<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1998
REGISTRATION NO. 333-40799
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE HAVANA REPUBLIC, INC.
(Name of small business issuer in its charter)
---------------------
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<S> <C> <C>
FLORIDA 5995 84-1346897
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
1360 WESTON ROAD,
WESTON, FLORIDA, 33326
(954) 384-6333
(Address and telephone number of principal executive office and principal place
of business)
STEPHEN SCHATZMAN, PRESIDENT,
THE HAVANA REPUBLIC, INC.,
1360 WESTON ROAD,
WESTON, FLORIDA 33326
(954) 384-6333
(Name, address and telephone number of agent for service)
---------------------
WITH A COPY TO:
SHAPO, FREEDMAN & BLOOM, P.A.,
200 SOUTH BISCAYNE BLVD.,
SUITE 4750,
MIAMI, FLORIDA 33131
ATTENTION: LEONARD H. BLOOM
(305) 358-4440
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after registration statement becomes effective.
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. [ ] -- [Added in Release
No. 33-7168 (para.85,620), effective June 7, 1995, 60 F.R. 26604.]
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. [ ] -- [Added in Release No. 33-7168 (para.85,620),
effective June 7, 1995, 60 F.R. 26604.]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ] -- [Added in Release No. 33-7168
(para.85,620), effective June 7, 1995, 60 F.R. 26604.]
---------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(1).................... 6,976,744 $.43 $3,000,000 $990(2)
Common Stock....................... 490,000 $.43 $ 210,700 $ 70(2)
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(1) Shares of Common Stock issuable in connection with conversion of the
Preferred Stock.
(2) This fee was previously paid with the initial filing on November 21, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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
THE HAVANA REPUBLIC
CROSS-REFERENCE SHEET SHOWING LOCATION OR
CAPTION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
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REGISTRATION STATEMENT ITEM NUMBER AND HEADING LOCATION OR CAPTION IN PROSPECTUS
- ---------------------------------------------- ---------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus........... Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors....... Prospectus Summary; the Company; Risk
Factors
4. Use of Proceeds............................ Not Applicable
5. Determination of Offering Price............ The Offering
6. Dilution................................... Dilution
7. Selling Security Holders................... Selling Security Holders
8. Plan of Distribution....................... Outside Front Cover Page; Plan of
Distribution
9. Legal Proceedings.......................... Business
10. Directors, Executive Officers Promoters and
Control Persons.......................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................... Principal Stockholders
12. Description of Securities.................. Description of Securities
13. Interest of Named Experts and Counsel...... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
15. Organization Within Last Five Years........ Not Applicable
16. Description of Business.................... The Company; Business
17. Management's Discussion and Analysis or
Plan of Operation........................ Management's Discussions and Analysis
18. Description of Property.................... Business
19. Certain Relationships and Related
Transactions............................. Not Applicable
20. Market for Common Equity and Related
Stockholder Matters...................... Market Price of the Common Stock
21. Executive Compensation..................... Management
22. Financial Statements....................... Report of Independent Certified Public
Accountants
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ii
<PAGE> 3
PROSPECTUS
THE HAVANA REPUBLIC, INC.
---------------------
6,976,744 SHARES OF COMMON STOCK
OFFERED BY CERTAIN SELLING SECURITY HOLDERS UPON EXERCISE OF
OUTSTANDING SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
---------------------
490,000 SHARES OF COMMON STOCK OFFERED
BY CERTAIN SELLING SECURITY HOLDERS
This Prospectus relates to the sale of 6,976,744 shares of common stock, no
par value (the "Common Stock"), of The Havana Republic, Inc. (the "Company")
following the conversion of 2,100 outstanding shares of Series A Convertible
Preferred Stock, par value $1,000 per share (the "Preferred Stock"), all of
which are offered by the holders thereof identified as "Selling Security
Holders" in this Prospectus. See "SELLING SECURITY HOLDERS."
Each Share of Preferred Stock entitles the holder to that number of shares
of Common Stock equal to $1,000 divided by the lesser of (i) seventy percent of
the average market price of the Common Stock for the five trading days
immediately prior to conversion or (ii) $1.46. See "DESCRIPTION OF SECURITIES."
This Prospectus also relates to the sale of 490,000 shares of Common Stock
offered by the holders thereof also identified as "Selling Security Holders" in
this Prospectus. See "SELLING SECURITY HOLDERS."
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Security Holders. Sales of shares of Common Stock may be
made from time to time (in transactions which may include block transactions) by
or for the account of the Selling Security Holders in the over-the-counter
market or in negotiated transactions, or otherwise, at market prices prevailing
at the time of sale or at negotiated prices. The Company has informed the
Selling Security Holders that the anti-manipulative rules under the Securities
Exchange Act of 1934, Regulation M, may apply to their sales and has furnished
each of the Selling Stockholders with a copy of these Rules. The Company has
also informed the Selling Security Holders of the need for delivery of copies of
this Prospectus. See "SELLING SECURITY HOLDERS" and "PLAN OF DISTRIBUTION."
---------------------
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO THE SELLING
CLASS OF SECURITY SECURITY HOLDERS DISCOUNTS THE COMPANY SECURITY HOLDERS
- ----------------------------------------------------------------------------------------------------------------
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Shares of Common Stock(1)(3).. N/A N/A $0 $3,000,000(4)
- ----------------------------------------------------------------------------------------------------------------
Shares of Common Stock(2)(3).. N/A N/A $0 $ 210,700(4)
================================================================================================================
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(1) Represents the anticipated sale by the Selling Security Holders of shares of
Common Stock issuable upon conversion of the Preferred Stock, at seventy
percent of $.43, the closing bid price on February 11, 1998.
(2) Represents the anticipated sale by the Selling Security Holders at $.43, the
closing bid price on February 11, 1998.
(3) There can be no assurances, however, that the Selling Security Holders will
be able to sell their shares of Common Stock at this price, or that a liquid
market will exist for the Company's Common Stock.
(4) Does not give effect to ordinary brokerage commissions or other costs of
sale that will be borne solely by the Selling Security Holders.
The Common Stock is traded in the over-the-counter market and is quoted on
The OTC Bulletin Board under the symbol "HVAR".
---------------------
The date of this Prospectus is , 1998
<PAGE> 4
AVAILABLE INFORMATION
The Company is not subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, upon
effectiveness of the Registration Statement, of which this Prospectus forms a
part, the Company will be subject to the informational requirements of the
Exchange Act pursuant to Section 15(d) thereof.
The Company will provide a report to stockholders, at least annually, which
will include audited financial statements of the Company.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (hereinafter, together with
all amendments and exhibits, referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement.
2
<PAGE> 5
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.
THE COMPANY
The Havana Republic, Inc., a Florida corporation (the "Company") was formed
on March 10, 1996. In June 1996 it was acquired by and became the wholly owned
subsidiary of The Havana Republic, Inc., a Colorado corporation ("Havana
Colorado"). On November 25, 1997, Havana Colorado merged with and into the
Company (the "Merger"). Unless the context otherwise requires, references to the
"Company" throughout this Prospectus refer to the operations of the Company as a
wholly owned subsidiary of Havana Colorado before the Merger, and the Company
thereafter. The Company is engaged in the business of owning and operating
upscale cigar emporiums devoted to the sale of premium cigars and cigar related
merchandise. The Company opened its first emporium in January 1997 in Weston,
Florida and intends to open an additional emporium in early 1998 in Fort
Lauderdale, Florida and two other stores in 1998 in high profile projects in
South Florida.
The Company also intends to distribute premium cigars purchased from
Tabanica, S.A. ("Tabanica"), a Nicaraguan corporation of which it owns a 50%
equity interest. Tabanica operates a factory located in Jalapa, Nicaragua
modeled after a traditional Cuban cigar factory, utilizing a hand-made
manufacturing process, which affects the manner in which tobacco leaves are
processed, aged and made into cigars. The factory currently has the capacity to
produce premium hand-rolled cigars at the rate of approximately 3 million cigars
per year, which capacity can be further expanded.
Premium cigars are generally defined according to three criteria: (i) the
cigars are made completely by hand; (ii) the cigars consist of long-filler
tobacco; and (iii) the cigars retail at a price range from $1 to more than $20
each. The Company sells cigars that are hand produced, using fine aged tobacco
and traditional rolling techniques.
The Company is seeking to capitalize on the recent growth of the premium
cigar market. In the United States, based on reports by the Cigar Association of
America, following several decades of declines in such sales, premium cigar
sales increased by 14% in 1994, 28% in 1995, and 61% in 1996. The Company's
strategy involves the establishment and operation of emporiums in selected
markets across the United States, through Company owned and franchised stores,
and the distribution of its private labeled cigars in the United States.
The corporate offices of the Company are located at 1360 Weston Road,
Weston, Florida 33326 and its telephone number is (954) 384-6333.
THE OFFERING
Securities Being Offered: This Prospectus relates to the sale of 6,976,744
shares of Common Stock following the conversion of
the outstanding shares of Preferred Stock, by the
holders thereof, identified as "Selling Security
Holders" in this Prospectus. This Prospectus also
relates to the sale of 490,000 shares of Common
Stock by the holders thereof, also identified as
"Selling Security Holders" in this Prospectus. See
"SELLING SECURITY HOLDERS."
The shares of Common Stock offered by the Selling
Security Holders may be offered for sale from time
to time by the holders in regular brokerage
transactions, either directly or through brokers or
to dealers, in private sales or negotiated
transactions, or otherwise, at prices related to
then prevailing market prices.
3
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The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling
Security Holders. All expenses of the registration
of such securities are, however, being borne by the
Company.
The Selling Security Holders, and not the Company,
will pay or assume such brokerage commissions as
may be incurred in the sale of their securities.
The Common Stock is traded on The OTC Bulletin
Board under the symbol "HVAR". On February 11, 1998
the closing bid price was $.43.
Total number of shares of
Common Stock
outstanding.............. 10,028,485
Total number of shares of
Common Stock outstanding
upon conversion of the
outstanding shares of
Preferred Stock.......... 17,005,229
Total number of shares of
Common Stock being
offered by Selling
Security Holders......... 7,466,744
Risk Factors:.............. The Common Stock offered hereby involves a high
degree of risk and prospective investors should
consider carefully the factors specified under
"Risk Factors" before electing to invest. See "RISK
FACTORS."
Trading Symbol:............ Common Stock -- "HVAR"
SELECTED FINANCIAL INFORMATION
Set forth below is the historical selected financial information with
respect to the Company for the period from inception (March 10, 1996) through
June 30, 1996, and for the fiscal year ended June 30, 1997 and for the three
month period ended September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1997 JUNE 30, 1997 JUNE 30, 1996
------------------ ----------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION
Revenue.......................................... $ 162,390 $ 357,138 $ --
Net Loss......................................... (85,253) (266,062) (500)
Net Loss per Share............................... (.01) (.03) --
Weighted Average Shares Outstanding.............. 9,139,812 8,835,586 2,968,554
BALANCE SHEET INFORMATION (SEPTEMBER 30, 1997)
Working Capital.................................. $1,940,774
Total Assets..................................... 2,810,450
Total Liabilities................................ 360,745
Accumulated Deficit.............................. (951,815)
Stockholders' Equity............................. 2,409,705
Net Tangible Book Value.......................... 10,180
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4
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RISK FACTORS
Prospective investors should consider carefully the following risk factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the shares of common stock offered hereby.
LIMITED OPERATING HISTORY; OPERATING LOSSES
The Company has a limited operating history upon which an evaluation of its
performance and prospects can be made. The Company's prospects must be
considered in light of the numerous risks, expenses, delays, problems and
difficulties frequently encountered in the establishment of a new enterprise.
The Company's operations to date have been directed to (i) establishing and
operating its first emporium, which opened in January, 1997, (ii) building a
cigar supply base in Nicaragua, and (iii) formulating plans to open three
additional emporiums in South Florida. Through September 30, 1997, the Company
has suffered a cumulative operating loss of $351,815. The ability of the Company
to operate profitability is dependent upon the opening and profitability of
additional emporiums, and its ability to develop and distribute private label
brand cigars. No assurance can be given that these goals can be attained and
that the Company can become profitable. See "Financial Statements".
ADDITIONAL FINANCING REQUIREMENTS OF THE COMPANY
At September 30, 1997, the Company had working capital of approximately
$1,940,774. The Company requires significant additional capital for the
continued expansion of its retail operations and to develop and distribute its
private label brand name cigars.
The Company anticipates that it will have sufficient funds to open a second
and a third emporium by the end of 1998. However, thereafter the Company will
require significant funds to open additional emporiums and to continue to
develop its brand name cigars, and may also require additional funds to cover
operating deficits if the new emporiums' revenues do not meet expectations. No
assurance can be given that additional funds will not be required prior to the
expiration of 1998, or that any funds which may be required will be available,
if at all, on acceptable terms. If additional funds are required, the inability
of the Company to raise such funds will have an adverse effect upon its
operations. To the extent that additional funds are obtained by the sale of
equity securities, the stockholders may sustain significant dilution. If
adequate capital is not available, the Company will be required to reduce or
eliminate its planned expansion activities.
Finally, the Company has agreed with certain of the holders of the
Preferred Stock that without their prior written consent it will not raise more
than $2.5 million in equity until August 14, 1998. The Company believes that in
view of its present cash resources, this limitation will not adversely impact
its plan for capital expenditures and expansion in the applicable period.
GOVERNMENT REGULATION
The tobacco industry in general has been subject to regulation by Federal,
state and local governments, and recent trends have been toward increased
regulation. Such regulations include labeling requirements, limitations on
advertising and prohibition of sales to minors, laws restricting smoking from
both public places and in offices, office buildings and restaurants and other
eating establishments. Certain states have required cigar vendors to label
cigars with health warnings. In addition, cigars have been subject to excise
taxation at the Federal, state and local level, and such taxation may increase
in the future. Tobacco products are especially likely to be subject to increases
in excise taxation because of the detrimental effects of tobacco on the health
of both smokers and others who inhale secondary smoke. No assurance can be given
that future regulations, tax policies or tobacco litigation will not have a
material adverse affect upon the ability of cigar companies, including the
Company, to generate revenue and profits. In June 1997 the tobacco industry
entered into a settlement with most of the states and class action plaintiffs.
The settlement, which is subject to approval by Congress and the President, will
impose significant limits on the tobacco industry. Further, the settlement will
be subject to additional modifications which could further impact the tobacco
industry. The
5
<PAGE> 8
effects of any settlement, if one were to occur, on the tobacco industry, are
impossible to predict. See "BUSINESS -- GOVERNMENT REGULATION; TOBACCO INDUSTRY
LITIGATION"
EFFECTS OF FLUCTUATIONS IN TOBACCO COSTS AND AVAILABILITY
One of the principal costs of the Company's cigars is the tobacco used in
both the cigars and the cigar wrappers. The Company seeks to purchase name brand
cigars made from only premium grade tobacco. Such name brands include Padron,
Macanudo, Partagas, H. Upman, A. Fuente, and many others. However, numerous
factors not within the Company's control, including weather conditions, foreign
government policies, potential trade restrictions and the overall demand for the
tobacco will affect its availability and price and therefore the availability
and price of premium cigars. In addition, larger tobacco companies, with greater
resources and buying power than the Company, have the resources to purchase
large quantities of tobacco which could both increase the cost and decrease the
availability of the premium cigars to the Company. The inability of the Company
to purchase cigars in sufficient quantities for its emporiums would have a
material adverse affect on the Company's operations and financial condition. See
"BUSINESS -- THIRD PARTY SUPPLIERS."
TOBACCO INDUSTRY RISKS
During the past decades the tobacco industry has been the subject of
advertising and public service campaigns against smoking in general.
Furthermore, most states and many individuals have brought lawsuits against
tobacco and cigarette companies for damages resulting from cancer caused by
smoking. Although the Company was organized in 1996 and all of its cigars have
been sold after both the risks of smoking and the addictive nature of nicotine
are generally known, no assurance can be given that the Company will not be
adversely affected by such factors.
Historically, the cigar industry has not experienced material
health-related litigation. However, recent proposed settlements with the tobacco
industry may also have an effect upon the cigar industry in that it may
encourage parties to bring suits against cigar industry participants. On June
20, 1997 forty states, seventeen class-action plaintiffs and the tobacco
industry entered into a settlement, which requires the tobacco industry to pay
$368.5 billion into a fund over 25 years, and $15 million a year into the fund
thereafter, which funds would be used for health care, smoker education,
Medicaid reimbursement for states and state stings on retailers. The settlements
requires the tobacco industry, as well as the states, to take additional steps
to reduce sales to minors. The settlement is subject to approval by, and will
likely be modified by, both Congress and the President before it becomes law. It
is unclear what effect, if any, this settlement and future regulations could
have upon the future growth and financial condition of the cigar industry.
The tobacco industry, in general, has been subject to regulation by
Federal, state and local governments, and recent trends have been toward
increased regulation, such as labeling requirements including cancer warning
labels; limitations on advertising and prohibition of sales to minors; and laws
restricting smoking in public places including offices, office buildings,
restaurants and other eating establishments, as well as proposed regulation by
such governmental agencies as the Federal Occupational Safety and Health
Administration. In addition, cigars have been subject to excise taxation at the
Federal, state and local level, and such taxation may increase in the future.
There are no assurances that further legislation and regulation as well as
increases in excise taxation would not have a material adverse effect on the
Company's business. See "BUSINESS -- GOVERNMENT REGULATION; TOBACCO INDUSTRY
LIGITATION."
DECLINING MARKET FOR CIGARS THROUGH 1993
The cigar industry has, until recent years, been in substantial decline.
From the 1963 level of industry sales of approximately 9 billion cigars, the
estimated domestic market for cigars declined at a compound average rate of 5%
per year. According to a domestic industry source, the estimated domestic market
for cigars declined from approximately 4 billion cigars in 1980 to approximately
2.1 billion cigars in 1993. The decrease in cigar sales as well as the general
decline in smoking followed the 1964 report of the United States Surgeon
General, which study was followed by numerous other studies stressing the link
between smoking, including
6
<PAGE> 9
secondary smoke and cancer, heart, respiratory and other diseases and medical
problems. Furthermore, "no smoking" laws, ordinances and prohibitions on cigar
smoking in certain cases have adversely affected the sale of cigar products.
Although premium cigar sales have increased during the past three years, this
increase may be temporary, and it is possible that declines may resume. See
"BUSINESS -- THE MARKET."
COMPETITION
The tobacco industry in general, including the cigar industry, is dominated
by a few companies which are well known to the public. The Company believes
that, as a retailer and distributor of premium cigars, it will compete with
certain domestic and foreign companies that specialize in premium cigars and
certain larger companies that maintain premium cigar lines, including
Consolidated Cigar Company, Davidoff, Lane Ltd., and General Cigar Company. The
Company believes that smokers of premium cigars purchase cigars based on the
perceived quality of the tobacco. The process of producing premium cigars is not
patented, but is based on the know-how and experience of master craftsmen who
can identify, purchase, and roll the tobacco into premium cigars. The principal
characteristics that differentiate one premium cigar from another are the
quality of the tobacco in the cigar, the quality of the tobacco used as a cigar
wrapper, the blend of tobacco and the quality of the rolling. Further, the
Company's emporiums compete with other retail cigar stores in the South Florida
area, as well as liquor stores, supermarkets and convenience stores. The
Company's success depends upon the size and quality of its emporiums' inventory,
the maintenance of such inventory, the size and quality of the inventory of
cigar accessories, such as humidors, cigar cutters, cigar cases, lighters,
ashtrays, etc., and the quality of its employees, particularly their knowledge
of the inventory and attitude. No assurance can be given as to the ability of
the Company to compete successfully in any market in which it conducts, or may
conduct, operations. The Company's ability to compete as a distributor of its
brand name cigars depends upon the efficiency and continued operation of its
Nicaraguan factory, the quality of the cigars manufactured, advertising and
marketing strategies, and price. No assurances can be given that the Company can
successfully compete with major manufacturers and distributors. See
"BUSINESS -- COMPETITION."
TRADE NAME PROTECTION
The trademark Havana Republic, owned by the Company, has been registered in
the State of Florida. The Company filed to register the trademark with the U.S.
Patent and Trademark Office. However, in September, 1997, the Patent and
Trademark Office refused registration on the basis that the trademark is
primarily geographic and therefore is misdescriptive, because the Company's
products do not come from Havana. In December 1997, the Company requested
reconsideration of this position. However, no assurance can be given that the
Company will be successful in obtaining such federal trademark registration. In
the event that such federal registration is not obtained, the Company's
expansion strategy outside the State of Florida could be adversely affected.
Further, the Company has been notified by Gap, Inc., that in its view, the
Company's tradename infringes its trademark "Banana Republic"(TM). The Company
believes its tradename does not infringe, primarily because of the
dissimilarities of the products. Settlement negotiations are currently in
progress and the Company believes a solution will be reached allowing for the
continued use of its tradename. However, no assurances can be given that this
issue will be resolved without litigation, or that the Company would be
successful in any such litigation.
DEPENDENCE ON MANAGEMENT AND OTHERS
The Company's business is largely dependent upon its president, Mr.
Schatzman, and Mr. Gimelstein its vice president. The Company has five year
employment agreements with Mr. Schatzman and Mr. Gimelstein terminating in 2002.
The loss of the services of Mr. Schatzman or Mr. Gimelstein would have a
material adverse effect upon the Company's business and prospects.
The ability of the Nicaraguan factory to operate is dependent upon its
ability to hire and retain trained hand rollers, and process tobacco. The
Company is totally dependent upon the managing principal of Tabanica, Merardo
Padron, for the hiring of employees and the operation of the factory. Mr.
Padron, who is 62, has been engaged in the tobacco business for over 40 years.
However, no assurances can be given that he
7
<PAGE> 10
will continue to operate the factory. The loss of Mr. Padron could have a
material adverse effect on the Company's plan to develop a brand name cigar. See
"MANAGEMENT."
NICARAGUAN FACTORY AND DISTRIBUTION
The Company purchased for $50,000 a 50% interest in Tabanica, a Nicaraguan
corporation, which owns a manufacturing facility in Jalapa, Nicaragua. The
Company purchased 625,000 cigars from Tabanica for delivery beginning in
January, 1998 for $616,000. The Company also has the right to purchase
additional cigars from Tabanica at cost plus 50% through October 31, 2001. The
Company believes that this arrangement will provide it with a continuous source
of premium cigars and an ability to develop its own private label brand cigars.
However, the operation of manufacturing facilities outside of the United States,
especially in less developed countries such as Nicaragua, is subject to numerous
risks, including political and currency instability, currency controls and
exchange regulations, and import and export regulations, any of which could have
a material adverse effect upon the Company's cigar supply. Therefore it is not
possible to predict whether the Company's investment in and agreement with
Tabanica will result in a stable and long-term supply of premium cigars.
Further, although the Company intends to establish business relationships with
national distributors, no assurances can be given that it will be successful.
See "BUSINESS -- COMPANY BRAND CIGARS."
LIMITED INSURANCE COVERAGE
Although the Company carries general liability insurance with an aggregate
limit of $2,000,000, it has no health hazard policy. There can be no assurance
that the Company will not be subject to liability which is not covered by its
general liability insurance, and such liability could have a material adverse
effect upon its business. See "BUSINESS -- GOVERNMENT REGULATION; TOBACCO
INDUSTRY LITIGATIONS."
POSSIBLE VOLATILITY OF STOCK PRICES
As of December 31, 1997, the Company had outstanding 10,028,485 shares of
Common Stock, of which approximately 3,824,085, are eligible for public trading.
