whatsoever, it being understood and acknowledged by Tenant that Tenant's
only recourse is to seek an independent action against Landlord.
Section 18.4. Waiver of Rights of Redemption.
To the extent permitted by law, Tenant waives any and all rights of
redemption granted by or under any present or future laws if Tenant is evicted
or dispossessed for any cause, or if Landlord obtains possession of the Premises
due to Tenant's default hereunder or otherwise.
Section 18.5. Waiver of Trial by Jury.
To the extent permitted by applicable law, Tenant hereby waives trial by
jury in any summary action or proceeding brought by Landlord against Tenant, the
only issue in such summary action or proceeding being the non-payment of rent by
Tenant.
Section 18.6. Bankruptcy.
A. Assumption of Lease. In the event Tenant shall become a Debtor under
Chapter 7 of the Bankruptcy Code ("Code") or a petition for reorganization or
adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the
Code, or a proceeding is filed under Chapter 7 and is transferred to Chapters 11
or 13, the Trustee or Tenant, as Debtor and as Debtor-in-Possession, may not
elect to assume this Lease unless, at the time of such assumption, the Trustee
or Tenant has:
1. Cured or provided Landlord "Adequate Assurance" (as defined below)
that:
(a) Within ten (10) days from the date of such assumption the Trustee
or Tenant will cure all monetary defaults under this Lease and
compensate Landlord for any actual pecuniary loss resulting from
any existing default, including without limitation, Landlord's
reasonable costs, expenses, accrued interest as set forth in
Section 4.2 of the Lease, and attorneys' fees incurred as a
result of the default;
(b) Within thirty (30) days from the date of such assumption the
Trustee or Tenant will cure all non-monetary defaults under this
Lease; and
(c) The assumption will be subject to all of the provisions of this
Lease.
2. For purposes of this Section 18.6. Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a
minimum "Adequate Assurance" shall mean:
(a) The Trustee or Tenant has and will continue to have sufficient
unencumbered assets after the payment of all secured obligations
and administrative expenses to assure Landlord that the Trustee
or Tenant will have sufficient funds to fulfill the obligations
of Tenant under this Lease, and to keep the Premises stocked with
merchandise and properly staffed with sufficient employees to
conduct a fully-operational, actively promoted business in the
Premises; and
(b) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and/or the Trustee or Tenant
shall have granted a valid and preferred first lien and security
interest and/or mortgage in property of Trustee or Tenant
acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee or Tenant to cure the
monetary and/or non-monetary defaults under this Lease within the
time periods set forth above; and
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(c) The Trustee or Tenant at the very least shall deposit a
sum, in addition to the Security Deposit, equal to one
(1) month's rent to be held by Landlord (without any
allowance for interest thereon) to secure Tenant's
future performance under the Lease.
B. Assignment of Lease. If the Trustee or Tenant has assumed the
Lease pursuant to the provisions of this Section 18.6 for the purpose of
assigning Tenant's interest hereunder to any other person or entity, such
interest may be assigned only after the Trustee, Tenant or the proposed
assignee have complied with all of the terms, covenants and conditions of
Section 13.1 herein, including, without limitation, those with respect to
additional rent and the use of the Premises only as permitted in Article VIII
herein; Landlord and Tenant acknowledging that such terms, covenants and
conditions are commercially reasonable in the context of a bankruptcy
proceeding of Tenant. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease on and
after the date of such assignment. Any such assignee shall upon request
execute and deliver to Landlord an instrument confirming such assignment.
C. Adequate Protection. Upon the filing of a petition by or
against Tenant under the Code, Tenant, as Debtor and as Debtor-in-Possession,
and any Trustee who may be appointed agree to adequately protect Landlord as
follows:
(1) To perform each and every obligation of Tenant under
this Lease until such time as this Lease is either
rejected or assumed by Order of the Bankruptcy Court;
and
(2) To pay all monetary obligations required under this
Lease, including without limitation, the payment of
Minimum Monthly Rent, and such other additional rent
charges payable hereunder which is considered
reasonable compensation for the use and occupancy of
the Premises; and
(3) Provide Landlord a minimum 30 days prior written
notice, unless a shorter period is agreed to in
writing by the parties, of any proceeding relating to
any assumption of this Lease or any intent to abandon
the Premises, which abandonment shall be deemed a
rejection of this Lease; and
(4) To perform to the benefit of Landlord otherwise
required under the Code.
The failure of Tenant to comply with the above shall result in an
automatic rejection of this Lease.
D. Accumulative Rights. The rights, remedies and liabilities of
Landlord and Tenant set forth in this Section 18.6 shall be in addition to
those which may now or hereafter be accorded, or imposed upon, Landlord and
Tenant by the Code.
ARTICLE XIX
DEFAULT BY LANDLORD
Section 19.1. Default Defined, Notice.
Landlord shall in no event be charged with default in any of its
obligations hereunder unless and until Landlord shall have failed to perform
such obligations within thirty (30) days (or such additional time as is
reasonably required to correct any such default) after written notice as set
forth in Section 24.7 to Landlord by Tenant, specifically describing such
failure.
Section 19.2. Notice to First Mortgagee.
If the holder of the first mortgage covering the Premises shall have
given written notice to Tenant of the address to which notices to such holder
are to be sent, Tenant shall give such holder written notice simultaneously
with any notice given to Landlord of any default of Landlord, and if Landlord
fails to cure any default asserted in said notice within the time provided
above, Tenant shall notify such holder in writing of the failure to cure, and
said holder shall have the right but not the obligation, within thirty (30) days
after receipt of such second notice and within thirty (30) days of receipt
thereof, to cure such default before Tenant may take any action by reason of
such default.
ARTICLE XX
TENANT'S PROPERTY
Section 20.1. Taxes on Leasehold.
Tenant shall be responsible for and shall pay before delinquent all
municipal, county, federal or state taxes whether enacted now or in the future
coming due during or after the Lease Term against Tenant's interest in this
Lease or against personal property of any kind owned or placed in, upon or
about the Premises by Tenant.
Section 20.2. Assets of Tenant. INTENTIONALLY DELETED.
ARTICLE XXI
ACCESS BY LANDLORD
Section 21.1. Right of Entry.
Landlord, its agents and employees shall have the right to enter the
Premises from time to time at reasonable times upon at least two (2) hours oral
notice to Tenant's store manager (no notice shall be required in an emergency)
to examine
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the same, show them to prospective purchasers and other persons, and make such
repairs, alterations, improvements or additions as Landlord deems desirable.
Rent shall not abate while any such repairs, alterations, improvements, or
additions are being made. In addition, during any apparent emergency, Landlord
or its agents may enter the Premises forcibly without liability therefor and
without in any manner affecting Tenant's obligations under this Lease. Nothing
herein contained, however, shall be deemed to impose upon Landlord any
obligation, responsibility or liability whatsoever, for any care, maintenance
or repair except as otherwise herein expressly provided.
ARTICLE XXII
HOLDING OVER, SUCCESSORS
Section 22.1. Holding Over.
If Tenant holds over or occupies the Premises beyond the Lease Term (it
being agreed there shall be no such holding over or occupancy without
Landlord's written consent), Tenant shall pay Landlord for each day of such
holding over a sum equal to the greater of (a) twice the Minimum Monthly Rent
prorated for the number of days of such holding over, or (b) Minimum Annual
Rent plus Percentage Rent prorated for the number of days of such holding over,
plus, whichever of (a) or (b) is applicable, a prorata portion of all other
amounts which Tenant would have been required to pay hereunder had this Lease
been in effect. If Tenant holds over with or without Landlord's written
consent Tenant shall occupy the Premises on a tenancy at sufferance but all
other terms and provisions of this Lease shall be applicable to such period.
Section 22.2. Successors.
All rights and liabilities herein given to or imposed upon the respective
parties hereto shall bind and inure to the several respective heirs,
successors, administrators, executors and assigns of the parties and if Tenant
is more than one (1) person, they shall be bound jointly and severally by this
Lease except that no rights shall inure to the benefit of any assignee or
subtenant of Tenant unless the assignment or sublease was approved by Landlord
in writing as provided in Section 13.1 hereof. Landlord, at any time and from
time to time, may make an assignment of its interest in this Lease and, in the
event of such assignment, Landlord and its successors and assigns (other than
the assignee of Landlord's interest in this Lease) shall be released from any
and all liability thereafter accruing hereunder.
ARTICLE XXIII
QUIET ENJOYMENT
Section 23.1. Landlord's Covenant.
If Tenant pays the rents and other amounts herein provided, observes and
performs all the covenants, terms and conditions hereof, Tenant shall peaceably
and quietly hold and enjoy the Premises for the Lease Term without interruption
by Landlord or any person or persons claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease.
ARTICLE XXIV
MISCELLANEOUS
Section 24.1. Waiver.
No waiver by Landlord or Tenant of any breach of any term, covenant or
condition hereof shall be deemed a waiver of the same or any subsequent breach
of the same or any other term, covenant or condition. The acceptance of rent
by Landlord shall not be deemed a waiver of any earlier breach by Tenant of any
term, covenant or condition hereof, regardless of Landlord's knowledge of such
breach when such rent is accepted. No covenant, term or condition of this
Lease shall be deemed waived by Landlord or Tenant unless waived in writing.
Section 24.2. Accord and Satisfaction.
Landlord is entitled to accept, receive and cash or deposit any payment
made by Tenant for any reason or purpose or in any amount whatsoever, and apply
the same at Landlord's option to any obligation of Tenant and the same shall
not constitute payment of any amount owed except that to which Landlord has
applied the same. No endorsement or statement on any check or letter of Tenant
shall be deemed an accord and satisfaction or otherwise recognized for any
purpose whatsoever. The acceptance of any such check or payment shall be
without prejudice to Landlord's right to recover any and all amounts owed by
Tenant hereunder and Landlord's right to pursue any other available remedy.
Section 24.3. Entire Agreement.
There are no representations, covenants, warranties, promises, agreements,
conditions or undertakings, oral or written, between Landlord and Tenant other
than herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing, signed by them and approved by Landlord's
mortgagee.
Section 24.4. No Partnership.
Landlord does not, in any way or for any purpose, become a partner,
employer, principal, master, agent or joint venturer of or with Tenant.
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Section 24.5. Force Majeure.
If either party hereto shall be delayed or hindered in or prevented from
the performance of any act required hereunder by reason of strikes, lockouts,
labor troubles, inability to procure material, failure of power, restrictive
governmental laws or regulations, riots, insurrection, war or other reason of a
like nature not the fault of the party delayed in performing work or doing acts
required under this Lease, the period for the performance of any such act shall
be extended for a period equivalent to the period of such delay.
Notwithstanding the foregoing, the provisions of this Section 24.5 shall at no
time after the Commencement Date (as the same may be extended pursuant to
Section 3.3 above) operate to excuse Tenant from any obligations for payment of
Minimum Annual Rent, Percentage Rent, additional rent or any other payments
required by the terms of this Lease when the same are due, and all such amounts
shall be paid when due.
Section 24.6. Submission of Lease.
Submission of this Lease to Tenant does not constitute an offer to lease;
this Lease shall become effective only upon execution and delivery thereof by
Landlord and Tenant. Upon execution of this Lease by Tenant, Landlord is
granted an irrevocable option for fifteen (15) days to execute this Lease
within said period and thereafter return a fully executed copy to Tenant. The
effective date of this Lease shall be the date filled in on Page 1 hereof by
Landlord, which shall be the date of execution by the last of the parties to
execute the Lease.
Section 24.7. Notices.
All notices from Tenant to Landlord required or permitted by any provision
of this agreement shall be directed to Landlord as follows:
MALL OF AMERICA COMPANY
c/o M.S. Management Associates Inc.
National City Center
115 W. Washington Street
Indianapolis, Indiana 46204
Prior to the Commencement Date such notices shall only be effective if
given to Landlord at the address shown above and to Landlord at the address
shown below:
MALL OF AMERICA COMPANY
c/o M.S. Management Associates Inc.
Construction Department
National City Center
115 W. Washington Street
Indianapolis, Indiana 46204
All notices from Landlord to Tenant required or permitted hereunder shall be
directed as follows, namely:
Hotel Discovery, Inc.
8260 North Creek Drive
Suite 140
Cincinnati, Ohio 45236
All notices to be given hereunder by either party shall be written and sent
by registered or certified mail, return receipt requested, postage pre-paid or
by an express mail delivery service, addressed to the party intended to be
notified at the address set forth above. Either party may, at any time, or
from time to time, notify the other in writing of a substitute address for that
above set forth, and thereafter notices shall be directed to such substitute
address. Notice given as aforesaid shall be sufficient service thereof and
shall be deemed given as of the date received, as evidenced by the return
receipt of the registered or certified mail or the express mail delivery
receipt, as the case may be. A duplicate copy of all notices from Tenant shall
be sent to any mortgagee as provided for in Section 19.2.
Section 24.8. Captions and Section Numbers.
This Lease shall be construed without reference to titles of Articles and
Sections, which are inserted only for convenience of reference.
Section 24.9. Number and Gender.
The use herein of a singular term shall include the plural and use of the
masculine, feminine or neuter genders shall include all others.
Section 24.10. Objection to Statements.
Notwithstanding the provisions of Section 24.1, Tenant's failure to object
to any statement, invoice or billing rendered by Landlord within a period of
thirty (30) days after receipt thereof shall constitute Tenant's acquiescence
with respect thereto and shall render such statement, invoice or billing an
account stated between Landlord and Tenant.
Section 24.11. Representation by Corporate Tenant.
If Tenant is or will be a corporation, the persons executing this Lease on
behalf of Tenant hereby covenant and warrant that Tenant is a duly qualified
corporation authorized to do business in the State of Minnesota, that all
franchise and corporate taxes have been paid to date and all future forms,
reports, fees and other documents necessary to comply with
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applicable laws will be filed when due, and the person signing this Lease on
behalf of the corporation is an officer of Tenant and is duly authorized to sign
and execute this Lease.
Section 24.12. Joint and Several Liability.
If Tenant is a partnership or other business organization the members
of which are subject to personal liability, the liability of each such member
shall be deemed to be joint and several.
Section 24.13. Limitation of Liability.
Anything to the contrary herein contained, notwithstanding there shall
be absolutely no personal liability on persons, firms or entities who constitute
Landlord with respect to any of the terms, covenants, conditions and provisions
of this Lease, and Tenant shall, subject to the rights of any first mortgagee,
look solely to the interest of Landlord, its successors and assigns, in
Landlord's Tract for the satisfaction of each and every remedy of Tenant in
the event of default by Landlord hereunder; such exculpation of personal
liability is absolute and without any exception whatsoever.
Section 24.14. Broker's Commission.
Each party represents and warrants that it has caused or incurred no
claims for brokerage commissions or finder's fees in connection with the
execution of this Lease, and each party shall indemnify and hold the other
harmless against and from all liabilities arising from any such claims caused
or incurred by it (including without limitation, the cost of attorneys' fees in
connection therewith).
Section 24.15. Partial Invalidity.
If any 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, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby and each provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
Section 24.16. Recording.
The parties agree not to place this Lease of record but each party
shall, at the request of the other, execute and acknowledge so that the same may
be recorded a Short Form Lease or Memorandum of Lease, indicating the Lease
Term, but omitting rent and other terms and an Agreement specifying the date of
commencement and termination of the Lease Term; provided, however, that the
failure to record said Short Form Lease, Memorandum of Lease or Agreement shall
not affect or impair the validity and effectiveness of this Lease. Tenant
shall pay all costs, taxes, fees and other expenses in connection with or
prerequisite to recording.
Section 24.17. Applicable Law.
This Lease shall be construed under the laws of the State of Minnesota.
Section 24.18. Mortgagee's Approval. INTENTIONALLY DELETED.
Section 24.19. Reservation of Air Rights.
There has been no representation or warranty by the Landlord and
Tenant acknowledges that there is no inducement or reliance to lease the
Premises on the basis that the existing access to light, air and views from the
Premises would continue unabated. Tenant acknowledges and understands that it
shall have no rights to the airspace above the Retail Space and those rights
shall be the sole property of Landlord.
Section 24.20. Landlord's Contribution Toward Tenant's Work.
When Tenant has completed all of Tenant's Work in substantial
accordance with Exhibit "C" and "C-2" and furnishes evidence satisfactory to
Landlord of such completion including the total cost thereof as certified by
Tenant in a form reasonably acceptable to Landlord, and that all of Tenant's
Work has been paid for in full and no liens have attached or may attach as the
result thereof, and no default in, breach of, or failure to perform this Lease
exists and Tenant has paid or reimbursed Landlord all amounts owed to Landlord
pursuant to Sections 3.3 and 4.1 hereof or otherwise and has opened its
operation for business. Landlord shall pay to Tenant as Landlord's
contribution toward Tenant's Work the sum of $100.00 per square foot of Store
Floor Area, determined as provided for in Section 2.1 hereof and no more.
Provided Tenant fulfills the requirements of this Section 24.20 by the 10th day
of a calendar month, Landlord shall pay Tenant's contribution by the
fifteenth (15th) day of the following calendar month.
Section 24.21. Unrelated Business Taxable Income.
A. If at any time and from time to time during the term of this Lease
Landlord is advised by its counsel or counsel to an exempt partner of Landlord
or of the managing partner of Landlord (an "Exempt Partner") that any provision
of this Lease, including without limitation the provisions relating to the
payment of rent and additional rent, or the absence of any provision might give
rise to unrelated business taxable income within the meaning of section 512 of
the Internal Revenue Code of 1986, as amended, or the regulations issued
thereunder, or may jeopardize the ability of an Exempt Partner to obtain or
retain its tax-exempt status, then this Lease may be unilaterally amended by
Landlord in such manner as shall meet the requirements specified by such
counsel, and Tenant agrees that it will execute all documents or instruments
necessary to effect such amendment or amendments, provided that no such
amendment shall result on an estimated basis in Tenant having to pay
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in the aggregate more money on account of its occupancy of the Premises than it
would be required to pay under the terms of this Lease, or having to receive
fewer services or services of a lesser quality than it is presently entitled to
receive under this Lease.
B. Any services which Landlord is required to furnish pursuant to the
provisions of this Lease may, at Landlord's option, be furnished from time to
time, in whole or in part, by employees of Landlord or the managing agent of the
Project or its employees or by one or more third persons hired by Landlord or
the managing agent of the Project. Tenant agrees that upon Landlord's written
request it will enter into direct agreements with the managing agent of the
Project or other parties designated by Landlord for the furnishing of any such
services required to be furnished by Landlord hereunder, in form and content
approved by Landlord, provided however that no such contract shall result on an
estimated basis in Tenant having to pay in the aggregate more money on account
of its occupancy of the Premises under the terms of this Lease, or having to
receive fewer services or services of a lesser quality than it is presently
entitled to receive under this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as of the day and year first above written.
(LANDLORD)
MALL OF AMERICA COMPANY, a Minnesota General Partnership
By: MOAC LIMITED PARTNERSHIP, a Minnesota Limited
Partnership, its General Partner
By: MALL OF AMERICA ASSOCIATES, a Minnesota General
Partnership, its General Partner
By: SI-MINN DEVELOPERS LIMITED PARTNERSHIP,
an Indiana Limited Partnership, its
General Partner
By: SI-MINN, INC., an Indiana Corporation,
its General Partner
By: /s/ Herbert Simon
---------------------------------
Herbert Simon, President
(TENANT)
If Corporation HOTEL MEXICO, INC., d/b/a/ Hotel Discovery
By: [SIG]
---------------------------------------
Attest: [SIG]
-----------------------------------
25
<PAGE> 28
LEGAL DESCRIPTION
MALL OF AMERICA
Lots 1 through 5, Block 1, Mall of America - 3rd Addition according to the plat
thereof on file as of record as Document No. 2211073 in the office of the
Registrar of Titles for Hennepin County, Minnesota.
That part of Lot 1, Block 1, Mall of America 4th Addition except that part
embraced within that part of the Northwest Quarter of the Southeast Quarter of
Section 1, Township 27, Range 24 described as follows: Beginning at the
Northeast corner of said Northwest Quarter of the Southeast Quarter of said
Section 1, thence West along the North line of said Northwest Quarter, 660
feet; thence South 330 feet, thence East and parallel with the North line of
said Northwest Quarter of Southeast Quarter 660 feet to the East line of
Northwest Quarter of Southeast Quarter of said Section 1, thence North to the
point of beginning, according to the plat thereof on file or of record in the
office of the Registrar of Titles in and for said County.
