UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended January 28, 1996 Commission File Number 0-8513
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CHEFS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2058515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
62 Broadway, P.O. Box 1332
Pt. Pleasant Beach, New Jersey 08742
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (908) 295-0350
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K.
On March 29, 1996, the aggregate market value of the voting stock of Chefs
International, Inc. (consisting of Common Stock, $.01 par value) held by
non-affiliates of the Issuer was approximately $3,600,000 based upon the closing
bid price for such Common Stock on said dated in the over-the-counter market as
reported by the National Quotation Bureau, Inc. On such date, there were
13,466,243 shares of Common Stock of the Issuer outstanding.
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CHEFS INTERNATIONAL, INC.
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PART I--------------------------------------------------------------------------
Item 1. Description of Business
(a) Business Development - Chefs International, Inc. ("Chefs" or the "Company")
was organized under the laws of the State of Delaware in March 1975. The Company
currently operates nine restaurants on a year-round basis, eight of which are
free-standing seafood restaurants in New Jersey (five) and Florida (three) and
one of which is a Mexican theme restaurant operated under the name "Garcia's,"
located in a shopping mall in New Jersey. Seven of the seafood restaurants are
operated under the name "Lobster Shanty" and one under the name "Baker's
Wharfside." The Company opened its first seafood restaurant in November 1978 and
opened its Garcia's restaurant in April 1996. The Company had operated LaCrepe
restaurants in various shopping malls in New Jersey, Pennsylvania and Florida
(the first such restaurant opening in November 1975), but closed its last La
Crepe restaurant in December 1995 at its present Garcia's restaurant site. In
July 1993 effective June 30, 1993, the Company acquired all of the issued and
outstanding capital stock of Mister Cookie Face, Inc. ("MCF" or "Mr. Cookie
Face"), a Lakewood, New Jersey producer of ice cream sandwiches currently
available in 45 states. Mr. Cookie Face's products are currently being
distributed in the northeastern United States including the New York,
Philadelphia and Boston metropolitan areas, and also in the midwest, including
the Chicago metropolitan area, Colorado and Arizona, the northwest, Florida and
the greater Los Angeles and San Francisco areas. (As used herein, the term the
"Company" may also at times include Chefs and its various subsidiaries,
including "Mr. Cookie Face").
The Company's executive offices are located at 62 Broadway, Point Pleasant
Beach, New Jersey 08742. Its telephone number is (908) 295-0350. Mr. Cookie
Face's offices and production facility are located at 170 North Oberlin Avenue,
Unit 19, Lakewood, New Jersey 08701 where its telephone number is (908)
370-5533.
Recent Developments
On August 3, 1993, Chefs filed a Registration Statement on Form SB-2 (File No.
33-66936) with the Securities and Exchange Commission (the "Commission") for the
purpose of registering shares of Common Stock and warrants for sale to the
public in an underwritten public offering. The offering was seeking to raise net
proceeds of approximately $8,500,000, approximately $5,000,000 of which was to
be applied to the expansion of the business of Mr. Cookie Face and the balance
to the acquisition and/or construction by Chefs of additional seafood
restaurants.
The effectiveness of the Registration Statement was held up due to the conduct
by the Commission's staff of a private investigation pursuant to a formal order
of investigation (HO-2781) issued by the Commission in October 1993. See Item 3
herein. During the more than two-year period of the private investigation, the
market price for Chefs' common stock, which was trading at approximately $5 per
share at the time of filing of the Registration Statement in 1993, declined to
approximately $.50 per share. As a result, the Company's management determined
that the proposed public offering was no longer viable and on March 28, 1996,
the Commission granted the Company's application to withdraw the Registration
Statement. See Note 17 of Notes to the Consolidated Financial Statements as to
the Company's write-off in fiscal 1995 of approximately $270,000 in costs
associated with the Registration Statement.
The failure to complete the proposed public offering has prevented the Company
from adequately funding the growth of Mr. Cookie Face's ice cream operations.