Taking into account the sale of shares held by Selling Security Holders,
assuming all of the Preferred Stock is converted at $.301 per share, the Company
will have 17,005,229 shares of Common Stock outstanding, 11,290,829 of which
will be eligible for public trading. Although it is impossible to predict market
influences and prospective values for securities, it is possible that, in and of
itself, the substantial increase in the number of shares available for sale
could have a depressive effect upon the market value of the Company's Common
Stock.
Furthermore, although the Company's Common Stock trades in the
over-the-counter market, there can be no assurances that a regular trading
market will develop, or, if developed, will continue, or that the prices of the
Common Stock will continue to exceed the conversion price of the Preferred
Stock. There has been a history of significant volatility in the market prices
for shares of companies in a similar stage of development. Because of the
factors described above and elsewhere in this Prospectus, the market prices of
the Company's Common Stock following the date of this Prospectus may be highly
volatile.
POSSIBLE LIMITATIONS UPON TRADING ACTIVITIES; RESTRICTIONS IMPOSED UPON
BROKER-DEALERS EFFECTING TRANSACTIONS IN CERTAIN SECURITIES
Trading of the Company's securities may be subject to material limitations
as a consequence of certain provisions of the Securities Exchange Act of 1934
(the "Exchange Act") which limit the activities of broker-dealers effecting
transactions in "penny stocks".
"Penny stocks" are defined as any equity securities other than a security
that is registered on a national exchange; included for quotation in the NASDAQ
system; or whose issuer has net tangible assets of more than $2,000,000 and has
been in continuous operation for greater than three (3) years. Issuers who have
been in operation less than three (3) years must have net tangible assets of at
least $5,000,000.
8
<PAGE> 11
Rules promulgated by the Commission under Section 15(g) of the Exchange Act
require broker-dealers engaging in transactions in low-priced over-the-counter
securities defined as "penny stocks," to first provide to their customers a
series of disclosures and documents, including: (i) a standardized risk
disclosure document identifying the risks inherent in investing in "penny
stocks"; (ii) all compensation received by the broker-dealer in connection with
the transaction; (iii) current quotation prices and other relevant market data;
and (iv) monthly account statements reflecting the fair market value of the
securities. In addition, these rules require a broker-dealer obtain financial
and other information from a customer, determine that transactions in penny
stocks are suitable for such customer and deliver a written statement to such
customer setting forth the basis for such determination.
The Company's Common Stock presently constitutes a "penny stock."
Accordingly, trading activities for the Company's Common Stock will be made more
difficult for broker-dealers than in the case of securities not defined as
"penny stock." This may have the result of depressing the market for the
Company's securities and an investor may find it difficult to dispose of such
securities.
Further, under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the Common Stock of the Company during the applicable "cooling
off" periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Security Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling Security
Holder.
CONVERSION PRICE
The conversion price of the Preferred Stock does not bear any relationship
to the assets, book value, operating results or net worth of the Company.
POSSIBLE STATE AND FEDERAL RESTRICTIONS ON CONVERSION OF PREFERRED STOCK
Holders of Preferred Stock will be able to sell the underlying Common Stock
issuable upon exercise thereof only if a current registration statement relating
to such underlying Common Stock is then in effect and on file with the
Securities and Exchange Commission and only if such Common Stock is qualified
for sale or exempt from qualification under the applicable state securities
laws. The Company has agreed to file for, and endeavor to secure, current and
effective registration of the shares of Common Stock issuable upon conversion of
the Preferred Stock. Although the Company has undertaken to use its best efforts
to maintain the effectiveness of this Prospectus covering the securities
underlying the Preferred Stock, there can be no assurances that the Company will
be able to do so. The value of the Preferred Stock may be greatly reduced if a
current prospectus covering the securities issuable upon the conversion of
Preferred Stock is not kept effective or if such securities are not qualified or
exempt from qualification in the applicable states. See "DESCRIPTION OF
SECURITIES."
EFFECT OF OUTSTANDING PREFERRED STOCK
As of December 31 1997 the Company had outstanding 2,100 Shares of
Preferred Stock convertible into 6,976,744 shares of Common Stock based upon the
closing bid price on February 11, 1998. To the extent that these shares enter
the market, the price of the Common Stock in the market may be substantially
reduced. Moreover, the holders of the Preferred Stock were given an opportunity
to profit from a rise in the market price of the Company's Common Stock, with
resulting dilution in the interest of the other stockholders. Further, the terms
on which the Company may obtain additional financing during that period may be
adversely affected by the existence of such Preferred Stock. The holders of such
Preferred Stock may exercise them at a time when the Company might be able to
obtain additional capital through a new offering of securities on terms more
favorable than those provided by therein. The Company has undertaken to file
this Prospectus with the Securities and Exchange Commission pursuant to certain
registration rights enjoyed by
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<PAGE> 12
holders of Preferred Stock. The expense of registration of this Prospectus shall
be borne by the Company, which expense may be significant.
CONTINUED CONTROL BY MANAGEMENT
The present officers and directors of the Company own approximately 54% of
the issued and outstanding shares of Common Stock. Assuming the conversion of
the Preferred Stock at $.301 per share, the officers and directors would still
own approximately 32% of the issued and outstanding shares of Common Stock,
thereby maintaining effective control over the Company.
DIVIDENDS NOT LIKELY
The Company does not intend to declare or pay cash dividends in the
foreseeable future. Earnings, if any, are expected to be retained to finance and
develop its business. See "DESCRIPTION OF SECURITIES."
DILUTION
As of September 30, 1997, the Company had 9,159,460 shares of Common Stock
outstanding. As of that date, the Company had a net tangible book value per
common share of $10,180 or $.03 per share. Net tangible book value per common
share represents the Company's tangible assets, minus its liabilities and
aggregate liquidation preference of outstanding Preferred Stock, divided by the
number of shares of Common Stock outstanding.
In accordance with the table provided below, purchasers of the shares of
Common Stock through conversion of the Preferred Stock may incur an immediate
dilution in net tangible book value from the noted conversion prices.
The comparison of net tangible book value to conversion price will,
however, provide no useful information to purchasers of the Company's Common
Stock in the secondary market.
The following table illustrates the number of shares of Common Stock that
would be outstanding, and the corresponding pro forma net tangible book value
and pro forma net tangible book value per common share, assuming all of the
Preferred Stock is converted at $.301 per share.
<TABLE>
<S> <C>
Shares of Common Stock outstanding before conversion of the
Preferred Stock........................................... 9,159,460(1)(2)
Shares of Common Stock outstanding after conversion of the
Preferred Stock........................................... 15,139,526(1)(2)
Pro forma of net tangible book value after conversion....... $ 2,440,180
Conversion price............................................ $ .301
Pro forma net tangible book value per common share after
conversion................................................ $ .16
Dilution to Preferred Stockholders.......................... $ .14
</TABLE>
Officers and directors paid less than $.001 per share for the Common Stock
as compared to a conversion price of $.301.
- ---------------
(1) Does not include shares of Common Stock or 300 shares of Preferred Stock
issued after September 30, 1997.
(2) Does not include an aggregate of 200,000 shares of Common Stock subject to
outstanding options exercisable at $1.92 per share, or an aggregate of
200,000 shares of common stock subject to outstanding options exercisable at
$2.88 per share.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of shares of Common
Stock by the Selling Security Holders. See "SELLING SECURITY HOLDERS."
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<PAGE> 13
MARKET PRICE OF THE COMMON STOCK
The Company's Common Stock has been traded in the over-the-counter market
through the NASD OTC Electronic Bulletin Board under the symbol "HVAR" since
March 14, 1997. The table set forth below reflects the reported high and low bid
prices of the Common Stock for each quarter since March 1997, for the period
indicated. Such prices are inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------- ------ -------
<S> <C> <C>
March 31, 1997.............................................. $5.50 $2.0625
June 30, 1997............................................... $5.375 $3.00
September 30, 1997.......................................... $3.25 $0.96
December 31, 1997........................................... $1.38 $ .20
</TABLE>
Records of the Company's stock transfer agent indicate that as of December
31, 1997 the Company had 96 record holders of its Common Stock.
The Company has not paid any cash dividends to date, and does not
anticipate or contemplate paying cash dividends in the foreseeable future. It is
the present intention of management to utilize all available funds for working
capital of the Company.
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<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis should be read in conjunction
with the Company's Consolidated Financial Statements, including the notes
thereto. This Prospectus contains certain forward-looking information which
involves risks and uncertainties. The actual could differ from the results
anticipated herein.
RESULTS OF OPERATIONS
The Company was founded in March 1996. The results of operations for the
year ended June 30, 1997 are not readily comparable with the results of
operations for the period from inception (March 10, 1996) to June 30, 1996.
During the period from inception to June 30, 1996, the Company did not have any
emporiums in operation. Commencing in January 1997, the Company's sole business
was the operation of one emporium in Weston, Florida.
The Company's sales for fiscal 1997 were approximately $357,000
attributable solely to sales from its first emporium beginning in January 1997.
There were no sales in 1996.
Gross profit amounted to $192,000 or approximately 54% of sales in fiscal
1997.
Store expenses for the year ended June 30, 1997 were approximately
$188,000. This amount is due to the expanded retail operations of the Company
and increase in marketing efforts to promote the Company's products. These
expenses consist primarily of advertising and promotional expenses of $60,000,
rents for its emporium of $19,000, salary and salary related expenses of $58,000
and other related expenses of operation.
General and administrative expenses for the year ended June 30, 1997 were
approximately $148,000. This amount reflects the expanded nature of the
Company's business, including $67,000 for salaries and related costs, $10,000
for consulting fees, $22,000 for travel and entertainment costs and $49,000 for
other general and administrative costs.
Professional fees for the year ended June 30, 1997 were approximately
$100,000.
The Company incurred interest expense in 1997 of approximately $16,000.
As a result of the foregoing factors, the Company sustained losses of
approximately $266,062, or $.03 per share for the fiscal year ended June 30,
1997, as compared to a loss of approximately $500 or $0 per share in fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of approximately
$1,941,000. Since its inception, it has sustained losses of approximately
$352,000. The Company's operations and growth has been funded by loans from
third parties, the sale of common stock through September 1997 with gross
proceeds of approximately $1,000,000 and the issuance of Series A Convertible
Preferred Stock which resulted in net proceeds to the Company of approximately
$2,213,000 after expenses. These funds have been used for working capital,
capital expenditures, information systems development and other corporate
purposes.
In April of 1996, the Company entered into an agreement with Tabanica for
future purchases of premium cigars and has paid $617,000. The Company
anticipates receiving the premium cigars in monthly shipments of 50,000
commencing in January, 1998. The market acceptance of these premium cigars will
determine whether and to what extent the Company's financial resources will be
committed to the distribution of its brand name cigars.
The Company also anticipates opening two additional emporiums within the
next 12 months. The first, in Ft. Lauderdale, Florida, is scheduled to open in
January, 1998, and the second, in South Miami, Florida is expected to open in
late 1998. Leasehold improvements in both emporiums are expected to cost
approximately $600,000.
The Company has no other material commitments for capital expenditures. The
Company believes that it has sufficient liquidity to meet all of its cash
requirements for the next 12 months. The Company believes, however, that
additional funding will be necessary to expand into markets outside of South
Florida.
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<PAGE> 15
BUSINESS
INTRODUCTION
The Havana Republic, Inc., a Florida corporation (the "Company") was formed
on March 10, 1996. In June 1996 it was acquired by and became the wholly owned
subsidiary of The Havana Republic, Inc., a Colorado corporation ("Havana
Colorado") which had been formed in May 1996. Havana Colorado never conducted
any business. On November 25, 1997, Havana Colorado merged with and into the
Company (the "Merger"). Unless the context otherwise requires, references to the
"Company" throughout this Prospectus refer to the operations of the Company as a
wholly owned subsidiary of Havana Colorado before the Merger, and the Company
thereafter. The Company is engaged in the business of owning and operating
upscale cigar emporiums devoted to the sale of premium cigars and cigar related
merchandise. The Company opened its first emporium in January 1997 in Weston,
Florida and intends to open an additional emporium in early 1998 in Fort
Lauderdale, Florida and two other stores in 1998 in high profile projects in
South Florida.
The Company also intends to distribute premium cigars purchased from
Tabanica, S.A. ("Tabanica"), a Nicaraguan corporation of which it owns a 50%
equity interest. Tabanica operates a factory located in Jalapa, Nicaragua
modeled after a traditional Cuban cigar factory, utilizing a hand-made
manufacturing process, which affects the manner in which tobacco leaves are
processed, aged and made into cigars. The factory currently has the capacity to
produce premium hand-rolled cigars at the rate of approximately 3 million cigars
per year, which capacity can be further expanded.
Premium cigars are generally defined according to three criteria: (i) the
cigars are made completely by hand; (ii) the cigars consist of long-filler
tobacco; and (iii) the cigars retail at a price range from $1 to more than $20
each. Hand-rolled cigars consist of three different categories of tobacco -- the
filler is the tobacco in the cigar, the binder is the leaf that binds the filler
together and the wrapper is the tobacco leaf that wraps around the rolled
tobacco and finishes the cigar. A premium cigar uses only long-filler tobacco,
binders and wrappers that are composed solely of tobacco leaf. Long-filler
tobacco consists of half tobacco leaves rolled up, whereas short-filler tobacco
consists of smaller pieces of tobacco, including the portions of the long-filler
tobacco which are cut and discarded in producing premium cigars. The quality of
a premium cigar is based on the quality of the tobacco used for the filler,
binder and wrapper. Cigars that are not premium cigars typically use
short-filler, and may be wholly or partially manufactured by machine. The
Company has developed and markets a full line of premium cigars, which are sold
under the brand name of Havana Republic, at prices ranging from $5.00 to $8.00
per cigar, and in addition sells over 100 brands from other manufacturers, at
its emporiums.
THE MARKET
The Company believes that there is an increasing market for cigars.
Industry reports show that worldwide cigar sales increased in 1994 for the first
time since 1970. Cigar sales in 1970 amounted to just under 8 billion cigars.
The number of cigars sold decreased significantly and, in 1994, cigar sales were
approximately 2.3 billion cigars. Although sales in the United States are still
much lower than they were in the 1970s and 1980s (due, in significant part, to a
well-developed anti-smoking movement and smoking restrictions), sales in 1995
increased approximately 28% from 1994 to nearly 2.6 billion cigars, and
increased again in 1996 to 4.5 billion cigars. It is estimated that cigar sales
in the United States amount to more than $1 billion at the retail level. The
Company believes, based on estimates from the Cigar Association of America, that
the market for premium cigars is currently growing. According to industry
statistics, sales of premium cigars account for approximately 6.5% of the United
States cigar market. The number of premium cigars sold has increased each year
since 1991, and sales of premium cigars in 1996 represented a 62% increase over
the number sold in 1995. Further, statistics for the current year reflect that
the volume of premium cigars will again increase when compared to last year. The
Company is seeking to take advantage of this trend; however, no assurance can be
given that the trend will continue in the future or that the Company will
benefit from any further growth in the premium cigar market.
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<PAGE> 16
THE EMPORIUMS
The Company's first emporium is located in Weston, Florida. Since January
1997, it has generated revenues of approximately $519,000 for nine months. Cost
of sales were approximately $237,000. The emporium consists of an upscale retail
cigar emporium and private club section covering a total of 2,000 square feet.
The private club section is designed for leisurely smoking complemented by
satellite television, coffee, expresso and soft drinks. Individual humidors (in
excess of 100) are leased to patrons for storing their cigars. Sales of cigars
amount to approximately 70% of total sales and sales of accessories, such as
humidors, lighters, cigar cutters, etc., account for the balance. The emporium
is open seven days per week, (from 10:00 A.M. to 9:00 P.M. on weekdays and until
11:00 P.M. on weekends, with the exception of Sunday). The club's decor is
luxurious and upscale with generous utilization of mahogany and marble. A
minimum of two to five employees are required on the premises. The cost of the
furniture, fixtures and equipment required to open a single emporium/club is
approximately $300,000. Initial inventory at an emporium costs approximately
$200,000.
The Company intends to expand its retail operations through the opening of
additional emporiums in South Florida and in other cities in the United States
in which it believes there is a local market for premium cigars. In particular,
the Company intends to open one store in early 1998 in Fort Lauderdale, Florida
and two additional stores by the end of 1998 in Dade County, Florida.
Thereafter, depending upon the availability of financing, the Company intends to
open additional emporiums in other markets throughout the United States. This
expansion could also include the use of franchising. However, there can be no
assurances that the Company will be able to successfully obtain locations or
financing.
THIRD-PARTY SUPPLIERS
Havana Republic is presently able to purchase premium cigars directly from
almost all manufacturers such as La Gloria Cubana, Padron, Mike's and Dunhill,
and is not dependent upon any one supplier for cigars. However, there are no
assurances that any or all of the suppliers will continue to have available
product. Since 1992, name brand cigars have been on back order. The Company
intends to continue to purchase directly from manufacturers in increasing
quantities and supplement its inventory with cigars from the Tabanica factory.
COMPANY BRAND CIGARS
In 1997 the Company entered into a contract with Tabanica, a cigar
manufacturer in Nicaragua, for the purchase of 625,000 cigars. The purchase
price was $616,000, all of which has been paid. Tabanica will manufacture the
cigars, and box them for the Company in Nicaragua and deliver the cigars, F.O.B
Managua, Nicaragua for transport to the U.S. in lots of 50,000 cigars per month,
commencing in January, 1998. The Company also has the right to purchase
additional cigars at cost plus 50%. The Company must provide, at its own cost,
all boxes, labels and binders. The Company also owns a 50% equity interest in
Tabanica. The Company intends to sell the cigars manufactured by Tabanica in its
emporiums and to distributors for resale. The number of additional cigars that
the Company will purchase from Tabanica and the extent of its further financial
commitment will depend upon the market acceptance of these cigars during 1998.
The acquisition of a 50% interest in Tabanica, gives the Company the
opportunity to purchase premium cigars at favorable prices and maintain
consistency in their blend and quality. Tabanica's factory consists of two
buildings of approximately 27,000 square feet. Tabanica also leases
approximately 170 acres within five miles of the factory. Tabanica employs sixty
people engaged primarily in the manufacturing process which takes place in one
of the two factory buildings. Tabanica's other shareholder is Merardo Padron,
its president, who is in charge of its day to day operations. The manufacturing
capacity of the factory is presently 3 million cigars per year, which can be
expanded through the utilization of the factory's second building and the hiring
of additional employees.
The manufacturing process for premium cigars includes the selection,
purchase and aging of the tobacco and the hand rolling of the cigars. The
tobacco will be selected by Tabanica upon consultation with the Company based
upon its flavor and quality. The availability and quality of tobacco varies from
season to season as a result of such factors as weather conditions and the
demand for the tobacco. As a result of the
14
<PAGE> 17
difference in taste between different lots, the Company will be required to
continuously reformulate the tobaccos in its premium cigars in order to maintain
a consistent taste.
The particular tobacco blend for each of the Company's cigars will be
formulated from different tobaccos. The Company's premium cigars will use
long-filler tobacco primarily from Nicaragua. The Company will also obtain
tobacco from the Dominican Republic, Indonesia, Ecuador and Mexico, to be used
as binders, fillers and as wrappers for the cigars.
COMPETITION
Competition affecting the Company's emporiums will arise from other retail
tobacco and cigar stores, liquor stores, convenience stores and mail order. In
South Florida, the largest retailer of premium cigars is Mikes' Cigars in Bal
Harbour. Competition is based upon diversity of brands and price. The location
of the Company's emporiums is also a major factor. Accordingly, the Company
intends to locate its emporiums in high-profile, high traffic sites in populated
areas.
The Company believes that as a distributor of premium cigars it will
compete with a smaller number of domestic and foreign companies that specialize
in premium cigars and certain larger companies that maintain premium cigar
lines, including Consolidated Cigar, General Cigar Corporation, Caribbean Cigar,
Lane Ltd., and General Cigar Company. The market for premium cigars constitutes
a small portion of the cigar market in general. The Company believes that
smokers of premium cigars purchase cigars based on the perceived quality of the
tobacco and the taste profile of the cigar. The process of producing premium
cigars is not patented, but is based on the know-how and experience of master
craftsmen who can identify and purchase the tobacco and roll the tobacco into
premium cigars. The principal characteristics that differentiate one premium
cigar from another are the quality of the tobacco in the cigar, the quality of
the tobacco used as a cigar wrapper, the quality of the rolling and the blending
of all the tobacco. Cigars are a natural product, therefore the taste profile of
cigars is not uniform and tastes are subject to change. No assurance can be
given as to the market for the Company's cigars in the future or the ability of
the Company to compete successfully or market its cigars successfully.
GOVERNMENT REGULATION; TOBACCO INDUSTRY LITIGATION
The tobacco industry, in general, has been subject to regulation by
Federal, state and local governments, and recent trends have been toward
increased regulation. Such regulations include labeling requirements,
limitations on advertising and prohibition of sales to minors, laws restricting
smoking in public places including offices, office buildings, restaurants and
other eating establishments. Due to health concerns, the cigar industry could
become subject to increased regulation under Federal and state health and safety
regulations. In addition, cigars have been subject to excise taxation at the
Federal, state and local level, and such taxation may increase in the future.
Tobacco products are especially likely to be subject to increases in excise
taxation because of the detrimental effects of tobacco on the health of both
smokers and others who inhale secondary smoke.
Excise Taxes. Effective January 1, 1991, the federal excise tax rate on
large cigars (weighing more than three pounds per thousand cigars) was increased
to 10.625%, capped at $25.00 per thousand cigars, and again increased to 12.75%,
capped at $30.00 per thousand cigars, effective January 1, 1993. However, the
base on which the federal excise tax is calculated was lowered effective January
1, 1991 to the manufacturer's selling price, net of the federal excise tax and
certain other exclusions. The federal excise tax on little cigars (weighing less
than three pounds per thousand cigars) increased from $0.75 per thousand cigars
to $0.9375 per thousand cigars effective January 1, 1991. The excise tax on
little cigars increased to $1.125 per thousand cigars effective January 1, 1993.
The Company does not believe that the current level of excise taxes will have a
material adverse effect on the Company's business, but there are no assurances
that additional increases will not have a material adverse effect on the
Company's business.
Cigars and pipe tobacco are also subject to certain state and local taxes.
Deficit concerns at the state level continue to exert pressure to increase
tobacco taxes. Since 1964, the number of states that tax cigars has risen from
six to forty-one. Since 1988, the following eleven states have enacted excise
taxes on cigars, where no
15
<PAGE> 18
prior tax had been in effect: California, Connecticut, New Jersey, New York,
North Carolina, Ohio, Rhode Island, Illinois, Missouri, Michigan and South
Dakota. State excise taxes generally range from 2% to 75% of the wholesale
purchase price. In addition, the following seven states have increased existing
taxes on large cigars since 1988: Arkansas, Idaho, Iowa, Maine, New York, North
Dakota and Washington. The following five states tax little cigars at the same
rates as cigarettes: California, Connecticut, Iowa, Oregon and Tennessee. Except
for Tennessee, all of these states have increased their cigarette taxes since
1988.
State cigar excise taxes are not subject to caps similar to the federal
cigar excise tax. Therefore, there are no assurances that increases in such
state excise taxes or new state excise taxes will not in the future have a
material adverse effect on the Company's business.
Health Regulations. Cigar manufacturers, like other producers of tobacco
products, are subject to regulation in the U.S. at the federal, state and local
levels. Together with changing public attitudes toward smoking, a constant
expansion of smoking regulations since the early 1970s has been a major cause
for the decline in consumption. Moreover, the trend is toward increased
regulation of the tobacco industry.