That part of Lot 1, Block 1, Mall of America 4th Addition embraced within that
part of the Northwest Quarter of the Southeast Quarter of Section 1, Township
27, Range 24 described as follows: Beginning at the Northeast corner of said
Northwest Quarter of the Southeast Quarter of said Section 1, thence West along
the North line of said Northwest Quarter, 660 feet; thence South 330 feet,
thence East and parallel with the North line of said Northwest Quarter of
Southeast Quarter 660 feet to the East line of Northwest Quarter of Southeast
Quarter of said Section 1, thence North to the point of beginning, according to
the plat thereof on file or of record in the office of the Registrar of Titles
in and for said County.
EXHIBIT "A"
Page 1
<PAGE> 29
[MAP OF MALL]
EXHIBIT "B"
Level 3
<PAGE> 30
DESCRIPTION OF TENANT'S WORK
TENANT'S WORK - The following work required to complete and place the
premises in finished condition ready to open for business is to be performed by
the Tenant at the Tenant's own expense and shall be in addition to any work
described in the Tenant Handbook and Tenant Contractor's Handbook. In the
event there is any conflict between the provisions of this Exhibit "C"
and the Tenant Handbook or the Tenant Contractor's Handbook, the provisions of
the Tenant Handbook and Tenant Contractor's Handbook shall control. Tenant's
Work includes, but is not limited to, the following:
A. GENERAL PROVISIONS
All work done by Tenant shall be governed in all respects by, and be
subject to, the following:
1. Landlord shall have the right to require Tenant to furnish
payment and performance bonds or other security in form
satisfactory to Landlord for the prompt and faithful performance
of Tenant's Work, assuring completion of Tenant's Work and
conditioned that Landlord will be held harmless from payment of
any claim either by way of damages or liens on account of bills
for labor or material in connection with Tenant's Work. Tenant's
Work shall at all times be conducted consistent with the Project
Labor Agreement for the Center and in such manner so that Tenant
shall not be in violation of Section 18.1 of the Lease.
2. It is understood and agreed between Landlord and Tenant that costs
incurred by Landlord, if any, as a result of Tenant's failure or
delay in providing the information as required in this Exhibit and
in the Lease to which this Exhibit is attached, shall be the sole
responsibility of Tenant and he will pay such costs, if any,
promptly upon Landlord's demand.
3. All Tenant's Work shall conform to applicable statutes, ordinances,
regulations and codes and the requirements of Factory Mutual and
all rating bureaus and the Tenant Handbook which contains the
basic architectural, electrical and mechanical information
necessary for the preparation of Tenant's Plans, and which by this
reference is incorporated into and made a part of this Lease.
Tenant shall obtain and convey to Landlord all approvals with
respect to electrical, water, sewer, heating, cooling and
telephone work, all as may be required by any agency or utility
company.
4. No approval by Landlord shall be deemed valid unless in writing and
signed by Landlord.
5. Prior to commencement of Tenant's Work and until completion
thereof, or commencement of the Lease Term, whichever is the last
to occur, Tenant shall effect and maintain Builder's Risk Insurance
covering Landlord, Tenant, Tenant's contractors and Tenant's
subcontractors, as their interest may appear, against loss or
damage by fire, vandalism and malicious mischief and such
other risks as are customarily covered by a standard "All Risk"
policy of insurance protecting against all risk of physical loss
or damage to all Tenant's Work in place and all materials stored
at the site of Tenant's Work, and all materials, equipment,
supplies and temporary structures of all kinds incidental to
Tenant's Work, and equipment, all while forming a part of or
contained in such improvements or temporary structures, or while
on the premises or within the Total Tract, all to the actual
replacement cost thereof at all times on a completed value basis.
In addition, Tenant agrees to indemnify and hold Landlord harmless
against any and all claims for injury to persons or damage to
property by reason of the use of the premises for the performance of
Tenant's Work, and claims, fines, and penalties arising out of any
failure of Tenant or its agents, contractors and employees to
comply with any law, ordinance, code requirement, regulations or
other requirement applicable to Tenant's Work and Tenant agrees to
require all contractors and subcontractors engaged in the
performance of Tenant's Work to effect and maintain and deliver
to Tenant and Landlord, certificates evidencing the existence of,
and covering Landlord, City of Bloomington, Minnesota, Port
Authority of the City of Bloomington, Simon DeBartolo Group, Inc.,
M.S. Management Associates, Inc., Tenant and Tenant's contractors,
prior to commencement of Tenant's Work and until completion
thereof, the following insurance coverages:
a. Workmen's Compensation and Occupational Disease Insurance
in accordance with the laws of the State in which the
property is located, including Employer's insurance to the
limit of $100,000.
b. Comprehensive or Commercial General Liability insurance
affording limits of not less than $5,000,000 per
occurrence for bodily injury, personal injury and death,
and for not less than $1,000,000 per occurrence for
property damage, or not less than $5,000,000 per
occurrence. Combined Single Limit. Such insurance
shall include protection arising from contractual liability,
completed operations, independent contractors, as well as
for the hazards of underground, collapse and explosion.
c. Comprehensive Automobile Insurance, including "non-owned"
automobiles, against bodily injury, including death
resulting therefrom, in the limits of $1,000,000 for any
one occurrence and $250,000 property damage or a combined
single limit of $1,000,000.
d. Owners and contractors protective liability coverage for an
amount not less than $5,000,000.
EXHIBIT "C"
Page 1
<PAGE> 31
6. Tenant agrees that the contract of every contractor, subcontractor,
mechanic, journeyman, laborer, material supplier or other
person or entity performing labor upon, or furnishing materials or
equipment to, the Premises in connection with Tenant's Work shall
contain the following provision:
"Contractor acknowledges that this provision is required under
Tenant's lease of the premises to be improved under this Contract
(Lease Premises) from Mall of America Company (Lease). In
consideration of Tenant's engagement of Contractor to perform the work
hereunder, and as an inducement to Tenant to enter into this Contract
with Contractor, Contractor acknowledges, covenants and agrees that
any mechanic's lien which it may hereafter file, claim, hold or assert
with respect to the work hereunder (i) shall attach only to Tenant's
interest in the Lease Premises under the Lease and (ii) shall be
subject, subordinate and inferior to the lien of any mortgage(s) now
or hereafter held upon and against the Mall of America by any
lender(s) now or hereafter providing funds for the financing for the
Mall of America, notwithstanding that any such mortgage(s) may be
recorded after the commencement of the work hereunder and that
Contractor's mechanic's lien otherwise might be entitled to priority
over any such mortgage(s). For such purposes, Contractor also shall
execute, acknowledge and deliver a separate subordination agreement
upon request by Tenant, Mall of America Company, or any such
lender(s), prior to making any application or request for payment
hereunder and as a condition precedent to Contractor's right to
receive any payment hereunder. Contractor likewise shall cause the
liens and lien rights of all subcontractors, sub-subcontractors,
materialmen, suppliers, laborers and all other persons furnishing
work, labor, materials, equipment and services on or in connection
with the Lease Premises to be limited to the Tenant's interest in the
Lease Premises under the Lease and to be subordinated to such
mortgage(s), and Contractor shall obtain and deliver to Tenant a
similar subordination agreement duly executed and acknowledged by each
such subcontractor, sub-subcontractor, materialman, supplier, laborer
and other person prior to making any application or request for
payment hereunder and as a condition precedent to Contractor's right
to receive any payment hereunder. Contractor shall indemnify, defend
and hold harmless Tenant, Mall of America Company, and such lender(s)
from and against any and all loss, costs, damage, expense (including,
without limitation, reasonable attorney fees), liability, suits,
actions and judgments arising or resulting from Contractor's failure
to cause all such mechanic's and materialmen's liens to be limited to
Tenant's interest in the Lease Premises under the Lease and to be
subordinated to said mortgage(s) as herein provided, in addition to
all other indemnities contained herein with respect to such liens."
Tenant shall indemnify, defend and hold harmless Landlord and
such lender(s) from and against any and all loss, costs, damage,
expense (including, without limitation, reasonable attorney fees),
liability, suits, action and judgments arising or resulting from
Tenant's failure to cause all such mechanic's and materialmen's liens
to be limited to Tenant's interest in the Premises under this Lease
and to be subordinated to said mortgage(s) as herein provided, in
addition to all other indemnities contained herein with respect to
such liens.
B. FLOOR SLAB
No penetrations shall be allowed for electrical outlets in floor slabs.
All tenants with restroom facilities or food preparation areas shall
install a floor slab waterproofing membrane in the Premises. All floor
penetrations must be sleeved and waterproofed.
C. SECURITY SCREEN OR MALL FRONTAGE
1. Mall frontages shall be designed and constructed in accordance with
the requirements outlined in the Tenant Handbook. Security for
"open fronts" shall be by means of anodized aluminum roll up grilles
or anodized aluminum sliding and/or sliding glass doors. No mall
frontage shall be constructed without the written approval of
Landlord.
2. All materials employed in the construction of mall frontage shall be
as approved by Landlord and as defined by applicable building codes.
3. Mall Frontage Colors - It is the desire of the Landlord to give Tenant
the greatest practicable freedom in the choice of mall frontage
colors; but:
a. Colors must harmonize with the color scheme of the Center itself.
b. Colors must harmonize with the color scheme of the surrounding
stores. To assist Tenant, a general color range will be developed,
with a sufficiently large selection to permit a reasonable latitude
for individual expression.
EXHIBIT "C"
Page 2
<PAGE> 32
4. All swinging entrance doors must be recessed in such a manner that the
door, when open, will not project beyond the lease line.
5. Tenants with exterior glazing must install show window or display.
D. CEILING
1. All ceilings and coves shall not exceed 12'0" above the finished
floor, unless otherwise approved by Landlord on Tenant's Plans.
2. Tenant's ceilings shall be suspended by adequate suspension systems to
conform to final requirements of governing authorities and Landlord.
3. The space above the ceiling line, which is not occupied or allotted to
Landlord's Work (structural members, duct work, piping, etc.) may be
used for the installation of suspended ceiling, recessed lighting
fixtures and duct work. Under no circumstances will Tenant's Work be
hung or suspended from non-structural construction. Any Tenant Work
involving the hanging or suspension of construction shall be
accomplished only by methods, in locations and by use of assemblies
approved by Landlord.
4. Tenant shall provide ceiling access panels in the ceiling of the
Premises as required by Landlord to service Landlord equipment.
E. WALLS.
All interior walls and curtain walls within the premises, including all
interior lath and plastering and gypsum board thereon, and including lath
and plastering, and/or dry wall on Landlord's exposed masonry or stud party
wall partitions. Dividing wall between premises shall meet Code
requirements and be continuous from floor to the underside of the roof or
floor deck. Tenant shall provide and install bracing and/or studs and/or
blocking as necessary to support wall mounted fixtures. Cracks, joints and
openings in walls to be filled with appropriate fire resistant materials.
Return air openings shall be provided in the dividing walls between
premises as required for proper air movement. Tenant shall install
insulation on the exterior walls of the Premises.
F. DOORS.
Doors and vestibules to Service Courts and Corridors - where required, a
vestibule and a door 3'0" in width, with hardware, shall be provided and
installed by Tenant at Tenant's expense, between the Premises and the
service courts or between the Premises and a public corridor or mall
leading to the service courts.
G. INTERIOR PAINTING
All interior painting and decoration.
H. FLOOR COVERINGS
All floor coverings and floor finishes including recesses for special floor
finishes. It is Tenant's responsibility to join neatly to the mall finish.
Floor Tile and Base - Tenant will install floor tile and base in accordance
with the materials and applications specified in the Tenant Handbook along
the storefront of the Premises, the width of which shall be determined by
Landlord.
I. SHOW WINDOW BACKGROUNDS
All show window backgrounds, show windows, show window floors and ceilings,
and show window lighting installations. All show windows shall be
adequately ventilated.
J. FURNITURE, FIXTURES AND SIGNS
All furnishings, trade fixtures, signs, and related parts, including
installation. Location and design of all signs subject to prior written
consent of Landlord.
K. PLUMBING
All plumbing and plumbing fixtures as required by applicable codes except
utility service to the area, including a properly sized water meter if the
same is required by Landlord, in which latter event Tenant shall make any
required utility deposits.
L. HOT WATER HEATER
EXHIBIT "C"
Page 3
<PAGE> 33
Domestic electric hot water heater, where required, including final
connections.
M. TOILET ROOM FIXTURES
Furnishing and installation of wiring, lighting fixtures, mechanical toilet
exhaust systems, towel cabinets, soap dishes, hand driers, deodorizers,
mirrors and other similar items in toilet rooms within the premises or as
additionally required by code.
N. HEATING, VENTILATING AND AIR CONDITIONING
1. Complete HVAC Systems shall be designed, furnished and installed
within the premises by the Tenant. The HVAC systems, calculations,
designs and installations shall be as recommended in ASHRAE
Publications and the Landlord's Tenant Finish Mechanical Criteria.
Tenant's systems and ventilation shall meet all codes and ASHRAE
standards. Tenant shall furnish Landlord with complete load
calculations including information as to Tenant's lighting load in
watts and Tenant's estimated store population (employees and
customers).
2. Tenant's cooling system shall be adequate for cooling the premises to
75 degrees Fahrenheit DB and 50% RH based on the latest ASHRAE guide
outdoor design dry bulb and design wet bulb temperatures for the area
as tabulated in the 2-1/2% columns, with a rise of not more than 3
degrees Fahrenheit DB during peak periods.
3. Tenant's heating method shall be adequate for heating the premises to
55 degrees Fahrenheit DB during times other than regular business
hours based on the latest ASHRAE guide outdoor design temperature for
the area as tabulated in the 99% column. The Tenant's heating method
shall be independent of the central cooling system. The Tenant's
lighting system shall be used to heat the sales area during regular
business hours in the heating season. The Tenant's lighting system
may be used to maintain the required sales area minimum temperature
level during other then regular business hours in the heating season.
4. Tenant's exhaust systems shall provide the required exhaust air
capacities and shall be independent of the central cooling system.
The Tenant's exhaust systems shall be inoperative during other than
regular business hours. Replacement air for the Tenant's exhaust will
be provided through the Tenant's air supply system up to the design
air supply quantity. Any additional replacement air required will be
drawn from the mall. Independent air make-up air systems shall not be
installed by the Tenant.
5. Tenant's HVAC systems shall be complete with air distribution systems,
ventilating systems, control systems, insulation and all other
components required to make a complete system. Tenant's systems shall
be specifically designed to coordinate with variable air volume
cooling temperature control. Tenant's HVAC system components shall be
installed in locations as designated by the Landlord.
6. Tenant shall provide and install fire dampers, in accordance with all
codes, in the right hand side (as viewed when facing the rear of the
Premises) demising partition of its Premises if its Premises adjoin
another tenant space. Tenant shall also provide and install fire
dampers where the Tenant's ductwork passes through service corridor
walls or other fire separations. Tenant's installation shall include
complete access and access panels to all valves, dampers and similar
service devices (including the Landlord's) required for testing,
balancing and servicing. Tenant shall utilize only fire damper
products as specified by the Tenant Handbook.
7. Tenant shall connect to Landlord's central cooling system and shall
use Landlord's Design Criteria in designing systems and controls.
Alterations to the Landlord's central system required due to Tenant's
design shall be done by Landlord at Tenant's sole expense.
8. If directed to do so by Landlord, Tenant shall paint and/or screen
from ground level view by parapet walls or other appropriate
screening, all of Tenant's outdoor equipment. Any such painting or
screening must be done at Tenant's sole expense and approved in
advance by Landlord.
O. MECHANICAL EQUIPMENT
All mechanical equipment including dumb-waiters, elevators, escalators,
freight elevators, conveyors, and their shafts and doors, located within
the premises, including electrical work for these items. Locations, size
and design of roof vents, HVAC equipment, units, hoods and caps shall be
approved by Landlord. Landlord reserves the right of disapproval of any
equipment to be placed on the roof. Tenant shall install equipment at
locations where structural reinforcements are provided. All changes in
structural design caused by Tenant's equipment shall be made by Landlord
and paid for by Tenant.
Any roof cuts or openings required to be made pursuant to Tenant's Plans
shall be performed by a contractor designated by Landlord at Tenant's
expense. In addition, all cant strips, base furnishings and other work
necessary to complete permanent weather proofing of Landlord's roof as a
result of roof cuts or openings required by Tenant shall be performed by a
contractor designated by Landlord at Tenant's expense.
EXHIBIT "C"
Page 4
<PAGE> 34
P. ELECTRICAL
1. All interior distribution panels, lighting panels, power panels,
conduits, outlet boxes, switches, outlets and wires within the
premises. Tenant shall provide electric conduit and boxes in the
ceiling and walls, including all electrical service panels, pull
boxes and equipment.
2. All electrical fixtures, including lighting fixtures and equipment,
and installation thereof. Lighting systems (except security and
emergency lighting) must be controlled by lighting contactors. The
lighting contactors will be inter-locked with the Landlord's Energy
Management System for automatic control during other than regular
business hours.
3. All systems, where required for intercommunication, music antenna,
material handling or conveyor, burglar alarm, vault wiring, fire
protection alarm, time clock and demand control.
4. All conduit for necessary telephone wires in the premises.
5. Feeder conductors from Landlord's facilities to the Premises, including
the connections to Tenant's equipment.
6. Final connection to the Landlord's switch gear shall be done by a
contractor designated by Landlord at Tenant's expense. Tenant's
contractor will be responsible for the feeder conductors and
connections to tenant's equipment and for supplying proper fuses to
Landlord's designated contractor at the time of final connection.
Q. TEMPORARY SERVICES
Any temporary services required by Tenant during its construction period,
including heat, water or electrical service shall be secured by the Tenant,
at Tenant's sole cost and expense.
R. SUBSEQUENT REPAIRS AND ALTERATIONS
Landlord reserves the right to require changes in Tenant's Work when
necessary by reason of code requirements.
S. SIGNS
In order to assure orderly and aesthetically coordinated signing, plans for
all Tenant's signs must conform to Exhibit "E" hereto attached and the
applicable Mall criteria and before installation must be approved by
Landlord. No permission is granted, expressed or implied to permit Tenant
to erect an exterior sign of any type.
T. DOORS AND EXITING REQUIREMENTS
1. Tenant will be responsible for adherence to exiting codes.
2. Tenant will maintain a clear exiting path through the stockroom to
Tenant's rear door for those premises that contain a rear door.
U. CONSTRUCTION ACTIVITIES
1. During premises interior construction Tenant shall use rear opening to
premises for moving in/out of materials, for those premises that
contain a rear door.
2. If any roof cuts or penetrations are required by Tenant, all curbs,
supports, blocking, temporary flashing, counterflashing or other work
necessary for installation shall be provided and installed by Tenant
at its expense. Tenant shall promptly notify Landlord in advance, of
the need for such cuts or penetrations and shall utilize Landlord's
designated roofing contractor for this work. Tenant's contractor
shall be responsible for contracting with Landlord's roofing contractor
to perform this work.
3.
4. Landlord shall be responsible for the installation of the temporary
store front or barricade shielding the interior of the Premises from
the Mall, at Tenant's expense.
5. Tenant acknowledges that its construction activities in the Premises
and the Center are subject to a certain Project Labor Agreement for
Construction of the Mall of America executed on or about the 19th day
of November, 1985, by and among Triple Five Corporation, P.C.L.
Construction Services, Inc., and The Minneapolis Building and
Construction Trades Council. Such Project Labor Agreement is fully
incorporated herein by reference. As a material consideration of
Landlord entering into and executing this Lease with Tenant, Tenant
agrees to abide by the terms, conditions and provisions of
EXHIBIT "C"
Page 5
<PAGE> 35
the Project Labor Agreement as such Project Labor Agreement effects Tenant's
construction activities in the Premises and the Center. Tenant's failure to
abide by the same may be deemed a default of this Lease if such failure
results, either directly or indirectly, in a work stoppage or interference or
the threat of the same in the construction activities in the Center or any
other tenant's space. Landlord or Landlord's authorized representative may
take such action as Landlord or its authorized representative deems necessary
in order to immediately enforce the terms of the Project Labor Agreement and in
order to prevent, avoid or terminate any interference or work stoppage (or the
threat thereof) in connection with the construction of any part of the Center
or any other tenant's space. Such action may include, but shall not be limited
to, the issuance of a cease and desist directive to Tenant. Tenant shall
reimburse Landlord or any other tenant in the Center for any losses, fees,
expenses or damages suffered or incurred by Landlord or such other tenant in
the Center as a result of Tenant's failure to comply with the Project
Labor Agreement.
EXHIBIT "C"
Page 6
<PAGE> 36
RULES AND REGULATIONS
1. Tenant shall advise and cause its vendors to deliver all merchandise before
noon on Mondays through Fridays, not at other times.