This has resulted in the inability of Mr. Cookie Face to expand its markets and
product lines as originally planned. Therefore, effective for fiscal 1996, the
Company recorded an impairment loss of $2,024,750 from writing down goodwill
associated with its acquisition of Mr. Cookie Face and related property and
equipment. An additional $171,000 was written down in connection with restaurant
operations. See Note 4 of Notes to the Consolidated Financial Statements.
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During fiscal 1996, the bulk of the Company's working capital requirements was
supplied pursuant to a two-year revolving line of credit arrangement with First
Fidelity Bank, subsequently acquired by First Union National Bank (the "Bank").
The line of credit was due to expire in February 1996. The line of credit was
secured by first mortgages on the Company's two Point Pleasant Beach, New Jersey
restaurants and by a first lien on all of Mr. Cookie Face's assets. Repayment
under the line of credit was guaranteed by each of the Company's subsidiaries.
In April 1995, the Company borrowed $500,000 from the Bank under a six-month
note repayable with interest at an annual rate of 1-1/8% above the Bank's base
(prime) rate. The Company applied the proceeds of this loan to pay down
outstanding balances under the line of credit thereby increasing the amount
available under the line and borrowed additional amounts under the line to
supply additional working capital for Mr. Cookie Face.
On January 19, 1996, the Company's $2,000,000 line of credit arrangement was
replaced with a Term Loan and Revolving Credit Agreement (the "Loan Agreement")
with the Bank. Pursuant to the Loan Agreement, the Bank advanced a $625,000 term
loan ("Term Loan A") and a $1,000,000 term loan ("Term Loan B") to the Company,
and also agreed to extend a $1,000,000 revolving line of credit to the Company
expiring on May 31, 1997.
Term Loan A represents a consolidation of approximately $175,000 of outstanding
Company indebtedness under a loan previously incurred for renovation of its Toms
River restaurant, approximately $100,000 of outstanding Company indebtedness
under a loan previously incurred for renovation of its Belmar, New Jersey
restaurant, and a new borrowing of $350,000 used by the Company for construction
of its new Garcia's restaurant at the Monmouth Mall in Eatontown, New Jersey
which opened on April 29, 1996. Term Loan A is evidenced by a $625,000
promissory note repayable in principal installments of $34,000 on June 15, July
15 and August 15 of the years 1996 through 1998 and in principal installments of
$17,750 on March 15, April 15, May 15, September 15, October 15 and November 15
of each such year (except that the final principal payment on November 15, 1998
is only $17,250).
Term Loan B, evidenced by a $1,000,000 promissory note, represents a shift of
$1,000,000 of outstanding indebtedness under the old line of credit to this term
loan. Term Loan B is repayable in principal installments of $16,667 on March 15,
April 15, May 15, September 15, October 15 and November 15 of the years 1996
through 2000 and in principal installments of $33,333 on June 15, July 15 and
August 15 of each such year.
With each repayment of principal under Term Loan A and Term Loan B, the Company
is required to pay interest on the outstanding principal balance computed at an
annual rate equal to 7.51%. Advances under the line of credit bear interest at
LIBOR plus 200 basis points.
Repayment of the two term loans and of borrowings under the line of credit is
guaranteed by each of the Company's subsidiaries and is secured by mortgages on
the Company's two Point Pleasant Beach, New Jersey restaurants and a lien on all
of Mr. Cookie Face's assets.
Pursuant to the Loan Agreement, the Company made certain affirmative and
negative covenants to the Bank (including covenants not to pay dividends, effect
stock redemptions or incur certain additional indebtedness while the loan is
outstanding, and to maintain on a consolidated basis, minimum working capital of
at least $600,000 and a current asset to current liability ratio of at least
1.25:1; tangible net worth of at least $12,900,000 increasing by $100,000 at
each subsequent fiscal year-end commencing with fiscal 1997; a debt to equity
ratio of no greater than .55:1; a net income, depreciation and amortization to
current portion of long term debt ratio of not less than 1.25:1; and cash and
cash equivalents of not less than $750,000). A failure by the Company to satisfy
any such covenant would constitute an event of default under the Loan Agreement
enabling the Bank to accelerate payment of all outstanding indebtedness.