In recent years, a variety of bills relating to tobacco issues have been
introduced in the Congress of the United States, including bills that would have
prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of such advertising expenses; set a
federal minimum age of 18 years for use of tobacco products; increased labeling
requirements on tobacco products to include, among other things, addiction
warnings and lists of additives and toxins; modified federal preemption of state
laws to allow state courts to hold tobacco manufacturers liable under common law
or state statutes; and shifted regulatory control of tobacco products and
advertisements from the Federal Trade Commission to the U.S. Food and Drug
Administration (the "FDA"). In addition, in recent years, there have been
proposals to increase tobacco excise taxes. In some cases, hearings were held,
but only one of these proposals was enacted, namely, that states, in order to
receive full funding for federal substance abuse block grants, establish a
minimum age of 18 years for the sale of tobacco products along with an
appropriate enforcement program. The law requires that states report on their
enforcement efforts. Future enactment of the other bills may have an adverse
effect on the sales or operations of the Company.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Such places
where the majority of states have prohibited smoking include: any public
building designated as non-smoking; elevators; public transportation;
educational facilities; health care facilities; restaurants and workplaces.
Local legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. In a few states, legislation has been introduced,
but has not passed, which would require all little cigars sold in those states
to be "fire-safe" little cigars, i.e., cigars which extinguish themselves if not
continuously smoked. Passage of this type of legislation and any other related
legislation could have a materially adverse effect on the Company's cigar
business because of the technological difficulties in complying with such
legislation. There is currently an effort by the federal Consumer Product Safety
Commission to establish such standards for cigarettes. The enabling legislation,
as originally proposed, included little cigars. However, little cigars were
deleted due to the lack of information on fires caused by these products.
Although federal law has required health warnings on cigarettes since 1965,
there is no federal law requiring that cigars carry such warnings. However,
California requires "clear and reasonable" warnings to consumers who are exposed
to chemicals known to the state to cause cancer or reproductive toxicity,
including tobacco smoke and several of its constituent chemicals. Violations of
this law, Proposition 65, can result in a civil penalty not to exceed $2,500 per
day for each violation. Although similar legislation has been introduced in
other states, no action has been taken.
During 1988, 26 manufacturers of tobacco products, including the largest
mass-marketers of cigars, entered into a settlement of legal proceedings filed
against them pursuant to Proposition 65. Under the terms of the settlement, the
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with the following specified warning label:
"This Product Contains/Produces Chemicals Known To The State of California To
Cause Cancer, And Birth Defects or Other Reproductive Harm." Although the
settlement of
16
<PAGE> 19
the Proposition 65 litigation by its terms only impacts California, it is not
practical for national cigar manufacturers to confine their warning labels to
cigars earmarked for sale in California. Consequently, since 1988, most cigars
sold in the United States carry cancer warning labels.
The U.S. Environmental Protection Agency (the "EPA") has recently published
a report with respect to the respiratory health effects of passive smoking,
which report concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health impact. In June 1993, Philip
Morris and five other representatives of the tobacco manufacturing and
distribution industries filed suit against the EPA seeking a declaration that
the EPA does not have the statutory authority to regulate environmental tobacco
smoke, and that, in view of the available scientific evidence and the EPA's
failure to follow its own guidelines in making the determination, the EPA's
final risk assessment was arbitrary and capricious. This litigation is still
pending.
The FDA has proposed rules to regulate cigarettes and smokeless tobacco in
order to protect minors. Although the FDA has defined cigarettes in such a way
as to include little cigars, the ruling does not directly impact large cigars.
However, once the FDA has successfully exerted authority over any one tobacco
product, the practical impact would be felt by manufacturers of any tobacco
product. If the FDA is successful, this may have long-term repercussions on the
large cigar industry.
Tobacco Industry Litigation. Historically, the cigar industry has not
experienced material health-related litigation, and, to date, the Company has
not been the subject of any material health-related litigation. However,
litigation against leading United States cigarette manufacturers seeking
compensatory and, in some cases, punitive damages for cancer and other health
effects alleged to have resulted from cigarette smoking is pending.
Forty states have become plaintiffs in lawsuits against tobacco companies
seeking to recover the monetary benefits paid under Medicaid to treat residents
allegedly suffering from tobacco-related illnesses. Florida and Massachusetts
have enacted statutes permitting suit against the tobacco companies to recoup
such Medicaid costs, and recently, one defendant has entered into a settlement
with such plaintiff states, which provides that the settling defendant will,
among other things, pay a portion of its profits in the future to the plaintiff.
Under the Florida statute, many of the tobacco companies' traditional defenses,
such as assumption of risk, are vitiated. The statute also permits the state to
establish causation (that smoking causes cancer, heart disease and other
ailments) through the use of purely statistical evidence. The tobacco companies
have filed suit challenging the Florida law as unconstitutional. The states and
the tobacco companies have recently entered into a settlement. See "Recent
Settlement" below.
A class action suit, Castano v. American Tobacco, et al. has been filed in
federal district court in New Orleans against the entire cigarette industry. On
February 17, 1995, the district court granted plaintiffs' motion for class
certification with regard to the liability issues of fraud, breach of warranty
(express or implied), intentional tort, negligence and strict liability as well
as the issues of consumer protection and punitive damages. The court defined the
class as "all nicotine-dependent persons in the United States," "the estates,
representatives, and administrators of these nicotine-dependent cigarette
smokers," and "the spouses, children, relatives and 'significant others' of
these nicotine-dependent cigarette smokers as their heirs or survivors." The
court defined "nicotine-dependent" to mean "all cigarette smokers who have been
diagnosed by a medical practitioner as nicotine-dependent; and/or all regular
cigarette smokers who were or have been advised by a medical practitioner that
smoking has had or will have adverse health consequences who thereafter do not
or have not quit smoking." In May 1996, the Fifth Circuit Court of Appeals
reversed a Louisiana district court's certification of a nationwide class
consisting essentially of nicotine dependent cigarette smokers. Notwithstanding
the dismissal, new class actions asserting claims similar to those in Castano
have recently been filed in certain states. To date, two pending class actions
in Florida against major cigarette manufacturers have been certified and
settled. The first case was limited to Florida citizens allegedly injured by
their addiction to cigarettes; the other is limited to flight attendants
allegedly injured through exposure to secondhand smoke.
In another decision, Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608
(1992), the United States Supreme Court held that certain federal legislation
applicable specifically to cigarette manufacturers preempts
17
<PAGE> 20
claims based on failure to warn consumers about the health hazards of smoking,
but does not preempt claims based on express warranty, misrepresentation and
fraud, or conspiracy. Although the Company believes that the effect of the
Cipollone decision, which involved cigarette smoking, will not have a material
adverse effect on the operations of the Company, there can be no assurance of
what the ultimate effect, if any, of the Cipollone decision or the pending
cigarette industry litigation, or cigarette and tobacco regulation, will be on
the cigar industry or the Company. Although there are numerous differences
between the cigar industry and the cigarette industry, the outcome of pending
and future cigarette litigation may encourage various parties to bring suits on
various grounds against cigar industry participants. While it is impossible to
quantify what effect, if any, any such litigation may have on the Company, the
Company can give no assurance that such litigation would not have a material
adverse effect on its operations.
RECENT SETTLEMENT. ON JUNE 20, 1997 FORTY STATES, SEVENTEEN CLASS-ACTION
PLAINTIFFS AND THE TOBACCO INDUSTRY ENTERED INTO A SETTLEMENT, SUBJECT TO THE
APPROVAL OF CONGRESS. THE SETTLEMENT REQUIRES THE TOBACCO INDUSTRY TO PAY $368.5
BILLION INTO A FUND OVER 25 YEARS, AND $15 MILLION A YEAR INTO THE FUND
THEREAFTER. THESE FUNDS WOULD BE USED FOR HEALTH CARE, SMOKER EDUCATION,
MEDICAID REIMBURSEMENT FOR STATES AND STATE STINGS ON RETAILERS. THE FDA WOULD
HAVE THE AUTHORITY TO REGULATE TOBACCO ADDITIVES AND TO BAN NICOTINE AFTER 2009.
INDIVIDUAL LAWSUITS AGAINST TOBACCO COMPANIES WOULD BE LIMITED AND PUNITIVE
DAMAGES FOR PAST MISCONDUCT WOULD BE WAIVED, WITH A SPECIAL FUND OF $5 MILLION
PER YEAR TO COVER DAMAGES FOR LOST WAGES, MEDICAL BILLS OR OTHER ACTUAL DAMAGES
ESTABLISHED BY PLAINTIFFS. FINALLY, STATES WILL BE REQUIRED TO REDUCE ILLEGAL
SALES TO MINORS BY 75% IN FIVE YEARS AND 85% IN SEVEN YEARS, AND THE TOBACCO
INDUSTRY WOULD BE REQUIRED TO PAY FINES IF YOUTH SMOKING FAILS TO DROP BY 30% IN
FIVE YEARS, 50% IN SEVEN YEARS AND 60% IN TEN YEARS. THE SETTLEMENT IS SUBJECT
TO APPROVAL BY, AND WILL LIKELY BE MODIFIED BY, BOTH CONGRESS, AND THE PRESIDENT
BEFORE IT BECOMES LAW. IT IS UNCLEAR WHAT EFFECT THE SETTLEMENT AND FUTURE
REGULATIONS COULD HAVE UPON THE FUTURE GROWTH AND FINANCIAL CONDITION OF THE
COMPANY.
OSHA Regulations. The federal Occupational Safety and Health
Administration (OSHA) has proposed an indoor air quality regulation covering the
workplace that seeks to eliminate nonsmoker exposure to environmental tobacco
smoke. Under the proposed regulation, smoking must be banned entirely from the
workplace or restricted to designated areas of the workplace that meet certain
criteria. The proposed regulation covers all indoor workplaces under OSHA
jurisdiction, including, for example, private residences used as workplaces,
hotels and motels, private offices, restaurants, bars and vehicles used as
workplaces. The tobacco industry is challenging the proposed OSHA regulation on
legal, scientific and practical grounds. It also contends that the proposed
regulation ignores reasonable alternatives. There is no guaranty, however, that
this challenge will be successful. Although the Company does not believe that
the proposed OSHA regulation would have a material adverse effect on the cigar
industry or the Company, there are no assurances that such regulation would not
adversely impact the Company, particularly the "club" sections of the Company's
emporiums.
EMPLOYEES
The Company has six full-time employees and three part-time employees, none
of which are parties to a collective bargaining agreement. The Company believes
its relationship with its employees is good.
Three full-time employees are engaged in management and administrative
activities and the remaining six full and part-time employees are engaged in
sales and related activities.
18
<PAGE> 21
FACILITIES
The Company maintains its corporate offices at its emporium located in
Weston, Florida pursuant to a lease covering 2,000 + square feet which expires
in 2001. This lease is subject to two five year renewal options. The present
annual rent exclusive of taxes, insurance and common area charges, is
approximately $54,000. The Company's Ft. Lauderdale emporium consists of
approximately 1780 + square feet and is subject to a lease expiring in 2004,
with a five year renewal option. The annual rent, including pass-throughs, is
approximately $91,000. The Company has recently entered into a 10-year lease for
an emporium to be built in the Shops of Sunset in South Miami, covering 2,100 +
square feet. The lease is not subject to any renewal options. The annual rent,
including pass throughs, is approximately $117,000. The Company intends to
establish additional retail stores through lease arrangements. The Company
believes that additional space will be available at commercially reasonable
rents. The Company's facilities, at this time, are adequate; however, expansion
of the Company's business may require additional administrative offices.
LITIGATION
The Company is not involved in any litigation.
19
<PAGE> 22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The present members of the Board of Directors, all executive officers,
their ages and positions with the Company are set forth below:
<TABLE>
<CAPTION>
NAMES AGE POSITION
- ----- --- --------
<S> <C> <C>
Stephen Schatzman................................ 45 President, Secretary and Director
Alex Gimelstein.................................. 45 Vice President, Treasurer and
Director
</TABLE>
Stephen Schatzman has been President, Secretary and Director of the Company
since inception. From 1972 to 1990, he was the General Manager of Superior
Stores, a six-store chain of 30,000 square foot, high volume discount drug
stores. From 1990 to 1996, he was President of Villa Deli, a 160-seat restaurant
on Miami Beach. Mr. Schatzman devotes his full time to the Company. He is
responsible for purchasing for all locations, inventory, warehousing, and
developing and implementing merchandising and other Company policies, and for
all day to day operations.
Alex Gimelstein has been Vice President, Treasurer and Director of the
Company since inception. He is also Vice President of Zelick's Tobacco Corp. on
Miami Beach for over 25 years. Zelick's is a retail and wholesale tobacco and
sundries operation owned by Mr. Gimelstein's family. Mr. Gimelstein has also had
extensive experience in the tobacco industry, having owned and operated several
cigar factories in foreign countries. Mr. Gimelstein devotes approximately half
of his working time to the Company. He is responsible for the procurement of
cigars, the development of a distribution network and the Company's relationship
with Tabanica.
The officers of the Company are elected by the Board of Directors to serve
until their successors are elected and qualified. The directors of the Company
are elected at the annual meeting of the stockholders. The By-laws provide for a
Board of Directors to be comprised of between two and seven persons.
The Company's Certificate of Incorporation and Bylaws provide for the
indemnification of, and advancement of expenses to, directors and officers of
the Company. The Company has also entered into agreements to provide
indemnification for its directors and executive officers.
In May 1997, the Company entered into employment agreements with Stephen
Schatzman, the President and Secretary of the Company and Alex Gimelstein, the
Vice President and Treasurer of the Company. The terms of the two employment
agreements, except for the position held with the Company, are identical. The
agreements, which expire on December 31, 2001, provide for initial annual base
salaries of $80,000 with additional increases, bonuses and compensation to be
decided by the Board of Directors. The employment agreements also provide that,
upon mutual agreement between the Company and the employee, all or any part of
the salary due the employee may be deferred for an indefinite period of the time
and/or paid in shares of the Common Stock of the Company.
DIRECTOR COMPENSATION
The Company does not provide additional compensation for employee
directors. In the event non-employees are appointed as directors, compensation
may be paid on an annual or per meeting basis to be determined.
In addition, all directors will receive on an annual basis mandatory stock
option grants under the Stock Option Plan for serving on the Board. Five-year
options to purchase 5,000 shares of Common Stock will be automatically granted
to each director on December 31 of each year, starting December 31, 1998, at an
option exercise price equal to the closing bid or sales price of the Common
Stock on such date. Additionally, directors appointed to the Board in the future
will be granted option to purchase 10,000 shares of Common Stock at an option
exercise price equal to the closing bid or sales price of the Common Stock on
the date of their appointment to the Board.
20
<PAGE> 23
STOCK OPTION PLAN
On November 7, 1997, the Board of Directors adopted a Stock Option Plan
(the "Plan"). This Plan provides for the grant of Incentive Stock Options and
Non-qualified Stock Options to employees selected by the Board of Directors or
Compensation Committee. The Plan also sets forth applicable rules and
regulations for Stock Options granted to non-employee directors. To date 135,000
options have been granted to Mr. Schatzman and 135,000 options have been granted
to Mr. Gimelstein at the market price on the date of grant. The Plan is subject
to stockholder approval and will be submitted to the stockholders at the
Company's annual meeting in 1998.
PRINCIPAL STOCKHOLDERS
The following table sets forth information relating to the beneficial
ownership of Company Common Stock as of December 31, 1997 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock (ii) each of the Company's directors, and
(iii) all of the Company's directors and executive officers as a group. The
"Percentage After Offering" assumes the conversion of all the outstanding shares
of Preferred Stock into Common Stock at the rate of $.301 per share.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NAME COMMON STOCK BEFORE OFFERING(1) AFTER OFFERING(1)
- ---- ------------ ------------------ -----------------
<S> <C> <C> <C>
Stephen Schatzman........................... 2,835,500(2) 27.9% 16.5%
2101 N.E. 212th Street
Miami, Florida 33179
Alex Gimelstein............................. 2,835,500(3) 27.9% 16.5%
21160 N.E. 22nd Court
Miami, Florida 33179
All Directors and Executive Officers as a
Group (2 persons)......................... 5,671,000 55.1% 33.0%
</TABLE>
- ---------------
(1) Based on the conversion of the Preferred Stock at $.301 per share.
(2) Includes 200,000 shares of Common Stock held by Mr. Schatzman as custodian
for his minor children, as to which shares he disclaims any beneficial
interest; includes options to purchase 135,000 shares.
(3) Includes 100,000 shares of Common Stock held by Mr. Gimelstein's adult son
and 150,000 shares of Common Stock held by Mr. Gimelstein as custodian for
his three minor children, as to all of which shares Mr. Gimelstein disclaims
any beneficial interest; includes options to purchase 135,000 shares.
21
<PAGE> 24
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, no par value per share, of which 10,028,485
shares were outstanding as of December 31, 1997. Holders of shares of Common
Stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata in all assets remaining after
payment in full of all liabilities. Holders of Common Stock have no preemptive
rights to purchase the Company's Common Stock. All of the outstanding shares of
Common Stock are, and the shares of Common Stock will be, when issued and
delivered upon conversion of the Preferred Stock, fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 5,000,000
shares of preferred stock, of which 2,100 shares of Series A Convertible
Preferred Stock are outstanding. The Series A Preferred Stock is convertible, at
the option of the holder, into that number of shares of common stock equal to
$1,000 divided by the lower of (i) Seventy Percent (70%) of the average Market
Price of the Common Stock for the five trading days immediately prior to the
Conversion Date or (ii) $1.46, increased proportionally for any reverse stock
split and decreased proportionally for any forward stock split or stock
dividend. Market Price shall be the closing bid price of the Common Stock on
such date, as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or the closing bid price in the
over-the-counter market, if other than Nasdaq. The Series A Preferred Stock is
mandatorily convertible into Common Stock beginning August 14, 1998, provided
that the Company is a reporting issuer under the Exchange Act and is then
current in its filings. The holders of Series A Preferred Stock have no voting
rights, the shares are redeemable at a price of $1,350 per share upon notice of
conversion, and have a liquidation preference of $1,350 per share.
The Company's Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the remaining authorized but
unissued preferred stock in one or more series and to determine the voting
rights, preferences as to dividends and liquidation, conversion rights, and
other rights of such series.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
22
<PAGE> 25
TRANSFER AGENT
The Company's transfer agent is Liberty Transfer Co., 191 New York Avenue,
Huntington, N.Y., 11743-2711, telephone number (516) 385-1616.
SELLING SECURITY HOLDERS
The shares of Common Stock of the Company offered by this Prospectus are
being sold for the account of the selling security holders identified in the
following table (the "Selling Security Holders").
The Selling Security Holders are offering for sale an aggregate of
7,466,744 shares of Common Stock, including 6,976,744 shares issuable upon
conversion of the Preferred Stock.
The following table sets forth the number of Shares being held of record or
beneficially (to the extent known by the Company) by such Selling Security
Holders and provides (by footnote reference) any material relationship between
the Company and such Selling Security Holder, all of which is based upon
information currently available to the Company.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF NUMBER OF
SHARES OF PERCENTAGE COMMON STOCK SHARES OF PERCENTAGE
COMMON STOCK BEFORE TO BE SOLD IN COMMON STOCK AFTER
NAME BEFORE OFFERING(1) OFFERING OFFERING AFTER OFFERING(1) OFFERING
- ---- ------------------ ---------- ------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Balmore Funds, S.A.(2)
Trident Chambers,
P.O. Box 146
Roadtown, Tortola,
British Virgin Islands.... 2,857,807 16.6% 2,657,807 200,000(3) 1.2%
Austos Anstalt Schaar(4)
7440 Fuerstentum,
Landstrasse 163, Vaduz,
Liechtenstein............. 2,525,581 14.7% 2,325,581 200,000(3) 1.2%
Dora Fried(5)............... 996,678 5.9% 996,678 0 --
Lampton, Inc.(6)
12/A Elkana Street,
Jerusalem, Israel......... 996,678 5.9% 996,678 0 --
Skarco Press, Inc.(7)
1701 W. Hillsboro
Boulevard, Suite 305,
Deerfield Beach, FL
33442..................... 90,000 .5% 90,000 0 --
RCC Associates, Inc.(8)
422 S.W. 12 Avenue,
Deerfield Beach, FL
33442..................... 737,070 4.3% 400,000 337,070 2.0%
</TABLE>
- ---------------
(1) Includes shares issued upon conversion of the Preferred Stock, based upon
the conversion price of $.301 and shares subject to outstanding options. See
footnote 3.
(2) A British Virgin Islands corporation; its director and controlling
shareholder is Francois Morax; its other directors are Rene Lemmenmeir,
Werner Lev, Seymour Braun and M. Kaniel.
(3) Shares subject to outstanding options.
(4) A Liechtenstein corporation; its directors are Tomas Hackl, Elfriede Ehn,
Peter Nakowitz and Herbert, Legradi; its controlling shareholder is Dr.
Werner Walser.
(5) Ms. Fried is an individual who resides at Stiegengasse 4, 1060 Vienna,
Austria.
(6) A British Virgin Islands corporation; its director and sole shareholder is
Sholom Steinberg.
(7) A Florida corporation; its President/director and controlling shareholder is
Sanford G. Lechner; its Vice President of Finance/director is Kimberly
Myrick and its director is Brian M. Lechner.
(8) A Florida corporation incorporated as Majic Construction d/b/a RCC
Associates, Inc.; its President/director and controlling shareholder is
Richard Raphael, its Vice Presidents are Richard N. Rhodes and Deborah L.
Popkin.
23
<PAGE> 26
PLAN OF DISTRIBUTION
SELLING SECURITY HOLDERS
The Selling Security Holders are offering shares of Common Stock for their
own account and not for the account of the Company. The Company will not receive
any proceeds from the sale of the shares of Common Stock by the Selling Security
Holders.
Each Selling Security Holder will, prior to any sales, agree (a) not to
effect any offers or sales of the Common Stock in any manner other than as
specified in this Prospectus, (b) to inform the Company of any sale of Common
Stock at least one business day prior to such sale and (c) not to purchase or
induce others to purchase Common Stock in violation of Regulation M under the
Exchange Act.
The shares of Common Stock may be sold from time to time to purchasers
directly by any of the Selling Security Holders acting as principals for their
own accounts in one or more transactions in the over-the-counter market or in
negotiated transactions at market prices prevailing at the time of sale or at
prices otherwise negotiated. Alternatively, the shares of Common Stock may be
offered from time to time through agents, brokers, dealers or underwriters
designated from time to time, and such agents, brokers, dealers or underwriters
may receive compensation in the form of commissions or concessions from the
Selling Security Holders or the purchasers of the Common Stock.
Under the Exchange Act, and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, each Selling Security Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling Security
Holder. There are possible limitations upon trading activities and restrictions
upon broker-dealers effecting transactions in certain securities which may also
materially affect the value of, and an investor's ability to dispose of, the
Company's securities. See "RISK FACTORS."
The Company will use its best efforts to file, during any period in which
offers or sales are being made, one or more post-effective amendments to the
Registration Statement, of which this Prospectus is a part, to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Shapo, Freedman & Bloom, P.A., 200 South Biscayne Blvd., Suite 4750,
Miami, Florida 33131.