2. All deliveries are to be made to designated service or receiving areas and
Tenant shall request delivery trucks to approach their service or receiving
areas by designated service routes and drives.
3. Tractor trailers which must be unhooked or parked must use steel plates
under dolly wheels to prevent damage to the asphalt paving surface. In
addition, wheel blocking must be available for use. Tractor trailers are
to be removed from the loading areas after unloading. No parking or
storing of such trailers will be permitted in the Center.
4. Except for small parcel packages, no deliveries will be permitted through
the malls unless Tenant does not have a rear service door. In such event,
prior arrangements must be made with the Resident Mall Supervisor for
delivery. Merchandise being received shall immediately be moved into
Tenant's Premises and not be left in the service or receiving areas.
5. Tenant is responsible for storage and removal of its trash, refuse and
garbage. Tenant shall not dispose of the following items in drains,
sinks or commodes: plastic products (plastic bags, straws, boxes); sanitary
napkins; tea bags; cooking fats, cooking oils; any meat scraps or cutting
residue; petroleum products (gasoline, naptha, kerosene, lubricating
oils); paint products (thinner, brushes); or any other item which the same
are not designed to receive. All Store Floor Area of Tenant, including
vestibules, entrances and returns, doors, fixtures, windows and plate
glass, shall be maintained in a safe, neat and clean condition.
6. Other than as permitted under the provisions of Section 10.4 or Exhibit
"E," Tenant shall not permit or suffer any advertising medium to be
placed on mall walls, on Tenant's mall or exterior windows, on standards in
the mall, on the sidewalks or on the parking lot areas or light poles. No
permission, expressed or implied, is granted to exhibit or display any
banner, pennant, sign, and trade or seasonal decoration of any size, style
or material within the Center, outside the Premises.
7. Tenant shall not permit or suffer the use of any advertising medium which
can be heard or experienced outside of the Premises, including, without
limiting the generality of the foregoing, flashing lights, searchlights,
loud speakers, phonographs, radios or television. No radio, television, or
other communication antenna equipment or device is to be mounted, attached,
or secured to any part of the roof, exterior surface, or anywhere outside
the Premises, unless Landlord has previously given its written consent.
8. Tenant shall not permit or suffer merchandise of any kind at any time to be
placed, exhibited or displayed outside its Premises, nor shall Tenant
use the exterior sidewalks or exterior walkways of its Premises to display,
store or place any merchandise. No sale of merchandise by tent sale, truck
load sale or the like, shall be permitted on the parking lot or other
common areas.
9. Tenant shall not permit or suffer any portion of the Premises to be used
for lodging purposes, nor conduct or permit any unusual firing, explosion or
other damaging or dangerous hazard within the Premises or the Common Area.
10. Tenants shall not permit or suffer any portion of the Premises to be used
for any warehouse operation, or any assembling, manufacturing,
distilling, refining, smelting, industrial, agricultural, drilling or
mining operation, adult bookstore or cinema, peepshow, entertainment or
sale of products of an obscene or pornographic nature or predominately
sexual nature.
11. Tenant shall not, in or on any part of the Common Area:
(a) Vend, peddle or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet or other
matter whatsoever.
(b) Exhibit any sign, placard, banner, notice or other written material,
except for activities as approved in writing by Landlord.
(c) Distribute any circular, booklet, handbill, placard or other material,
except for activities as approved in writing by Landlord.
(d) Solicit membership in any organization, group or association or
contribution for any purpose.
(e) Create a nuisance.
(f) Use any Common Areas (including the Enclosed Mall) for any purpose
when none of the other retail establishments within the Center is open
for business or employment, except for activities as approved in
writing by Landlord.
(g) Throw, discard or deposit any paper, glass or extraneous matter of any
kind except in designated receptacles, or create litter or hazards of
any kind.
EXHIBIT "D"
Page 1
<PAGE> 37
(h) Deface, damage or demolish any sign, light standard or fixture,
landscaping materials or other improvement within the Center, or the
property of customers, business invitees or employees situated within
the Center.
EXHIBIT "D"
Page 2
<PAGE> 38
SIGN CRITERIA
Tenant will not erect any signs except in conformity with the following policy:
(a) Wording on storefront signs shall be limited to store or trade name only.
Each party's customary signature or logo, hallmark, insignia, or other
trade identification will be respected.
(b) Signs of the flashing, blinking, rotating, moving, or animated types or
audible type signs are not permitted except for portions of East Broadway.
(c) The size of all Tenant's signs shall be limited. The scale and concept of
the enclosed mall requires the use of signs which are not larger than
necessary to be legible from within the mall. Thus, except for department
store signs, Tenant's signs shall be located within the limits of its
storefront and shall not project more than 6 inches beyond the storefront
and shall conform to the following proportionate height criteria:
(1) 30' storefront: 18" capitals 12" body
(2) 30' to 60' storefront: 24" capital 18" body
(3) 60' and over storefront: 30" capital 24" body
In addition to complying with the above criteria, signs in the enclosed
malls shall be limited in length to 70% of Tenant's frontage on the mall,
and shall in no case exceed a length of 30 feet.
(d) Secondary blade signs may be installed at right angles to the mall
storefront(s) provided they are adjacent to the Tenant's premises and
otherwise conform to the provisions of the Tenant Handbook Criteria.
(e) Signs on the building's exterior are strictly prohibited.
(f) Public safety decals or artwork on glass in minimum sizes to comply with
applicable Code, subject to the approval of Landlord, may be used, as
required by building codes or other governmental regulations.
(g) Paper signs, stickers, banners or flags are prohibited.
(h) No exposed raceways, ballast boxes or electrical transformers will be
permitted except as required by Code.
(i) Sign company names or stamps shall be concealed (Code permitting).
(j) Except as otherwise approved in writing by Landlord and by a Major Tenant
with respect to stores within one hundred fifty feet (150') of the entrance
of such Major Tenant's Building, only one (1) primary sign and one (1)
secondary blade sign for a Tenant's location will be permitted within the
Enclosed Mall areas; provided, however, that if a Tenant has (a) more than
sixty feet (60') of storefront and (b) more than one (1) entrance, such
Tenant will be permitted one (1) primary sign and one (1) secondary blade
sign for each of its entrances. Corner Tenants may have one (1) primary
sign and one (1) secondary blade sign on each side of the corner Tenant's
location fronting the Mall.
(k) Signs and identifying marks shall be placed entirely within the boundaries
of Tenant's Premises except blade signs as specified in paragraph (d) above
with no part higher than 13 feet above the finished floor line, or lower
than 8 feet to the finished floor line.
(l) Sign letters may be back-lighted with lamps or tubes entirely concealed
within the depth of the letter or may be opaque or translucent plastic face
with no visible openings. Maximum brightness allowed for interior
(enclosed mall) signs will be 100 foot lamberts taken at the letter face
and must comply with all building and electrical codes.
(m) Exposed sign illumination or illuminated sign cabinets or modules are not
permitted.
(n) Tenant shall not install any roof top signs.
(o) Tenant shall not install any pylon signs.
(p) All signs shall be subject to the Landlord's written approval before
fabrication.
(q) Three (3) complete sets of sign drawings must be submitted to the Landlord
for written approval before fabrication. Tenant's sign drawings must
include the following:
1. Elevation view of storefront showing sign (drawn to accurate scale)
with dimensions of height of letters and length of sign.
2. Color sample of sign panel.
3. Color sample of sign letters.
EXHIBIT "E"
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4. Cross section view through sign letter and sign panel showing location
of sign relative to the storefront line and showing the dimensioned
projection of the face of the letter from the storefront face.
The Landlord shall not be responsible for the cost of refabrication of signs
fabricated, ordered or constructed, that do not conform to the Tenant Handbook
Signage Criteria.
EXHIBIT "E"
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EXHIBIT 10.3
LOAN AGREEMENT
KENWOOD RESTAURANT LIMITED PARTNERSHIP, an Ohio limited partnership
("Borrower"), and PNC BANK, OHIO, NATIONAL ASSOCIATION, a national banking
association ("Lender"), hereby agree as follows:
1. DEFINITIONS. The following terms as used herein will have the
following meanings:
1.1 AGREEMENT. This Loan Agreement, including any amendments,
extensions, renewals or modifications made thereto from time to time.
1.2 ATTORNEYS' FEES. The reasonable value of the services (and all
costs and expenses related thereto) of the attorneys (and all paralegals and
other staff employed by such attorneys) employed by Lender from time to time to:
(i) take any action in or with respect to any suit or proceedings (bankruptcy or
otherwise) relating to the Collateral or this Agreement; (ii) protect, collect,
lease or sell, any of the Collateral; (iii) attempt to enforce any lien on any
of the Collateral or to give any advice with respect to such enforcement; (iv)
enforce any of Lender's rights to collect any of the Obligations; and (v) give
Lender advice with respect to this Agreement, including but not limited to with
respect to any default or to prepare any amendments, restatements, or waivers to
this Agreement or any of the documents executed in connection with any of the
Obligations.
1.3 BUDGET. The detailed for the construction and development costs
of the Project, including site improvements, buildings and other improvements,
interest expense, professional fees, and all other costs incurred in connection
with the Project, broken down into expense categories and showing a projected
expenditure for each category. A copy of the Budget is attached hereto as
Exhibit A.
1.4 CLOSING. The execution and delivery of the documents listed on
the Closing Memo.
1.5 CLOSING DATE. The date on which this Agreement is executed.
1.6 CLOSING MEMO. The Closing Memorandum between Borrower and Lender
in connection with the transactions represented by this Agreement.
1.7 COLLATERAL. Any property, real or personal, tangible or
intangible, now or in the future securing the Obligations, including but not
limited to the Collateral secured by the Security Documents.
1.8 COMPLETION DATE. For purposes of this Agreement, the completion
date will be December 31, 1996, by which date Borrower will have complied with
the requirements contained in the Section of this Agreement entitled
Requirements Prior to Final Disbursement.
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1.9 CURRENT FINANCIAL STATEMENTS. For purposes of making the
representations and warranties contained in Section 5, the following financial
statements of Borrower: (none for current year), and the following financial
statements of Guarantor: (dated June 30, 1996). For purposes of any future date
on which the representations and warranties contained in Section 5 are deemed to
be remade, the most current financial statements, tax returns or other documents
with respect to Borrower or any Guarantor (as applicable) delivered to Lender in
accordance with Section 6.
1.10 DEFAULT RATE. The rate of interest otherwise payable under the
Note plus 4% per annum, but not higher than the highest rate permitted under
applicable law.
1.11 ENVIRONMENTAL REPORT. The environmental site assessment of the
Property in Proper Form delivered to Lender in connection with the Closing.
1.12 EVENT OF DEFAULT. Any of the events listed in Section 8.
1.13 GUARANTOR(S), Stephen D. King, Kenwood Restaurant, Inc., and any
other Person in the future guaranteeing all or any part of the Obligations,
jointly and severally.
1.14 IN BALANCE. When the undistributed proceeds of the Loan equal
or exceed the amount necessary, based upon Lender's estimate, in its sole
discretion, of the cost of construction from time to time, to pay for all work,
labor and materials for the completion of the construction of the Project in
accordance with the Plans and Specifications, including the payment of all
retainages, the installation of all fixtures, equipment and finishes, and also
to pay amounts necessary for the estimated or actual costs of start-up expenses,
interest and all other non-construction costs associated with the Project.
1.15 INDEBTEDNESS. Without duplication: (i) all obligations
(including capitalized lease obligations) which in accordance with generally
accepted accounting principles would be shown on a balance sheet as a liability;
(ii) all obligations for borrowed money or for the deferred purchase price of
property or services; and (iii) all guarantees, reimbursement, payment or
similar obligations, absolute, contingent or otherwise, under acceptance, letter
of credit or similar facilities.
1.16 INSPECTOR. The architect, engineer and/or inspector employed by
Lender, whether or not a licensed professional, at the expense of Borrower to:
(i) review for Lender the Plans and Specifications, (ii) to review for Lender
work performed on and materials furnished in connection with the monthly
construction draws for the Project and (iii) advise Lender from time to time
regarding the Project.
1.17 LEASES. Will have the meaning given that term in the Mortgage.
1.18 LOAN. The Loan in the amount of $1,000,000 evidenced by the
Note, to be used solely for the construction, development and operation of the
Project.
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1.19 LOAN DOCUMENTS. The documents listed on the Closing Memo and
all amendments thereto and restatements thereof.
1.20 MORTGAGE. The Open-End Mortgage, Assignment of Rents and Leases
and Security Agreement (Leasehold Estate) dated August 23, 1996 from Borrower to
Lender, and all amendments thereto and restatements thereof, encumbering the
Project and securing payment of the Note. The Mortgage is filed in Book 7133,
Page 1338, Registered Land Certificate Number 160105, of the Hamilton County,
Ohio records, which shall be amended by a certain First Amendment to Open-End
Mortgage, Assignment of Rents and Lease and Security Agreement, of even date
herewith.
1.21 NOTE. Borrower's promissory note of even date herewith
evidencing the Loan, and all extensions, amendments, modifications and
restatements thereof.
1.22 OBLIGATIONS. All loans, advances, debts, liabilities,
obligations, covenants and duties owing to Lender from Borrower of any kind or
nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under this Agreement or under any other
agreement, instrument or document, whether or not for the payment of money,
whether arising by reason of an extension of credit, opening of a letter of
credit, loan, guaranty, indemnification or in any other manner, whether direct
or indirect (including those acquired by assignment, participation, purchase,
negotiation, discount or otherwise), absolute or contingent, joint or several,
due or to become due, now existing or hereafter arising and whether contemplated
by Borrower or Lender as of the execution of this Agreement. The term includes,
without limitation, all obligations under this Agreement, the Loan, the Note and
all charges, expenses, fees, Attorneys' Fees and any other sums chargeable to
Borrower under this Agreement or any other agreement with Lender.
1.23 ORGANIZATIONAL DOCUMENTS. With respect to any Person that is a
limited liability company, the articles or certificate of organization and the
limited liability company agreement or operating agreement of such limited
liability company; with respect to any Person that is a corporation, the
articles or certificate of incorporation, and bylaws or regulations of such
corporation; with respect to any Person that is a partnership, the partnership
agreement establishing such partnership; with respect to any Person that is a
joint venture, the joint venture agreement establishing such joint venture; and
with respect to any Person that is a trust, the instrument establishing such
trust; in each case including any and all modifications thereof as of the date
of the Loan Document referring to such Organizational Document, and any and all
future amendments thereto and restatements thereof which are consented to by
Lender.
1.24 PERMITTED EXCEPTIONS. Those exceptions listed on the title
insurance commitment for the Property delivered in connection with the Closing
(and not deleted by the Title Insurance Company in connection with the Closing)
and such other exceptions approved from time to time by Lender in writing.
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1.25 PERSON. An individual, partnership, joint venture, trust,
unincorporated association, corporation, limited liability company or other
entity, as applicable.
1.26 PLANS AND SPECIFICATIONS. The final plans and specifications
for the Project, to be submitted to and approved by Lender. The Plans and
Specifications, and all modifications thereto made in accordance with this
Agreement, the Project when completed in accordance with the Plans and
Specifications, and the contemplated use of the Property will be in full
compliance in all material respects with all federal, state, and municipal laws,
statutes, ordinances, regulations and restrictions affecting the Project,
including those dealing with building, zoning, environmental impact, setbacks,
safety, pollution control, the Americans with Disabilities Act, and flood area
regulation.
1.27 PROJECT. The retail building to be constructed on the Real
Estate in substantial accordance with the Plans and Specifications and all
improvements in connection therewith, including but not limited to site
improvements, utility services and parking areas.
1.28 PROPER FORM. Any document that is in form, substance, and, if
applicable, executed by a Person, satisfactory to Lender.
1.29 PROPERTY. The Property as defined in the Mortgage.
1.30 REAL ESTATE. The Real Estate as defined in the Mortgage.
1.31 RESTAURANT LEASE. The Lease Agreement and Indenture of Lease,
each dated November 9, 1994, as amended by a certain First Amendment to Lease
dated May 3, 1995, and further amended by a certain Second Amendment to Lease,
by and between Philip E. Stevens, Trustee, and Borrower, as now Lessor and
Lessee respectively, together with all amendments thereto hereafter expressly
approved, in writing, by Lender in accordance with the provisions of this
Agreement.
1.32 REQUEST(S) FOR ADVANCE. A statement in Proper Form of Borrower,
and of the architect or professional engineer and the contractor for the
Project, in the form of attached Exhibit B or such other form required by Lender
which statement will include an AIA Form G702/G703 or such other form required
by Lender, accurately reflecting the current status of construction funds,
setting forth the amount of the Loan requested to be disbursed and containing
such other statements and certifications as Lender may require.
1.33 SECURITY DOCUMENTS. The agreements, pledges, mortgages,
guarantees, or other documents delivered by Borrower or any person or entity to
Lender previously, now or in the future to encumber the Collateral in favor of
Lender, including but not limited to those listed on the Closing Memo, and all
amendments thereto and restatements thereof.
1.34 SURVEY. INTENTIONALLY DELETED.
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1.35 TITLE COMPANY. The title insurance company acceptable to Lender
in its sole discretion that issues the Title Insurance Policy.
1.36 TITLE INSURANCE POLICY. An ALTA Mortgagee's title insurance
policy, including such endorsements as Lender may designate, in Proper Form to
be issued by the Title Company in the amount of the Loan insuring the lien of
the Mortgage as a first lien on the Property subject only to Permitted
Exceptions (the standard exceptions, including those for mechanics liens and
survey, being deleted from such policy).
2. THE LOAN.
2.1 THE LOAN. Borrower will borrow from Lender and Lender will lend
to Borrower the Loan for the purposes and subject to the terms, provisions and
conditions of this Agreement. The Loan will be for the term, bear interest and
be payable as provided in the Note.
2.2 LOAN FEES. Borrower agrees to pay to Lender a construction fee
equal to one percent (1%) of the principal amount of the Loan ($10,000) (the
"Construction Fee"). The Construction Fee will be paid to Lender at Closing.
2.3 CLOSING COSTS. Borrower agrees to pay to Lender at Closing a
reasonable sum for expenses and Attorneys Fees incurred by Lender in connection
with the preparation, execution and delivery of this Agreement and the attendant
documents and the consummation of the transactions contemplated hereby together
with all recording fees and taxes, tax and title search charges, title insurance
premiums and costs, and real property taxes.
2.4 EXPENSES AND ADVANCES SECURED BY MORTGAGE. All disbursements,
advances or payments made by Lender hereunder or under the other Loan Documents
will be secured by the Mortgage. Lender and Borrower acknowledge and agree that
the Mortgage has been executed and recorded prior to the effective date of this
Agreement and the extension of the Loan by and between a Lender and Borrower,
and that all disbursements of the Loan in accordance with this Agreement
constitute future advances for the purpose of Section 7.1 of the Mortgage and
the other provisions thereof. Such disbursements shall be secured by the
Mortgage with the original priority entitled thereof, effective the recordation
date of the Mortgage. Nothing contained in the Loan Documents shall in any
manner affect the original priority entitled of the Mortgage, it being
understood that the Loan Documents have been executed in furtherance of the
provisions of the Mortgage.
2.5 ADDITIONAL COSTS. On written demand, together with written
evidence of the justification therefor, Borrower agrees to pay Lender all direct
costs incurred and any losses suffered or payments made by Lender as a
consequence of making the Loan by reason of any change in law or regulation or
its interpretation imposing any reserve, deposit, allocation of capital or
similar requirement (including without limitation, Regulation D of the Board of
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Governors of the Federal Reserve System) on Lender, its holding company or any
of their respective assets.
2.6 MECHANIC'S LIENS. Lender and Borrower acknowledge that
construction of the Project commenced approximately during the month of
November, 1995 prior to the effective date of this Agreement or the extension of
the Loan to Borrower. Nothing herein shall constitute, or be deemed to be, a
waiver by Lender of any of the provisions contained in this Agreement as to the
obligation to discharge any lien, claim or suit filed with respect to the
Project or Borrower's agreement to indemnify and save harmless Lender therefrom
as provided in this Section. It shall be the responsibility of Borrower to
strictly comply with all the provisions of this Section and the other provisions
of this Agreement with respect to the filing of any lien, claim or suit with
respect to the Project. Borrower acknowledges and agrees that any mechanic's or
other lien filed against the Project or any claim for payment made by any
contractor, subcontractor or materialman will be Borrower's sole responsibility
to satisfy. Borrower agrees to immediately discharge or to bond-off of record
any lien, claim or suit filed against the Project. Borrower further agrees to
indemnify and save harmless Lender from all claims, losses, damages and expenses
including without limitation, reasonable attorney fees and court costs arising
out of any lien, claim or suit filed with respect to the Project or otherwise.