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In May 1995, the Company opened a Mr. Cookie Face restaurant in a strip mall in
Manalapan, New Jersey offering a limited menu during lunch and dinner hours as
well as Mr. Cookie Face and other ice cream and dessert products for both on
premises consumption and retail take-out. The Company had purchased certain
furniture, fixtures and equipment for use at the restaurant from a corporation
wholly-owned by Frank Koenemund, a director of the Company and the president of
Mr. Cookie Face. The restaurant was unsuccessful and the Company closed the
restaurant in September 1995, the restaurant having sustained an operating loss
of approximately $160,000. See Item 13 herein.
In December 1995, the Company closed its last "La Crepe" restaurant at the
Monmouth Mall in Eatontown, New Jersey. A loss of $54,335 was recognized in
connection with the closing. The Company then commenced construction of a
"Garcia's" restaurant at the site which opened on April 29, 1996. Costs of the
construction aggregated approximately $633,000 of which $350,000 was furnished
out of the proceeds of Term Loan A described above. See "Restaurant Operations -
Garcia's Restaurant" in this Item 1.
(b) Business of Issuer - The Company is engaged in two principal lines of
business; the operation of nine restaurants in New Jersey and Florida on a
year-round basis and, through its Mr. Cookie Face subsidiary acquired in July
1993, the production of ice cream sandwiches currently distributed primarily in
the northeastern United States including the New York, Philadelphia and Boston
metropolitan areas and also distributed in the midwest, the northwest, Florida
and the greater Los Angeles area.
RESTAURANT OPERATIONS
The Company is principally engaged in the operation of nine restaurants on a
year-round basis, eight of which are free-standing seafood restaurants in New
Jersey (five) and Florida (three) and one of which is a Mexican theme restaurant
operated under the name "Garcia's," located in a shopping mall in New Jersey.
Seven of the seafood restaurants are operated under the name "Lobster Shanty"
and one under the name "Baker's Wharfside." The Company opened its first seafood
restaurant in November 1978 and opened its sole Garcia's restaurant in April
1996. The Company had operated La Crepe restaurants in various shopping malls in
New Jersey, Pennsylvania and Florida (the first such restaurant opening in
November 1975), but closed its last La Crepe restaurant in December 1995 at its
present Garcia's restaurant site. The Company's restaurants, all of which are
operated on a year-round basis, are as follows:
Date of Opening
Under the Company's
Location Management
SEAFOOD RESTAURANTS
Lobster Shanty:
Vero Beach, Florida December 1979
Pt. Pleasant Beach, New Jersey October 1980
Toms River, New Jersey October 1980
Jensen Beach, Florida December 1980
Cocoa Beach, Florida September 1981
Hightstown, New Jersey December 1981
Belmar, New Jersey October 1994
Baker's Wharfside:
Pt. Pleasant Beach, New Jersey October 1980
GARCIA'S RESTAURANT
Monmouth Mall, Eatontown, New Jersey April 1996
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Seafood Restaurants
The Company's seafood restaurants provide a variety of seafood dishes including
shellfish such as lobster, scallops, shrimp, oysters and clams, and other fish
including red snapper, bluefish, grouper and other varieties. A limited
selection of non-seafood entrees is also offered including steak and chicken as
well as a dessert selection. Most of the Company's seafood restaurants have a
nautical decor.
Lobster Shanty Restaurants
Vero Beach, Florida - This restaurant, consisting of approximately 6,900 square
feet, is free standing in Vero Beach, Florida approximately 100 yards off U.S.
Highway #60 on the intracoastal waterway. It opened in December, 1979 pursuant
to a lease from Gourmet Associates ("Gourmet") owned by Robert E. Brennan, the
principal stockholder of the Company. The lease is currently a month to month
"net" lease at a monthly rental of $10,000 with the Company paying personal
property taxes and insurance thereunder. Management believes that the terms of
this lease agreement are at least as favorable as those which could have been
obtained from unaffiliated sources.