EXPERTS
The financial statements of the Company for the fiscal year ended June 30,
1996 and 1997 included in this Prospectus have been audited by Millward & Co.,
P.A., certified public accountants, and are included herein in reliance upon the
authority of said firm as experts on accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form SB-2 with respect to the Common Stock being
registered hereby. This Prospectus does not contain all the information
contained in such Registration Statement, as permitted by the Rules and
Regulations of the Securities and Exchange Commission. The Registration
Statement, including exhibits thereto, may be inspected without charge and
copies of all or any part thereof may be obtained from the Commission's
24
<PAGE> 27
principal office in Washington, D.C. at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 75 Park
Place, 14th Floor, New York, New York 10007 and at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained upon written request addressed to the Commission,
Public Reference Section 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. For further information with respect to the Company, the
Common Stock being registered hereby and the contents of any contract or
document referred to herein, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
25
<PAGE> 28
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Financial Statements:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Changes in Shareholders'
Equity................................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
The Havana Republic, Inc. and Subsidiaries
Weston, Florida
We have audited the accompanying consolidated balance sheet of The Havana
Republic, Inc. (a Colorado corporation) and Subsidiaries as of June 30, 1997 and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the period from inception (March 10, 1996) to June
30, 1996 and for the year ended June 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Havana Republic, Inc. and Subsidiaries as of June 30, 1997, and the
consolidated results of their operations and their cash flows for the period
from inception (March 10, 1996) to June 30, 1996 and for the year ended June 30,
1997, in conformity with generally accepted accounting principles.
Millward & Co. CPAs
Fort Lauderdale, Florida
August 8, 1997 (October 18, 1997 as to Note 9)
F-2
<PAGE> 30
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 219,294 1,174,253
Accounts Receivable....................................... 1,668 1,668
Inventory................................................. 477,854 665,598
Prepaid Expenses.......................................... -- 10,000
Deposits on Inventory Purchases........................... 300,000 450,000
---------- ----------
Total Current Assets.............................. 998,816 2,301,519
---------- ----------
PROPERTY AND EQUIPMENT, at Cost
(Net of Accumulated Depreciation and Amortization of
$13,907 and $23,907 at June 30, 1997 and September 30,
1997, respectively).................................... 204,811 277,453
---------- ----------
OTHER ASSETS:
Intangible Assets (Net of Accumulated Amortization of
$1,598 and $2,131 at June 30, 1997 and September 30,
1997, respectively).................................... 10,058 9,525
Deposits.................................................. 25,253 5,253
Deposits on Inventory Purchases........................... 141,700 166,700
Investment in 50% Owned Factory........................... 50,000 50,000
---------- ----------
Total Other Assets................................ 227,011 231,478
---------- ----------
Total Assets...................................... $1,430,638 $2,810,450
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable.......................................... $ 97,797 $ 98,269
Accrued Expenses.......................................... 41,441 48,120
Due to Related Party...................................... 750 --
Deferred Membership Revenue............................... 19,142 14,356
Note Payable.............................................. 400,000 200,000
---------- ----------
Total Current Liabilities......................... 559,130 360,745
---------- ----------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, No Par Value, Authorized 50,000,000 Shares;
Issued and Outstanding 9,121,000 and 9,159,460 Shares
at June 30, 1997 and September 30, 1997,
respectively).......................................... 1,138,070 1,148,070
Preferred Stock, No Par Value, Non-Voting, Authorized
5,000,000 Shares; Convertible Preferred Stock -- Series
A, Authorized 2,500 Shares:
Issued and Outstanding 1,800 Shares at September 30,
1997 (Aggregate Liquidation Preference of $2,430,000
at September 30, 1997)................................ -- 2,213,450
Accumulated Deficit....................................... (266,562) (951,815)
---------- ----------
Total Shareholders' Equity........................ 871,508 2,449,705
---------- ----------
Total Liabilities and Shareholders' Equity........ $1,430,638 $2,810,450
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 31
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE THREE FOR THE THREE
FOR THE INCEPTION MONTHS ENDED MONTHS ENDED
YEAR ENDED (MARCH 10, 1996) SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1997 TO JUNE 30, 1996 1997 1996
------------- ---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES
Retail Sales........................... $ 345,330 $ -- $ 157,604 $ --
Memberships............................ 11,808 -- 4,786 --
---------- ---------- ---------- ----------
Net Sales...................... 357,138 162,390 --
COST OF SALES............................ 164,667 -- 72,561 --
---------- ---------- ---------- ----------
GROSS PROFIT............................. 192,471 -- 89,829 --
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Store Expenses......................... 187,559 -- 59,681 --
General and Administrative............. 148,061 500 81,978 25,747
Depreciation and Amortization.......... 15,505 -- 10,533 --
Professional Fees...................... 100,492 -- 16,756 10,301
---------- ---------- ---------- ----------
Total Operating Expenses....... 451,617 500 168,948 36,048
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS..................... (259,146) (500) (79,119) (36,048)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest Income........................ 9,467 -- 3,866 3,014
Interest Expense....................... (16,383) -- (10,000) (9,161)
---------- ---------- ---------- ----------
(6,916) -- (6,134) (6,147)
---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES... (266,062) (500) (85,253) (42,195)
PROVISION FOR INCOME TAXES............... -- -- -- --
---------- ---------- ---------- ----------
NET LOSS................................. $ (266,062) $ (500) $ (85,253) $ (42,195)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE................ $ (0.03) $ -- $ (0.07) $ --
========== ========== ========== ==========
NUMBER OF WEIGHTED COMMON SHARES
OUTSTANDING............................ 8,835,586 2,968,554 9,139,812 8,333,783
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 32
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ----------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------ ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- March 10, 1996
(Date of inception)........ -- $ -- -- $ -- -- $ --
Shares issued in connection
with initial
capitalization............. -- -- 5,500,000 1,000 -- 1,000
Shares issued in connection
with private offering...... -- -- 1,574,000 -- -- --
Net loss for the period from
inception (March 10, 1996)
to June 30, 1996........... -- -- -- -- (500) (500)
------ ---------- ---------- ---------- --------- ----------
BALANCE -- June 30, 1996..... -- -- 7,074,000 1,000 (500) 500
Shares issued in connection
with private offering...... -- -- 1,900,000 950,000 -- 950,000
Issuance of common stock for
services................... -- -- 147,000 147,070 -- 147,070
Recognition of officers
compensation on donated
services................... -- -- -- 40,000 -- 40,000
Net loss for the year ended
June 30, 1997.............. -- -- -- -- (266,062) (266,062)
------ ---------- ---------- ---------- --------- ----------
BALANCE -- June 30, 1997..... -- -- 9,121,000 1,138,070 (266,562) 871,508
Issuance of preferred stock
series A................... 1,800 1,613,450 -- -- -- 1,613,450
Shares issued in connection
with private offering...... -- -- 38,460 50,000 -- 50,000
Recognition of preferred
stock dividend on
beneficial conversion...... 600,000 (600,000) --
Net loss for the three months
ended September 30, 1997... -- -- -- -- (85,253) (85,253)
------ ---------- ---------- ---------- --------- ----------
BALANCE -- September 30, 1997
(Unaudited)................ 1,800 $2,213,450 9,159,460 $1,188,070 $(951,815) $2,449,705
====== ========== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 33
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD FROM FOR THE THREE FOR THE THREE
YEAR ENDED INCEPTION MONTHS ENDED MONTHS ENDED
JUNE 30, (MARCH 10, 1996) SEPTEMBER 30, SEPTEMBER 30,
1997 TO JUNE 30, 1996 1997 1996
---------- ---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................... $ (266,062) $ (500) $ (85,253) $ (42,195)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation and Amortization.............. 15,505 -- 10,533 --
Recognition of Officers Compensation on
Donated Services......................... 40,000 -- -- 11,000
Common Stock Issued in Exchange for
Services................................. 10,000 -- -- --
(Increase) Decrease in:
Accounts Receivable...................... (1,668) -- -- --
Inventory................................ (477,854) -- (187,744) (54,067)
Prepaid Expenses......................... -- -- (10,000) --
Deposits on Inventory Purchases.......... (441,700) -- (175,000) --
Deposits................................. (25,253) -- 20,000 (20,000)
Increase (Decrease) in:
Accounts Payable......................... 97,797 -- 472 --
Accrued Expenses......................... 41,441 -- 6,679 4,904
Deferred Membership Revenue.............. 19,142 -- (4,786) --
Due to Related Party..................... 750 -- (750) --
---------- -------- ---------- ---------
Net Cash (Used in) Provided by Operating
Activities................................... (987,902) (500) (425,849) (100,358)
---------- -------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment........ (81,648) -- (82,642) (20,335)
Increase in Intangible Assets................ (11,656) -- -- (7,681)
Investment in 50% Owned Factory.............. (50,000) -- -- --
---------- -------- ---------- ---------
Net Cash Used in Investing Activities.......... (143,304) -- (82,642) (28,016)
---------- -------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock....... 950,000 1,000 50,000 950,000
Proceeds from Issuance of Preferred Stock
Series A................................... -- -- 1,613,450 --
Repayment of Note Borrowings................. (250,000) -- (200,000) (250,000)
Proceeds from Note Borrowings................ 400,000 250,000 -- --
---------- -------- ---------- ---------
Net Cash Provided by Financing Activities...... 1,100,000 251,000 1,463,450 700,000
---------- -------- ---------- ---------
Net (Decrease) Increase in Cash................ (31,206) 250,500 954,959 571,626
Cash and Cash Equivalents -- Beginning of
Period....................................... 250,500 -- 219,294 250,500
---------- -------- ---------- ---------
Cash and Cash Equivalents -- End of Period..... $ 219,294 $250,500 $1,174,253 $ 822,126
========== ======== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Year for Interest..... $ 9,161 $ -- $ -- $ 9,161
========== ======== ========== =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock for Services........ $ 137,070 $ -- $ -- $ --
========== ======== ========== =========
Recognition of Preferred Stock Dividend on
Beneficial Conversion...................... $ -- $ -- $ 600,000 $ --
========== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 34
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, CAPITALIZATION AND REVERSE ACQUISITION
The Havana Republic, Inc. (Colorado) (The "Colorado Company") was organized
under the laws of the State of Colorado on May 31, 1996. The Colorado Company is
authorized to issue 50,000,000 shares of its no par common stock and 5,000,000
shares of its no par value preferred stock.
The Havana Republic, Inc. (Florida) (The "Florida Company") was organized
under the law of the State of Florida on March 10, 1996. The Florida Company's
articles of incorporation provide for the issuance of 1,000 shares of its no par
value common stock.
On June 17, 1996 all of the issued and outstanding stock of the Florida
Company was exchanged for 5,500,000 shares of common stock of the Colorado
Company. The Colorado Company and the Florida Company are hereinafter referred
to collectively as the Company. As a result of the exchange of stock, the former
stockholders of the Florida Company owned approximately 79% of the common stock
of the Company. Accordingly, this transaction has been treated, for financial
reporting purposes, as a reverse acquisition in which the Florida Company was
recapitalized by providing 5,500,000 shares of the Colorado Company to its
existing shareholders. The 1,574,000 shares held by the Colorado Company
shareholders before the acquisition were issued in June 1996 pursuant to an
offering in accordance with Rule 504 of Regulation D pursuant to Securities Act
of 1933, the proceeds of such offering were approximately $3,000. At the time of
the recapitalization, the Colorado Company had no assets and no value was
attributable to such shares.
BUSINESS
The Company is engaged in the business of owning and operating upscale
cigar emporiums devoted to the sale of premium cigars and cigar related
merchandise. In addition, the Company intends to engage as a distributor of
premium cigars.
INTERIM FINANCIAL STATEMENTS
Information in the accompanying consolidated financial statements and notes
to the consolidated financial statements for the interim period as of September
30, 1997 and for the three month period ended September 30, 1997 and 1996, is
unaudited. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1997 and 1996 are not necessarily indicative of the results that may be expected
for the years ending June 30, 1998 and 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Havana
Republic, Inc. and its wholly owned Subsidiaries. All significant intercompany
transactions and balances have been eliminated from these consolidated financial
statements.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheet for cash and
cash equivalents, note payable, accounts payable and accrued liabilities
approximates fair market value due to the immediate or short-term maturity of
these financial instruments.
F-7
<PAGE> 35
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates and assumptions.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk, consists principally of cash and cash equivalents.
The Company places its cash in money market funds with high credit quality
institutions. As of June 30, 1997, the Company had $196,815 in one financial
institution with the excess over $100,000 not covered by FDIC insurance and
which, therefore, did not limit the Company's amount of credit risk. The Company
has not experienced any losses in such account and believes that it is not
exposed to any significant credit risk on the account.
INVENTORY
Inventory consisting principally of cigars and accessories, is valued at
the lower of cost (first-in, first-out) or market.
DEPOSITS ON INVENTORY PURCHASES
Deposits on inventory purchases consists of payments to the Company's 50%
owned affiliate to secure the purchase of cigar inventory. Shipments are
scheduled to commence January 1998 at a rate of approximately $50,000 worth of
cigars per month. All transactions are in U.S. dollars.
INTANGIBLE ASSETS
Intangible assets, which consist of organization and trademark costs, are
amortized over a 5 to 15 year period, respectively. Amortization expense for the
period ended June 30, 1997 and 1996 amounted to $1,598 and $0, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets using the straight-line
method for financial reporting purposes and the accelerated method for income
tax purposes. Maintenance, repairs, and minor renewals are charged to expense as
incurred while expenditures that materially increase values, change capacities,
or extend useful lives are capitalized. Upon sale or retirement of property and
equipment, the cost and the related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in
operations.
INCOME TAXES
Income taxes are accounted for under the asset and liability method of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities or a change in tax rate is recognized
F-8
<PAGE> 36
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in income in the period that includes the enactment date. Deferred tax assets
are reduced to estimated amounts to be realized by use of a valuation allowance.
The principal types of temporary differences between assets and liabilities
for financial statement and tax return purposes are net operating loss
carryforwards.
CASH AND CASH EQUIVALENTS
For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
LOSS PER COMMON SHARE
Primary loss per common share is calculated by dividing net loss by the
weighted average number of common shares outstanding during each period
presented. For the three months ended September 30, 1997, net loss has been
adjusted for dividends on the convertible preferred stock (see note 14). Fully
diluted loss per common share is not presented because they are anti-dilutive.
The Company does not have any common stock equivalents.
REVENUE RECOGNITION
Revenues from product sales are recognized when the customer purchases the
product. The Company also sells three types of annual smoking club memberships
ranging in price from $250 to $1,000. Revenue from membership is recognized over
a 12-month period from purchase date. The Company has deferred membership
revenue amounting to $19,142 and $14,356 as of June 30, 1997 and September 30,
1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement No. 128 "Earnings Per Share"
("SFAS 128"). FAS 128 is effective for financial statements for periods ending
after December 31, 1997 and early adoption is not permitted. This statement
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
The adoption of FAS 128 is not expected to have a material impact on the
Company's financial statements.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information About Capital Structure" ("FAS 129"). Since the Company has only one
class of shares, which is adequately disclosed on the face of the balance sheet,
the adoption of FAS 129 will have no impact on the Company's financial
statements.
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 is effective for
financial statements of periods beginning subsequent to December 15, 1997, but
early adoption is permitted. The Company presents adequately all components of
comprehensive income in the statement of shareholders' equity.
In June 1997, FASB issued Statement of Financial Accounting Standard No.
131, "Disclosure About Segments of an Enterprise and Related Information" ("FAS
131"). The statement establishes standards for the way that public business
enterprises report selected information about reportable operating segments,
products and services, geographic areas and major customers, for which discrete
financial information is available, in annual and interim financial statements.
This statement shall be effective for fiscal years beginning after December 15,
1997.
F-9
<PAGE> 37
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- RELATED PARTY
A related party sold cigars to the Company aggregating $750 for which the
related party was not reimbursed during the period.
NOTE 3 -- NOTES PAYABLE
The Company entered into a financing agreement with a third party. This
agreement consists of two term loans with principal balances of $200,000 and
$200,000, respectively at June 30, 1997. Interest shall accrue at a rate equal
to ten percent (10%) simple interest per annum. The total unpaid balance of
principal and accrued interest shall be due and payable on April 1, 1998 and May
20, 1998, respectively. In August 1997, the Company repaid $200,000.
NOTE 4 -- INVESTMENT IN 50% OWNED FACTORY
The Company invested $50,000 in January 1997 for a 50% interest in a
company owning a factory located in Jalapa, Nicaragua. The investment is being
carried at cost, which based on the limited information available, the Company
believes that the financial statements would not be materially different than if
carried on the equity method.
NOTE 5 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment at June 30, 1997 and
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
-------- -------------
(UNAUDITED)
<S> <C> <C>
Computers................................................... $ 11,287 $ 11,287
Furniture and fixtures...................................... 53,194 60,186
Office equipment............................................ 2,120 2,120
Leasehold improvements...................................... 152,117 227,767
-------- --------
218,718 301,360
Accumulated depreciation.................................... (13,907) (23,907)
-------- --------
$204,811 $277,453
======== ========
</TABLE>
Depreciation expense amounted to $13,907, $0, $10,000 and $0 for the period
ended June 30, 1997 and 1996 and for the three months ended September 30, 1997
and 1996, respectively.
NOTE 6 -- INVENTORY
The major classes of inventory at June 30, 1997 and September 30, 1997 are
as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
-------- -------------
(UNAUDITED)
<S> <C> <C>
Cigars...................................................... $305,840 $372,589
Accessories................................................. 172,014 293,009
-------- --------
$477,854 $665,598
======== ========
</TABLE>
F-10
<PAGE> 38
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
To date, the Company has incurred tax operating losses and therefore, has
generated no income tax liabilities. As of June 30, 1997 and September 30, 1997,
the Company has generated net operating loss carryforwards totaling $266,562 and
$352,000, respectively, which are available to offset future taxable income, if
any, through 2011. As utilization of such an operating loss for tax purposes is
not assured, the deferred tax asset has been fully reserved through the
recording of a 100% valuation allowance.
As of June 30, 1997 and September 30, 1997, the components of the net
deferred tax asset are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward........................... $ 101,000 $ 133,700
Valuation allowance......................................... (101,000) (133,700)
--------- ---------
Net deferred tax............................................ $ -- $ --
========= =========
</TABLE>
NOTE 8 -- COMMITMENTS
OPERATING LEASES
The Company has operating leases for store facilities expiring through 2002
to 2004. The lease agreements require the Company to pay real estate taxes,
maintenance and other operating expenses associated with the space leased. The
store leases also provide for additional contingent rentals based upon a
percentage of sales in excess of certain minimum amounts, as well as increases
in the consumer price index. Total rent expense for the year ended June 30, 1997
and for the period March 10, 1996 (date of inception) to June 30, 1996 amounted
to $18,564 and $0, respectively.
Future minimum rental commitments as of June 30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 87,816
1999........................................................ 112,628
2000........................................................ 113,627
2001........................................................ 114,625
2002........................................................ 104,391
Thereafter.................................................. 166,693
--------
$699,780
========
</TABLE>
EMPLOYMENT AGREEMENTS
In May 1997, the Company entered into employment agreements with officers
of the Company. The terms of the two employment, which expire on December 31,
2001, provide for initial annual base salary of $80,000 with additional
increases, bonuses and compensation to be decided by the Board of Directors.
NOTE 9 -- STOCKHOLDERS' EQUITY
STOCK ISSUANCE
In August 1996, the Company sold 1,900,000 shares at $.50 per share
pursuant to an offering in accordance with Rule 504 of Regulation D pursuant to
Securities Act of 1933.
For the period ended June 30, 1997, the Company recorded officers'
compensation expense of $40,000 relating to services donated to the Company.
F-11
<PAGE> 39
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, the Company issued 137,070 shares valued at a fair market
value of $1 per share for construction services rendered in connection with the
construction of leased premises housing the Company's Weston, Florida store and
had a related charge to property and equipment.
In May 1997, the Company issued 10,000 shares valued at a fair market value
of $1 per share to employees of the Company in consideration for services
rendered to the Company and had a related charge to operations.
See Note 1 for initial stock issuances.
In August 1997, the Company sold 38,460 shares at $1.30 per share pursuant
to an offering in accordance with Rule 504 of Regulation D pursuant to
Securities Act of 1933.
PREFERRED STOCK
The Company's articles of incorporation authorize the issuance of 5,000,000
shares of preferred stock. The Company's Board of Directors has authority,
without action by the shareholders, to issue all or any portion of the
authorized but unissued preferred stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series.
On August 1, 1997, the Board of Directors of the Company created a series
of preferred stock consisting of 2,500 shares and designated it as the Series A
Convertible Preferred Stock -- no par value. The Series A Preferred Stock is
convertible, at the holders option, into that number of shares of common stock
equal to $1,000 divided by the lower of (i) seventy percent (70%) of the average
market price of the common stock for the five trading days immediately prior to
the conversion date or (ii) $1.46, increased proportionally for any reverse
stock splits and decreased proportionally for any forward stock split or stock
dividend. The holders of Series A Preferred Stock have no voting rights, the
shares are redeemable at a price of $1,350 per share upon notice of conversion,
and have a liquidation preference of $1,350 per share. As of September 30, 1997,
the Company has issued 1,800 shares of the Series A Convertible Preferred Stock
for a net amount of $1,613,450. Subsequent to September 30, 1997, the Company
issued 300 additional shares of the Series A Convertible Preferred Stock for an
aggregate amount of $300,000. For the three months ended September 30, 1997, the
Company recognized a preferred stock dividend amounting to $600,000 calculated
as the difference between the conversion price ($1.47 per share) and the fair
value of the common stock into which the shares are convertible, multiplied by
the number of common shares into which the preferred stock is convertible.
Certain holders of the Series A Convertible Preferred Stock were issued (i) an
option to purchase an aggregate of 200,000 shares of common stock for two years
at an exercise price of $1.92 per common share and (ii) an option to purchase an
aggregate of 200,000 shares of common stock for two years an exercise price of
$2.88 per common share.
F-12
<PAGE> 40
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
The Offering.......................... 3
Selected Financial Information........ 4
Risk Factors.......................... 5
Dilution.............................. 10
Use of Proceeds....................... 10
Market Price of the Common Stock...... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 13
Management............................ 20
Principal Stockholders................ 21
Description of Securities............. 22
Selling Security Holders.............. 23
Plan of Distribution.................. 23
Legal Matters......................... 24
Experts............................... 24
Additional Information................ 24
Financial Statements.................. F-1
</TABLE>
---------------------
UNTIL , 1998 (90 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.
======================================================
======================================================
6,976,744 SHARES OF COMMON STOCK
OFFERED BY CERTAIN
SELLING SECURITY HOLDERS UPON
CONVERSION OF OUTSTANDING SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
---------------------
490,000 SHARES OF COMMON STOCK OFFERED
BY CERTAIN SELLING SECURITY HOLDERS
---------------------
THE HAVANA
REPUBLIC, INC.