In the event that there is a lien or claim for payment filed against the
Project, Lender will be entitled to suspend any further disbursements until the
same is discharged or bonded in accordance with the Section.
3. REQUIREMENT FOR DISBURSEMENTS.
3.1 REQUIREMENTS FOR INITIAL DISBURSEMENTS. Lender will not be
required to make any disbursements under the Loan unless and until Borrower will
have furnished or delivered to Lender, in Proper Form, the documents listed on
the Closing Memorandum, including but not limited to all the following:
3.1.1 APPRAISAL. At Borrower's expense, Lender has required an
appraisal, indicating the combined aggregate value of the Property following the
completion of the Project of not less than $2,250,000. The appraisal reports
and procurement process therefor will be made in accordance with the current
regulations of the Department of the Treasury, Office of the Comptroller of the
Currency, 12 C.F.R., Part 34, Subpart C, Appraisals with respect to the Loan, as
the same may be amended. In no event will the loan-to-value ratio with respect
to the Loan at any time exceed 50%. Lender will have the right to reappraise
the Property and the Project at any time and from time to time: (i) after the
occurrence of an Event of Default, (ii) if Lender reasonably believes that the
value of the Project has decreased by more than 10% from the last appraisal
received by it or (iii) Lender is required to do so by applicable regulatory
standards. The appraisal and any reappraisal of the Property will be addressed
to Lender. The cost of the appraisal and any reappraisal obtained after the
occurrence and during the continuance of an Event of Default will be paid by
Lender and immediately reimbursed by Borrower. All other reappraisals elected
by Lender will be at Lender's expense. The appraisal
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and any reappraisal will be in Proper Form and any appraiser will meet all
Federal and state standards as well as Lender's internal standards.
3.1.2 ENVIRONMENTAL. Borrower at its expense will provide a
"Phase I" environmental site assessment for the Property in Proper Form. Such
report will indicate that the Property is not and has not been affected by the
presence of any toxic or hazardous substance or waste, or underground storage
tanks, or any other pollutants that could be detrimental to the Project or the
Property, or to human health or to the environment, that the Property and is not
in violation of any local, state or federal laws or regulations and that no
environmental problems exist with respect to the Property. Borrower hereby
certifies to Lender that except as disclosed in the Environmental Report: (i)
the Property shows no visible signs of the presence of toxic or hazardous
substances or water, underground storage tanks, or environmental problems, and
(ii) Borrower has no reason to believe that any such substance or waste, or
underground storage tanks or any environmental problems exist. Borrower also
will provide evidence satisfactory to Lender, which evidence will be prepared by
an environmental engineer approved by Lender, that the Property does not
contain any areas which constitute wetlands as that term is defined by
applicable federal or state law, and that there has been no unpermitted filling
of wetlands at the Property.
3.1.3 FLOOD INSURANCE. Evidence that the Property is not
located in a flood zone. If the Property is located in a flood zone, then
Borrower, prior to any disbursement under the Loan for vertical improvements at
the Project, Borrower must either (i) provide flood insurance coverage for the
Project in Proper Form or (ii) undertake such action necessary to have the
location of all improvements at the Property removed from the flood zone.
3.1.4 EQUITY CONTRIBUTION. Evidence in Proper Form that
Borrower has expended its equity requirement for the Project of at least
$2,500,000.00 (or such greater amount as indicated by the excess of all costs
for the Project as shown on the Budget over the amount of the Loan), including a
schedule of costs incurred and paid to meet such equity requirement. Such
equity requirement must be expended prior to any advance under the Loan.
3.1.5 CONSTRUCTION CONTRACT. Provide to Lender executed copies
of the contract between the general contractor for the Project and Borrower (the
"Construction Contract"), which will be a guaranteed maximum price contract; the
general contractor's qualification statement in Proper Form, and assignment and
acknowledgment of the assignment, of such contract to Lender; and, if requested
by Lender, executed copies of all subcontracts between any general contractors
and all of their subcontractors and suppliers, including contracts, subcontracts
and purchase orders for all fixtures and equipment to be installed as are
required for the completion of the Project. If in the judgment of Lender such
contracts do not cover all of the work necessary for completion of the Project,
Borrower will cause to be furnished firm bids, estimates and other information
satisfactory to Lender, for the work not so covered, to enable Lender to
ascertain the total estimated cost of all work to be done.
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3.1.6 INSPECTION REPORT. Lender will receive a report from the
Inspector concerning the existing condition of the Property and the status of
construction of the Project, construction documentation related to the Project,
adequacy of the Budget, the value of the work performed and materials furnished,
the construction schedule for the remaining construction work and such other
matters as Lender may elect to review, all of which will be satisfactory to
Lender in its sole discretion. Lender and/or the Inspector may reinspect the
Project from time to time, in Lender's sole discretion at Borrower's expense, to
determine among other things, the progress of redevelopment, to verify the
percentage of completion and to determine whether the work has been performed in
accordance with the Plans and Specifications.
3.1.7 RESTAURANT LEASE. Evidence that the Restaurant Lease is
in full force and effect and the Lessor and Borrower thereunder are in full
compliance with the provisions of the Restaurant Lease.
3.1.8 BONDS. INTENTIONALLY DELETED.
3.1.9 STATUS OF CONSTRUCTION. Evidence that the construction of
the Project is in full compliance with all applicable local, state and federal
laws and the requirements of the Restaurant Lease and that all laborers,
suppliers, equipment lessors, contractors and other parties who have furnished
materials, labor, work or equipment through September 1996, have been fully
paid, except for retainage held by Borrower in accordance with the applicable
agreement for such work, labor, materials and equipment.
3.2 REQUIREMENTS FOR EACH DISBURSEMENT. In addition to the
requirements for initial disbursements hereunder, Lender will not be required to
make any disbursements under the Loan unless and until it has received a
Request for Advance relating to such disbursement and each of the following
conditions have been satisfied for each disbursement:
3.2.1 GENERAL. All warranties and representations made under
this Agreement will remain true and correct as of the effective date of the
disbursement, and, subject to the terms of the Mortgage with regard to casualty
and condemnation, there will have been no condemnation of or material damage to
the Property or the Project unless there are available condemnation or insurance
proceeds sufficient, in the sole judgment of Lender, to effect the satisfactory
restoration of the Project and/or the Property and to permit the completion of
the Project prior to the Completion Date, and no Event of Default will have
occurred under this Agreement which has not been cured.
3.2.2 TITLE ENDORSEMENT. Lender will have received an ALTA
title endorsement to the Title Insurance Policy in Proper Form increasing the
amount of the title insurance on the Property to the amount that will have been
disbursed by Lender under the Note after the pending Request for Advance and
insuring that the Mortgage is a first lien on the Property subject only to
Permitted Exceptions.
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3.2.3 APPROVAL BY INSPECTOR. Lender will have received a
certificate from the Inspector stating that the work covered by the Request for
Advance has been performed in all material respects in accordance with the Plans
and Specifications, that the amount of the Request for Advance is accurate and
proper in accordance with this Agreement and that the percentage of the work
shown on the Request for Advance has been completed.
3.2.4 FOUNDATION SURVEY. INTENTIONALLY DELETED.
3.2.5 LOAN-IN-BALANCE. The Loan will be In Balance.
3.2.6 NOTICE OF FURNISHING. Borrower, and Borrower's designee
on the filed Notice of Commencement, will provide to Lender, at the time of each
request for disbursement, copies of all Notices of Furnishing received under
Ohio Revised Code Section 1311.05. Borrower will provide lien waivers and such
other documentation as Lender may reasonably request in Proper Form from all
Persons delivering a Notice of Furnishing and any other Persons furnishing labor
or materials to the Project.
3.2.7 BORROWER'S CERTIFICATE: BUDGET. At least 10 business days
prior to the date of the requested disbursement, Lender will have received a
certificate from Borrower stating that Borrower has paid or actually incurred
the construction costs for which the Request for Advance is made, and Lender
will have received an updated Budget showing the remaining projected expenditure
for each category of construction and development costs of the Project.
Borrower will obtain from each contractor and subcontractor, as requested, and
will furnish to Lender bills, invoices, or other written memoranda of services
performed or materials supplied by the proposed payee, before being entitled to
such disbursement.
3.2.8 AFFIDAVITS, WAIVERS, ETC. Lender will have received such
affidavits, supporting affidavits, certificates of suppliers and lien waivers
and releases for the work and materials covered by the Request for Advance from
such contractors, subcontractors, suppliers and laborers as Lender may require,
together with a certification of Borrower identifying all contractors,
subcontractors and suppliers who have performed work on or furnished materials
to the Project. Lender further will receive such additional certificates,
affidavits and other documents as Lender, from time to time, may require of
Borrower in Lender's sole discretion.
3.3 REQUIREMENTS PRIOR TO FINAL DISBURSEMENT. The following
requirements, in addition to the other requirements of this Section 3, will have
been met prior to a final disbursement under the Loan:
3.3.1 COMPLETION OF WORK. The Project will have been
substantially completed and equipped in all material respects in accordance with
the Plans and Specifications, and the Restaurant Lease, free and clear of
mechanics' liens, encumbrances and security interests other than the lien of the
Security Documents.
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3.3.2 ARCHITECT AND CONTRACTOR'S CERTIFICATES. Lender will have
received written certification from Borrower's architect or professional
engineer and general contractor in Proper Form to the effect that the Project
has been completed in all material respects in accordance with the Plans and
Specifications and the certificate of the architect or professional engineer
also will certify that the Project and the Property comply with all applicable
zoning ordinances, building and use regulations and codes and has received all
licenses, permits and city approvals necessary for the lawful use and operation
of the Project and the Property. In addition, Lender may request that such
certificates be verified by the Inspector.
3.3.3 CERTIFICATE OF OCCUPANCY. Borrower will have furnished to
Lender unconditional certificates of occupancy for the Project from the
governmental authorities having jurisdiction over the Project and Borrower.
3.3.4 INSURANCE. The builder's risk insurance on the Property
will have been converted to casualty and other insurance as required by the
Security Documents.
3.3.5 PERMITS, LICENSES. Borrower will have received all
licenses, permits, franchises, authorizations and approvals necessary or
desirable in connection with the operation of Borrower's business on the
Property, including but not limited to all health department licenses and
permits, liquor licenses, and business licenses, and all such licenses, permits,
franchises, authorizations and approvals shall be in full force and effect.
3.3.6 LESSOR APPROVAL. The Lessor under the Restaurant Lease
will have approved the Project and all other work involved in the Project and
Borrower's conduct of business therein. Further, such Lessor will have
provided Lender with an estoppel certificate, in Proper Form, confirming
Lessor's acceptance of the Project, Borrower's compliance with the provisions of
the Restaurant Lease and such additional matters as Lender may require.
3.3.7 ADDITIONAL DOCUMENTS. Borrower will have delivered such
other information and documentation as Lender may reasonably request.
3.3.8 FOUNDATION SURVEY. An as-built survey of the Project, in
Proper Form, prepared for the benefit of Borrower and Lender.
4. DISBURSEMENTS.
4.1 LENDER'S OBLIGATION TO DISBURSE. Lender agrees, so long as
Borrower is in compliance with all conditions precedent to disbursements
hereunder and provided the Loan is In Balance and no Event of Default has
occurred, to make disbursements of the Loan as provided in the Loan Documents.
Amounts disbursed and repaid will not be available for redisbursement to
Borrower. Borrower will utilize all disbursements made by Lender hereunder in
accordance with the provisions of this Agreement.
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4.2 MONTHLY PAYOUTS. Disbursements of the Loan will be made from
time to time upon delivery of a Request for Advance in Proper Form as
construction of the Project progresses, but Lender has no obligation to make
disbursements more frequently than once in any 30 day period. Each Request for
Advance will be delivered to Lender in Proper Form at least 10 business days
prior to the requested disbursement date.
4.3 AMOUNT OF DISBURSEMENT. Disbursements for construction of the
Project will be limited to: (a) the cost of all work, materials and labor
incorporated into the Project and materials stored on the Property
(collectively, "Hard Costs"), which Hard Costs will be determined by Lender or
the Inspector, less the Retainage (as described below), the aggregate amount of
all previous disbursements for Hard Costs and Borrower's total equity
requirement, and (b) 100% of all non-Hard Costs relating to the Project, to the
extent provided for in the Budget and supported by invoices not more than 90
days old, less the aggregate amount of all previous disbursements for non-Hard
Costs. All disbursements for Hard Costs will be subject to a retainage equal to
the greater of (a) 5% or (b) the percentage being withheld in all payments from
Borrower to the general contractor for non-Hard Costs. The Retainage will be 5%
of Hard Costs. No disbursements will be made for materials or personal property
not delivered to the Project. The retained Hard Costs will be disbursed by
Lender when the requirements under the Section captioned Requirements Prior to
Final Disbursement have been met. All such costs for which disbursement is made
will be costs shown for such item on the approved Budget. No disbursements will
be made for fees, profit and overhead of Borrower or any contractor. Lender
will have no obligation to disburse amounts shown in the Budget as a
"contingency" except as Lender may approve from time to time, regardless of the
percentage of completion of the Project.
4.4 DISBURSEMENT THROUGH TITLE COMPANY. Disbursements of proceeds of
the Loan, at Lender's election, may be made through the Title Company. Borrower
agrees to execute such documents and pay such fees as the Title Company may
require to authorize such disbursements.
4.5 DIRECT PAYMENT OF DISBURSEMENTS. Without liability to Borrower,
Lender or the Title Company, at their sole option, may make any or all
disbursements directly to any contractor or subcontractor or materialman
irrespective of whether there is a dispute between Borrower and contractor as to
such payment, and such disbursement will be binding on Borrower. The execution
of this Agreement by Borrower constitutes an irrevocable direction and
authorization to make such direct disbursements. Notwithstanding the foregoing,
Lender at its option may make disbursements to Borrower's construction account
with Lender and Borrower will be responsible for making all payments due to any
contractor, subcontractor or materialman.
4.6 ACQUIESCENCE NOT A WAIVER. To the extent that Lender may
have acquiesced in noncompliance with any requirements precedent to the
disbursement of the proceeds of the Loan, such acquiescence will not constitute
a waiver by Lender and Lender at any time after such acquiescence may require
Borrower to comply with all such requirements.
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4.7 INTEREST PAYMENTS. Notwithstanding anything to the contrary
contained herein, if a disbursement is not properly presented by Borrower and
processed by Lender before the tenth day of each month, Lender may, without
further authorization, draw on the Loan to pay interest due and payable on the
Loan if such interest has not been paid prior to such date.
4.8 LOAN-IN-BALANCE. Anything in this Agreement to the contrary
notwithstanding, it is expressly understood and agreed that the Loan at all
times will be In Balance. If for any reason the Loan ceases to be In Balance,
regardless of how such condition may be caused, Borrower, within ten (10) days
after written request by Lender, will deposit with Lender a sum sufficient to
place the Loan In Balance, which deposit will first be exhausted before any
further disbursements under the Loan will be made.
5. WARRANTIES AND REPRESENTATIONS. To induce Lender to make the Loan,
Borrower hereby represents and warrants to Lender, and each Request for Advance
will constitute a reaffirmation, that as to itself and each Guarantor:
5.1 ORGANIZATION. It is duly constituted and qualified to transact
business in all jurisdictions where required by the conduct of its business or
ownership of its assets except where the failure to so qualify would not have a
material adverse effect on its condition, financial or otherwise, and has the
power and authority to own and operate its assets and to conduct its business as
is now done.
5.2 LATEST FINANCIALS. Its Current Financial Statements as delivered
to Lender are true, complete and accurate in all material respects and fairly
present its financial condition, assets and liabilities, whether accrued,
absolute, contingent or otherwise and the results of its operations for the
periods specified therein. The annual financial statements of all business
entities included in the Current Financial Statements have been prepared in
accordance with generally accepted accounting principles applied consistently
with preceding periods subject to any comments and notes contained therein.
5.3 RECENT ADVERSE CHANGES. Since the dates of its Current Financial
Statements, it has not suffered any damage, destruction or loss which has
materially and adversely affected its business or assets and no event or
condition of any character has occurred which has materially and adversely
affected its assets, liabilities, business or financial condition, and it has no
knowledge of any event or condition which may materially and adversely
affect its assets, liabilities, business, or financial condition.
5.4 RECENT ACTIONS. Since the dates of its Current Financial
Statements, its business has been conducted in the ordinary course and it has
not: (i) incurred any obligations or liabilities, whether accrued, absolute,
contingent or otherwise, other than liabilities incurred and obligations under
contracts entered into in the ordinary course of business and other than
liabilities to Lender; (ii) discharged or satisfied any lien or encumbrance or
paid any obligations, absolute or contingent, other than current liabilities, in
the ordinary course of business; (iii) mortgaged, pledged or subjected to lien
or any other encumbrance any of its assets, tangible or
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intangible, or cancelled any debts or claims except in the ordinary course of
business; or (iv) made any loans or otherwise conducted its business other than
in the ordinary course.
5.5 TITLE. It has good and marketable title to the assets reflected
on its Current Financial Statements, free and clear from all liens and
encumbrances except for: (i) current taxes and assessments not yet due and
payable, (ii) liens and encumbrances, if any, reflected or noted on said balance
sheet or notes, (iii) any security interests, pledges or mortgages to Lender in
connection with the closing of this Agreement, (iv) assets disposed of in the
ordinary course of business, and (v) Permitted Exceptions.
5.6 RESTAURANT LEASE. The Restaurant Lease is a legal, valid and
binding obligation of the parties thereto enforceable against them in accordance
with its terms and is in full force and effect and Borrower is not, and to
Borrower's knowledge the landlord thereunder is not, in default of any term or
provision thereof, including without limitation Borrower's compliance with the
construction schedule contained therein. There have been no threatened
cancellations of the Restaurant Lease nor any material disputes thereunder. A
true and complete copy of the Restaurant Lease is attached hereto as Schedule
5.6 and made a part hereof, and there are no modifications, supplements or
waivers of any provision contained therein.
5.7 FRANCHISE AGREEMENT. The License Agreement dated June 28, 1995,
by and between Hotel Mexico, Inc., as licensor, and Borrower, as licensee, is in
full force and effect, is a legal, valid and binding obligation of the parties
thereto enforceable against them in accordance with its terms, and Borrower is
not, and to Borrower's knowledge, Hotel Mexico, Inc. is not, in default of any
term or provision thereof. A true and complete copy of said Franchise Agreement
is attached hereto as Schedule 5.7 and made a part hereof, and there are no
modifications, supplements or waivers of any provision contained therein.
5.8 CONSTRUCTION. From the date of commencement of construction of
the Project through the date hereof, the Project has been constructed in all
material respects in accordance with the Plans and Specifications and in
compliance with all applicable zoning ordinances, building and use regulations
and codes, and all other applicable laws and regulations. Neither Borrower nor
any Guarantor has received any notice, citation, or other communication from any
governmental authority relating to the Project that could reasonably be
anticipated to have an adverse effect on the Project or the construction
thereof, and there is no basis known to it for any such notices, citations or
other communications. To Borrower's knowledge, there have been no material
disputes among any contractors, subcontractors, suppliers, materialmen or other
similar parties relating to the Project.
5.9 LITIGATION, ETC. There are no judicial or administrative
actions, suits or proceedings (including without limitation any judgments,
garnishments or attachments) pending, or to the best of its knowledge,
threatened against, affecting or involving it involving a claim in excess of
$10,000 and there is no basis known to it for any such actions, suits,
proceedings or investigations.
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<PAGE> 14
5.10 TAXES. Except as to taxes not yet due and payable, it has filed
all returns and reports that are now required to be filed by it in connection
with any federal, state, or local tax, duty or charge levied, assessed or
imposed upon it or its property, including unemployment, social security and
similar taxes; and all of such taxes have been either paid or adequate reserve
or other provision has been made therefor. It has filed for no extension of
time for the payment of any tax or for the filing of any tax return.
5.11 AUTHORITY. It has full power and authority to enter into the
transactions provided for in the Loan Documents. The Loan Documents to be
executed by it, when executed and delivered by it will constitute the legal,
valid and binding obligations of it enforceable in accordance with their
respective terms except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws in effect
from time to time affecting the rights of creditors generally and except as such
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in law or in equity).
5.12 OTHER DEFAULTS. There does not now exist any default or
violation by it of or under any of the terms, conditions or obligations of: (i)
its Organizational Documents (ii) any indenture, mortgage, deed of trust,
franchise, permit, contract, agreement, or other instrument to which it is a
party or by which it is bound; or (iii) any law, regulation, ruling, order,
injunction, decree, condition or other requirement applicable to or imposed upon
it by any law or by any governmental authority, court or agency; and the
transactions contemplated by this Agreement and the Loan Documents will not
result in any such default or violation.