Gourmet had purchased the property for $700,000 in April 1979 by making a
$200,000 down payment and issuing its $500,000 promissory note for the balance,
payable with 9 1/2% annual interest over 18 years secured by a first mortgage.
Gourmet expended approximately $315,000 in extensions and improvements to the
facility as well as for equipment therein prior to leasing this restaurant to
the Company.
Pt. Pleasant Beach, New Jersey - This restaurant, consisting of approximately
17,000 square feet, is free standing with a waterfront location on Channel Drive
in Pt. Pleasant Beach, New Jersey and seats approximately 750. It shares parking
with the Baker's Wharfside restaurant in Pt. Pleasant Beach with space for
approximately 250 automobiles. The Company purchased this restaurant and three
others (including the land, buildings, improvements and businesses including
personal property and fixtures, liquor licenses and all of the outstanding stock
of the four corporations operating these restaurants) from Robert E. Brennan,
the principal stockholder of the Company, and from three partnerships owned by
him, in October 1980 for an aggregate $7,750,000 less a subsequent $250,000
prepayment discount. Subsequent to its January 26, 1992 fiscal year-end, the
Company commenced renovations and improvements to this restaurant at a cost of
approximately $375,000. These renovations were completed in the second quarter
of calendar 1992.
Toms River, New Jersey - This restaurant, consisting of approximately 10,750
square feet, is free standing on Robbins Parkway in Toms River, New Jersey and
seats approximately 400. Municipal parking facilities are available nearby. The
Company purchased this restaurant and three others (including the land,
buildings, improvements, and businesses including personal property and
fixtures, liquor licenses and all of the outstanding stock of the four
corporations operating these restaurants) from Robert E. Brennan, the principal
stockholder of the Company, and from three partnerships owned by him, in October
1980 for an aggregate $7,750,000 less a subsequent $250,000 prepayment discount.
Jensen Beach, Florida - This 200 seat restaurant, consisting of approximately
4,500 square feet, is located in a free standing building on the intracoastal
waterway in Jensen Beach, Martin County, approximately 50 miles north of Palm
Beach. The restaurant has parking for 100 automobiles. Acquired in October 1980
were two lots, the restaurant with furnishings and a liquor license from an
unaffiliated party for $975,000. The Company made a $295,000 down payment and
paid the balance over a ten year period through September, 1990.
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Cocoa Beach, Florida - This approximately 240 seat restaurant, consisting of
approximately 9,600 square feet, is located in a free standing building on
Highway A1A in Cocoa Beach and has parking for approximately 90 cars. The
Company acquired this restaurant as well as a seafood restaurant in Titusville,
Florida in September 1981 through the purchase from two unaffiliated individuals
of the outstanding capital stock of two corporations engaged in the ownership
and operation of a Florida seafood restaurant at each of the two sites. The
corporations owned the land on which the restaurants were located, the
restaurant buildings, the restaurant businesses including personal property and
fixtures and liquor licenses for each restaurant, all of which were included in
the sale. The purchase price paid by the Company for the stock of the two
corporations (prior to closing adjustments) was $3,370,000, the bulk of which
was represented by 20-year promissory notes payable monthly and secured by
mortgages on the restaurants. The Company sold the Titusville restaurant to an
unaffiliated third party in January 1988 realizing a loss of approximately
$942,000. The Company prepaid the balance of the remaining indebtedness under
the notes in July 1993 using the net proceeds from the sale in June 1993 of
another Florida restaurant property.
Hightstown, New Jersey - This restaurant, consisting of approximately 4,600
square feet, is free standing on State Highway 33 approximately two miles east
of Hightstown and seats approximately 175. The restaurant has parking for
approximately 100 automobiles. The Company purchased this restaurant and three
others (including the land, buildings, improvements and businesses including
personal property and fixtures, liquor licenses and all of the outstanding stock
of the four corporations operating these restaurants) from Robert E. Brennan,
the principal stockholder of the Company and from three partnerships owned by
him, in October 1980 for an aggregate $7,750,000 less a subsequent $250,000
prepayment discount. The Company made substantial renovations to this restaurant
commencing in fiscal 1993 which renovations were completed early in fiscal 1994
at a cost of approximately $200,000.