---------------------------
PROSPECTUS
---------------------------
, 1998
======================================================
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to Section 607.0850 of the Florida Business Corporations Act, the
Company has the power to indemnify directors, officers, employees or agents. The
Company's Articles of Incorporation and Bylaws provide for indemnification of
officers and directors. In addition, the Company's officers and directors have
entered into agreements which also indemnify them from certain acts and
omissions.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance of the securities
being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 1,980
Printing Expenses........................................... 15,000
Accounting Fees and Expenses................................ 10,000
Legal Fees and Expenses..................................... 25,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees and Expenses.............. 5,000
Miscellaneous............................................... 10,000
-------
Total....................................................... $71,980
</TABLE>
- ---------------
All amounts, except the SEC registration fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth the Company's sales of unregistered
securities.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK DATE SOLD PURCHASER CONSIDERATION
- ------------------- --------- --------- -----------------------------------------------
<C> <C> <S> <C>
2,700,500 3/10/96 Gimelstein, Alex(1) $491.00
2,700,500 3/10/96 Schatzman, Stephen(1) 491.00
99,000 3/10/96 LaTorre, Roseanna(1) 18.00
================================================================================================================
60,000 6/10/96 Borer, Debora J.(3) 30.00
55,000 6/10/96 Burch, Clark(3) 27.50
65,000 6/10/96 Clark, Gary(3) 32.50
65,000 6/10/96 Conley, Walter(3) 32.50
50,000 6/10/96 Crumm, Michael(3) 25.00
64,000 6/10/96 EDR Financial, Inc.(3) 32.00
100,000 6/10/96 EDR Financial, Inc.(3) exchange of 300,000 shares of Preferred Stock
65,000 6/10/96 Hawkins, Edward H.(3) 32.50
60,000 6/10/96 Hawkins, Edward H. As Trustee
for Jeffrey Dean(3) 30.00
60,000 6/10/96 Hawkins, Edward H. As Trustee
for Cody Hawkins(3) 30.00
60,000 6/10/96 Hawkins, Edward H. Trustee
for Molly Hawkins(3) 30.00
55,000 6/10/96 Lawrence, Susan(3) 27.50
55,000 6/10/96 Reitsema, David R.(3) 27.50
60,000 6/10/96 Reitsema, David R. As Trustee
For Joshua Reitsema(3) 30.00
55,000 6/10/96 Reitsema, James D.(3) 27.50
</TABLE>
II-1
<PAGE> 42
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK DATE SOLD PURCHASER CONSIDERATION
- ------------------- --------- --------- -----------------------------------------------
<C> <C> <S> <C>
60,000 6/10/96 Reitsema, Jeremy(3) $30.00
60,000 6/10/96 Reitsema, Matthew(3) 30.00
65,000 6/10/96 Rennekamp, Daniel T.(3) 32.50
65,000 6/10/96 Sicola, Michael V.(3) 32.50
50,000 6/10/96 Sliva, Linda(3) 25.00
55,000 6/10/96 Spykstra, Carol(3) 27.50
60,000 6/10/96 Swickard, Don L.(3) 30.00
60,000 6/10/96 Swickard, Sharon(3) 30.00
65,000 6/10/96 Tudor Trading Limited(3) 32.50
55,000 6/10/96 Turner, Robert R.(3) 27.50
50,000 6/10/96 Vanderryst, Derek(3) 25.00
================================================================================================================
20,000 8/30/96 Aronoff, Len(3) 10,000.00
100,000 8/30/96 Azucar, Ltd.(3) 50,000.00
20,000 8/30/96 Baby Shoes, Inc.(3) 10,000.00
330,000 8/30/96 C.A. Oportunidad, S.A.(3) 165,000.00
100,000 8/30/96 Cile Investments Ltd.(3) 50,000.00
20,000 8/30/96 CJL Corp. Money Purchase
Pension Plan(3) 10,000.00
20,000 8/30/96 Dog in a Manger Productions,
Inc./G. Patrick Charuhas,
President(3) 10,000.00
40,000 8/30/96 Dowda, Jimmy Dean(3) 20,000.00
600,000 8/30/96 Fondo de Acquisiciones E
Inversiones
Internacionales(3) 300,000.00
200,000 8/30/96 King, Bryan(3) 100,000.00
100,000 8/30/96 Klarious Capital Ltd.(3) 50,000.00
40,000 8/30/96 Knox, Bruce R.(3) 20,000.00
40,000 8/30/96 Lenz, Frederick(3) 20,000.00
20,000 8/30/96 Pow Wow, Inc.(3) 10,000.00
250,000 8/30/96 Seidman, Barry(3) 125,000.00
38,460 8/30/97 USH Endowment Ltd.(3) 50,000.00
================================================================================================================
137,070 5/01/97 RCC Associates Inc.(2) general contracting services valued at $137,070
10,000 5/01/97 Two Employees(2) employment services valued at $10,000
================================================================================================================
36,000 11/13/97 Broad and Cassel(3) legal services valued at $42,120
200,000 11/13/97 RCC Associates Inc.(3) general contracting services valued at $234,000
44,025 11/20/97 Richard L. Jacobs(3) millwork services valued at $47,999
================================================================================================================
400,000 11/13/97 RCC Associates Inc.(2) general contracting services valued at $468,000
99,000 11/13/97 Daniel C. Marino, Jr.(2) public relations services valued at $115,830
90,000 11/20/97 Skarco Press, Inc.(2) printing services valued at $105,300
</TABLE>
II-2
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A CONVERTIBLE
PREFERRED STOCK DATE SOLD PURCHASER CONSIDERATION
- ------------------- --------- --------- -------------
<C> <C> <S> <C>
700 8/14/97 Austost Anstalt Schaar(2) $700,000.00
800 8/14/97 Balmore Funds, S.A.(2) 800,000.00
300 8/25/97 Lampton, Inc.(2) 300,000.00
300 10/22/97 Fried, Dora(2) 300,000.00
</TABLE>
- ---------------
(1) Founder Shares
(2) Sold in reliance upon Section 4(2) of the Act. All investors were either
"accredited" or sophisticated. The Company represents that all investors had
access to information about the Company.
(3) Sold in reliance upon Rule 504/Regulation D
II-3
<PAGE> 44
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <C> <S>
2.1 -- Plan of Merger dated November 6, 1997*
2.2 -- Articles of Merger*
3.1 -- Amended and Restated Articles of Incorporation*
3.2 -- By-Laws*
4.1 -- Certificate of Designation/Class A Convertible Preferred
Stock*
5.1 -- Opinion of Shapo, Freedman & Bloom, P.A.**
10.1 -- Employment Agreement with Stephen Schatzman*
10.2 -- Employment Agreement with Alex Gimelstein*
10.3 -- Lease/Weston*
10.4 -- Lease/Fort Lauderdale*
10.5 -- Amended and Restated Contract for Sale of Tobacco and
Cigars*
10.6 -- Stock Option Plan*
10.8 -- Form of Indemnification Agreement with directors*
10.9 -- Lease by and between Bakery Associates, Ltd., a Florida
limited partnership and Havana Republic Sunsetplace, Inc.
December 8, 1997**
23.1 -- Consent of Shapo, Freedman & Bloom, P.A. (included in 5.1)**
23.2 -- Consent of Millward & Co., P.A., independent certified
public accountants, contained in Part II of the registration
statement.**
</TABLE>
Subsidiaries -- Havana Republic W.H., Inc. (Florida)
Havana Republic Brickell Station, Inc. (Florida)
- ---------------
* previously filed
** filed herewith
ITEM 28. UNDERTAKINGS
The undersigned registrant 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 notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation form the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if, in the
aggregate, the changes in the volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling person of the Company pursuant to the foregoing provisions,
or otherwise, the Company has been advised that in the opinion of the
Securities and
II-4
<PAGE> 45
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 undersigned of expenses incurred or paid by a director, officer or
controlling person of the undersigned 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
undersigned 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 Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form SB-2
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Weston, State of Florida, on the 11th day of February, 1998.
THE HAVANA REPUBLIC, INC.
By: /s/ STEPHEN SCHATZMAN
------------------------------------
Stephen Schatzman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN SCHATZMAN President and Chief February 11, 1998
- ----------------------------------------------------- Executive Officer,
Stephen Schatzman Director
/s/ ALEX GIMELSTEIN Vice President and Chief February 11, 1998
- ----------------------------------------------------- Financial Officer,
Alex Gimelstein Director
</TABLE>
II-6
<PAGE> 1
EXHIBIT 5.1
SHAPO, FREEDMAN & BLOOM, P.A.
FIRST UNION FINANCIAL CENTER
SUITE 4750
200 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
---------------
(305)358-4440
LEONARD H. BLOOM FACSIMILE NO.
(305)358-0521
February 11, 1998
The Havana Republic, Inc.
1360 Weston Road
Weston, Florida 33326
Re: The Havana Republic, Inc. (the "Company") Registration Statement on Form
SB-2
(the "Registration Statement") Covering the Proposed Offering of an
Aggregate of 7,466,744
Shares of Common Stock, No Par Value by Certain Selling Security Holders
Gentlemen:
We have acted as counsel for the Company in connection with the preparation
of the Registration Statement relating to the proposed offering of the Common
Stock by certain selling security holders.
As such, we are familiar with the Registration Statement relating to the
offering and the preliminary prospectus included therein (the "Prospectus"). We
have examined a copy of the Certificate of Incorporation (as amended) and
By-Laws of the Company (as amended) and such other documents and corporate
records as we deem necessary or appropriate for the purpose of this opinion.
On the basis of the foregoing, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Florida and has
authorized and issued capital stock as set forth in the Prospectus.
(ii) All of the Common Stock to be sold by the Selling Security Holders
in the offering have been duly and validly authorized and are fully paid and
nonassessable.
<PAGE> 2
The Havana Republic, Inc.
February 11, 1998
Page 2
The undersigned consents to being named in the above referenced
Registration Statement as counsel for the Company and in the Prospectus as
acting for such Company as to legal matters in connection with the sale of the
Common Stock covered by the Registration Statement and further consents to the
filing of this opinion as an exhibit to the Registration Statement.
SHAPO, FREEDMAN & BLOOM, P.A.
By: /s/ LEONARD H. BLOOM
------------------------------------
Leonard H. Bloom
LHB:ssc
<PAGE> 1
EXHIBIT 10.9
LEASE
BY AND BETWEEN
BAKERY ASSOCIATES, LTD.,
a Florida Limited Partnership
AND
HAVANA REPUBLIC SUNSETPLACE, INC.
<PAGE> 2
THE SHOPS AT SUNSET PLACE
LEASE
THIS LEASE made this 8th day of December, 1997, by and between BAKERY
ASSOCIATES, LTD.,("Landlord"), and HAVANA REPUBLIC SUNSETPLACE, INC.("Tenant");
WITNESSETH THAT, in consideration of the rents, covenants and agreements
hereinafter set forth, such parties enter into the following agreement:
ARTICLE I
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
for a shopping center as well as a parking deck
("Parking Space"), all of which is hereinafter
called "Total Tract".
EXHIBIT "B" Plot Plan of Total Tract, showing existing and
proposed improvements (Total Tract with existing and
future improvements being hereinafter called the
"Center"). 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 the Total Tract at any time for
the purpose of incorporating additional Major
Tenants and other buildings within the Center.
EXHIBIT "C" Description of Landlord's Work and Tenant's Work.
EXHIBIT "D" Rules and Regulations applicable to Tenant.
EXHIBIT "E" INTENTIONALLY DELETED.
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 kiosks 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 and the location of the
Premises shall not be changed, nor shall there be any material and adverse
change to the access, signage, visibility and parking for the Premises.
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 Room B-13 outlined in red on Exhibit "B"
(hereinafter called "the Premises"), irregularly shaped, but, 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
2,104 square feet (hereinafter called the "Store Floor Area"). The parties agree
that Landlord's determination of the Store Floor Area shall be final, binding
and conclusive, provided it is based upon an architect's certification. Tenant
may utilize an outdoor seating area of a size and at the location shown on
Exhibit "B-l." Landlord shall not change the size, location, columns and utility
stub-ins from that shown on Exhibit "B-2" without Tenant's consent.
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 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 or any portion of the
Center outside the Premises, except as provided in Section 5.2 hereof.
-1-
<PAGE> 3
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 tenth (l0th) Lease Year (hereinafter
defined) after the Commencement Date unless sooner terminated as herein
provided.
Section 2.4. Lease Year Defined.
"Lease Year," as used herein, means a period of twelve (12) consecutive
months during the Lease Term commencing on February 1 of any calendar year, the
first Lease Year commencing on the first day of the first February occurring on
or 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
LANDLORD'S AND TENANT'S WORK
Section 3.1. Landlord's Work.
Landlord shall at its expense construct the Premises substantially in
accordance with plans and specifications prepared or to be prepared by
Landlord's architect, incorporating in such construction all work described in
Exhibit "C" hereto as being required of Landlord (hereinafter called
"Landlord's Work").
Section 3.2. Tenant's Work.
All work not provided herein to be done by Landlord 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 Tenant's Work diligently and promptly and in accordance with
the following provisions.
Section 3.3. 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's Information Handbook
(which shall become a part hereof by this reference as Exhibit "C-l" and
hereinafter referred to as "Handbook"). Within 45 days after the date of this
Lease or the date of receipt of a drawing of the Premises and Tenant's Handbook,
whichever is later, Tenant will submit to Landlord one (1) reproducible set and
3 copies of plans and specifications, prepared by a registered Architect or
Engineer licensed in the state of the project, of all Tenant's Work to be done
within the Premises (hereinafter called "Tenant's Plans"), prepared in
conformity with Exhibit "C" and the 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 Handbook or otherwise to meet with
Landlord's approval. Tenant shall within 15 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 conformity with
applicable laws, 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 shall notify Tenant not less than 15 days in advance of the time
when Tenant can commence Tenant's Work whereby it certifies that it has
substantially completed all of Landlord's Work; and Tenant shall commence such
work not later than the date specified in such notice (although Landlord may not
have completed Landlord's Work on such date and may be in the Premises
concurrently with Tenant), 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 subject to the last
paragraph of Section 4.1 not later than the 90TH day after the earlier of (a)
the date specified in such notice as the date when Tenant can commence Tenant's
Work or (b) the date Landlord has notified Tenant that the Premises are ready
for commencement of Tenant's Work 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.
Section 3.4. 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 on the Commencement Date, including, but not limited to,
damages from loss of Percentage Rent (hereinafter defined) from Tenant and other
tenants, diminished saleability, leasability, mortgageability or economic value
of the Center or Landlord's Tract, 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 Commencement
Date or to perform any of its obligations to be performed prior to the Required
Completion Date, Landlord may, without notice or demand, in addition to the
right to exercise any other remedies and rights herein or at law provided,
collect rent from the Commencement 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, an amount equal to fifty percent
(50%) of l/365ths of the Minimum Annual Rent for each day
2
<PAGE> 4
that Tenant has failed to open for business on and after the Commencement Date,
which latter amount shall be in lieu of Percentage Rent that might have been
earned had Tenant opened in timely fashion. In addition, if Tenant has not
opened for business within sixty 60 days after the Required Completion Date,
Landlord may terminate this Lease, in which event Landlord shall have the right
to recover, as liquidated damages and not as a penalty, a sum equal to the
Minimum Annual Rent payable for one (1) Lease Year, plus all expenses incurred
by Landlord pursuant to this Section, plus the cost of any alterations or
repairs which Landlord in its sole discretion deems advisable to relet the
Premises. In the event that Tenant fails to make timely submission of Tenant's
Plans as provided in this Lease, then Landlord shall have the right, in addition
to its other rights and remedies as herein provided, to collect from Tenant a
sum which shall be One Hundred and 00/100 Dollars ($100.00) per calendar day for
each day that Tenant's Plans are not so submitted. All remedies in this Lease or
at law provided shall be cumulative and not exclusive.
Section 3.5. 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 except
that Tenant shall have the right within thirty (30) days of the date Tenant
takes possession of the Premises for commencement of Tenant's work to submit to
Landlord a punch list of incomplete or defective construction within its
Premises and Landlord will perform such punch list to the extent the listed
items were Landlord's responsibility under Exhibit "C" and were not performed
by Landlord in accordance therewith. Tenant shall acknowledge taking
possession of the Premises in writing. Tenant agrees that Landlord has made no
representations as to conformance with applicable laws respecting the condition
of the Premises or the presence or absence of Hazardous Materials (hereinafter
defined) in, at, under or abutting the Premises or the environment. Tenant also
agrees that no representations respecting the condition of the Premises, no
warranties or guarantees, expressed or implied, INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
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 $37.00 per square foot of Store
Floor Area, or Seventy-Seven Thousand Eight Hundred
Forty-Eight and 00/100 Dollars ($77,848.00) 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
commencing upon the Commencement Date and continuing
thereafter through and including the last month of the
third (3rd) Lease Year of the Lease Term (such monthly
installment being hereinafter called "Minimum Monthly
Rent"); and
A Minimum Annual Rent of $40.00 per square foot of Store
Floor Area, or Eighty-Four Thousand One Hundred Sixty and
00/100 Dollars ($84,160.00) 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 commencing upon
the fourth (4th) Lease Year of the Lease Term and
continuing thereafter through and including the last month
of the seventh (7th) Lease Year of the Lease Term (such
monthly installment being hereinafter called "Minimum
Monthly Rent"); and
A Minimum Annual Rent of $43.00 per square foot of Store
Floor Area, or Ninety Thousand Four Hundred Seventy-Two and
00/100 Dollars ($90,472.00) 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 commencing upon
the eighth (8th) Lease Year of the Lease Term and
continuing thereafter through and including the last month
of the tenth (10th) Lease Year of the Lease Term (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 called "Percentage Rent").
When actual 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 WITH THE NEXT ENSUING PAYMENTS.
Tenant is not required to initially open to the public for business prior
to the time that Nike, Barnes & Noble, Virgin, AMC and sixty-five percent (65%)
of the gross leaseable area of the Center initially open to the public for
business ("Co-Tenancy"). If Tenant initially opens prior to such Co-Tenancy,
then Tenant shall pay in lieu of Minimum Rent and Percentage Rent, six percent
(6%) Of Gross Sales, monthly in arrears, within twenty (20) days
3
<PAGE> 5
after the end of each calendar month until such Co-Tenancy is initially met;
provided however, that upon the occurrence of a default by Tenant beyond any
applicable cure period at any time prior to the Co-Tenancy is initially met,
all such Minimum Rent and Percentage Rent shall be deemed reinstated and
immediately due and payable. Tenant shall not be required to initially open for
business in the Premises prior to the time the Co-Tenancy is initially met.
Section 4.2. Miscellaneous Rent Provisions.
Any rent or other amounts to be paid by Tenant which are not paid within
five (5) days after the date when due shall bear interest as of the fifth day of
the month on which any sum is due and owing at a rate equal to the greater of
twelve percent (12%) per annum or 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 purposes of this Lease, a
"Major Tenant" is herein defined as a single tenant occupying at least 20,000
contiguous square feet of Store Floor Area.
Section 4.3. Percentage Rent.
Tenant shall (i) not later than the tenth ( 10th) 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) not later than thirty (30) 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 or an officer of Tenant. 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 rights and
remedies set forth in this Lease, (a) to collect from Tenant a sum which shall
be $100.00 per calendar 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.
Percentage Rent shall become due and payable in each Lease Year on the
fifteenth (15th) day of the month immediately following the month during which
six percent (6%) of Gross Sales exceed the Minimum Annual Rent payable by Tenant
for such Lease Year, and thereafter shall be paid monthly on all additional
Gross Sales made during the remainder of such Lease Year, such payments to be
made concurrently with the submission by Tenant to Landlord of the written
statement of monthly Gross Sales as provided for herein.
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, cash register tapes, sales slips, sales
checks, gross income and sales tax returns, bank deposit records, sales journals
and other supporting data. Landlord and its agents shall have the right 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 three
percent (3%) 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 per annum 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 is 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, 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) 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 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) retail or wholesale sale of cigarettes and Lotto tickets, (vi)
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.
Section 4.5. Taxes.
A. Definition. Landlord shall pay or cause to be paid, before delinquent, all
Taxes (as hereinafter defined) assessed or imposed upon the Center which become
due or payable during the Lease Term. As used in this Section 4.5
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the term "Taxes" shall mean and include all property taxes, both real and
personal, public and governmental charges and assessments, and all other taxes
which Landlord is obligated to pay with respect to the ownership of the Center,
including all extraordinary or special assessments or assessments against any of
Landlord's personal property now or hereafter located in the Center, all costs
and expenses including, but not limited to consulting, appraisal and attorneys'
fees incurred by Landlord in researching, evaluating, 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,
water and other utility taxes and impositions (excluding impact fees), but shall
not include taxes on Tenant's machinery, equipment, inventory or other personal
property or assets of Tenant, Tenant agreeing to pay all taxes upon or
attributable to such excluded property without apportionment.
Taxes shall not include interest and penalties due on delinquent Taxes,
but shall include interest on Taxes withheld by virtue of Landlord making
partial payment under protest in the event such partial payment is permitted in
connection with a tax appeal proceeding.
B. Tenant's Share. Tenant shall pay to Landlord, as additional rent, its
proportionate share of all Taxes, 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 years. Tenant's proportionate share of any such Taxes shall
be that portion of such taxes which bears the same ratio to the total Taxes as
the Store Floor Area bears to the average rentable floor area rented or occupied
in the Center ("Rented Floor Area") during the calendar year in which such Taxes
constitute a lien upon the Center. The floor area of (i) a Major Tenant, and
(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
rentable floor area, and any contributions to Taxes received by Landlord from
such tenants shall be deducted from Taxes prior to the calculating of Tenant's
proportionate share.
The ratio described in the preceding paragraph shall not be utilized
if the "Rented Floor Area" is less than eighty percent (80%) of the
rentable floor area in the Center. If the "Rented Floor Area" is less than
eighty percent (80%), the pro rata share of Tenant shall be determined by the
ratio the Store Floor Area bears to eighty percent (80%) of the rentable floor
area in the Center.
C. Payment by Tenant. Tenant's proportionate share of 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 during the Lease Term. Upon notice from Landlord,
such monthly installments shall increase or decrease from time to time to
reflect the then current estimate of the amount of any Taxes due. When the
actual amount of any such Taxes is determined by Landlord, Landlord will notify
Tenant of such actual amount (in a format to be determined by Landlord) and of
any excess or deficiency in the amount theretofore paid by Tenant as its share
of such Taxes. Any such excess will be credited to Tenant's account against next
ensuing payments. Tenant will pay the amount of any deficiency to Landlord
within ten (10) days following Landlord's notice thereof. Tenant acknowledges
and stipulates that Landlord has made no representations or agreement of any
kind as to the total dollar amount of such 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) 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 Total Tract or the value
thereof shall be paid by Tenant including any new direct or indirect tax or
surcharge against the Center, the parking areas, or the number of parking spaces
in the Center or any new direct or indirect tax or surcharge in addition to or
by way of substitution for any existing tax or assessment which Landlord becomes
obligated to pay with respect to the Center.
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
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
total assessed value of the Center and the denominator of which is the total
assessed value of the Larger Parcel.
Section 4.6. 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. Tenant acknowledges and agrees that the amounts set forth
herein as rent or additional rent do not include any and all applicable sales
tax. Tenant shall pay to Landlord any and all applicable sales tax due and
payable to any governmental authority as a result of the rent or additional rent
being paid hereunder.
Section 4.7. Sprinkler System.
Landlord will maintain a sprinkler system in the Premises and Tenant
shall pay to Landlord as additional rent thirty cents (30 cents) 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, prorated for partial months.
Section 4.8. Landlord's Expenses.
If Landlord pays any monies or incurs any expense to correct a breach 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, 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 notice
to Tenant, be considered additional rent payable by Tenant with the first
Minimum
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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 (if any), package pickup stations, elevators,
escalators, pedestrian sidewalks, malls, courts and ramps, landscaped areas,
retaining walls, stairways, bus stops, first-aid and comfort stations, lighting
facilities, sanitary systems, on-site and off-site retention ponds, utility
lines, water filtration and treatment facilities and other areas and
improvements provided by Landlord for the general use in common of tenants and
their customers and department stores 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 amendments thereto.