5.13 NO MECHANIC'S LIENS. Borrower has, as of the date hereof,
permitted no work on the Property which could give rise to a lien on the
Property, or if such work has commenced, has provided such waivers, indemnities
and other information as may be requested by the Title Company so the Title
Insurance Policy and the endorsements thereto may be issued without exceptions
for mechanics liens.
5.14 LICENSES, ETC. Borrower has obtained, or will obtain when
appropriate as construction progresses, any and all licenses, permits franchises
or other governmental authorizations necessary for the ownership of its
properties and the conduct of its business. Borrower possesses adequate
licenses, patents, patent applications, copyrights, trademarks, trademark
applications, and trade names to continue to conduct its business as heretofore
conducted by it, without any conflict with the rights of any other person or
entity.
5.15 REGULATION U. No part of the proceeds of the Loan will be used
to purchase or carry any margin stock (as such term is defined in Regulation U
of the Board of Governors of the Federal Reserve System).
5.16 CLOSING MEMO. The information contained in each of the
documents listed on the Closing Memo to be executed or delivered by it or
relating to it is complete and correct in all material respects.
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<PAGE> 15
5.17 ACCURACY OF INFORMATION. Neither this Agreement, the Current
Financial Statements, nor any certificate, opinion or document furnished or to
be furnished to Lender by or on behalf of Borrower or any Guarantor pursuant to
or in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that as long as the Loan remains outstanding, it will:
6.1 COSTS AND EXPENSES. Pay all costs and expenses required to
satisfy the conditions of this Agreement, including but not limited to all taxes
and recording expenses, Lender's Attorneys' Fees, surveys, appraisals,
construction inspections, engineering studies, title insurance, title updates,
inspection fees, mortgage taxes, real estate taxes, document or intangibles tax,
and insurance policy fees.
6.2 EASEMENTS. Submit to Lender for Lender's approval, all easements,
covenants, restrictions or plats affecting the Property, accompanied by a
drawing or survey showing the exact location thereof prior to the execution
and/or filing thereof and comply with all restrictive covenants and easements
affecting the Property.
6.3 INSPECTIONS. Permit Lender, Inspector and their representatives
to enter upon the Project at all reasonable times to inspect the Property and
the Project and the construction thereof and all materials, fixtures and
articles used or to be used in the construction and to examine all detailed
plans, shop drawings, specifications and other records which relate to the
Project or the Property and will cooperate, and cause all contractors,
subcontractors and materialmen to cooperate, with Lender to enable it to perform
its functions hereunder.
6.4 CONSTRUCTION OF PROJECT. Cause the construction of the Project
to be promptly commenced and to be prosecuted with due diligence and continuity,
and will substantially complete the same by the Completion Date in all material
respects in accordance with the Plans and Specifications.
6.5 BROKERS. Indemnify and hold harmless Lender from and against all
claims of brokers and agents arising by reason of the execution of this
Agreement or the consummation of the transactions contemplated hereby, except
for claims arising solely from the actions of Lender.
6.6 CORRECTION OF DEFECTS. Upon demand of Lender, diligently correct
all defects in the Project and correct any departures from the Plans and
Specifications not approved by Lender, which results in an increase or decrease
in the cost of the Project in an amount in excess of $10,000.
6.7 BOOKS, INFORMATION AND ACCESS TO THE COLLATERAL. Deliver to
Lender such information regarding Borrower, the Project, or any Guarantor as
Lender may reasonably
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<PAGE> 16
request and give representatives of Lender access thereto at all reasonable
times, including permission to examine, copy and make abstracts from any of such
books and records and deliver such other information as it may from time to time
reasonably request, and maintain proper books of account and other records and
enter therein complete and accurate entries and records of all if its
transactions. It will give Lender reasonable access to the Collateral for the
purposes of examining the Collateral and verifying its existence. It will make
available to Lender for examination copies of any reports, statements or returns
which Borrower may make to or file with any governmental department, bureau or
agency, federal or state. In addition, it will be available to Lender, or cause
its partners or officers or such partners' officers, as applicable, to be
available from time to time upon reasonable notice to discuss the status of the
Loan, its business and any statements, records or documents furnished or made
available to Lender in connection with this Agreement.
6.8 FINANCIAL STATEMENTS.
6.8.1 MONTHLY STATEMENTS. Furnish Lender within 30 days after
the end of each month internally prepared financial statements of Borrower with
respect to such month, which financial statements will: (i) be in reasonable
detail and in Proper Form; (ii) include a balance sheet as of the end of such
period, profit and loss and surplus statements for such period and a statement
of cash flows for such period; (iii) include prior year comparisons; and
(iv) be on a consolidating and consolidated basis for Borrower and for any
entity in which Borrower's financial information is consolidated in accordance
with generally accepted accounting principles. Following the Completion Date,
Borrower will furnish Lender with operating statements of the Project in
Proper Form within 30 days after the end of each month.
6.8.2 ANNUAL STATEMENTS. Furnish Lender within 90 days after
the end of each calendar year annual compiled financial statements of Borrower
and Kenwood Restaurant, Inc. which, for each such Person, will: (i) include a
balance sheet as of the end of such year, profit and loss and surplus statements
and a statement of cash flows for such year; and (ii) be in Proper Form.
6.8.3 FINANCIAL STATEMENTS OF GUARANTOR. Require each
Guarantor to furnish Lender a copy of his, her or its filed tax return
immediately after such filings are made with the Internal Revenue Service, and
provide Lender with a financial statement prepared by the Guarantor or the
Guarantor's accountant in form and substance acceptable to Lender.
6.9 TAXES. Pay and discharge when due all indebtedness and
all taxes, assessments, charges, levies and other liabilities imposed upon it,
its income, profits, property or business, except those which currently are
being contested in good faith by appropriate proceedings and for which it has
set aside adequate reserves or made other adequate provision with respect
thereto, but any such disputed item will be paid forthwith upon the commencement
of any proceeding for the foreclosure of any lien which may have attached with
respect thereto, unless Lender has received an opinion in form and substance and
from legal counsel acceptable
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to it that such proceeding is without merit. Borrower will furnish Lender with
each federal and state tax return filed for a calendar year within thirty (30)
days after filing.
6.10 OPERATIONS. Continue its business operations in substantially the
same manner as at present, except where such operations are rendered impossible
by a fire, strike or other events beyond its control; keep its real and
personal properties in good operating condition and repair; make all necessary
and proper repairs, renewals, replacements, additions and improvements thereto
and comply with the provisions of all leases to which it is a party or under
which it occupies or holds real or personal property so as to prevent any loss
or forfeiture thereof or thereunder.
6.11 INSURANCE. Comply with the insurance requirements of the Security
Documents.
6.12 COMPLIANCE WITH LAWS. Comply in all material respects with all
laws and regulations applicable to it and to the operation of its business,
including without limitation those relating to environmental matters, and do
all things necessary to maintain, renew and keep in full force and effect all
rights, permits, licenses, zoning certificates, clearances and franchises
(including but not limited to those relating to a "Hotel Mexico" restaurant)
necessary to enable Borrower to continue Borrower's business and construct and
operate the Project.
6.13 ENVIRONMENTAL VIOLATIONS. Immediately notify Lender of any
violation by Borrower of any rule, regulation, statute, ordinance, or law
relating to public health or the environment, and of complaints or
notifications received by Borrower with regard to any environmental or safety
and health rule, regulation, statute, ordinance or law.
6.14 ENVIRONMENTAL AUDIT AND OTHER ENVIRONMENTAL INFORMATION. Provide
copies of all environmental reports, audits, studies, data, results, and
findings obtained by Borrower from work conducted by it or any other person or
entity (including, but not by way of limitation, the United States
Environmental Protection Agency and any state Environmental Protection Agency
and their agents, representatives, and contractors) on the Property or property
adjacent thereto as soon as such reports, audits, studies, data, results, and
findings become available to it. If the submissions are considered inadequate
or insufficient in order for Lender to adequately consider the status of
environmental compliance by it or if the submissions are in error, then Lender
may require Borrower, at Borrower's sole expense, to engage an independent
engineering firm acceptable to Lender to conduct a complete environmental
report, study, finding or audit in as timely a fashion as is reasonably
possible. In addition, it will provide Lender with information related to
remedial action at the Property or adjacent to the Property as soon as such
information becomes available to Borrower (such information will include but
not be limited to a copy of the remedial investigation/feasibility study for
that property).
6.15 ACCOUNTS. Until final disbursement of the Loan, Borrower will
maintain a construction disbursement account relating to the Project at Lender.
Such account will be subject to Lender's normal and customary charges.
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6.16 NOTICE OF DEFAULT. Notify Lender in writing immediately after
it knows or has reason to know of the occurrence of an Event of Default.
6.17 AGREEMENTS. Comply with all the terms of, and take all actions
necessary to comply with and keep in full force and effect, the construction
contract with the general contractor on the Project and will not terminate or
modify any such agreement or release any party thereto without the prior written
consent of Lender. Borrower will promptly notify Lender of any claim of breach
of default by any party under any such agreement.
6.18 WARRANTIES. Upon request by Lender from time to time, promptly
deliver to Lender a true, correct and complete copy of each warranty, guaranty,
project manual, operating instructions, or similar document issued in connection
with the Project.
6.19 CHANGES. Immediately notify Lender of (a) any change in the
name under which Borrower conducts business, (b) any change in the location of
Borrower's principal place of business, or (c) the opening or closing of any
place from which Borrower conducts business.
6.20 SUBCONTRACTS. Provide to Lender, upon Lender's request, copies
of all major subcontracts in connection with the development and construction of
the Project and such financial information with respect to such subcontractors
under such subcontracts as Lender may reasonably require, all of which
subcontracts will be subject to Lender's reasonable approval.
6.21 LEASES. Comply with all requirements of the Mortgage and the
other Loan Documents with respect to the Leases.
6.22 PUBLICITY. Provided that Borrower is permitted to erect such
sign under the Restaurant Lease, permit Lender to erect one or more signs on the
Property indicating that Lender is financing the Project, and Borrower will
permit Lender to release articles for publicity purposes regarding Borrower and
the financing of the Project.
6.23 USE OF PROPERTY. Use the Property solely as a Hotel Mexico
Restaurant in accordance with the Restaurant Lease and the Franchise Agreement.
6.24 PERFORMANCE OF OBLIGATIONS. Perform each and every obligation
of the Restaurant Lease imposed on the Lessee thereunder. Borrower promptly
shall furnish Lender with any notice of default received from the Lessor under
the Restaurant Lease.
7. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that as
long as the Loan remains outstanding, Borrower will not:
7.1 DEBT. Incur any Indebtedness other than: (i) the Loan and any
subsequent Indebtedness to Lender; (ii) open account obligations incurred in the
ordinary course of business having maturities of less than 90 days; and (iii)
except for the rental payable under the Restaurant Lease, rental and lease
payments for real or personal property whose aggregate
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annual rental payments would exceed $25,000.00 when added to Borrower's rental
or lease agreements existing on the date hereof.
7.2 LIENS. Incur, create, assume, become or be liable in any way, or
suffer to exist any mortgage, pledge, lien, charge or other encumbrance of any
nature whatsoever on the Collateral, other than Permitted Exceptions and
utility easements appropriate to the Project.
7.3 GUARANTEES. Guarantee, endorse or become contingently liable for
the obligations of any Person except in connection with the endorsement and
deposit of checks in the ordinary course of business for collection.
7.4 CHANGES. Make: (i) any changes to the Budget, and (ii) changes in
the Plans and Specifications or approve orders for extra work which individually
or in the aggregate modify the costs of the Project by more than $10,000,
without the prior written approval of Lender, and in accordance with, but
subject to, that certain Conditional Assignment of Construction Contract of
even date herewith, by and among Lender, Borrower and the general contractor
for the Project. Any request for change orders will be made on AIA Form G701
and copies submitted promptly to Lender.
7.5 RESTAURANT LEASE AND FRANCHISE AGREEMENT. Amend any of the terms
or provisions of either the Restaurant Lease or Franchise Agreement, or
terminate or permit the termination of, either such agreement, without the
prior written consent of Lender.
7.6 INVESTMENTS. Purchase or hold beneficially any stock, other
securities or evidences of indebtedness of, or make any investment or acquire
any interest whatsoever in, any other Person other than short term investments
of excess working capital invested in one or more of the following: (i)
investments in direct or guaranteed obligations of the United States, or any
agencies thereof; (ii) investments in certificates of deposit of banks or trust
companies organized under the laws of the United States or any jurisdiction
thereof, provided that such banks or trust companies are insured by the Federal
Deposit Insurance Corporation and have capital in excess of $25,000,000 and
(iii) investments made by Lender acting on behalf of Borrower.
7.7 MERGER, ACQUISITION OR SALE OF ASSETS. Without the Lender's
consent to be withheld in its sole discretion, merge or consolidate with any
other entity, acquire all or substantially all the assets of any Person, or
sell, lease or otherwise dispose of any of its assets, except for dispositions
in the ordinary course of business.
7.8 ADVANCES AND LOANS. Lend money, give credit or make advances
(other than advances not to exceed $10,000 in the aggregate and other
reasonable and ordinary advances to cover reasonable expenses of employees,
such as travel expenses) to any Person, including, without limitation,
officers, directors, partners, employees or affiliates of Borrower or any
Guarantor without the prior written consent of Lender.
7.9 RELATED ENTITIES. Enter into any partnership or joint venture
agreements.
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7.10 TRANSFER OF COLLATERAL. Transfer, or permit the transfer,
to another location of any of the Collateral or the books and records related
to any of the Collateral; provided, however, that it may transfer the
Collateral or the books and records related thereto to another location with
the prior written consent of Lender and if Borrower has provided to Lender
prior to such transfer an opinion addressed to Lender in form and substance and
written by counsel acceptable to Lender to the effect that Lender's perfected
security interest in the Collateral will not be affected by such move or if it
will be affected, setting forth the steps necessary to continue Lender's
perfected security interest together with the commencement of such steps by
Borrower at Borrower's expense.
7.11 CONVEYANCES. Voluntarily or involuntarily mortgage, sell,
convey, pledge, grant a security interest in, execute an installment sale
contract, or otherwise dispose of, further encumber or suffer the encumbrance
of, whether by operation of law or otherwise, any or all of its interest in the
Collateral, or any part thereof, without the prior written consent of Lender.
The occurrence of any of the following events (each, a "Transfer") without
Lender's prior written consent will be deemed a violation of the foregoing
covenant: (i) the transfer, conveyance, contract for sale, assignment or pledge
of any partnership interest in Borrower, (ii) the failure of Kenwood
Restaurant, Inc. at any time to remain the sole general partner of Borrower, or
(iii) the dissolution of Borrower or any Guarantor.
7.12 SALE AND LEASEBACK. Directly or indirectly enter into any
arrangement to sell or transfer all or any part of its fixed assets then owned
by it and thereupon or within one year thereafter rent or lease the assets so
sold or transferred.
7.13 POST-CLOSING MATTERS. Fail to deliver to Lender in Proper
Form the documents, if any, noted as post-closing items on the Closing Memo on
or before the date specified in the Closing Memo.
7.14 LINE OF BUSINESS. Enter into any lines or areas of
business substantially different from the business or activities in which
Borrower is presently engaged.
7.15 WAIVERS. Waive any right or rights of substantial value
which, singly or in the aggregate, is or are material to its condition
(financial or otherwise), properties or business.
7.16 ASSIGNMENT. Assign the Restaurant Lease, or sublet any
portion of the Property, without the express written consent of Lender, which
consent Lender may withhold in its sole discretion.
8. DEFAULT.
8.1 EVENTS OF DEFAULT BY BORROWER. The occurrence of any one or
more of the following with respect to Borrower will constitute an "Event of
Default" as such term is used herein:
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8.1.1 The non-payment when due, whether by acceleration or
otherwise of any principal, interest, late charges on the Note or any other
amount due Lender under the Loan Documents.
8.1.2 The default in the due observance of any other covenant or
agreement to be kept or performed by it under the terms of this Agreement or
any of the other Loan Documents and the failure or inability of it to cure such
default within 30 days of the occurrence thereof; provided that such 30 day
grace period will not apply to: (i) any default which in Lender's good faith
determination is incapable of cure, (ii) any default that has previously
occurred, (iii) any default in any negative covenants or (iv) any failure to
maintain insurance or permit inspection of the Collateral or its books and
records.
8.1.3 Any representation or warranty made by it in this
Agreement, in any of the other Loan Documents or in any report, certificate,
opinion, financial statement or other document furnished in connection with the
Obligations is false or erroneous in any material respect or any material
breach thereof has been committed.
8.1.4 Except as provided in Sections 8.1.1, 8.1.2, and 8.1.3,
the default by it in the due observance of any covenant, negative covenant or
agreement to be kept or performed by it under the terms of this Agreement, the
Loan Documents or any document now or in the future executed in connection with
any of the Obligations and the lapse of any applicable cure period provided
therein with respect to such default, or, if so defined therein, the occurrence
of any Event of Default or Default (as such terms are defined therein).
8.1.5 The occurrence of any default or Event of Default (as
defined therein) under any agreement or instrument evidencing, guaranteeing, or
otherwise relating to any loan or extension of credit by Lender to Hotel
Mexico, Inc.
8.1.6 The termination or cancellation for any reason of the
Restaurant Lease.
8.1.7 It or any Guarantor that is not an individual: (i)
dissolves or is the subject of any dissolution, a winding up or liquidation;
(ii) makes a general assignment for the benefit of creditors; or (iii) files or
has filed against it a petition in bankruptcy, for a reorganization or an
arrangement, or for a receiver, trustee or similar creditors' representative
for its property or assets or any part thereof, or any other proceeding under
any federal or state insolvency law, and if filed against it, the same has not
been dismissed or discharged within 60 days thereof.
8.1.8 The commencement of any foreclosure proceedings,
proceedings in aid of execution, attachment actions, levies against, or the
filing by any taxing authority of a lien against it or against any of the
Collateral, except those liens being diligently contested in good faith which
in the aggregate do not exceed $25,000.
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<PAGE> 22
8.1.9 A discontinuance or abandonment of the construction of
the Project, or any occurrence resulting in a delay in the construction of the
Project so that the same may not, in Lender's sole judgment, be completed on or
before the Completion Date.
8.1.10 The disapproval of Lender at any time of any
construction work because of the failure of such work to comply with the Plans
and Specifications, as approved by Lender, applicable zoning or building
codes,or the contracts or subcontracts for such work or the failure of such
work to be merchantable or of such quality as is normally acceptable in the
construction trades and the failure of Borrower to cause the same to be
corrected to the satisfaction of Lender within the earlier of: (i) thirty (30)
days after written notice from Lender or (ii) the Completion Date.
8.1.11 The failure of Borrower or any Guarantor by payment,
bond or otherwise to satisfy, remove or cause the Title Company to endorse the
Title Insurance Policy to affirmatively insure over, within thirty (30) days
after the date of filing thereof, any lien or claim of lien filed against the
Property for the performance of work, the supplying of materials or labor, the
performance of services, or the payment of local, state or federal taxes.
8.1.12 The bankruptcy or insolvency of any general contractor
or subcontractor and failure of Borrower to procure a contract or subcontract
in Proper Form with a new substitute contractor or subcontractor so that the
Project may not, in Lender's sole judgment, be completed on or before the
Completion Date.
8.1.13 Unless in the opinion of Lender that the same is
adequately insured or bonded, the entry of a final judgment for the payment of
money involving more than $25,000 against it and the failure by it to discharge
the same, or cause it to be discharged, within 10 days from the date of the
order, decree or process under which or pursuant to which such judgment was
entered, or to secure a stay of execution pending appeal of such judgment; the
entry of one or more final monetary or non-monetary judgments or order which,
singly or in the aggregate, does or could reasonably be expected to: (i) cause
a material adverse change in the value of the Collateral or its condition
(financial or otherwise), operations, properties or prospects, (ii) have a
material adverse effect on its ability to perform its obligations under this
Agreement or the Loan Documents, or (iii) have a material adverse effect on the
rights and remedies of Lender under this Agreement, the Note or any Loan
Document.
8.1.14 Lender in its sole discretion, determines in good faith
that a material adverse change has occurred in its financial condition.
8.1.15 The modification or termination of the Lease, Franchise
Agreement, or construction contract for the Project, without Lender's prior
written consent.