Belmar, New Jersey - This restaurant, consisting of approximately 9,000 square
feet, is free standing on Main Street in Belmar, New Jersey. The restaurant
seats approximately 250 and has parking for approximately 110 automobiles. The
Company purchased the liquor license and trade name for use at this restaurant
in October 1994 for $250,000 from unaffiliated parties and leased the
restaurant, the parking lot and the restaurant furniture, fixtures and equipment
at such time from such parties pursuant to a five-year lease in which the
Company was given four consecutive five-year options to renew. The lease
provides for a monthly base rent of $8,000 increasing every three years up to a
monthly base rent after the eighteenth year of $12,693 with an additional annual
percentage rent equal to 6% of Chefs' gross receipts at the restaurant for such
period less the base rent. The restaurant opened as a "Lobster Shanty"
restaurant under the Company's management in October 1994. In November 1994, the
Company borrowed $150,000 from First Fidelity Bank to fund renovations at this
restaurant.
Baker's Wharfside Restaurant
Pt. Pleasant Beach, New Jersey - This restaurant, consisting of approximately
7,500 square feet, is free standing with a waterfront location on Channel Drive
in Pt. Pleasant Beach, New Jersey and seats approximately 500. It shares parking
with the Lobster Shanty restaurant in Pt. Pleasant Beach with space for
approximately 250 automobiles. The Company purchased this restaurant and three
others (including the land, buildings, improvements and businesses including
personal property and fixtures, liquor licenses and all of the outstanding stock
of the four corporations operating these restaurants) from Robert E. Brennan,
the principal stockholder of the Company, and from three partnerships owned by
him, in October 1980 for an aggregate $7,750,000 less a subsequent $250,000
prepayment discount.
5
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Garcia's Restaurant
In November 1995, the Company entered into an agreement (the "Agreement") with
Garcimex of New Jersey, Inc. ("Garcimex"), the exclusive owner of the "Garcia's"
trade mark, service mark and trade name along with the goodwill and recipes of a
Mexican restaurant business associated with the marks. Pursuant to the
Agreement, the Company was granted the exclusive right to establish and open
Mexican restaurants using the marks, goodwill and recipes in six New Jersey
counties, Hunterdon, Mercer, Middlesex, Monmouth, Ocean and Somerset (the
"Territory"). The Company was granted the right but not the obligation to open a
restaurant utilizing the marks and goodwill in each of the first five 12-month
periods, in the Territory, with a six-month grace period with respect to each
such 12-month period. If the Company does not open a Garcia's restaurant in each
of the first five 12-month periods (including the grace period) it will lose the
right to develop additional restaurants within the Territory. Regardless of
whether the Company opens one Garcia's restaurant in each such period, it will
have and retain the exclusive right to utilize the marks, goodwill and recipes
at all Garcia's restaurants opened by the Company pursuant to the Agreement and
Garcimex has agreed not to open another Mexican restaurant within an 18-mile
radius of any Company operated Garcia's restaurant.
Assuming the Company opens the requisite number of Garcia's restaurants in the
initial five-year period in the Territory, it has the right to open an
unspecified number of additional Garcia's restaurants in the Territory in the
subsequent five-year period. Such right automatically renews every five years as
long as the Company is in compliance with the Agreement.
The Agreement is for an initial term of 20 years with additional automatic
ten-year renewal periods unless the Company elects not to renew the Agreement.
During the period that the Agreement is in effect, the Company is required to
pay 3% of the gross annual sales from each Garcia's restaurant which it operates
in the Territory, to Garcimex on a quarterly basis. The Company has also been
accorded a right of first refusal with respect to offers received by Garcimex
from third parties seeking to obtain rights in the marks, goodwill and recipes
for restaurants to be opened outside of the Territory. Furthermore, the
Agreement also provides the Company with certain rights to open Mexican
restaurants in New Jersey outside the Territory. To date, the Company has opened
one Garcia's restaurant which opened at the Monmouth Mall on April 29, 1996.