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,
provided, however, that the size of parking areas on the Center shall not be
substantially reduced; 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) with appropriate provisions for
ticket validating; 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. In exercising its rights pursuant to this Section, Landlord
shall not materially and adversely affect access to or visibility 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 shall pay Landlord, upon demand, $25.00 for
each day on which a car of Tenant, a concessionaire, employee or agent of Tenant
is parked outside any area designated by Landlord for employee parking. Tenant
authorizes Landlord to cause any such car to be towed from the Center and Tenant
shall reimburse Landlord for the cost thereof upon demand, and otherwise
indemnify and hold Landlord harmless with respect thereto. Tenant shall abide by
all rules and regulations and cause its concessionaires, officers, employees,
agents, customers and invitees 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, 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 used in the operation of the Common Areas, depreciation
of machinery and equipment, 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 expense of maintaining, repairing and replacing the exterior
of the buildings on 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
Center, 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.
Section 6.2. Tenant to Bear Pro Rata Share of Expenses.
(a) Tenant will pay Landlord, in addition to all other amounts in this
Lease provided, such portion of Landlord's Common Area Costs attributable to
operating, managing, maintaining and repairing the Parking Space (hereinafter
called "Landlord's Common Area Costs - PS") for each calendar year during the
Lease Term which bears
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the same ratio to the total of Landlord's Common Area Costs - PS as the Store
Floor Area at the commencement of such calendar year (or, with respect to the
first calendar year of the Lease Term, the Commencement Date) bears to the
Rented Floor Area as defined in Section 4.5B other than rentable floor area
occupied by Major Tenants; provided, however, the revenue received by Landlord
during a particular calendar year from customers and employees of the Center in
the form of parking charges for parking on the Parking Space will be deducted
from Landlord's Common Area Costs - PS for that year before Tenant's share is
determined.
(b) All other Common Area Costs not attributable to the Parking Space are
referred to herein as "Landlord's Retail Common Area Costs". Tenant will pay
Landlord, in addition to all other amounts in this Lease provided, as Additional
Rent, such portion of Landlord's Retail Common Area Costs for each calendar year
during the Lease Term which bears the same ratio to the total of Landlord's
Retail Common Area Costs as the Store Floor Area at the commencement of such
calendar year bears to all Rented Floor Area as defined in Section 4.5B other
than rentable floor area occupied by Major Tenants and tenants who are obligated
to maintain specific areas or a specific parcel of land (it being agreed that no
part of Common Areas shall be included in rentable floor area).
The ratio described in the preceding paragraphs (a) and (b) shall not be
utilized if the "Rented Floor Area" is less than eighty percent (80%) of the
rentable floor area in the Center. If the "Rented Floor Area" is less than
eighty percent (80%), the pro rata share of Tenant shall be determined by the
ratio the Store Floor Area bears to eighty percent (80%) of the rentable floor
area in the Center.
(c) Tenant's share of Landlord's Common Area Costs - PS and Landlord's
Retail Common Area Costs shall be paid in monthly installments in amounts
estimated from time to time by Landlord, one (l) 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 - PS and Landlord's Retail
Common Area Costs for such year (and at the end of the Lease Term, the total
Landlord's Common Area Costs - PS and Landlord's Retail 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 in full of any deficiency. Tenant acknowledges and stipulates that
Landlord has made no representation or agreement of any kind as to the total
dollar amount of such Common Area Costs, actual or estimated or Tenant's dollar
share thereof.
ARTICLE VII
UTILITIES AND SERVICES
Section 7.1. Utilities.
Tenant shall not install any equipment which can exceed the capacity of
any utility facilities 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 approval shall not be unreasonably
withheld. Tenant shall be solely responsible for and promptly pay all charges
for 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 or
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. Data communication and broadcast signal needs can be met
at the Center by subscribing to one of the services available or, when
specialization is required, by requesting an individual installation. Landlord
has made arrangements with national vendor(s) to provide data communication
services within the Center. Tenants must contact vendor(s) for subscription and
installation information. Landlord will not approve individual installations
where needs can be met by national vendor(s). Individual satellite dish/antenna
installations may be approved for tenants with specialized data communication
and/or broadcast requirements. Landlord's written approval is required for each
installation.
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.
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Section 7.2. Air Conditioning of Premises.
Landlord will provide a system of chilled water to the Premises installed
at a point determined by Landlord. In consideration of such service, Tenant
shall pay to Landlord as additional rent, an annual Chilled Water Charge
reflecting Tenant's share of all Landlord's Chilled Water Costs (as hereinafter
defined), such share to be prorated for any period which does not constitute a
full calendar year. 'Landlord's Chilled Water Costs' shall mean all expenses
incurred by Landlord to provide chilled water to the Premises including, but not
limited to, the costs of energy, water, amortization, maintenance, repairs,
taxes, insurance, salaries and benefits for employees of the central system,
plus an administrative fee equal to fifteen percent (15%) of the foregoing.
Tenant's Chilled Water Charge shall be such portion of Landlord's Chilled Water
Costs for each calendar year during the Lease Term which bears the same ratio to
the total Landlord's Chilled Water Costs as the Store Floor Area bears to the
average Rentable Floor Area rented or occupied by parties within the Center
using the central system during such calendar year, multiplied by a Capacity
Factor but in no event shall the denominator of the above described ratio be
less than 80% of the total floor area in the Food Court. The Capacity Factor
shall be: (a) 1.0) for Base Users (defined as any tenant other than those listed
in (b) or (c) hereof), (b) 1.15 for any tenant requiring excess cooling capacity
(being herein defined as any tenant that averages more than 6 watts of
electrical power per square foot of its floor area, as determined by Landlord),
or (c) 1.3 for any food service tenant. For Base Users, the Floor Area of (i)
any food service tenant and (ii) any tenant requiring excess cooling capacity
(as defined above), shall not be included in Rentable Floor Area, and any
contributions to Landlord's Chilled Water Charge received from such tenants
shall be deducted from Landlord's Chilled Water Costs prior to the calculation
of Tenant's share.
The Chilled Water Charge shall be paid in monthly installments in amounts
estimated annually by Landlord, one such installment being due on the first day
of each month of each calendar year. The initial Chilled Water Charge shall be
$1.65 per square foot of Store Floor Area per year. At the end of the first
calendar year, and at the end of each successive calendar year thereafter, the
total Landlord's Chilled Water Costs for such year (and at the end of the Lease
Term, the total Landlord's Chilled Water Costs for the period since the end of
the immediately 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.
Section 7.3. Enforcement and Termination.
In the event of any default by Tenant, Landlord reserves the right, 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 not waste fuel, energy or natural resources. Landlord may cease to furnish
any one or more of said utilities or services to Tenant without liability for
the same, and no discontinuance of any utilities or services shall constitute a
constructive eviction.
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 the retail sale of cigars, tobacco
products, and related accessories, such as cigarettes and Lotto sales, and
Tenant shall not use or permit or suffer the use of the Premises for any other
business or purpose. So long as Tenant is not in default under this Lease and
the primary use of the Premises (i.e., not less than sixty percent [60%] of
annual Gross Sales), is the sale of cigars, tobacco and cigar accessories, if it
at any time during the Lease Term more than 2000 per square feet of the gross
leaseable area of the Center is used in the aggregate for the sale of cigars
("Competing Use"), such Competing Use continues for at least twelve (12)
consecutive months ("Measuring Period"), and Tenant's Gross Sales decline by
thirty percent (30%) or more compared with Tenant's Gross Sales for the twelve
(12) consecutive months immediately preceding the Measuring Period, then Tenant,
within thirty (30) days after expiration of the Measuring Period, may, upon
ninety (90) days prior written notice, terminate this Lease. Subject to Tenant's
ability to obtain all governmental approvals therefor, Tenant may serve
alcohol for on-premises consumption only.
Section 8.2. Prompt Occupancy and Use.
Subject to national holidays where the Center is not open for business or
periods permitted by Landlord for Tenant to close for remodeling purposes,
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 fifty percent (50%), such
increased sum representing the
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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.
Section 8.3. Conduct of Business.
Such business shall be conducted (a) under the name HAVANA REPUBLIC
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. Provided six of the following are open, i.e., AMC, Nike,
Virgin, IMAX, Gameworks, Barnes & Noble and Z Galleria, Tenant's store shall be
and remain open from 10:00 A.M. until 9:30 P.M. each day of the week 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) that six (6) of
the following, i.e., AMC, Nike, Virgin, IMAX, Gameworks, Barnes & Noble and Z
Galleria are open for business, and such other days, nights and hours as
Landlord shall 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 costs; 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 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 Area; 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 Americans with Disabilities Act of 1990 and 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 Shopping Center which exceeds the floor load per square foot
which such floor was designed to carry.
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.
Landlord may make additional services, including but not limited to, pest
control, trash removal, cleaning, and security, available to the Premises and,
in such event, Tenant shall utilize such services, at Tenant's expense provided
such services are comparably priced with those Tenant could obtain from an
independent third party provider thereof in an arms-length transaction.
Section 8.5. Emissions and Hazardous Materials.
A. Emissions. Tenant shall not, without the prior written
consent of Landlord:
(i) make, or permit to be made, any use of the Premises or any
portion thereof which emits, or permits the emission of an
unreasonable amount of dust, sweepings, dirt, cinders,
fumes or odors into the atmosphere, the ground or any body
of water, whether natural or artificial (including rivers,
streams, lakes, ponds, dams, canals, or flood control
channels), or which emits, or permits the emission of dust,
sweepings, dirt, cinders, fumes or odors into the
atmosphere, the ground or any body of water, whether
natural or artificial (including rivers, streams, lakes,
ponds, dams, canals, or flood control channels) which is in
violation of any federal, state or local law, ordinance,
order, rule, regulation, code or any other governmental
restriction or requirement;
(ii) permit any vehicle on the Premises to emit exhaust which is
in violation of any federal, state or local law, ordinance,
order, rule, regulation, code or any other governmental
restriction or requirement;
(iii) create, or permit to be created, any sound pressure level
which will interfere with the quiet enjoyment of any real
property adjacent to the Premises, or which will create a
nuisance or violate any federal, state or local law,
ordinance, order, rule, regulation, code or and other
governmental restriction or requirement;
(iv) transmit, receive, or permit to be transmitted or received
any electromagnetic, microwave or other radiation which is
hammful or hazardous to any person or property in, on or
about the Premises, or anywhere else, or which interferes
with the operation of any electrical, electronic,
telephonic or other equipment wherever located, whether on
the Premises or anywhere else;
(v) create, or permit to be created, any ground vibration that
is discernible outside the Premises; or
(vi) produce or permit to be produced any intense glare, light
or heat except within an enclosed or screened area and then
only in such manner that the glare, light or heat shall not
be discernible outside the Premises.
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B. Hazardous Material
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. 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. ss. 9601 et seq., the Resource Conservation and Recovery
Act ("RCRA"), as amended, 42 U.S.C. ss. 6901 et seq. However, "Hazardous
Materials" shall not include substances which are used in the ordinary course of
a business similar to Tenant's as permitted pursuant to Section 8.1 of this
Lease provided, however, that such substances are used, handled, transported or
stored in strict compliance with any applicable federal, state or local rule,
regulation, code, ordinance or ally other governmental restriction or
requirement. If such substances are not so used, handled, transported or stored
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 Hazardous Materials 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. ss. 9601 et seq., the Resource
Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. ss. 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
Hazardous Materials 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 in or upon the Premises, 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. ss. 9601 et seq., the Resource Conservation and Recovery Act ("RCRA"),
as amended, 42 U.S.C. ss. 6901 et seq.), which in any way regulates, governs or
impacts Tenant's possession, use, storage, treatment or disposal of said
Hazardous Material. In addition, Tenant represents and warrants to Landlord that
(1) Tenant shall apply for and remain in compliance with applicable RCRA and
Florida state permits; (2) Tenant shall report to applicable governmental
authorities any release of reportable quantities of a hazardous substance(s) as
mandated by Section 103(a) of CERCLA; (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 authorities relevant to the
Tenant's compliance status with environmental or 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 8.5 of this Lease, or if the
presence of any Hazardous Material 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 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 the presence of Hazardous
Material on or about the Premises or the Center, or because of the presence of
Hazardous Material anywhere else which came or otherwise emanated from Tenant or
the Premises. Without limiting the foregoing, if the presence of any Hazardous
Material 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 to the Premises or the Center;
provided, however, that Landlord's approval of such actions shall first be
obtained in writing.
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C. Radon Gas Notification.
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present a health risk to
persons who are exposed to it over time. Levels of radon that exceed Federal and
State Guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
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.
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. INTENTIONALLY DELETED.
Section 8.8. 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.
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, 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.
Section 9.2. Maintenance by Tenant.
Tenant shall at all times, at Tenant's sole cost and expense, 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 Americans with
Disabilities Act of 1990 and 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
without 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.
Section 9.3. Surrender of Premises.
At the expiration 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
ALTERATIONS AND TENANT'S LIENS
Section 10.1. Remodeling.
At least once during the Lease Term but not prior to the fifth (5th)
Lease Year nor later than the end of the sixth (6th) Lease Year, upon the
request of Landlord, Tenant shall refurbish all or any portion of the interior
of the Premises so that the carpeting and wall coverings in the Premises shall
be in keeping with current industry standards.
Section 10.2. Removal and Restoration by Tenant.
All alterations, changes and additions and all improvements, including
leasehold improvements in the nature of fixtures, made by Tenant whether part of
Tenant's Work or not, 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 unless Landlord requests Tenant to remove same. 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. Tenant agrees that it will make full and prompt payment
of all sums necessary to pay for the costs of all repairs and permitted
alterations, improvements, changes and other work done by or for the benefit of
Tenant in or to the Premises and further agrees to indemnify and save harmless
Landlord from and against any and all costs and liabilities incurred by Landlord
against any and all construction, mechanics', materialmen's, laborers' and other
statutory or common law liens arising out of or from such work, or the cost
thereof, which may be asserted, claimed or charged against all or any part of
the Lease Premises or the Center. Notwithstanding anything to the contrary set
forth in this Lease, the interest of Landlord in all or any part of the Premises
or the Center shall not be subject to any liens of any kind for improvements or
work made or done by or at the instance, or for the benefit, of Tenant
improvements or work made or done by or at the instance, or for the benefit, of
Tenant whether or not the same shall be made or done by or at the permission or
by agreement between Tenant and Landlord, and it is agreed that in no event
shall Landlord, or the interest of Landlord in the Premises or the Center, or
any portion thereof, be liable for or subjected to construction, mechanics',
materialmen's, laborers' or other statutory or common law liens for improvements
or work made or done by or at the instance of Tenant, or concerning which Tenant
is responsible for payment under the terms hereof or otherwise, and all persons
dealing with or contracting with Tenant or any contractor of Tenant are hereby
put on notice of these provision. In the event any notice, claim or lien shall
be asserted or recorded against the interest of Landlord in the Premises or the
Center, or any portion thereof, on the account of or extending from any
improvement or work made or done by or at the instance, or for the benefit, of
Tenant, or any person claiming by, through or under Tenant, or from any
improvement or work the cost of which is the responsibility of Tenant, then
Tenant agrees to have such notice, claim or lien canceled, discharged, released
or transferred to other security in accordance with applicable Florida Statutes
within thirty (30) days after notice to Tenant by Landlord, and in the event
Tenant fails to do so, Tenant shall be considered in default under this Lease
with like effect as if Tenant shall have failed to pay an installment of rent
when due and within any applicable grace period provided for the payment
thereof. In the event of Tenant's failure to release of record any such lien
within the aforesaid period, Landlord may remove said lien by paying the full
amount thereof or by bonding or in any other manner Landlord 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 with 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 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 Florida. 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 shall be entitled to discharge
the same by exercising the rights and remedies afforded it under paragraph A of
this Section.
C. Upon Tenant's opening in the Premises, Tenant shall furnish to
Landlord lien waivers from the general contractor, sub-contractors and
materialmen who provided work, labor, services or material to Tenant.
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ARTICLE XI
INSURANCE
Section 11.1. By Landlord.
Landlord shall carry public liability insurance on those portions of the
Common Areas included in Landlord's Tract providing coverage of not less than
$5,000,000.00 against liability for bodily injury including death and personal
injury for 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, windstorm, extended
coverage, vandalism, malicious mischief, flood and other endorsements deemed
advisable by Landlord, insuring all improvements on Landlord's 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 "D"
and "D-2" as Tenant's Work (excluding wall covering, floor covering, carpeting
and drapes) and Landlord's Work as defined in Exhibit "D"; Tenant agrees to pay
Landlord, as additional rent, thirty cents (30 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.
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 as an additional
named insured with terms and companies satisfactory to Landlord, for limits of
not less than $2,000,000.00 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 $2,000,000.00. 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. Upon the Commencement Date and annually
thereof, Tenant shall provide Landlord with certificates or, at Landlord's
request, copies of the policies, evidencing that such insurance is in full force
and effect and stating the terms thereof, including all endorsements. 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, after the
commencement of the fifth (5th) year of the Lease Term if Landlord in the
exercise of its reasonable judgment shall deem same necessary for adequate
protection. Within thirty (30) days after demand therefor by Landlord, Tenant
shall furnish Landlord with evidence that it has complied with such demand.
Notwithstanding the above mentioned public liability insurance policy
limit for Tenant, if Tenant after obtaining Landlord's prior written consent,
does or intends to bring, possess, use, store, treat or dispose any Hazardous
Material (herein defined) in excess of legally permissible limits in or upon the
Premises or Center, Landlord shall have the right, as a condition to such
consent, to require Tenant to purchase additional public liability insurance
with coverage of no less than Five Million and 00/100 Dollars ($5,000,000.00)
and to purchase environmental impairment liability insurance with coverage of no
less than Five Million and 00/100 Dollars ($5,000,000.00) with a deductible of
no greater than Fifty Thousand and 00/100 Dollars ($50,000.00) to insure that
anything contaminated with or by the Hazardous Material be removed from the
Premises and/or the Center, and that the Premises and/or the Center be restored
to a clean, neat, attractive, healthy, sanitary and non-contaminated condition.
Section 11.3. Mutual Waiver of Subrogation Rights.
Landlord and Tenant and all parties claiming, by, through or 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 further agree to 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 such insurance coverage.
Section 11.4. Waiver.
Except to the extent due to Landlord's gross negligence or willful
misconduct Landlord, its agents and employees, shall not be liable for, and
Tenant waives all claims for, loss or 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, casualty 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
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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; (1) 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, or of Landlord, its agents or employees. 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.
Except to the extent expressly permitted by the terms of this Lease,
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 extinguishing devices (such as ansul)
approved by Underwriters Laboratories and Factory Mutual Insurance Company 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.
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, 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.
ARTICLE XII
OFFSET STATEMENT, ATTORNMENT, SUBORDINATION
Section 12.1. Offset Statement.
Within ten (10) days after Landlord's written request Tenant shall
deliver, executed in recordable form a declaration to any person designated by
Landlord (a) ratifying this Lease; (b) stating the commencement and termination
dates; and (c) certifying to the extent true (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 have been satisfied (stating exceptions,
if any), (iii) that 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 Landlord
reasonably requires. Persons receiving such statements shall be entitled to rely
upon them. Tenant shall be entitled to a comparable statement from Landlord.
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 Landlord's 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 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 requires.
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 Landlord's Tract,
and to all renewals, modifications, replacements, consolidations and extensions
thereof, and Tenant shall execute and deliver all documents requested by any
mortgagee or security holder to effect such subordination provided the mortgagee
or security holder agrees in writing that if Landlord defaults under the
mortgage, said mortgagee or security holder shall not disturb Tenant's
possession while Tenant is not in default hereunder. If Tenant fails to execute
and deliver any such document requested by a mortgagee or security holder to
effect such subordination, Landlord is hereby authorized to execute such
documents and take such other steps as are necessary to effect such
subordination on behalf of Tenant as Tenant's duly authorized irrevocable agent
and attorney-in-fact.
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
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"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 instruments as Landlord
requests to evidence such subordination. Landlord represents that any such
Operating Agreements shall neither increase Tenant's obligations nor
decrease Tenant's rights under this Lease.
Section 12.4. Failure to Execute Instruments.
Tenant's failure to execute instruments or certificates provided for in
this Article XII within fifteen (15) days after the mailing by Landlord of a
written request shall be a default under this Lease.
ARTICLE XIII
ALIGNMENT, 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. 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, 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 as
described in Article VIII herein; and
2. Each assignee or sublessee has submitted a current
financial statement, audited by a certified public
accountant, showing a net worth and working capital in
amounts determined by Landlord to be sufficient to assure
the future performance by such assignee or sublessee of
Tenant's obligations hereunder; and
3. Each assignee or sublessee has submitted, in writing,
evidence satisfactory to Landlord of substantial retailing
experience in shopping centers of comparable size to the
Center and in the sale of merchandise and services
permitted under Article VIII of this Lease; 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 to Landlord for administrative and legal
expenses incurred by Landlord in connection with any such
assignment or subletting. The Assignment Fee, if the
assignment or subletting is approved, 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 greater of (i) 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, or (ii) the
highest Minimum Annual Rent and Percentage Rent payable under the Lease by
Tenant during the three (3) Lease Years immediately preceding such assignment or
subletting. 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.
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, assignment or other agreement for use, occupancy
or utilization for space in the Premises which provides for rental or other
payment for such use, occupancy, or utilization
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based in whole or in part on the net income or profits derived by any person
from the party leased, used, occupied or utilized (other than an amount based on
a fixed percentage or percentages of receipts or sales), and that any such
proposed lease, sublease, license, concession, assignment 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), 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 to Tenant's heirs at law. 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 twenty-five percent (25%) 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 to Tenant's
heirs at law. Tenant may, without Landlord's consent but upon prior notice to
Landlord, assign this Lease to parent company of Tenant.
ARTICLE XIV
PROMOTIONAL FUND AND ADVERTISING
Section 14.1. Provisions Relating to Promotional Fund.
Landlord may, at its option, create and maintain an advertising and
promotional fund (hereinafter referred to as the "Fund"), the primary purpose of
which is to provide sums necessary for professional advertising and promotional
services which benefit the tenants in the Center. In the event the 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, Two and 00/100 Dollars ($2.00) 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 one-fourth (l/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 advertising and promotional 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 below) during the preceding twelve (12) month period,
not to exceed five percent (5%) per annum on a cumulative basis. In addition,
within no more than thirty (30) days after Landlord bills Tenant for the same,
whether such billing occurs before or after the grand opening of the Center,
Tenant shall pay Landlord a sum equal to Two and 00/100 Dollars ($2.00) per
square foot of Store Floor Area in payment or reimbursement for expenses
incurred or to be incurred in connection with the grand opening and the
pre-opening promotion of the Center, which grand opening shall be held at such
time as Landlord determines. 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 Major Tenant to contribute to the Fund shall not affect Tenant's obligations
hereunder. The term "Consumer Price Index" as used in this Lease shall mean
"United States Average All Items For All Urban Consumers (CPI-U, 1982-84 = 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 14.2. Advertising. INTENTIONALLY DELETED.
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 $2.00 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 (not to exceed five percent [5%] per annum on a
cumulative basis) 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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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 permitted 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 and equipment), and from the date of such casualty until
the Premises are so repaired and restored, only 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;
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 or is caused directly or indirectly by
the negligence of Tenant, its agents, and employees and in either of such
events, 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 received 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 year of the Lease Term, then
Landlord shall have the right to terminate this Lease effective as of the date
of such casualty by giving to Tenant, 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, equipment and Premises 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 twenty-five percent (25%) of
the amount it would have cost to replace the Center in its entirety at the time
such damage or destruction occurred, then Landlord or Tenant may terminate this
Lease by giving the other ninety (90) 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 ninety (90) 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 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 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 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. If twenty-five percent (25%) or more of the Center or
such portion as would materially adversely affect access or visibility of the
Premises shall be acquired or condemned by right of eminent of domain for any
public or quasi public use or purpose, Tenant at its election may terminate this
Lease by giving to Landlord notice of its election, and in such event rentals
shall be apportioned and adjusted as of the date of termination.