8.1.16 The validity or effectiveness of any Security Document
or its transfer, grant, pledge, mortgage or assignment by the party executing
it in favor of Lender is impaired; any party to a Security Document asserts
that any Security Document is not a legal,
-22-
<PAGE> 23
valid and binding obligation of it enforceable in accordance with its terms;
the security interest or lien purporting to be created by any of the Security
Documents ceases to be or is asserted by any party to any Security Document
(other than Lender) not to be a valid, perfected lien subject to no liens other
than liens not prohibited by this Agreement or any Security Document; or any
Security Document is amended, subordinated, terminated or discharged, or any
person is released from any of its covenants or obligations except to the
extent that Lender expressly consents in writing thereto.
8.1.17 The death of any Guarantor who is an individual.
8.1.18 A default with respect to any evidence of Indebtedness
in excess of $25,000 by it (other than to Lender pursuant to this Agreement),
if the effect of such default is to accelerate the maturity of such
Indebtedness or to permit the holder thereof to cause such Indebtedness to
become due prior to the stated maturity thereof, or if any Indebtedness of it
in excess of $25,000 (other than to Lender pursuant to this Agreement) is not
paid when due and payable, whether at the due date thereof or a date fixed for
prepayment or otherwise (after the expiration of any applicable grace period).
8.1.19 The revocation of any permit or license required in the
operation of the Hotel Mexico Restaurant on the Property.
8.2 LENDER'S REMEDIES IN THE EVENT OF DEFAULT. Upon the
occurrence of any Event of Default, Lender, in addition to all remedies
conferred upon Lender by law or equity and by the terms of the Loan Documents,
may, in its sole discretion, pursue any one or more of the following remedies
concurrently or successively, it being the intent hereof that none of such
remedies will be to the exclusion of any other:
8.2.1 Take possession of the Property and complete the
construction and equipping of the Project and do anything in Lender's sole
judgment to fulfill the obligations of Borrower hereunder, any expense incurred
by Lender being deemed to be part of the Obligations of Borrower pursuant to the
Loan, including the right to procure performance of existing contracts or let
contracts with the same contractors or others. Without restricting the
generality of the foregoing and for purposes aforesaid, Borrower hereby appoints
and constitutes Lender its lawful attorney-in-fact with full power of
substitution in the premises to complete construction and equipping of the
Project in the name of Borrower; to use unadvanced funds remaining under the
Loan or which may be reserved or escrowed for any purpose hereunder to complete
the Project; to make changes in the Plans and Specifications necessary or
desirable to complete the Project; to retain or employ new general contractors,
subcontractors, architects and inspectors as will be required for such purposes;
to pay, settle, or compromise all existing bills and claims which may become a
lien on the Property or as may be necessary or desirable for the completion of
the construction of the Project or for the clearance of title; to negotiate,
enter into, execute, deliver and collect rents under any lease or leases for all
or any portion of the Project or the Property; to provide for and cause the
completion of any tenant work tenant furnishings and/or tenant improvements for
all or any portion of the Project or the Property; and
-23-
<PAGE> 24
to do any and every act which Borrower might do in its own behalf to prosecute
and defend all actions or proceedings in connection with the Project or the
Property; to take such action and require such performance as Lender deems
necessary under any of the bonds which may be furnished hereunder and to make
settlements and compromises with any surety or sureties thereunder, and in
connection therewith, to execute instruments of release and satisfaction; it
being understood and agreed that this power of attorney will be a power coupled
with an interest and cannot be revoked;
8.2.2 Withhold further disbursement of the proceeds of the Loan;
8.2.3 Declare the entire indebtedness evidenced by the Note,
including all payments for taxes, assessments, insurance premiums, liens, costs,
expenses and Attorneys' Fees herein specified, without demand or notice of any
kind (which are hereby expressly waived) to be due and payable at once and, in
that event, such indebtedness and the Obligations will become immediately due
and payable, provided, however that upon occurrence of any of the events
described in Section 8.1.5, such acceleration will occur automatically and
without any notice or other action on the part of Lender; and to
8.2.4 Offset and apply to all or any part of the Loan, all money,
credits and other property of any nature whatsoever of Borrower now or at any
time hereafter in the possession, in transit to or from, under the control or
custody of, or on deposit with Lender (whether held by Borrower individually or
jointly with another party).
8.2.5 Request the appointment of a receiver of the Collateral.
Such appointment may be made without notice, and without regard to (i) the
solvency or insolvency, at the time of application for such receiver, of the
person or persons, if any, liable for the payment of the Obligations; and (ii)
the value of the Collateral at such time. Such receiver will have the power to
take possession, control and care of the Collateral and to collect all accounts
resulting therefrom. Notwithstanding the appointment of any receiver, trustee,
or other custodian, Lender will be entitled to the possession and control of any
cash, or other instruments at the time held by, or payable or deliverable under
the terms of this Loan Agreement or any Security Documents to Lender.
8.3 Advances to Cure Default. In the event that Borrower fails to
perform any of Borrower's convenants or agreements under this Agreement, Lender
may, but will not be required to, perform any or all of such covenants and
agreements after ten (10) days written notice to Borrower (unless in Lender's
judgment the sending of a ten (10) day notice may impair the security of the
Loan Documents or the Project or the Property), and any amounts expended by
Lender in so doing will constitute additional indebtedness under this Agreement
and under the Mortgage and will be repaid as provided therein.
8.4 Marketing of Project. In the event that there is an occurrence
of an Event of Default, Lender will be entitled to publicize the Project for
sale and to furnish rent rolls, operating statement and all other information
pertaining to the Project in the possession
-24-
<PAGE> 25
of Lender to prospective purchasers and their lenders in anticipation of, or
concurrent with, Lender's enforcement of its rights and remedies under the Loan
Documents and/or acquisition of the Project by foreclosure, deed in lieu of
foreclosure or otherwise and will be entitled to engage a real estate broker
for such purpose. All such marketing activities and brokerage arrangements
under in connection with such marketing of the Project will be the sole
expense of Borrower.
9. GENERAL COVENANTS.
9.1 INDEMNITY. Borrower will indemnify, defend and hold harmless,
Lender, its directors, officers, counsel and employees, from and against all
claims, demands, liabilities, judgements, losses, damages, costs and expenses,
joint or several (including all accounting fees and Attorneys' Fees reasonably
incurred), that Lender or any such indemnified party may incur arising under or
by reason of this Agreement or any act hereunder or with respect hereto or
thereto including but not limited to any of the foregoing relating to any act,
mistake or failure to act in perfecting, maintaining, protecting or realizing
on any collateral or lien thereon except the willful misconduct or gross
negligence of such indemnified party. Without limiting the generality of the
foregoing, Borrower agrees that if, after receipt by Lender of any payment of
all or any part of the Obligations, demand is made at any time upon Lender for
the repayment or recovery of any amount or amounts received by it in payment or
on account of the Obligations and Lender repays all or any part of such amount
or amounts by reason of any judgement, decree or order of any court or
administrative body, or by reason of any settlement or compromise of any such
demand, this Agreement will continue in full force and effect and Borrower will
be liable, and will indemnify, defend and hold harmless Lender for the amount
or amounts so repaid. The provisions of this Section will be and remain
effective notwithstanding any contrary action which may have been taken by
Borrower in reliance upon such payment, and any such contrary action so taken
will be without prejudice to Lender's rights under this Agreement and will be
deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section will survive the expiration or
termination of this Agreement or the release of the Security Documents.
9.2 CONTINUING AGREEMENT. This Agreement is and is intended to be a
continuing agreement and will remain in full force and effect until the Loan is
finally and irrevocably paid in full and this Agreement is terminated by a
writing signed by Lender specifically terminating this Agreement.
9.3 NO THIRD PARTY BENEFICIARIES. Nothing express or implied herein
is intended or will be construed to confer upon or give any Person, other than
the parties hereto, any right or remedy hereunder or by reason hereof.
9.4 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained herein or in
any of the agreements or transactions contemplated hereby is intended or will
be construed to create any relationship other than as expressly stated herein
or therein and will not create any joint venture, partnership or other
relationship.
-25-
<PAGE> 26
9.5 WAIVER. No delay or omission on the part of Lender to exercise any
right or power arising from any Event of Default will impair any such right or
power or be considered a waiver of any such right or power or a waiver of any
such Event of Default or an acquiescence therein nor will the action or
nonaction of Lender in case of such Event of Default impair any right or power
arising as a result thereof or affect any subsequent default or any other
default of the same or a different nature. No disbursement of the Loan
hereunder will constitute a waiver of any of the conditions to Lender's
obligation to make further disbursements; nor, in the event that Borrower is
unable to satisfy any such condition, will any such disbursement have the
effect of precluding Lender from thereafter declaring such inability to be an
Event of Default.
9.6 NOTICES. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder will be in writing and will
be conclusively deemed to have been received by a party hereto and to be
effective if delivered personally to such party, or sent by telex, telecopy
(followed by written confirmation) or other telegraphic means, or by overnight
courier service, or by certified or registered mail, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or to
such other address as any party may give to the other in writing for such
purpose:
To Lender: PNC Bank, Ohio, National Association
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: Commercial Real Estate
To Borrower: Kenwood Restaurant Limited Partnership
8260 North Creek Drive, Suite 140
Cincinnati, Ohio 45236
Attention: Mr. Stephen D. King
All such communications, if personally delivered, will be conclusively deemed
to have been received by a party hereto and to be effective when so delivered,
or if sent by telex, telecopy or telegraphic means, on the day on which
transmitted, or if sent by overnight courier service, on the day after deposit
thereof with such service, or if sent by certified or registered mail, on the
third business day after the day on which deposited in the mail.
9.7 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns, provided, however, that Borrower may not assign this Agreement in
whole or in part without the prior written consent of Lender and Lender at any
time may assign this Agreement in whole or in part.
9.8 MODIFICATIONS. This Agreement, the Note and the Loan Documents, and
the documents listed on the Closing Memo, constitute the entire agreement of
the parties and supersede all prior agreements and understandings regarding the
subject matter of this
-26-
<PAGE> 27
Agreement, including but not limited to any proposal or commitment letters. No
modification or waiver of any provision of this Agreement, the Note, any of the
Loan Documents or any of the documents listed on the Closing Memo, nor consent
to any departure by Borrower therefrom, will be established by conduct, custom
or course of dealing; and no modification, waiver or consent will in any event
be effective unless the same is in writing and specifically refers to this
Agreement, and then such waiver or consent will be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
Borrower in any case will entitle Borrower to any other or further notice or
demand in the same, similar or other circumstance.
9.9 REMEDIES CUMULATIVE. No single or partial exercise of any right or
remedy by Lender will preclude any other or further exercise thereof or the
exercise of any other right or remedy. All remedies hereunder and in any
instrument or document evidencing, securing, guaranteeing or relating to the
Loan or now or hereafter existing at law or in equity or by statute are
cumulative and none of them will be exclusive of the others or any other remedy.
All such rights and remedies may be exercised separately, successively,
concurrently, independently or cumulatively from time to time and as often and
in such order as Lender may deem appropriate.
9.10 EXTENT OF LENDER'S REVIEW. The review and approval of the Plans
and Specifications by Lender or any of its professionals will not constitute a
representation or warranty as to the engineering or architectural design in the
preparation of the Plans and Specifications, the quality of materials or
workmanship covered by the Plans and Specifications or the Project's compliance
with applicable federal, state or local laws and policies. It will be the sole
responsibility of Borrower and its professionals to confirm all such matters
and Borrower will not be entitled to rely on Lender or its professionals for
such purpose.
9.11 ILLEGALITY. If fulfillment of any provision hereof or any
transaction related hereto or of any provision of the Note or the Loan
Documents, at the time performance of such provision is due, involves
transcending the limit of validity prescribed by law, then ipso facto, the
obligation to be fulfilled will be reduced to the limit of such validity; and
if any clause or provisions herein contained (other than the provisions hereof
pertaining to repayment of the Obligations) operates or would prospectively
operate to invalidate this Agreement in whole or in part, then such clause or
provision only will be void, as though not herein contained, and the remainder
of this Agreement will remain operative and in full force and effect; and if
such provision pertains to repayment of the Obligations, then, at the option of
Lender, all of the Obligations of Borrower to Lender will become immediately
due and payable.
9.12 GENDER, ETC. Whenever used herein, the singular number will
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender will include all genders.
9.13 HEADINGS. The headings in this Agreement are for convenience only
and will not limit or otherwise affect any of the terms hereof.
-27-
<PAGE> 28
9.14 TIME. Time is of the essence in the performance of this
Agreement.
9.15 GOVERNING LAW AND JURISDICTION; NO JURY TRIAL. THIS
AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES, AND BORROWER HEREBY AGREES TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN HAMILTON COUNTY, OHIO
AND CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO
BORROWER AT BORROWER'S ADDRESS SET FORTH HEREIN FOR NOTICES AND SERVICE SO MADE
WILL BE DEEMED TO BE COMPLETED FIVE (5) BUSINESS DAYS AFTER THE SAME HAS BEEN
DEPOSITED IN U.S. MAILS, POSTAGE PREPAID; PROVIDED THAT NOTHING CONTAINED HEREIN
WILL PREVENT LENDER FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST
ANY SECURITY OR AGAINST BORROWER INDIVIDUALLY, OR AGAINST ANY PROPERTY OF
BORROWER, WITHIN ANY OTHER STATE OR NATION. BORROWER WAIVES ANY OBJECTION BASED
ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE IN ANY ACTION INSTITUTED
HEREUNDER. BORROWER AND LENDER EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY DOCUMENTS EVIDENCING ANY OF
THE OBLIGATIONS, OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH AGREEMENTS.
Executed on October 9, 1996.
BORROWER:
KENWOOD RESTAURANT LIMITED PARTNERSHIP
By: Kenwood Restaurant, Inc., its General Partner
By: Stephen D. King
---------------------
Stephen D. King
President
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<PAGE> 29
LENDER:
PNC BANK, OHIO, NATIONAL ASSOCIATION
By: Wendy Gaskic
---------------------
Print Name: Wendy Gaskic
--------------
Title: Loan Officer
------------------
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<PAGE> 30
<TABLE>
<CAPTION>
<S><C>
CONSTRUCTION INC. CONCEPTUAL ESTIMATE (CONFIDENTIAL) PG 1 OF 3
- --------------------------------------------------------------------------------------------------------------------------------
HOTEL MEXICO DURATION GROSS BLDG AREA MAY 18,1995
-------- --------------- -----------
SYCAMORE PLAZA START DATE Bsmt. AREA* 4,015 SF EST# E5004
KENWOOD MALL COMPL DATE 1st FL AREA* 7,729 SF File: HTL MEX WC2
--------------------
6.00% SALES TAX TOTAL MOCNS 7.5 2nd NET AREA 4,767 SF SITE PERIM
------ ---- -----
Y BLDRS RISK INSUR (Y OR N) TOTAL WEEKS TOTAL 16,511 SF ACRES LF*
N PERFORMANCE BOND (Y OR N OR ALT)
- ------------------------------------------------------------------------------------------------------------------------------------
Mat Lab Sub
Cs ITEM DESCRIPTION QTY U @ @ @ MATL LABOR SUB TOTAL COST/SF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2100 Site Demolition 1 LS 1600 1,600 1,600 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
2150 Selective Demolition N
- ------------------------------------------------------------------------------------------------------------------------------------
2210 Site Grading W/2100 2000
- ------------------------------------------------------------------------------------------------------------------------------------
2220 Bldg Excavation & BF 1 3100 6470 N 8188 6,858 8,188 15,046 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
2220 domy Fdtns 1 4200 N
- ------------------------------------------------------------------------------------------------------------------------------------
2220 do Basement 1 WBA 8130 7326 8349 8,618 7,326 8,349 24,293 1.47
- ------------------------------------------------------------------------------------------------------------------------------------
2220 do Earth Spolis 1 WBA 11149 11,149 11,149 0.68
- ------------------------------------------------------------------------------------------------------------------------------------
2221 S-O-G Gran Drng Crs 1 3300 1719 N 499 1,822 499 2,321 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
2221 do- Site Walks 1 ORIG 522 171 553 171 724 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
2240 Soil Stabilization N
- ------------------------------------------------------------------------------------------------------------------------------------
2250 Termite Control 1 3300 1391 1,391 1,391 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
2350 Drift Caissons (Incl. Casing) 5 DAYS 1500 7,500 7,500 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
2505 Foundation Drainage 1 3100 636 576 674 576 1,250 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
2505 do Basement 1 WBA 636 1440 674 1,440 2,114 0.13
- ------------------------------------------------------------------------------------------------------------------------------------
2510 Storm Sewer 1 LS 1000 1,000 1,000 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
2520 Sanitary Sewer 1 LS 2500 2,500 2,500 0.15
- ------------------------------------------------------------------------------------------------------------------------------------
2550 Water Serv. - Domestic 1 LS 1500 1,500 1,500 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
2560 Fire Line 1 LS 3000 3,000 3,000 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
2580 Gas Service 1 LS 1000 1,000 1,000 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
2600 Asphalt Paving (Patch) 600 SY 18 10,800 10,800 0.65
- ------------------------------------------------------------------------------------------------------------------------------------
2650 Site Concrete B/O ORIG 3527 5586
- ------------------------------------------------------------------------------------------------------------------------------------
2700 Site Improvements N
- ------------------------------------------------------------------------------------------------------------------------------------
2710 Fencers & Gates N
- ------------------------------------------------------------------------------------------------------------------------------------
2750 Lawn Irrigation System N
- ------------------------------------------------------------------------------------------------------------------------------------
2800 Landscaping B/O 2000
- ------------------------------------------------------------------------------------------------------------------------------------
3100 Bldg Conc-Foundtns 1 3100 19471 24624 20,638 24,624 45,263 2.74
- ------------------------------------------------------------------------------------------------------------------------------------
3100 do Basement 1 WB3 15492 42469 16,422 42,469 58,891 3.57
- ------------------------------------------------------------------------------------------------------------------------------------
3150 Caissons - Concrete 60 CY 45.5 66.6667 2,894 4,000 6,894 0.42
- ------------------------------------------------------------------------------------------------------------------------------------
3150 Caissons - Reber 4 TON 500 W/Abov 2,120 2,120 0.13
- ------------------------------------------------------------------------------------------------------------------------------------
3100 Conc Ftgs a Msy Fdtns 1 4200 N
- ------------------------------------------------------------------------------------------------------------------------------------
3300 Bldg Conc-Flatwork SOG 1 3300 7973 N 6527 8,451 6,527 14,978 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
3300 do Basement 1 WB3 3868 3325 4,100 3,325 7,425 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
3300 do- SOD - 2nd Floor 1 3300 4917 5078 767 5,212 5,078 767 11,057 0.67
- ------------------------------------------------------------------------------------------------------------------------------------
3300 do- SOD - Roof 1 3300 4069 3340 627 4,313 3,340 627 8,280 0.50
- ------------------------------------------------------------------------------------------------------------------------------------
3300 Seal Conc Floors 1 5000
- ------------------------------------------------------------------------------------------------------------------------------------
3400 Precast Concrete N
- ------------------------------------------------------------------------------------------------------------------------------------
3500 Cementious Decks N
- ------------------------------------------------------------------------------------------------------------------------------------
4200 Masonry 1 W42 44412 44,412 44,412 2.69
- ------------------------------------------------------------------------------------------------------------------------------------
5100 Structural Steel 1 5000 73984 N 19917 78,423 19,917 98,340 5.96
- ------------------------------------------------------------------------------------------------------------------------------------
5100 do Basement 1 ORIG 4802 1867 5,090 1,867 6,957 0.42
- ------------------------------------------------------------------------------------------------------------------------------------
5200 Steel Joists 1 5000 12715 N 4979 13,478 4,979 18,457 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
5200 do Basement 1 ORIG 5107 1867 5,413 1,867 7,280 0.44
- ------------------------------------------------------------------------------------------------------------------------------------
5300 Metal Roof Deck 1 5000 8972 N 2858 9,510 2,858 12,368 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
5350 Metal Form Deck W/ABOV
- ------------------------------------------------------------------------------------------------------------------------------------
5350 do Over Basement 1 ORIG 1995 598 2,115 598 2,713 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
5400 Lt Ga Metal Framing W/6100
- ------------------------------------------------------------------------------------------------------------------------------------
5500 Misc Steel Fabrications N
- ------------------------------------------------------------------------------------------------------------------------------------
5510 Metal Stairs & Railings 26 RIS 150 3,900 3,900 0.24
- ------------------------------------------------------------------------------------------------------------------------------------
5510 do Basement 20 RIS 150 3,000 3,000 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
5515 Roof Ladder N
- ------------------------------------------------------------------------------------------------------------------------------------
5800 Guard Rail N
- ------------------------------------------------------------------------------------------------------------------------------------
6100 R. Carpentry-Exter Walls 1 6100 27228 15810 28,862 15,810 44,672 2.71
- ------------------------------------------------------------------------------------------------------------------------------------
6100 do Eurred Walls 1 6100 1630.8 1667 1,729 1,667 3,396 0.21
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
CONSTRUCTION INC. CONCEPTUAL ESTIMATE (CONFIDENTIAL) PG 2 OF 3
- --------------------------------------------------------------------------------------------------------------------------------
HOTEL MEXICO DURATION GROSS BLDG AREA MAY 18,1995
SYCAMORE PLAZA -------- --------------- -----------
KENWOOD MALL START DATE Bsmt. AREA* 4,015 SF EST # E5004