Monmouth Mall, Eatontown, Monmouth County, New Jersey - The Company's Garcia's
restaurant at the Monmouth Mall consists of 4,371 square feet of leased space
and is decorated in a bright, multi-color Mexican motif. The restaurant has a
bar and tables and booths which can accommodate approximately 130 patrons. The
Company has a liquor license permitting the consumption of wine and alcoholic
beverages on the premises. The restaurant is open for lunch and dinner seven
days per week.
The restaurant features Mexican cuisine including fajitas, tortillas, burritos
and enchiladas with cheese, beef, chicken, pork and seafood fillings. The menu
also includes appetizers, soups and salads and a limited number of American
style offerings such as steaks and burgers. Alcoholic offerings such as
margaritas and tequilas complement fruit drinks and other soft drinks.
The Company's lease for this restaurant is for a 12-year term providing for a
minimum annual rental of $109,275 during each of the first five years and a
minimum annual rental of $118,017 per annum thereafter. The Company is also
required to pay additional rent equal to 5% of the restaurant's annual gross
revenues in excess of $2,185,000 in each of the first five years and in excess
of $2,360,340 in each subsequent year. The Company is also required to pay a
proportionate share of the Mall's real estate taxes, utility charges and the
Landlord's operating costs as well as certain other charges.
The restaurant is on the site of the Company's La Crepe restaurant which closed
in December 1995. The Company has spent approximately $633,000 to construct its
Garcia's restaurant on this site.
The Monmouth Mall has been in operation for approximately 20 years. Macy's, J.C.
Penny and Stern's are major department stores in the Mall. The Mall is a large
shopping center with 1,500,000 square feet of shopping area on 105 acres with
parking for 7,200 cars.
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Sources of Food Products
The food products used by the Company in the operation of its seafood
restaurants and its Garcia's restaurant are readily available from a variety of
sources including national distributors and local sources on an order basis when
needed. In its last three fiscal years, the Company has not purchased any of its
food products from affiliated entities or entities affiliated with former
executive officers or directors.
Seasonal Aspects
To date, the Company's New Jersey seafood restaurants have experienced their
greatest sales volumes from May through September whereas its Florida seafood
restaurants have experienced their greatest sales volumes from January through
April.
Trademarks
The Company has no patents, trademarks, licenses, franchises or concessions
which it regards as material to its restaurant business with the exception of
the service mark "Jack Baker's Lobster Shanty"R registered for a 20 year period
with the U.S. Patent and Trademark Office in February, 1989 and the rights
purchased from Garcimex as described above to use of the trade mark, service
mark and trade name "Garcia's."
Competition
The restaurant business is highly competitive and the success of any restaurant
depends to a great extent upon the services it supplies and its location. The
Company's seafood restaurants compete primarily with other local seafood
restaurants and to a lesser extent, with local restaurants serving a more
general fare. The principal national competition to the Company's seafood
restaurants is the Red Lobster restaurant chain. This chain has substantially
greater resources than the Company. There are other restaurants in the mall and
in the vicinity of the mall where the Company is now operating a Garcia's
restaurant, all of which supply competition to the Company's Garcia's unit.
Although there are no Mexican style restaurants in the mall, there are other
Mexican style restaurants in the area. In addition, Garcimex operates a Garcia's
restaurant in Ocean County, New Jersey, approximately 20 miles from the
Company's Garcia's restaurant. Typical "chain" competitors, all of which are
affiliated with better established and more prominent national chains, are the
Friendly Ice Cream chain, McDonalds and Roy Rogers Restaurants. There can be no
assurance that the Company's units will be able to successfully compete with any
of such other restaurants.
Government Regulation
The Company is subject to various Federal, state and local laws affecting the
operation of its restaurants, including licensing and regulation by health,
sanitation, safety and fire departments and alcoholic beverage control
authorities. The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working conditions.