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
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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.
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 when 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; (c) a determination
by Landlord that Tenant has submitted any 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; (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 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, or (i) any claim or lien
is asserted or recorded against the interest of Landlord in the Premises or
Center, or any portion thereof, on the account of, or extending from any
improvement or work done by or at the instance, or for the benefit of Tenant, or
any person claiming by, through or under Tenant or from any improvement or work
the cost of which is the responsibility of Tenant and the same is not removed,
discharged or bonded over within thirty (30) days after notice from Landlord. In
any such event, and without grace period, 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 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 3.4 of this Lease. Notwithstanding anything to the
contrary herein contained, if Tenant commits any 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, but Tenant shall remain liable for all obligations arising during
the balance of the original stated term as hereafter provided as if this Lease
had remained in full force and effect, 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 brokers and attorneys' fees and costs of 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 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, including deficiency in rent, brokerage fees and
expenses of placing the Premises in rentable condition, attorneys' fees of
fifteen percent (15%) of the Landlord's damages, all of which shall be
immediately due and payable by Tenant to Landlord. 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.
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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.
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. 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 18.5, 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 perfected
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
(c) The Trustee or Tenant at the very least shall deposit a sum
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 18.5 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
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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 18.5 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 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, to cure such default before Tenant may take
any action by reason of such default.
ARTICLE XX
TENANTS PROPERTY
Section 20.1. Taxes on Leasehold.
Tenant shall be responsible for and shall pay before delinquent all
municipal, county, federal or state taxes 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 to examine 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.
During the last six (6) months of the Lease Term, Landlord may exhibit the
Premises to prospective tenants and maintain upon the Premises notices deemed
advisable by Landlord. 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) 150% of the Minimum Monthly
Rent prorated for the number of days of
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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, at Landlord's option,
occupy the Premises on a tenancy from month to month and 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.
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 and signed by them.
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.
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, environmental
remediation work whether ordered by any governmental body or voluntarily
initiated 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 operate to excuse Tenant from the obligation to
open for business on the Commencement Date, except in the event of an industry
wide strike, nor 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
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granted an irrevocable option for sixty (60) 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:
BAKERY ASSOCIATES, LTD.
c/o M.S. Management Associates Inc.
National City Center
1 15 West 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:
BAKERY ASSOCIATES, LTD.
c/o M.S. Management Associates Inc.
Construction Department
National City Center
1 15 West Washington Street
Indianapolis, Indiana 46204
All notices from Landlord to Tenant required or permitted hereunder shall
be directed as follows, namely:
HAVANA REPUBLIC SUNSETPLACE, INC.
1360 Weston Road
Weston, Florida 33326
ATTN: Stephen Schatzman, President
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 or the date on which delivery is first
refused, 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.
Tenant's failure to object to any statement, invoice or billing rendered
by Landlord within a period of sixty (60) 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 Florida, that all
franchise and corporate taxes have been paid to date and all future forms,
reports, fees and other documents necessary to comply with 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 notwithstanding, no general or limited
partner of the Landlord, or any general or limited partner of any partner of the
Landlord, or any shareholder of any corporate partner of any partner of the
Landlord, or any other holder of any equity interest in the Landlord, or in any
entity comprising the Landlord or its partners, shall be personally liable with
respect to any of the terms, covenants, conditions and provisions of this Lease,
or the performance of Landlord's obligations under this Lease, nor shall
Landlord or any of said constituent parties have any liability to Tenant for any
consequential damages such as, but not limited to, lost profits. The liability
of Landlord
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for Landlord's obligations under this Lease shall be limited to Landlord's
interest in the Center, and Tenant shall look solely to the interest of
Landlord, its successors and assigns, in the Center, for the satisfaction of
each and every remedy of Tenant against Landlord. Tenant shall not look to any
of Landlord's other assets seeking either to enforce Landlord's obligations
under this Lease, or to satisfy any money or deficiency judgment for Landlord's
failure to perform such obligations, such exculpation of personal liability is
and shall be absolute and without any exception whatsoever.
The term "Landlord" shall mean only the owner at the time in question of
the present Landlord's interest in the Center. In the event of a sale or
transfer of the Center (by operation of law or otherwise) or in the event of the
making of a lease of all or substantially all of the Center, or in the event of
a sale or transfer (by operation of law or otherwise) of the leasehold estate
under any such lease, the grantor, transferor or lessor, as the case may be,
shall be and hereby is (to the extent of the interest or portion of the Center
or leasehold estate sold, transferred or leased) automatically and entirely
released and discharged, from and after the date of such sale, transfer or
leasing of all liability with respect of the performance of any of the terms of
this Lease on the part of Landlord thereafter to be performed; provided that the
purchaser, transferee or lessee (collectively, "Transferee") shall be deemed to
have assumed and agreed to perform, subject to the limitations of this Section
(and without further agreement between the other parties hereto, or among such
parties and the Transferee) and only during and in respect of the Transferee's
period of ownership of the Landlord's interest under this Lease, all of the
terms of this Lease on the part of Landlord to be performed during such period
of ownership, it being intended that Landlord's obligations hereunder shall, as
limited by this Section, be binding on Landlord, its successors and assigns only
during and in respect of their respective, successive periods of ownership.
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 FLORIDA.
Section 24.18. Mortgagee's Approval.
If any mortgagee of the Center requires any modification of the terms and
provisions of this Lease as a condition to such financing as Landlord may
desire, then Landlord shall have the right to cancel this Lease if Tenant fails
or refuses to approve and execute such modification(s) within thirty (30) days
after Landlord's request therefor, provided said request is made at least thirty
(30) days prior to delivery of possession. Upon such cancellation by Landlord,
this Lease shall be null and void and neither party shall have any liability
either for damages or otherwise to the other by reason of such cancellation. In
no event, however, shall Tenant be required to agree, and Landlord shall not
have any right of cancellation for Tenant's refusal to agree, to any
modification of the provisions of this Lease relating to: the amount of rent or
other charges reserved herein; the size and/or location of the Premises; the
duration and/or Commencement Date of the Lease Term; or reducing the
improvements to be made by Landlord to the Premises prior to delivery of
possession.
Section 24.19. 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 a tax exempt partner of the
managing partner of Landlord 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 sections 512 of the Internal Revenue Code of 1986,
as amended, or the regulations issued thereunder, or may jeopardize the
tax-exempt status of any partner in Landlord or any partner in a partnership
that is a partner in Landlord, or may prevent any such partner from obtaining
such tax-exempt status, then this Lease may be unilaterally amended by Landlord
in such manner as shall meet the requirements specified by counsel for Landlord
and Tenant agrees that it will execute all documents or instruments necessary to
effect such amendments, provided that no such amendment shall result on an
estimated basis in Tenant having to pay in the aggregate more 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 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 of
the managing agent of the Project.
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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 herein, in forth 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 received fever services or services of a
lesser quality than it is presently entitled to receive under this Lease.
Section 24.20. Parties to have no liability if Shopping Center not open.
If the Shopping Center is not open within two (2) years after the
Effective Date of this Lease, this Lease shall thereupon cease and terminate and
the parties shall be released and discharged from any and all liability
hereunder.
Section 24.21. Landlord's Contribution Toward Tenant's Work.
When Tenant has completed all of Tenant's Work in strict accordance with
Exhibit "C" and "C-2" by the Required Completion Date, and furnishes evidence
satisfactory to Landlord of such completion 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 3.4 and 4.1 hereof or otherwise and has opened its store for
business and accepted the Premises in writing in a form prescribed by Landlord
or its mortgagee, and executed and delivered to Landlord the certificate
provided for in Section 2.1 hereof and has executed such other instruments and
documents as are required by landlord's mortgagee to be executed, Landlord shall
pay to Tenant as Landlord's contribution, if any, for Tenant's Work the sum of
$35.00 per square foot of Store Floor Area, determined as provided for in
Section 2.1 hereof and no more.
Section 24.22. Right of First Refusal
Should Landlord during the Lease Term decide to lease a cart or kiosk in
the Common Areas for the purpose of selling cigars, Landlord shall, provided
Tenant is not then in default, first submit a written proposal to Tenant
setting forth the terms and conditions upon which Landlord would offer such
cart or kiosk for lease and Tenant shall have forty-eight (48) hours from
receipt of such proposal to accept or reject said offer in writing. If Tenant
does not accept said offer in writing within said 48 hour period, then Landlord
shall be free to offer to lease such cart or kiosk on the aforesaid terms and
conditions to any other party.
Section 24.23. Satellite Dish
Notwithstanding the foregoing, in the event a multiple-user antenna
and/or satellite system is installed or caused to be installed in the Center by
Landlord, Tenant shall be permitted to utilize said system pursuant to separate
agreement with Landlord and/or the vendor of such system and subject to all
provisions regarding the use of such system us contained in such separate
agreement. In the event such system is not made available for Tenant's use,
Tenant shall be permitted to install a satellite dish (hereinafter "Dish ") at
the Center, subject to the following terms, conditions and limitations:
(a) Tenant shall provide sixty (60) days prior written notice of its
intent to install the Dish, and shall provide plans and
specifications for the location and installation of the Dish for
Landlord's review and approval concurrently with such notice.
Such plans shall be in accordance with Article XI, Exhibit "C",
and Landlord's current design criteria and must conform to the
reasonable requirements of Landlord's roofing consultant, in part,
in order to protect Landlord's roof warranties;
(b) The location of the Dish shall be on the roof of the Center or
such other location as Landlord, in its sole and absolute
discretion, shall approve; provided that such location provides
for the clear transmission of signals from the Dish, and in no
event shall such installation affect the structural integrity of
the roof or any other area where the Dish has been installed;
(c) The installation and maintenance of the Dish, including any
necessary structural support to the roof and/or screening shall be
at Tenant's sole cost and expense;
(d) The Dish shall be installed within the existing wall screen, if
any; however, Landlord may require Tenant to further screen or
otherwise shield the Dish from view by providing fencing,
screening materials or landscaping satisfactory to Landlord;
(e) Tenant shall procure and maintain (and Landlord shall cooperate)
any approval(s) and/or permits required by any governmental
authority having jurisdiction thereof and shall deliver evidence
of same to Landlord prior to commencing installation. In the event
the use or installation of the Dish is in violation of applicable
law or any agreement of Landlord or the Center regarding the
Center, Tenant shall not be permitted to use, install or maintain
the Dish and shall be required to remove the Dish from the Center;
(f) Tenant's installation or operation of the Dish shall in no way
interfere with the operation of any other transmission or
receiving device at the Center;
(g) Tenant shall give Landlord two (2) days prior notice of the
necessity to access the Dish for service, except in the case of an
emergency, or such shorter period of time as Landlord may allow;
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(h) The Dish and related equipment shall remain the property of
Tenant. Tenant shall remove the Dish at the expiration or earlier
termination of the Lease Term and repair any damage occurring as a
result thereof, at Tenant's sole cost and expense; and
(i) Only one Dish will be permitted at the Center for the joint use of
Tenant and Tenant's affiliates. Further, Tenant shall not re-sell
satellite dish services to any other tenant or occupant in the
Center.
Section 24.24. Collateral Assignment.
Upon Tenant's request and so long as Tenant is not in default under this
Lease, Landlord shall consent to a collateral assignment of this Lease by Tenant
("Assignment") to a lender of Tenant ("Lender") and Landlord hereby agrees that
in the event the Lender becomes holder of Tenant's interest in the Lease by
virtue of its enforcement of Lender's rights under the Assignment, with written
notice thereof to Landlord, the Lease shall continue in effect and Landlord
shall recognize Lender as the tenant under the Lease for the remainder of the
term of the Lease in accordance with the provisions thereof From. and after the
date of the aforesaid notice, Lender shall be bound to Landlord under all terms,
covenants and conditions of the Lease.
Upon request, Landlord shall provide to Lender, copies of all amendments,
modifications, or alterations of the Lease arising from and after the date
hereof
If Lender exercises its rights hereunder, Lender shall agree to engage an
operator having experience in the operation of the use permitted by Section 8.1
in a manner consistent with the industry standards prevailing for uses of
comparable class and standing in the Miami, Florida metropolitan area.
The foregoing notwithstanding, no rights, privileges or immunities shall
Inure to the benefit of Tenant, nor affect or release Tenant's undertakings
under the Lease and no right, power or remedy conferred upon or reserved unto
Landlord in the Lease shall be impaired or affected in any manner hereby, nor
shall Landlord's execution of this instrument constitute a waiver of any such
right, power or remedy contained therein.
If Tenant defaults in its obligations to Lender under any loan documents
between Tenant and Lender, and, as a result, Lender desires to exercise its
remedies with respect to this Lease, Landlord agrees to permit Lender, at
Lender's option, (a) to keep any collateral on the Premises for a period of
thirty (30) days at the rental amount provided in the Lease, prorated on a daily
basis without incurring any other obligations of Tenant under the Lease or (b)
upon forty-eight (48) hours prior written notice to Landlord at the address as
hereinabove provided, enter upon the Premises during the hours of 9:00 A.M. and
5:00 P.M. and to remove the collateral therefrom without any charge except for
the reasonable cost or expense for repairs to the Premises arising out of any
such removal and Landlord further agrees not to interfere hereunder or delay
Lender's efforts in such removal and to cooperate and accommodate Lender in
enforcing its remedies against the collateral In the exercise of its rights and
remedies as provided herein, Lender shall not unreasonably interrupt or
interfere with the business conducted by Landlord's other tenants on or within
the Landlord 's premised
In the event of a default by Tenant in the performance of its obligations
under the Lease, Landlord will, prior to terminating the Lease or exercising any
other remedies available to it thereunder, notify Lender at such address as
Lender shall provide, of said default, and give Lender no less than five (5)
days to cure any alleged monetary defaults and thirty (30) days to cure any
alleged non-monetary defaults.
If the Lease is terminated prior to the expiration of the term, as a
consequence of Tenant's bankruptcy or for an event not reasonably susceptible of
being cured by Lender, other than for casualty or condemnation, then, Landlord
shall notify Lender in writing as hereinabove provided that the Lease has been
terminated, whereupon Lender shall have the option, no later than forty-five
(45) days after receipt of the aforesaid notice, to obtain a new lease (the "New
Lease") as hereinafter provided.
The New Lease shall be effective as of the date of termination of the
Lease and shall before the remainder of the term thereof and at the rental
amount and upon all the agreements, terms, covenants and conditions. The New
Lease shall not require Lender to perform any unduly lied obligations of Lessee
under the Lease nor pay any sums remaining unpaid under the expired Lease.
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IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as of the day and year first above written.
(LANDLORD) BAKERY ASSOCIATES, LTD., a Florida Limited
Partnership
By: SIMON PROPERTY GROUP, L.P., a Delaware
Limited Partnership, d/b/a Simon Real Estate
Group Limited Partnership, General Partner
By: SIMON DeBARTOLO GROUP, INC.,
a Maryland Corporation, General
Partner
By: /s/ David Simon
-------------------------------------------
David Simon, Chief Executive Officer
(TENANT
If Corporation HAVANA REPUBLIC SUNSET PLACE, INC., a
Florida Corporation
By: /s/ Stephen Schatzman
-------------------------------------------
Stephen Schatzman, President
Attest
----------------------------------------
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GUARANTY
FOR VALUE RECEIVED, and in consideration of the execution of a certain
Lease of even date herewith and concurrently herewith covering certain premises
in the Shops at Sunset Place Mall, the creation of the tenancy under said Lease
and the extension of credit by BAKERY ASSOCIATES, LTD., a Florida Limited
Partnership (Landlord) to HAVANA REPUBLIC SUNSET PLACE, INC., a Florida
corporation (Tenant), and for the purpose of inducing Landlord to enter into
such Lease, the undersigned, jointly and severally, do hereby absolutely and
unconditionally guarantee to Landlord, its successors and assigns, the full and
prompt payment when due, of all rents, charges and additional sums coming due
under said Lease, together with the performance of all covenants and agreements
of the Tenant therein contained and together with the full and prompt payment of
all damages that may arise or be incurred by Landlord in consequence of Tenant's
failure to perform such covenants and agreements (all such obligations
hereinafter collectively referred to as "Liabilities"), and the undersigned
further agree to pay all expenses, including attorneys' fees and legal expenses,
paid or incurred by Landlord in endeavoring to collect or enforce the
Liabilities or any part thereof and in enforcing this guaranty, such payment and
performance to be made or performed by the undersigned forthwith upon a default
by Tenant.
In the event of the death, incompetency, dissolution, bankruptcy or
insolvency of Tenant, or the inability of Tenant to pay debts as they mature or
an assignment by Tenant for the benefit of creditors, or the institution of any
bankruptcy or other proceedings by or against Tenant alleging that Tenant is
insolvent or unable to pay debts as they manure, or Tenant's default under this
Lease, and if such event shall occur at a time when any of the Liabilities may
not then be due and payable, the undersigned agree to pay to Landlord upon
demand, the full amount which would be payable hereunder by the undersigned if
all Liabilities were then due and payable.
This Guaranty shall be an absolute and unconditional guaranty and shall
remain in full force and effect as to the undersigned during the demised term of
said Lease, and any renewal or extension thereof, and thereafter so long as any
Liabilities remain due and payable even though the demised term or any renewal
or extension thereof shall have expired. An Assignment of said Lease or any
subletting thereunder shall not release or relieve the undersigned from their
liability hereunder. Notwithstanding anything contained in this Guaranty to the
contrary, Guarantor's maximum liability and exposure under this Guaranty shall
not exceed $155,696.00 (representing the first two Lease Year's worth of Minimum
Rent) and such maximum amount shall be reduced dollar for dollar by each and
every payment Tenant makes of Minimum Rent.
Landlord may, from time to time, without notice to the undersigned: (a)
retain or obtain a security interest in any property to secure any of the
Liabilities or any obligation hereunder, (b) retain or obtain the primary or
secondary liability or any party or parties, in addition to the undersigned,
with respect to any of the Liabilities, (c) extend or renew for any period
(whether or not longer than the original period), alter or exchange said Lease
or any of the Liabilities, (d) release, waive or compromise any liability of any
of the undersigned hereunder or any liability of any other party or parties
primarily or secondarily liable on any of the Liabilities, (e) release or impair
any security interest or lien, if any, in all or any property securing any of
the Liabilities or any obligation hereunder and permit any substitution or
exchange for any such property, and (f) resort to the undersigned for payment of
any of the Liabilities, whether or not Landlord shall have resorted to any
property securing any of the Liabilities or any obligation hereunder or shall
have proceeded against any other of the undersigned or against Tenant or any
other party primarily or secondarily liable on any of the Liabilities. No such
action or failure to act by Landlord shall affect the undersigned's liability
hereunder in any manner whatsoever. Any amount received by Landlord from
whatsoever source and applied by it toward the payment of the Liabilities shall
be applied in such order of application as Landlord may from time to time elect.
The undersigned hereby expressly waive: (a) notice of the acceptance of
this Guaranty, (b) notice of the existence, creation, amount, modification,
amendment, alteration or extension of the Lease or all or any of the
Liabilities, whether or not such notice is required to be given to Tenant under
the terms of the Lease, (c) presentment, demand, notice of dishonor, protest,
and all other notices whatsoever, (d) any benefit of valuation, appraisement,
homestead or other exemption law, now or hereafter in effect in any jurisdiction
in which enforcement of this Guaranty is sought, and (e) all diligence in
collection, perfection or protection of or realization upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing.
No delay on the part of Landlord in the exercise of any right or remedy
shall operate as a waiver thereof, and no final or partial exercise by Landlord
of any right or remedy shall preclude other or further exercises thereof or the
exercises of any other right or remedy.
The validity of this Guaranty and the obligations of the undersigned
hereunder shall not be terminated, affected or impaired by reason of any action
which Landlord may take or fail to take against Tenant or by reason of any
waiver of, or failure to enforce, any of the rights or remedies reserved to
Landlord in said Lease, or otherwise, or by reason of the bankruptcy or
insolvency of Tenant and whether or not the term of said Lease shall terminate
by reason of said bankruptcy or insolvency.
This Guaranty shall be binding upon the undersigned, and upon the heirs,
legal representatives, successors and assigns of the undersigned and shall be
governed by the laws of the State of Florida.
If this Guaranty is executed by a corporation, association, partnership
(general or limited), joint venture, syndicate, trust or any other type of
organization other than individuals, the individual signatories hereto represent
and warrant that they, and each of them, are duly authorized to execute this
Guaranty for and on behalf of such organization and that such organization is
the sole owner of all ownership interest in the Tenant.
27
<PAGE> 29
IN WITNESS WHEREOF, the undersigned have executed this instrument, or
caused this instrument to be executed by its officers, duly authorized in the
premises, on this 24th day of November, 1997.
Attest HAVANA REPUBLIC INC., a Florida corporation
- ----------------------------- By:/s/ Stephen Schatzman
-----------------------------------
Stephen Schatzman, President
2101 NE 212 St.
- ----------------------------- --------------------------------------
Residence Address Residence Address
Miami Fl. 33179
- ----------------------------- --------------------------------------
City State Zip City State Zip
28
<PAGE> 30
EXHIBIT "A"
LEGAL DESCRIPTION:
A portion of Blocks 1 and 2 and that Street between Blocks 1 and 2 designated as
Church Street, known as North Red Court, and now known as S.W. 57th Court,
Carvers Subdivision according to the plat thereof as recorded in Plat Book 6, at
Page 36, of the Public Records of Dade County, Florida, being more
particularly described as follows:
Commence at the most Northeast corner of Block 1 of said recorded plat of
Carvers Subdivision; the following two (2) courses being along the East line of
Lots 1, 2, 3, 4 and 5 of said Block 1; 1) thence S.04deg18min24secE.for 27.70
feet to the Point of Beginning of the hereinafter described parcel of land; 2)
thence continue S.04deg18min24secE. for 371.04 feet to the Southeast corner of
Lot 5 of said Block 1; thence S.85deg16min40secW. along the South line of said
Lot 5 for 20.00 feet; thence S.04deg18min24secE. along a line parallel with and
20.00 feet West of the East line of Lots 6, 7, 8, 9, and 10 of said Block 1 for
250.19 feet; thence N.85deg16min07secE. along the South line of said Lot 10 for
20.00 feet to the Southeast corner of said Lot 10; thence S.04deg18min24secE.
along the East line of Lots 11, 12, 13, 14 and 15 of said Block 1 for 250.19
feet to the Southeast corner of said Lot 15; thence S.85deg15min34secW. along
the South line of said Lot 15 for 35.00 feet; thence S.04deg18min24secE. along a
line parallel with and 35.00 feet West to the East line of Lot 16 of said Block
1, for 90.31 feet to a point of curvature; thence Southwesterly along a circular
curve concave to the Northwest having a radius of 25.00 feet a central angle of
89deg33min38sec for an arc of 39.08 feet to a Point of Tangency; thence
S.85deg15min14secW. along a line parallel with and 35.00 feet North of the South
line of Lots 16, 19 (lying East at Lot 18) and 18 of said Block 1 for 90.31
feet: thence S.04deg18min24secE. along the West line of said Lot 18 for 20.00
feet; thence S.85deg15min14secW. along a line parallel with and 15.00 feet North
to the South line of said plat of Carvers Subdivision for 380.25 feet to a point
on the West line of Lot 13 of said Block 2; thence N.04deg18min24secW. along
the West line of said Lot 13 for 135.OO feet to the Northwest corner of said Lot
13; thence N.85deg14min32secE. along the North line of said Lot 13 for 50.03
feet to the Northeast corner of said Lot 13; thence N.04deg18min24secW. along
the West line of Lot 9 of said Block 2 for 50.06 feet to the Northwest corner of
said Lot 9 of Block 2; thence S.85deg14minsecW. along the South line of Lot 17
of said Block 2 for 150.66 feet to the Southwest corner of said Lot 17; thence
N.04deg26min38secW. along the West line of Lots 17 thru 22 inclusive of said
Block 2 for 325.49 feet to the Northwest corner of said Lot 22; thence
N.45deg46min54secE. along the Southerly Right-of-way line of South Dixie Highway
No. 1 (State Road #5) (County Road as per Plat Book 6, Page 36) for 357.80 feet;
thence N.46deg42min58secE. along said Right-of-way line of State Road #5 (per
Official Records Book 4131, Page 596 and Official Records Book 4132, Page 11)
for 441.65 feet; thence S.68deg46min26secE. for 15.50 feet to the Point of
Beginning.