COMPL DATE 1st FL AREA* 7,728 SF File: HTL MEX WC2
TOTAL MONS -----------------
TOTAL WEEKS 7.5 2nd NET AREA* 4,767 SF SITE PERIM
6.00% SALES TAX ------ ---- -----
Y BLDRS RISK INSUR (Y OR N) TOTAL* 16,511 SF ACRES LF*
N PERFORMANCE BOND (Y OR N OR ALT)
- --------------------------------------------------------------------------------------------------------------------------------
Mat Lab Sub
C# ITEM DESCRIPTION QTY U @ @ @ MATL LABOR SUB TOTAL COST/SF
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6100 do- Inter Partns 1 6100 15163.2 8254 16,073 8,254 24,327 1.47
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6100 do- Roof Frmg 1 6100 1918.8 1676 2,034 1,676 3,710 0.22
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6200 FRP Panel/ Kitchen 3000 SF 1.5 0.75 4,770 2,250 7,020 0.43
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6190 Wood Trusses 1 6100
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6200 Finish Carpentry 1 6400
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6200 PLAM Wdw Stools 1 6400 1297 459 1,375 459 1,834 0.11
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
6400 Prefab Cabinets + Shlvg 1 6400 1674 374 1,774 374 2,148 0.13
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7100 Waterproofing N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7150 Dampproofing 1 7000 1250 1,250 1,250 0.08
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7150 do Basement 1 OMG 6264 6,264 6,244 0.30
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7210 Insulation - Batt 1 7000 8100 8,100 8,100 0.40
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7220 Sound - Batt 1 7000 628 628 628 0.04
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7240 EIFS/ Dryvtt 1 7000 39537 39,537 39,537 2.39
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7250 Perim + U/slab Insul 1 7000 684 306 725 306 1,031 0.06
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7300 Roof Shingles + Sht Met 1 7000
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7400 Preform Roof + Siding W/Belo
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7600 Singl Ply Roof, SM+Acc 1 7000 65700 65,700 65,700 3.96
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7630 Gutters & DS W/Abov
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7800 Roof Accessories N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7810 Skylights N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7830 Roof Hatches N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
7900 Sealants + Caulking 1 7000 19 43 20 43 63 0.00
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8100 H.M.Doors + Frames 1 8000 893 238 947 236 1,185 0.07
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8200 Wood Doors 1 8000 477 216 506 216 722 0.04
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8300 Special Doors/Entry Doors B/RAM EA 1600 288
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8360 Overhead Doors N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8400 Entrances + Storefronts B/RAM 8000 900
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8500 Metal / Alum Windows N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8600 Wood Windows N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8700 Finish Hardware 1 8000 2134 622 2,262 622 2,884 0.17
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8710 ADA Requirements W/ABOV
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
8800 Glass & Glazing 1 8000 57307 57,307 57,307 3.47
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9250 Drywall 1 9000 26950 26,950 26,950 1.63
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9260 Metal Studs - Exter Walls W/6100 6100 27228 15810
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9280 do- Inter Partns W/6100 6100 15163.2 8254
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9300 Tile- Ceramic, Quarry 1 9000 40616 40,616 40,616 2.46
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9300 Marble & Slate Tile N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9600 Acoustical Ceilings 1 9000 6306 6,306 6,306 0.38
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9650 Vinyl Tile W/9680 9000
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9660 Vinyl Base 1 9000 1171 1,171 1,171 0.07
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9660 Resil Sheet Flooring N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9680 Carpet 1 9000 14103 14,103 14,103 0.85
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9700 Special Flooring N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9800 Special Coatings N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
9900 Painting 1 9000 16804 16,804 16,804 1.02
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10160 Toilet Partitions 1 10000 2400 2,400 2,400 0.15
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10200 Louvers + Vents N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10350 Flagpoles N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10390 Fire Exting + Cabinets 1 10000 657 696 696 0.04
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10400 Signage - Interior N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10420 Signage - Exterior N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10500 Lockers N
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
10600 Toilet Room Access 1 10000 1172 298 1,242 298 1,540 0.09
- ------ ---------------------------- --------- -------- --------- ---------- -------- --------- ------- ------- -------- ------------
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
CONSTRUCTION INC. CONCEPTUAL ESTIMATE (CONFIDENTIAL) PG 3 OF 3
- --------------------------------------------------------------------------------------------------------------------------------
HOTEL MEXICO DURATION GROSS BLDG AREA MAY 18,1995
-------- --------------- -----------
SYCAMORE PLAZA START DATE Bsmt. AREA* 4,015 SF EST# E5004
KENWOOD MALL COMPL DATE 1st FL AREA* 7,728 SF File: HTL MEX WC2
--------------------
6.00% SALES TAX TOTAL MONS 7.5 2nd NET AREA 4,767 SF SITE PERIM
------ ---- -----
Y BLDRS RISK INSUR (Y OR N) TOTAL WEEKS TOTAL 16,511 SF ACRES LF*
N PERFORMANCE BOND (Y OR N OR ALT)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mat Lab Sub
Cs ITEM DESCRIPTION QTY U @ @ @ MATL LABOR SUB TOTAL COST/SF
- ------------------------------------------------------------------------------------------------------------------------------------
11000 Equipment N
- ------------------------------------------------------------------------------------------------------------------------------------
11050 Install Owner Furn Equip N
- ------------------------------------------------------------------------------------------------------------------------------------
11630 Laundry Equip N
- ------------------------------------------------------------------------------------------------------------------------------------
11900 Appliances N
- ------------------------------------------------------------------------------------------------------------------------------------
12000 Furnishings N
- ------------------------------------------------------------------------------------------------------------------------------------
12500 Window Treatment N
- ------------------------------------------------------------------------------------------------------------------------------------
12570 Rugs + Mats N
- ------------------------------------------------------------------------------------------------------------------------------------
14000 Conveying Systems N
- ------------------------------------------------------------------------------------------------------------------------------------
15400 Plumbing 1.6 15400 25500 40,800 40,800 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
15450 Limited Sprinkler Sys N
- ------------------------------------------------------------------------------------------------------------------------------------
15500 Fire Sprinkler System 16511 SF 1.6625 27,450 27,450 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
15600 Gas Piping (House) W/BELO
- ------------------------------------------------------------------------------------------------------------------------------------
15800 H.V.A.C. 1 15800 156580 156,580 156,580 9.48
- ------------------------------------------------------------------------------------------------------------------------------------
15050 Electrical Service W/BELO
- ------------------------------------------------------------------------------------------------------------------------------------
16100 Electrical Work 1 16000 102648 102,648 102,648 6.22
- ------------------------------------------------------------------------------------------------------------------------------------
16100 do Basement 1 CRIG 5672 5,672 5,672 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
16720 Fire Alarm System W/16100
- ------------------------------------------------------------------------------------------------------------------------------------
16730 Detection System N
- ------------------------------------------------------------------------------------------------------------------------------------
16750 Telephone System N
- ------------------------------------------------------------------------------------------------------------------------------------
16770 PA System N
- ------------------------------------------------------------------------------------------------------------------------------------
16780 Television System N
- ------------------------------------------------------------------------------------------------------------------------------------
16790 Telecomm Sys N
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL SITE & BLDG. ESTIM. COST= 260,394 49,973 884,670 1,155,037 69.96
PROOF= 1,155,037 69.96
1000 GELN COND 57,021 3.45
- ------------------------------------------------------------------------------------------------------------------------------------
1000 A/E +CIVIL A/E FEES B/O
- ------------------------------------------------------------------------------------------------------------------------------------
1,212,058 TOTAL ESTIMATED COST 1,212,058 73.41
OH+P 108,000 6.54
228 CALANDAR DAYS 1,320,058 SUB-TOTAL 1,328,058 79.95
1000 Insurance & Bond BLDRS RISK= BY OWNER
- ------------------------------------------------------------------------------------------------------------------------------------
1000 PERF BOND= NONE
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BID= $1,320,058 79.95
BID TENDERED= 1,320,058 79.95
C: R.WADE
- ------------------------------------------------------------------------------------------------------------------------------------
M. RUPE/ CONTRACT FILE & COST SU
LASCHAELS ALT BID/ + PERF BOND NA
06/19/95 MARVIN SPRADLING, RAM fx
- ------------------------------------------------------------------------------------------------------------------------------------
06/19/95 STEVE KING, HOTEL MEXICO
- ------------------------------------------------------------------------------------------------------------------------------------
Previous Estimates Comparison
02/07/96 2-Story (No Basement) $982,978
03/13/95 Revised Basement 174,000
Previous Total $1,156,978
Difference this Estimate Add $ 163,080
------
APPROVED BY:
---------------------
DATE:
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
HOTEL MEXICO, INC.
1997 STOCK OPTION AND
COMPENSATION PLAN
1. Purpose. The purpose of this Hotel Mexico, Inc. (the "Company") 1997
Stock Option and Compensation Plan (the "Plan") is to increase stockholder
value and to advance the interests of the Company by furnishing a variety of
economic incentives ("Incentives") designed to attract, retain and motivate
employees and certain key consultants. Incentives may consist of opportunities
to purchase or receive shares of Common Stock, without par value, of the
Company ("Common Stock"), monetary payments, or both, on terms determined under
this Plan.
2. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the board of directors of the Company (the
"Board"). Subject to any provisions of state law which may require that the
Committee consist of a larger number of members, if the Company stock is
privately held, the Committee shall consist of one or more directors of the
Company as shall be appointed from time to time by the Chairman of the Board.
If the Company stock becomes the subject of a public offering, the Committee
shall then consist of not less than two directors who shall be appointed from
time to time by the Board, each of which such appointees shall be a
"disinterested person" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, and the regulations promulgated thereunder (the "1934
Act"), and the Board may from time to time appoint members of the Committee in
substitution for, or in addition to, members previously appointed, and may fill
vacancies, however caused, in the Committee. If more than one person is on the
Committee, the following shall apply: (a) the Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable; (b) a majority of the Committee's members shall
constitute a quorum; (c) all action of the Committee shall be taken by the
majority of its members; and (d) any action may be taken by a written
instrument signed by majority of the members and actions so taken shall be
fully effective as if they had been made by a majority vote at a meeting duly
called and held. The Committee may appoint a secretary, shall keep minutes of
its meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable. The Committee shall have complete
authority to award Incentives under the Plan, to interpret the Plan, and to
make any other determination which it believes necessary and advisable for the
proper administration of the Plan. The Committee's decisions and matters
relating to the Plan shall be final and conclusive on the Company and its
participants.
3. Eligible Participants. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation by officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers must be approved by the Committee. Participation
<PAGE> 2
by others and any performance objectives relating to others may be approved by
groups or categories (for example, by pay grade) and authority to designate
participants who are not officers and to set or modify such targets may be
delegated.
4. Types of Incentives. Incentives under the Plan may be granted in
any one or a combination of the following forms: (a) incentive stock options
and non-statutory stock options (section 6); (b) stock appreciation rights
("SARs") (section 7); (c) stock awards (section 8); (d) restricted stock
(section 8); (e) performance shares (section 9); and (f) cash awards (section
10).
5. Shares Subject to the Plan.
5.1 Number of Shares. Subject to adjustment as provided in
Section 11.6, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 500,000 shares of Common Stock.
5.2 Cancellation. To the extent that cash in lieu of shares of
Common Stock is delivered upon the exercise of a SAR pursuant to Section
7.4, the Company shall be deemed, for purposes of applying the limitation
on the number of shares, to have issued the greater of the number of
shares of Common Stock which it was entitled to issue upon such exercise
or on the exercise of any related option. In the event that a stock
option or SAR granted hereunder expires or is terminated or cancelled
unexercised as to any shares of Common Stock, such shares may again be
issued under the Plan either pursuant to stock options, SARs or otherwise.
In the event that shares of Common Stock are issued as restricted stock or
pursuant to a stock award and thereafter are forfeited or reacquired by
the Company pursuant to rights reserved upon issuance thereof, such
forfeited and reacquired shares may again be issued under the Plan, either
as restricted stock, pursuant to stock awards or otherwise. The Committee
may also determine to cancel, and agree to the cancellation of, stock
options in order to make a participant eligible for the grant of a stock
option at a lower price than the option to be cancelled.
5.3 Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARs, performance shares, restricted stock
or stock awards, may be authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option granted by the Committee under this
Plan shall be subject to the following terms and conditions:
6.1 Price. The option price per share shall be determined by the
Committee, subject to adjustment under Section 11.6.
6.2 Number. The number of shares of Common Stock subject to the
option shall be determined by the Committee, subject to adjustment as
provided in Section 11.6. The number of shares of Common Stock subject
to a stock option shall be reduced in the same
-2-
<PAGE> 3
proportion that the holder thereof exercises a SAR if any SAR is granted in
conjunction with or related to the stock option.
6.3 Duration and Time for Exercise. Subject to earlier termination
as provided in Section 11.4, the term of each stock option shall be
determined by the Committee but shall not exceed ten years and one day from
the date of grant. Each stock option shall become exercisable at such time
or times during its term as shall be determined by the Committee at the
time of grant. The Committee may accelerate the exercisability of any
stock option. Subject to the foregoing and with the approval of the
Committee, all or any part of the shares of Common Stock with respect to
which the right to purchase has accrued may be purchased by the Company at
the time of such accrual or at any time or times thereafter during the term
of the option.
6.4 Manner of Exercise. A stock option may be exercised, in whole
or in part, by giving written notice to the Company, specifying the number
of shares of Common Stock to be purchased and accompanied by the full
purchase price for such shares. The option price shall be payable in
United States dollars upon exercise of the option and may be paid by cash;
uncertified or certified check; bank draft; by delivery of shares of Common
Stock in payment of all or any part of the option price, which shares shall
be valued for this purpose at the Fair Market Value on the date such option
is exercised; by instructing the Company to withhold from the shares of
Common Stock issuable upon exercise of the stock option shares of Common
Stock in payment of all or any part of the option price, which shares shall
be valued for this purpose at the Fair Market Value or in such other manner
as may be authorized from time to time by the Committee. Prior to the
issuance of shares of Common Stock upon the exercise of a stock option, a
participant shall have no rights as a stockholder.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, the following additional provisions shall apply to the
grant of stock options which are intended to qualify as Incentive Stock
Options, as such term is defined in Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"):
(a) The aggregate Fair Market Value (determined as of the time
the option is granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
any participant during any calendar year (under all of the
Company's plans) shall not exceed $100,000.
(b) Any Incentive Stock Option certificate authorized under the
Plan shall contain such other provisions as the Committee shall
deem advisable, but shall in all events be consistent with and
contain all provisions required in order to qualify the options as
Incentive Stock Options.
-3-
<PAGE> 4
(c) All Incentive Stock Options must be granted within ten years
from the earlier of the date on which this Plan was adopted by the
Board or the date this Plan was approved by the stockholders.
(d) Unless sooner exercised, all Incentive Stock Options shall
expire no later than 10 years after the date of grant.
(e) The option price for Incentive Stock Options shall be not
less than the Fair Market Value of the Common Stock subject to the
option on the date of grant.
(f) No Incentive Stock Options shall be granted to any
participant who, at the time such option is granted, would own (within
the meaning of Section 422A of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the employer corporation or of its parent or subsidiary
corporation.
7. Stock Appreciation Rights. A SAR is a right to receive, without
payment to the Company, a number of shares of Common Stock, cash or any
combination thereof, the amount of which is determined pursuant to the formula
set forth in Section 7.4. A SAR may be granted (a) with respect to any stock
option granted under this Plan, either concurrently with the grant of such
stock option or at such later time as determined by the Committee (as to all or
any portion of the shares of Common Stock subject to the stock option), or (b)
alone, without reference to any related stock option. Each SAR granted by the
Committee under this Plan shall be subject to the following terms and
conditions:
7.1 Number. Each SAR granted to any participant shall relate to
such number of shares of Common Stock as shall be determined by the
Committee, subject to adjustment as provided in Section 11.6. In the case
of a SAR granted with respect to a stock option, the number of shares of
Common Stock to which the SAR pertains shall be reduced in the same
proportion that the holder of the option exercises the related stock
option.
7.2 Duration. Subject to earlier termination as provided in Section
11.4, the term of each SAR shall be determined by the Committee but shall
not exceed ten years and one day from the date of grant. Unless otherwise
provided by the Committee, each SAR shall become exercisable at such time
or times, to such extent and upon such conditions as the stock option, if
any, to which it relates is exercisable. The Committee may in its
discretion accelerate the exercisability of any SAR.
7.3 Exercise. A SAR may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of SARs which
the holder wishes to exercise. Upon receipt of such written notice, the
Company shall, within ninety (90) days thereafter, deliver to the
exercising holder certificates for the shares of Common Stock or cash or
both, as determined by the Committee, to which the holder is entitled
pursuant to Section 7.4.
-4-
<PAGE> 5
7.4 Payment. Subject to the right of the Committee to deliver cash
in lieu of shares of Common Stock (which, as it pertains to officers and
directors of the Company, shall comply with all requirements of the 1934
Act), the number of shares of Common Stock which shall be issuable upon the
exercise of a SAR shall be determined by dividing:
(a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares
(for this purpose, the "appreciation" shall be the amount by which the
Fair Market Value of the shares of Common Stock subject to the SAR on
the exercise date exceeds (1) in the case of a SAR related to a stock
option, the purchase price of the shares of Common Stock under the
stock option or (2) in the case of a SAR granted alone, without
reference to a related stock option, an amount which shall be
determined by the Committee at the time of grant, subject to
adjustment under Section 11.6); by
(b) the Fair Market Value of a share of Common Stock on the
exercise date.
In lieu of issuing shares of Common Stock upon the exercise of a SAR,
the Committee may elect to pay the holder of the SAR cash equal to the Fair
Market Value on the exercise date of any or all of the shares which would
otherwise be issuable. No fractional shares of Common Stock shall be
issued upon the exercise of a SAR; instead, the holder of the SAR shall be
entitled to receive a cash adjustment equal to the same fraction of the
Fair Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer
of Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1 Number of Shares. The number of shares to be transferred or
sold by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.
8.2 Sale Price. The Committee shall determine the price, if any, at
which shares of restricted stock shall be sold to a participant, which may
vary from time to time and among participants and which may be below the
Fair Market Value of such shares of Common Stock at the date of sale.
-5-
<PAGE> 6
8.3 Restrictions. All shares of restricted stock transferred or
sold hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to
lapse at such time or times as the Committee shall determine (whether
in annual or more frequent installments, at the time of the death,
disability or retirement of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a participant) resell back
to the Company at his or her cost, all or a part of such shares in the
event of termination of his or her employment or consulting engagement
during any period in which such shares are subject to restrictions;
(c) such other conditions or restrictions as the Committee may
deem advisable.
8.4 Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to Section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. Shares of restricted stock shall be registered in
the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 1997 Stock Option and
Compensation Plan of Hotel Mexico, Inc. (the "Company"), and an
agreement entered into between the registered owner and the Company.
A copy of the Plan and the agreement is on file at the office of the
secretary of the Company.
8.5 End of Restrictions. Subject to Section 11.5, at the end of any
time period during which the shares of restricted stock are subject to
forfeiture and restrictions on transfer, such shares will be delivered free
of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
8.6 Stockholder. Subject to the terms and conditions of the Plan,
each participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. Dividends paid in cash
or property other than Common Stock with respect to shares of restricted
stock shall be paid to the participant currently.
-6-
<PAGE> 7
9. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:
9.1 Performance Objectives. Each performance share will be
subject to performance objectives for the Company or one of its operating
units to be achieved by the end of a specified period. The number of
performance shares granted shall be determined by the Committee and may be
subject to such terms and conditions, as the Committee shall determine.
If the performance objectives are achieved, each participant will be paid
in shares of Common Stock or cash. If such objectives are not met, each
grant of performance shares may provide for lesser payments in accordance
with formulas established in the award.
9.2 Not Stockholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
stockholder of the Company, until the payment of shares of Common Stock
with respect to an award.
9.3 No Adjustments. No adjustment shall be made in performance
shares granted on account of cash dividends which may be paid or other
rights which may be issued to the holders of Common Stock prior to the end
of any period for which performance objectives were established.
9.4 Expiration of Performance Share. If any participant's
employment or consulting engagement with the Company is terminated for any
reason other than normal retirement, death or disability prior to the
achievement of the participant's stated performance objectives, all the
participant's rights on the performance shares shall expire and terminate
unless otherwise determined by the Committee. In the event of termination
by reason of death, disability, or normal retirement, the Committee, in its
own discretion may determine what portions, if any, of the performance
shares should be paid to the participant.
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. General.
11.1 Effective Date. The Plan will become effective upon its
adoption by the Board.
-7-
<PAGE> 8
11.2 Duration. The Plan shall remain in effect until all
Incentives granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Incentives may be granted under the Plan after the tenth
anniversary of the date the Plan is approved by the stockholders of the
Company.
11.3 Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's death,
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and the Company
shall not be required to recognize any attempted assignment of such rights
by any participant. Notwithstanding the preceding sentence, stock options
may be transferred by the holder thereof to family members, trusts or
charities. During a participant's lifetime, an Incentive may be exercised
only by him or her, by his or her guardian or legal representative or, in
the case of stock options, by the transferees permitted by the preceding
sentence.
11.4 Effect of Termination or Death. In the event that a
participant ceases to be an employee of or consultant to the Company for
any reason, including death, any Incentives may be exercised or shall
expire at such times as may be determined by the Committee.
11.5 Additional Condition. Notwithstanding anything in this Plan
to the contrary: (a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or the
issuance of any shares of Common Stock pursuant to any Incentive, require
the recipient of the Incentive, as a condition to the receipt thereof or to
the receipt of shares of Common Stock issued pursuant thereto, to deliver
to the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his or
her own account for investment and not for distribution; and (b) if at any
time the Company further determines, in its sole discretion, that the
listing, registration or qualification (or any updating of any such
document) of any Incentive or the shares of Common Stock issuable pursuant
thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of,
or in connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions imposed
on such shares, such Incentive shall not be awarded or such shares of
Common Stock shall not be issued or such restrictions shall not be removed,
as the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.
11.6 Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each
-8-
<PAGE> 9
of the shares of Common Stock then subject to the Plan, including shares subject
to restrictions, options, or achievement of performance share objectives, the
number and kind of shares of stock or other securities to which the holders of
the shares of Common Stock will be entitled pursuant to the transaction. In the
event of any recapitalization, stock dividend, stock split, combination of
shares or other change in the Common Stock, the number of shares of Common Stock
then subject to the Plan, including shares subject to restrictions, options or
achievements of performance shares, shall be adjusted in proportion to the
change in outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance objectives of any
Incentive, and the shares of Common Stock issuable pursuant to any Incentive
shall be adjusted as and to the extent appropriate, in the discretion of the
Committee, to provide participants with the same relative rights before and
after such adjustment.
11.7 Incentive Plans and Agreements. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a plan or
agreement approved by the Committee. The Committee may also determine to enter
into agreements with holders of options to reclassify or convert certain
outstanding options, within the terms of the Plan, as Incentive Stock Options or
as non-statutory stock options and in order to eliminate SARs with respect to
all or part of such options and any other previously issued options.
11.8 Withholding.
(a) The Company shall have the right to withhold from any payments
made under the Plan or to collect as a condition of payment, any taxes
required by law to be withheld. At any time when a participant is required
to pay to the Company an amount required to be withheld under applicable
income tax laws in connection with a distribution of Common Stock or upon
exercise of an option or SAR, the participant may satisfy this obligation
in whole or in part by electing (the "Election") to have the Company
withhold from the distribution shares of Common Stock having a value up to
the amount required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value of the Common Stock on the date
that the amount of tax to be withheld shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The
Committee may disapprove of any Election, may suspend or terminate the
right to make Elections, or may provide with respect to any Incentive that
the right to make Elections shall not apply to such Incentive. An Election
is irrevocable.
(c) If a participant is an officer or director of the Company within
the meaning of Section 16 of the 1934 Act, then an Election must comply
with all of the requirements of the 1934 Act.
11.9 No Continued Employment. Engagement or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to
-9-
<PAGE> 10
continue in the employ of, or to continue his or her consulting engagement
for, the Company for any period of time or to any right to continue his or
her present or any other rate of compensation. Nothing contained in the
Plan shall be construed as giving an employee, a consultant, such persons'
beneficiaries, or any other person, any equity or interests of any kind in
the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.
11.10 Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11 Amendment of the Plan. The Board may amend or discontinue
the Plan at any time. However, no such amendment or discontinuance shall,
subject to adjustment under Section 11.6, (a) change or impair, without the
consent of the recipient, an Incentive previously granted, (b) materially
increase the maximum number of shares of Common Stock which may be issued
to all participants under the Plan, (c) materially increase the benefits
that may be granted under the Plan, (d) materially modify the requirements
as to eligibility for participation in the Plan, or (e) materially increase
the benefits accruing to participants under the Plan.
11.12 Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, (a) the
restrictions on all shares of restricted stock award shall lapse
immediately, (b) all outstanding options and SARs will become exercisable
immediately, and (c) all performance shares shall be deemed to be met and
payment made immediately, if subsequent to the date that the Plan is
approved by the Board of Directors of the Company, any of the following
events occur unless otherwise determined by the Board and a majority of the
Continuing Directors (as defined below).
(1) any person or group of persons becomes the beneficial owner
of thirty percent (30%) or more of any equity security of the Company
entitled to vote for the election of directors;
(2) a majority of the members of the Board is replaced within
the period of less than two (2) years by directors not nominated and
approved by the Board; or
(3) the stockholders of the Company approve an agreement to
merge or consolidate with or into another corporation or an agreement
to sell or otherwise dispose of all or substantially all of the
Company's assets (including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or any
similar successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial
-10-
<PAGE> 11
ownership of more than thirty percent (30%) of an equity security may be
established by any reasonable method, but shall be presumed conclusively as to
any person who files a Schedule 13D report with the Securities and Exchange
Commission reporting such ownership. If the restrictions and forfeitability
periods are eliminated by reason of provision (1), the limitations of this Plan
shall not become applicable again should the person cease to own thirty percent
(30%) or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are directors
(a) who were in office prior to the time any of provisions (1), (2) or (3)
occurred or any person publicly announced an intention to acquire twenty percent
(20%) or more of any equity security of the Company, (b) directors in office for
a period of more than two years, and (c) directors nominated and approved by the
Continuing Directors.
11.13 Definition of Fair Market Value. Whenever "Fair Market
Value" of Common Stock shall be determined for purposes of this Plan, it
shall be determined by reference to the last sale price of a share of
Common Stock on the principal United States Securities Exchange registered
under the 1934 Act on which the Common Stock is listed (the "Exchange"),
or, on the National Association of Securities Dealers, Inc. Automatic
Quotation System (including the National Market System) ("NASDAQ") on the
applicable date. If the Exchange or NASDAQ is closed for trading on such
date, or if the Common Stock does not trade on such date, then the last
sale price used shall be the one on the date the Common Stock last traded
on the Exchange or NASDAQ. If the Common Stock is not listed on an
Exchange or on NASDAQ, "Fair Market Value" shall be determined by the Board
of Directors of the Company, which such valuation determination shall be
conclusive.
-11-
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement is made as of March 17, 1997 by and between HOTEL MEXICO,
INC., an Ohio corporation (the "COMPANY"), and RONALD K. FULLER (the
"EXECUTIVE").
WITNESSETH
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions stated in this Agreement; and
WHEREAS, Executive desires to accept that employment pursuant to the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, the parties hereto agree as follows:
I. EMPLOYMENT
1.1 Employment as President and Chief Operating Officer.
(a) The Company hereby employs Executive as President and Chief
Operating Officer and Executive accepts such employment pursuant to the
terms of this Agreement. Executive shall report to and take direction from
the Chief Executive Officer and the Board of Directors of the Company (the
"BOARD"). The Executive will perform those duties which are usual and
customary for a President and Chief Operating Officer of a restaurant
enterprise. Executive shall be employed at the Company's corporate
offices. He shall perform his duties in a manner reasonably expected of a
President and Chief Operating Officer of a restaurant company.
(b) The Company shall use its best efforts to cause the Executive to
be a member of the Board throughout the term of this Agreement and shall
include him in the management slate for election as a director at every
shareholders' meeting at which his term as a director would otherwise
expire. In every case under this Agreement where action of the Board is
required, such vote shall not include Executive's vote at any time that
Executive is a member of the Board.
(c) Executive shall be provided adequate human and financial resources
to allow him to perform his duties hereunder. He shall participate with
the Board and the Chief Executive Officer in establishing goals and plans
for the Company, and he shall be in charge of the implementation of such
goals and plans.
(d) In the event that Stephen D. King ceases to be Chief Executive
Officer of the Company, the Company shall appoint Executive as Chief
Executive Officer.
<PAGE> 2
1.2 Term. Employment shall be for an initial term of up to two years
commencing on January 6, 1997 and continuing until the earlier of (i) January
6, 1999 or (ii) the date Executive's employment terminates pursuant to Article
III hereof. This Agreement shall be automatically renewed for three additional
one (1) year terms unless the Board gives written notice of termination for
"Cause" (as defined in Section 3.2(a) below) to Executive not less than ninety
(90) days prior to expiration of the initial term or the renewal term then in
progress, as applicable.
II. COMPENSATION, BENEFITS AND PERQUISITES
2.1 Base Salary. The Company shall pay Executive an annualized base salary
("BASE SALARY") of $200,000 for the first year of this Agreement. The Base
Salary shall be payable in equal installments in the time and manner that other
employees of the Company are compensated. The Board will review the Base
Salary at least annually and may, in its sole discretion, increase it to
reflect performance, appropriate industry guideline data or other factors.
2.2 Bonuses. Executive shall receive an annualized base bonus ("BASE
BONUS") of up to $50,000 for the first year of this Agreement, payable
quarterly on the first quarterly anniversary of the first day of the term of
this Agreement and each quarter thereafter, dependent upon Executive's
satisfaction of certain criteria mutually agreed upon by Executive and the
Board. The Board and Executive will review and, if mutually agreed, revise the
criteria for the Base Bonus at least annually. In addition, Executive shall
receive, within forty-five (45) days following the end of each fiscal quarter
of the Company, 0.75% of the Company's EBITDA for the four quarters then ended,
or such fewer number of quarters as the Company shall have then been conducting
operations (the "INCENTIVE BONUS"), provided that no quarterly payment of
Incentive Bonus shall exceed one-fourth of 150% of Executive's then-current
Base Salary. The start-up costs associated with the Company's Kenwood
restaurant and any future restaurants shall be excluded from all EBITDA
calculations for purposes of this subsection.
2.3 Moving Expenses. Executive shall receive a one-time payment of
$15,000 for relocation expenses and shall also be reimbursed any reasonable
sales commission paid by Executive relating to the sale of his home in Edina,
Minnesota.
2.4 Automobile Allowance. Executive shall receive an automobile allowance
of $700 per month.
2.5 Vacations. Executive shall be entitled to three weeks' paid vacation,
or such greater amount of time as determined by the Board.
2.6 Cafeteria Plan Benefits. In lieu of participating in any
Company-sponsored welfare plans, Executive shall receive $20,000 per year in
cafeteria plan benefits which Executive will utilize in his sole discretion for
health, life, disability, and dental insurance or expenses, educational
2
<PAGE> 3
expenses, other personal expenses, and other benefits which the Company may
from time to time make available.
2.7 Attorney's Fees. The Company will pay Executive's reasonable cost of
having this Agreement reviewed by counsel, up to a maximum of $1,000.
III. TERMINATION OF EXECUTIVE'S EMPLOYMENT
3.1 Termination of Employment. Executive's employment under this
Agreement may be terminated by the Company or Executive at any time for any
reason; provided, however, that if Executive's employment is terminated by the
Company during the term of this Agreement for a reason other than for Cause, or
if Executive terminates his employment for "Good Reason" (as defined in Section
3.2(b) below), he shall continue to receive his Base Salary, Base Bonus,
Incentive Bonus (the annual amount of which shall equal the sum of the
Incentive Bonus payments made to Executive for the four quarters preceding
termination) and the benefits listed in Sections 2.2 and 2.4 above for a period
of two (2) years from the date of termination, if such termination occurs prior
to consummation of an initial public offering of common stock by the Company;
provided, that if Executive obtains other employment during such two (2) year
period, the Company shall receive a dollar-for-dollar credit against its
severance obligation hereunder with respect to compensation and benefits
received by Executive in his new employment (except that in no event shall
Executive receive less than one year's Base Salary, Base Bonus, Incentive Bonus
and benefits). After such initial public offering, if Executive's employment
is terminated by the Company for a reason other than for Cause or if Executive
terminates his employment for Good Reason, he shall continue to receive his
Base Salary for a period of one (1) year from the date of termination. The
termination shall be effective as of the date specified by the party initiating
the termination in a written notice delivered to the other party, which date
shall not be earlier than the date such notice is delivered to the other party.
This Agreement shall terminate in its entirety immediately upon the death of
Executive. Except as expressly provided to the contrary in this section or
applicable law, Executive's rights to pay and benefits shall cease on the date
his employment under this Agreement terminates.
3.2 Definitions. For purposes of this Agreement,
(a) "Cause" shall mean only the following: (i) commission of a felony;
(ii) theft or embezzlement of Company property or commission of similar acts
involving moral turpitude; (iii) alcohol or drug abuse which, in the judgment
of the Board, has rendered Executive incapable of carrying out his duties
hereunder; or (iv) any other willful failure by Executive to substantially
perform his material duties under this Agreement (excluding nonperformance
resulting from disability), which willful failure is not cured within 30 days
after written notice from the Chairman of the Board specifying the act of
willful nonperformance or within such longer period (but no longer than 90 days
in any event) as is reasonably required to cure such willful nonperformance.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause
3
<PAGE> 4
unless and until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of the Board at a meeting of
the Board called and held for this specific purpose.
(b) "Good Reason" shall mean only the following: (i) Executive has been
demoted; (ii) Executive has incurred a substantial reduction in his authority
or responsibility; (iii) the Company fails to appoint Executive as Chief
Executive Officer pursuant to the terms of Section 1.1(c); (iv) the Board
elects to terminate Executive in lieu of permitting this Agreement to
automatically renew pursuant to Section 1.2 for a reason other than Cause; or
(v) Executive is not continued as a member of the Board of Directors.
3.3 Disability. If Executive has become disabled such that he cannot
perform the essential functions of his job with or without reasonable
accommodation, and the disability has continued for a period of more than 90
days, the Board may, in its discretion, terminate his employment under this
Agreement.
3.4 Notice. Executive must provide the Company with at least 30 days'
written notice if Executive desires to terminate his employment under this
Agreement.
IV. CONFIDENTIALITY
4.1 Prohibitions Against Use. Executive acknowledges and agrees that
during the term of this Agreement he may have access to various trade secrets
and confidential business information ("CONFIDENTIAL INFORMATION") of the
Company. Executive agrees that he shall use such Confidential Information
solely in connection with his obligations under this Agreement and shall
maintain in strictest confidence and shall not disclose any such Confidential
Information, directly or indirectly, or use such information in any other way
during the term of this Agreement or for a period of two (2) years after the
termination of this Agreement. Executive further agrees to take all reasonable
steps necessary to preserve and protect the Confidential Information. The
provisions of this Section 4.1 shall not apply to information known by
Executive which (i) was in possession of Executive prior to receipt thereof
from the Company, (ii) is or becomes generally available to the public other
than as a result of a disclosure by Executive, or (iii) becomes available to
Executive from a third party having the right to make such disclosure.
4.2 Remedies. Executive acknowledges that the Company's remedy at law for
any breach or threatened breach by Executive of Section 4.1 will be inadequate.
Therefore, the Company shall be entitled to injunctive and other equitable
relief restraining Executive from violating those provisions, in addition to
any other remedies that may be available to the Company under this Agreement or
applicable law.
V. NON-COMPETITION
4
<PAGE> 5
5.1 Agreement Not to Compete. Executive agrees that, on or before the
date which is one (1) year after the date Executive's employment under this
Agreement terminates, he will not, unless he receives the prior approval of the
Board, directly or indirectly engage in any of the following actions:
(a) Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance to, or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any entity whose primary business is
entertainment-themed restaurants in the United States, such as, but not
limited to, Rainforest Cafe, Plant Hollywood, Cheesecake Factory, Hard Rock
Cafe, Dive!, and Dave & Busters. However, nothing in this subsection (a)
shall preclude Executive from holding less than 1% of the outstanding
capital stock of any corporation required to file periodic reports with the
Securities and Exchange Commission under Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the securities of which are
listed on any securities exchange, quoted on the National Association of
Securities Dealers Automated Quotation System or traded in the
over-the-counter market.
(b) Intentionally solicit, endeavor to entice away from the Company,
or otherwise interfere with the Company's relationship with any person who
is employed by or otherwise engaged to perform services for the Company
(including, but not limited to, any independent sales representatives or
organizations), whether for Executive's own account or for the account of
any other individual, partnership, firm, corporation or other business
organization.
If the scope of the restrictions in this Section 5.1 are determined by a court
of competent jurisdiction to be too broad to permit enforcement of such
restrictions to their full extent, then such restrictions shall be construed or
rewritten (blue-lined) so as to be enforceable to the maximum extent permitted
by law, and Executive hereby consents, to the extent he may lawfully do so, to
the judicial modification of the scope of such restrictions in any proceeding
brought to enforce them.
VI. MISCELLANEOUS
6.1 Amendment. This Agreement may be amended only in writing, signed
by both parties.
6.2 Entire Agreement. Other than an Option Agreement dated [January 15,
1997] between the Company and Executive, this Agreement contains the entire
understanding of the parties with regard to all matters contained herein.
Other than such Option Agreement and this Agreement, there are no other
agreements, conditions or representations, oral or written, expressed or
implied, with regard thereto. This Agreement and such Option Agreement
supersede all prior agreements relating to the employment of Executive by the
Company.
5
<PAGE> 6
6.3 Assignment. This Agreement shall be binding upon, and shall inure to
the benefit of parties and their respective successors, assigns, heirs and
personal representatives and any entity with which the Company may merge or
consolidate or to which the Company may sell substantially all of its assets.
6.4 Notices. Any notice required to be given under this Agreement shall
be in writing and shall be delivered either in person or by certified or
registered mail, return receipt requested. Any notice by mail shall be
addressed as follows:
If to the Company, to:
Hotel Mexico, Inc.
8260 NorthCreek Drive, Suite 140
Cincinnati, OH 45236
Attention: President
If to Executive, to:
Ronald K. Fuller
6440 Indian Hills Pass
Edina, MN 55439
or to such other addresses as either party may designate in writing to the
other party from time to time.
6.5 Waiver of Breach. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any other provision of this Agreement, or of any
subsequent breach by such party of a provision of this Agreement.
6.6 Severability. If any one or more of the provisions (or portions
thereof) of this Agreement shall for any reason be held by a final
determination of a court of competent jurisdiction to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions (or portions of the provisions) of this
Agreement, and the invalid, illegal or unenforceable provisions shall be deemed
replaced by a provision that is valid, legal and enforceable and that comes
closest to expressing the intention of the parties hereto.
6.7 Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Ohio, without giving effect to
conflict of law principles.
6.8 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach of this Agreement or the breach of any exhibits
attached to this Agreement shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American
6
<PAGE> 7
Arbitration Association, and a judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
arbitrator(s) shall have the authority to award the prevailing party its costs
and reasonable attorney's fees which shall be paid by the non-prevailing party.
In the event the parties hereto agree that it is necessary to litigate any
dispute hereunder in a court, the non-prevailing party shall pay the prevailing
party its costs and reasonable attorney's fees. Notwithstanding anything in
this Section 6.9 to the contrary, during the pendency of any dispute or
controversy arising under or in connection with this Agreement or exhibits
attached to this Agreement, the Company shall be entitled to seek an injunction
or restraining order in a court of competent jurisdiction to enforce the
provisions of Article IV and Article V.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
HOTEL MEXICO, INC.
/s/ Stephen D. King
--------------------------
Stephen D. King
President
/s/ Ronald K. Fuller
--------------------------
RONALD K. FULLER
7
<PAGE> 1
EXHIBIT 24.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 20, 1997, in the Registration Statement (Form
SB-2) and related Prospectus of Hotel Discovery, Inc. for the registration of
2,530,000 units of its Common Stock and Class A Warrants.
ERNST & YOUNG, LLP
Cincinnati, Ohio
August 22, 1997
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