Page 1 of 2
also known as:
<PAGE> 31
EXHIBIT "A"
PARCEL 1
Lots 3, 4 and 5; Lots 6 through 10, both inclusive, less the East 20 feet; Lots
11 through 15, both inclusive; Lot 19 lying West of Lot 18, and Lots 20 through
32, both inclusive; and part of Lot 33 as follows:
Begin at the Southwest corner of said Lot 33; thence run North 99.70 feet;
thence run Northeasterly, parallel to the F.E.C. Railway, 47.00 feet; thence at
right angles to the last line, run Southeasterly 80.00 feet; thence run
Southeasterly 68.90 fast to a point on the South line of said Lot 33, which
point is 100.00 feet East of the West line of said Lot 33; thence run West along
said South line 100.00 feet to the Point of Beginning;
all in Block 1 of Carvers Subdivision, according to the Plat thereof, as
recorded in Plat Book 6, at Page 36, of the Public Records of Dade County,
Florida.
AND
Lots 1 through 9, both inclusive; Lots 10 through 13, both inclusive, less the
South 13 feet; and Lots 17 through 22, both inclusive; all in Block 2 of
Carvers Subdivision, according to the Plat thereof, as recorded in Plat Book 6,
at Page 36, of the Public Records of Dade County, Florida.
AND
That certain parcel of land which formerly constituted North Red Court, which
is bound on the East by the West boundary line of Lots 21 to 33, both
inclusive, Block 1 of Carvers Subdivision; and bound on the West by the East
boundary line of Lots 1 to 10, both inclusive, of Block 2 of Carvers
Subdivision; and bound on the South by the Northerly line of Sunset Drive; and
bound on the North by the Southerly line of U.S. Highway #1, all according to
the Plat of Carvers Subdivision, as recorded in Plat Book 6, at Page 36, of the
Public Records of Dade County, Florida.
PARCEL 2
Lots 1, 2 and 33, in Block 1, of Carvers Subdivision, according to the Plat
thereof, as recorded in Plat Book 6, at Page 36, of the Public Records of Dade
County, Florida, except that portion of said Lot 33, Block 1, described as
follows:
Begin at the Southwest corner of Lot 33; thence run North 99.70 feet to the
Southeasterly line of Dixie Highway; thence along said Highway Line
Northeasterly 47.00 feet; thence at right angles to the Highway run
Southeasterly 80.00 feet; thence Southeasterly 68.90 feet to a point on the
South line of said Lot 33, which point is 100.00 feet East of the Southwest
corner; thence West 100.00 fast to the Point of Beginning; except that portion
of the above property which was taken in an eminent domain proceeding by or
conveyed to the City of South Miami for street purposes.
PARCEL 3
Lots 16 and 18 and Lot 19 lying East of Lot 18, all in Block 1 of Carvers
Subdivision, according to the Plat thereof, as recorded in Plat Book 6, at Page
36, of the Public Records of Dade County, Florida.
LESS AND EXCEPT RIGHTS-OF-WAY OF RECORD
Page 2 of 2
<PAGE> 32
[FLOOR PLAN]
EXHIBIT "B"
Page 1
<PAGE> 33
[GROUND FLOOR ARCHITECTURAL PLAN]
EXHIBIT "3"
Page 2
<PAGE> 34
[FLOOR PLAN]
EXHIBIT "B"
Page 3
<PAGE> 35
SIMON
DEBARTOLO
GROUP
THE SHOPS AT SUNSET PLACE
EXHIBIT "B-1"
<PAGE> 36
GROUND FLOOR
ARCHITECTURAL PLAN
EXHIBIT "B-2"
<PAGE> 37
DESCRIPTION OF LANDLORD'S WORK AND OF TENANTS WORK
1. WORK BY LANDLORD AT LANDLORD'S EXPENSE - The following work is to be
performed exclusively by Landlord at Landlord's sole expense:
A. COMMON AREA. This shall include, without limitation, the
sidewalks, parking areas, parking decks, access roads, driveways,
landscaped areas (interior and exterior), truck serviceways,
pedestrian bridges, interior corridors, loading docks, exterior
walkways, all exterior seating areas, courts, stairs, ramps,
elevators, escalators, comfort and first-aid stations, public
restrooms, retaining walls, drainage system, detention areas
serving the project, water and sewage system, electrical, gas,
trash disposal facilities, and lighting facilities designated by
Landlord as part of the project Common Area and shown on
Landlord's plans. While the Tenant may have access to and the use
of these facilities either on a scheduled or unscheduled basis
such facilities are not intended for the exclusive use of Tenant.
B. STRUCTURE. The structural framing, columns, beams and roof deck
shall be constructed of non-combustible framing in accordance with
national, state and local building codes.
C ROOF. The roof assembly shall consist of a weather-resistant
layer, thermal insulated and structural components.
D. EXTERIOR WALLS. Exterior wall shall be of non-combustible
construction and a finish of suitable nature and/or appropriate
materials having a finished appearance and decorative quality as
determined by Landlord and designed by Landlord's Architect.
E. CEILINGS. The Premises will be left open to the structural system
overhead. Public areas will have a finished appearance as
determined by Landlord and designed by Landlord's Architect.
Service areas may be open or an exposed structure.
F. UTILITIES. Subject to the provisions of the Lease to which this
Exhibit is attached:
1. HVAC. A heating, ventilating and/or air-conditioning system
will be provided with chilled water connections at
locations determined by Landlord. Landlord shall have the
right to install mechanical shafts and chases as may be
required to service the Common Area and other lease
premises.
2. Plumbing. Sanitary sewer and domestic water systems will be
provided at locations to be determined by Landlord. A
complete roof drain collection system will be provided for
the Common Area at locations as determined by Landlord.
3. Fire Protection. A fire protection system will be installed
for the Common Area with as required with capacity to
service the Premises. A stub shall be provided into the
Premises at locations determined by Landlord.
4. Natural Gas. A distribution manifold will be provided only
for food service process loads at locations to be
determined by Landlord.
5. Electrical Service. An electrical distribution system will
be installed at building locations as determined by
Landlord.
6. Communication Service. Communications and broadcast/data
communications services will be provided to specified
building locations as determined by Landlord.
7. Life Safety Systems. A life safety system will be provided
for the Common Area with the capacity to monitor tenant
areas. A connection point shall be provided in the Premises
at locations determined by Landlord.
EXHIBIT "C"
1
<PAGE> 38
II. ADDITIONAL WORK BY LANDLORD AT LANDLORD'S EXPENSE - Where required to
be performed, the following work will also be performed by the Landlord
at Landlord's expense.
A. FLOOR SLAB. Reinforced concrete slabs will be provided as follows:
1. Upper Level. Floor slab shall be provided for all upper
level tenant areas.
B. PARTITIONS AND DOORS. Partitions, which may include exterior doors
to service areas, shall be provided to define the Premises.
1. Demising. These partitions shall extend from the floor slab
to the underside of the deck, shall be of exposed metal
studs.
2. Common Area Separation. These partitions shall extend from
the floor slab to the underside of the deck, shall be of
exposed masonry, or exposed metal studs, with a finish
surface on the Common, Area side at Landlord's option.
3. Storefront Separation At Common Area. Landlord may be
required by code or local governing ordinances to install
some portion of the storefront partition separating the
Premises from the Common Area prior to delivery of the
space to Tenant for completion of Tenant's Work.
4. Doors. When required, Landlord shall provide and install a
3'-0" X 7'-0" B label hollow metal door and frame with
construction hardware set in the exterior wall be the
Premises of the service areas. Tenant will be responsible
for repair, maintenance and replacement of the door from
the time Tenant's contractor commences Tenant's Work in the
Premises.
5. Hurricane Shutter Channel & Anchoring System. Scope of Work
To Be Determined.
C. NEUTRAL PIER. A vertical neutral pier will be installed at the store
front lease line between stores, the center line of said pier to coincide
with the line defining the Premises.
D. UTILITIES AND SERVICES. Subject to the provisions of the Lease to which
this Exhibit is attached:
1. HVAC System. Landlord will provide an outdoor air duct
system to the Premises sized to meet retail usage of the
Lease Premises. A central toilet exhaust system will be
installed to service the Lease Premises with a connection
point provided at a location determined by the Landlord.
Said systems will be installed to serve areas without
direct roof access or to minimize roof access with
connection points identified as applicable. A condensate
collection system will be installed with a connection point
provided at a location determined by Landlord.
2. Plumbing. A master sanitary vent system will be installed
to serve the Premises without direct roof access or to
minimize roof access with connection points identified as
applicable. A grease waste collection system will be
installed for designated food service tenants.
3. Fire Protection. Only where necessary, an automatic fire
sprinkler system will be installed throughout the Premises
in compliance with the requirements of Fireman's Fund,
local and state agencies.
4. Electrical Service. Electrical conduit (without wire) will
be installed to the Premises and an electrical switch at
Landlord's distribution panel will be provided.
5. Communication Services. Empty conduit for communication
service shall be stubbed into only landlocked tenant spaces
from nearest service corridors or telephone room.
E. STOREFRONT BARRICADES. Landlord shall have the right, but not the
obligation, to install a temporary storefront or barricade shielding the
interior of the Premises from the Common Area.
EXHIBIT "C"
2
<PAGE> 39
III. WORK BY TENANT AT TENANT'S EXPENSE - The following work required to
complete and place the Premises in A finished condition ready to open for
business is to be performed by the Tenant at the Tenant's sole cost and
expense and shall be in addition to any work described in the Tenant
Information Handbook. Tenant's Work includes, but is not limited to, the
following:
A. GENERAL PROVISIONS: All work done by Tenant shall be governed in
all respect by, and shall be subject to the following:
1. Payment and Performance Bonds. 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, material or services in connection with Tenant's
Work.
2. Tenant's Work Standard. All Tenant's Work shall conform to
applicable statutes, ordinances, regulation, codes, all
mandatory recommendations of Fireman's Fund. Tenant shall
obtain and convey to Landlord all approvals, tests and
inspections with respect to electrical, HVAC, plumbing and
telephone work, all as may be required by any governmental
agency or utility company. Tenant shall make changes in
Tenant's Work when necessary and required to comply with
all aforementioned standards and requirements.
3. Landlord Approval. No approval by Landlord shall be deemed
valid unless such is in writing and signed by Landlord.
4. Space Verification. Tenant shall be obligated to have its
architect, space planner, engineer or contractor conduct an
on-site verification of all dimensions and field conditions
prior to proceeding with Tenant's Work.
5. Insurance Requirements. Prior to commencement of Tenant's
Work and until completion thereof, or commencement of the
Lease Term, whichever is the earlier to occur, Tenant shall
obtain and maintain Builder's Risk Insurance covering
Landlord, Landlord's general contractor, Tenant, Tenant's
contractors and Tenant's subcontractors, as their interest
may appear against loss or damage by fire, vandalism and
malicious mischief and 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 material 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
Landlord's 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 from and 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
requirements applicable to Tenant's Work and Tenant agrees
to require all contractors and subcontractors engaged in
the performance of Tenant's Work obtain and maintain and
deliver to Tenant and Landlord, certificates evidencing the
existence of, and covering Landlord, 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 laws of the State in
which the property is located and Employer's
Insurance to the limit of $100,000.00.
b. Commercial General Liability Insurance affording
protection for bodily injury, death, personal injury
and property damages, and including coverage for
contractual liability, independent contractors,
completed operations and products liability with
limits of not less than $3,000,000.00 combined
single limit per occurrence.
c. Comprehensive Automobile Liability Insurance,
including coverage for "non-owned" automobiles, for
property damage, bodily injury, including death
resulting therefrom with limits of not less than
$1,000,000.00 for any one occurrence combined single
limit.
d. Owners and contractors protective liability coverage
for an amount not less than $ 1,000,000.00.
EXHIBIT "C"
3
<PAGE> 40
6. Damage Deposit. Prior to commencement of construction in the
Premises, Tenant or its agent shall deliver a $2,000.00 damage
deposit in the form of a certified or cashier's check to the
Landlord. Landlord shall have the right to use all or any part of
said damage deposit for any damage caused by Tenant or its
contractor or others engaged by Tenant to any Common Area, Common
Area finishes or building systems.
7. Temporarv Services. Any temporary services required by Tenant
during its construction period, including, but not limited to,
plumbing, electrical service, security, and dumpster service for
trash removal shall be secured by Tenant or Tenant's agent at a
specified cost per square foot of the Premises.
8. Impact Fees. Tenant shall pay impact fees assessed by applicable
governmental agencies having jurisdiction over its work or the
Premises or reimburse Landlord for impact fees paid on the
Tenant's behalf within thirty (30) days of having been advised of
such fees by Landlord.
9. Construction Rules. Tenant will abide by and cause its
contractors, subcontractors agents and employees to abide by rules
and regulations published by Landlord from time to time,
including, but not limited to, those pertaining to parking, toilet
facilities, safety conduct, delivery of material and supplies,
employee and equipment egress to and from the Project, trash
storage or collection or removal, and cooperate with Landlord's
Architect, general contractor and subcontractors or others working
on the project.
10. Reasonable Easement. Landlord specifically reserves the right (and
Tenant shall permit Landlord or its employees, agents or
contractors reasonable access to the Premises for the purpose of
exercising such rights), to install, maintain, repair and replace
in the ceiling space, the roof system and/or under the concrete
floors in the Premises, all electrical, plumbing, HVAC and other
system components that may be required to service the Common Areas
or other tenants in the Center. Adequate access panels or doors
shall be incorporated into Tenant Work for inspection, service and
replacement of both Landlord's and Tenant's equipment.
B. STORE DESIGN AND CONSTRUCTION. Tenant's responsibilities shall include,
without limitation, all required architectural and engineering design and
consulting fees for the design of its premises and its continuous
attachments to the Landlord's Work and installations, interior
partitions, all interior finishes, visual merchandising and fixturing,
furnishings, and equipment, signage, lighting, plumbing, HVAC mechanical
and electrical systems, all as described herein and as may be required
for the purpose intended and as provided for in the Tenant Information
Handbook. In connection with Tenant's Work, Tenant shall file all
drawings, plans and specifications, pay all fees and obtain all permits
and approvals from applicable governmental agencies having jurisdiction.
1. Roof. Tenant shall provide any required supports, blocking,
temporary flashing, counterflashing or other work necessary and
required to complete installation of Tenant's equipment on
Landlord's roof. Cant strips and weatherproofing shall be done
only by contractor designated by Landlord. Tenant shall be
required to supplement existing construction to achieve assembly
ratings, thermal values or additional criteria as may be required
by Tenant's Work to maintain the integrity of the Landlord's roof.
Tenant must obtain written Landlord approval prior to installing
any equipment on Landlord's roof system.
2. Floor Slab. All restroom facilities, food preparations areas or
other wet areas shall receive a Landlord approved
waterproofing membrane system when these areas are above other
leasable space. All floor penetrations must be sleeved,
fire-stopped and waterproofed as applicable and required to
maintain all floor-ceiling assemblies rating of Landlord's
structure. Retail Lower Level - Tenant shall pay a fee of $3.75
per square foot to the Landlord for providing a reinforced
concrete slab on grade, with a black out area designated by
Landlord for the bathroom. Food Service Tenants - Tenant shall pay
a fee of $3.75 per square foot to the Landlord for Landlord
providing a reinforced concrete slab on grade for the front third
of the Premises and uncompacted granular fill for the balance of
the Premises.
3. Ceiling. All interior finishes beyond the exposed structural
system shall be installed by Tenant. Ceilings may be required by
the Landlord, at the Landlord's sole discretion, to maintain
assembly ratings and building system functions.
4. Walls and Doors. Tenant shall furnish and install, at a minimum,
5/8" fire-rated gypsum board, taped, floated, tight against the
deck structure above on the interior of all common partitions and
exterior walls within the Premises including all furring (if
needed or required). All other interior partitions in the Premises
shall be constructed of non-combustible materials in accordance
with all applicable code requirements. Where required, Tenant
shall provide and install exit doors with hardware to Landlord's
specifications between the Premises and the Common Area or to the
service courts or emergency exits. Tenant will be responsible for
all repair, maintenance and replacement of exit doors from the
time Tenant's contractor
EXHIBIT "C"
4
<PAGE> 41
commences Tenant's Work in the Premises. If panic type hardware
or special door alarms are required, they shall be provided and
installed by Tenant.
5. Hurricane Protection. Tenant shall design and engineer Tenant's
Storefront and exterior glazing elements to comply with all
requirements of the South Florida Building Code relating to
hurricane protection. Tenant shall specifically design, acquire
and store within Tenant's Premises hurricane shutters as approved
by Dade County Product Control. Tenant shall be responsible for
installation of Tenant's shutters upon issuance of a hurricane
warning by the National Hurricane Center. Failure by the Tenant to
install shutters shall obligate the Tenant to reimburse the
Landlord or any other tenant for any and all damages to the
Tenant's Premises, as well as other areas impacted and damaged by
any hurricane as a result of such failure.
6 Utilities and Services. Tenant is responsible for all connections
to the following utilities and make a complete, approved and
operating system:
a. HVAC System. A complete and fully functioning HVAC system
shall be installed by the Tenant utilizing Landlord's
provided chilled water distribution system. Tenant's Work
shall include, without limitation, heating and cooling
distribution equipment, duct distribution system,
connections to Landlord's provided master toilet exhaust,
condensate collection system and outside air duct systems,
special cooling system as may be required by Tenant's
needs, food service exhaust, HVAC control system, test and
balance and final trim. Tenant will utilize Landlord
specified fan power box(es) and temperature controls to
complete HVAC system.
b. Plumbing. Tenant shall complete all waste, grease waste if
required, water and vent systems, within the Premises
utilizing Landlord supplied utility connections. Tenant
shall furnish and install all necessary water heaters,
piping, insulation and plumbing fixtures.
c. Fire Protection. The installation or any modifications to
the automatic fire sprinkler system shall be performed by
contractor designated or approved by Landlord. The work
shall include, but not be limited to, the cost of
engineering, installing, relocating, re-sizing, adding
sprinkler mains, branch lines and heads, draining the
system and posting fire watches during system down-time as
may be required by governmental agencies having
jurisdiction over the Work of Tenant and the project.
d. Natural Gas. If available, gas will be used only for food
service process loads. Tenant shall make all necessary
arrangements for service and distribution within the
Premises for a complete installation.
e. Electrical. All raceways systems within the Premises shall
be EMT conduit with copper wiring. The electrical work
shall include, but not be limited to the following: furnish
and pull wiring in empty conduit provided by Landlord,
service conductors, all conduit raceways, wiring,
distribution panels, sub-panels, transformers, emergency
distributions system, lighting fixtures of all types as
required by Tenant's design, devices, disconnects, final
connections for Tenant's mechanical and HVAC systems, power
distribution for Tenant signs and graphics, FF&E final
terminations, etc., all for a complete and fully functional
electrical system. Tenant shall employ a contractor
designated by Landlord to complete all connections to
Landlord's switch and for fuse installation. Tenant shall
furnish the required fuses.
f. Communication Services. Tenant shall make all necessary
arrangements with available vendor(s) for communication
services to the Premises. Special applications will require
Landlord's written approval prior to proceeding with the
work.
g. Life Safety Systems. Tenant shall provide all required life
safety system components necessary to comply with code.
Connection to Landlord's system shall be performed by
contractor designated by Landlord.
7 Special Equipment. Tenant shall provide and install, as
required, alarm or security systems, or other protective
devices, public address system, conveyors, time clocks,
delivery door buzzers, fire extinguisher(s), dry chemical
fire protection if applicable, seating, theater equipment,
mezzanines or any other equipment or special construction
peculiar to Tenant's business needs.
8. Sians and Graphics. The engineering, fabrication,
installation, electrical systems and permitting of all
Tenant graphics, identification, sign(s), the required and
necessary supports, backing, blocking, and/or attachments
to the building structure for Tenant's said elements
EXHIBIT "C"
5
<PAGE> 42
shall be the total and full responsibility of the Tenant. All
signage and graphics shall comply with Landlord's sign criteria.
C. CLOSE-OUT REQUIREMENTS. Tenant's Work shall be deemed completed at such
time as Tenant, at its sole expense and without cost to Landlord, has
provided the following:
1. Proof of Payment. Subject to Landlord complying with the Lease,
Tenant shall furnish evidence satisfactory to Landlord that all of
Tenant's Work has been completed and paid for in full (and that
such work has been accepted by Landlord, which consent shall not
be unreasonably withheld), including the costs for Tenant's Work
that may have been done by Landlord and the costs for any other
work done by Landlord which Landlord may be entitled to payment in
accordance with provisions of this exhibit or elsewhere in the
Lease, that any and all liens therefore that have been or might be
filed have been discharged of record or waived, and that no
security interest relating thereto are outstanding.
2. Tenant's Affidavit. Furnish an required affidavits from Tenant
listing all contractors and any material suppliers in the employ
of said Tenant who have provided goods or services for the
completion of Tenant's Work in the Premises. Such affidavits shall
be in a form as may be required by Landlord or Landlord's Lender.
3. Tenant's Contractor's Affidavit. Furnish any required affidavits
and waivers of lien from Tenant's general contractor listing all
parties who have furnished materials or labor or services to that
contractor for completion of Tenant's Work in the Premises. Such
affidavits and waivers of lien shall be in a form as may be
required by Landlord or Landlord's Lender.
4. Certificate of Occupancy. Obtain and furnish all certificates and
other approvals with respect to Tenant's Work that may be required
from any governmental agency having jurisdiction over the Work of
the Tenant and the project and any board of fire underwriter's or
similar body for the use and occupancy of the Premises. Upon
completion of Tenant's Work, Tenant shall provide to Landlord
copies of all required certificates or other approvals with
respect to Tenant's Work.
5. Record Drawings. Furnish Landlord with one set of reproducible
record drawings of the Premises showing any changes made during
construction.
6. Estoppel Certificate. Furnish a Tenant-executed estoppel
certificate as may be required by Landlord or Landlord's lender or
mortgagee.
EXHIBIT "C"
6
<PAGE> 43
RULES AND REGULATIONS
1. Tenant shall use its best efforts to 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 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 Exhibit "C," 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. Subject to Section 2.1 of the Lease, 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. Tenant 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 public or private 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.
EXHIBIT "D"
1
<PAGE> 44
(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 "D"
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement (Amendment No.
2) on Form SB-2 of our report dated August 8, 1997 (October 18, 1997 as to Note
9), on our audit of the consolidated financial statements of The Havana
Republic, Inc. and Subsidiaries. We also consent to the reference to our firm
under the caption "Experts."
/s/ MILLWARD & CO.
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Millward & Co. CPAs
Fort Lauderdale, Florida
February 11, 1998