While such regulations have not had a material negative impact on the Company's
operations to date, difficulties in obtaining necessary licenses or permits
could result in delays or cancellations in the opening of new restaurants and
increases in the minimum wage could increase the Company's labor cost.
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Employees
The Company maintains its administrative employees at its executive offices
including its principal officers (see "Item 10 - Directors and Executive
Officers of the Registrant,") secretarial and bookkeeping personnel. Each of the
Company's seafood restaurant units employs a general manager, two assistant
managers and between 40 and 130 other employees to serve as waitresses, waiters,
busboys, bartenders, cooks, dishwashers, kitchen help, hostesses and cashiers
(some on a part-time basis). The Company's Garcia's restaurant when fully
staffed, will employ approximately 80 employees serving similar functions. The
Company also presently employs three area supervisors, each responsible for
three of the Company's restaurants. Managerial candidates are recruited for the
Company's restaurants from hotel and restaurant management schools, restaurant
recruiting agencies, through advertising in restaurant management magazines and
by promotion from within the Company's own organization. At January 28, 1996,
the Company had a total of approximately 410 employees (including part-time
workers). This number excludes the employees of Mr. Cookie Face. The Company is
not a party to any collective bargaining agreements and has enjoyed satisfactory
employee relations since inception.
ICE CREAM OPERATIONS
(Mister Cookie Face)
In July 1993, the Company acquired all of the issued and outstanding capital
stock of Mr. Cookie Face, a Lakewood, New Jersey producer of ice cream
sandwiches currently available in 45 states. Mr. Cookie Face's products are
currently being distributed in the northeastern United States including New
York, Philadelphia and Boston metropolitan areas, and also in the midwest,
including the Chicago metropolitan area, Colorado and Arizona, the northwest,
Florida and the greater Los Angeles and San Francisco areas. The Company's ice
cream operations are presently conducted through its wholly owned Mister Cookie
Face, Inc. subsidiary.
Products
Mr. Cookie Face's ice cream sandwiches consist of approximately five fluid
ounces of ice cream covered top and bottom with a chocolate wafer. At present,
approximately twelve varieties of ice cream and combinations thereof are used
including vanilla, chocolate, chocolate vanilla swirl, vanilla nut, mint, mint
chip, strawberry, chocolate chunk, chocolate fudge and butter pecan. Mr. Cookie
Face ice cream sandwiches are wrapped in polypropylene plastic containers and
are sold to consumers in convenient six- pack and twelve-pack trays primarily at
supermarkets and other food chains and as singles primarily at convenience
stores. Current retail prices for a six-pack tray generally range from $2.99 to
$3.99 and for a twelve-pack tray from $4.99 to $5.99. The current suggested
retail price for single ice cream sandwiches is $1.49. Other products include
"COOKIES AND CREAMS," a miniature ice cream sandwich containing approximately
one-half fluid ounce of vanilla ice cream covered top and bottom with a small
chocolate cookie, "CHIPSTER," a similar miniature ice cream sandwich using
chocolate chip cookies, a lowfat product similar to the standard Mr. Cookie Face
ice cream sandwich but using lowfat vanilla chocolate swirl ice cream, and most
recently, "THE PAIL," a plastic pail containing one and one-half quarts of ice
cream which was first offered in February 1996 at retail prices ranging from
$3.49 to $3.99.
Production
Substantially all of Mr. Cookie Face's ice cream products are presently produced
at its production facility in Lakewood, New Jersey by its own production staff.
Mr. Cookie Face's ice cream products are produced using chocolate wafers
provided by one supplier, mini cookies provided by two other suppliers and ice
cream mix provided by two other suppliers. All of the suppliers (except for one
located in the midwest) are located in the greater New York metropolitan area.
Mr. Cookie Face does not have any long term contract with its suppliers but does
not regard this fact as a material risk to its business as the wafers, the mini
cookies and the ice cream mix are currently available in similar qualities and
quantities at competitive prices from a variety of sources on an order basis if
needed. One of Mr. Cookie Face's ice cream suppliers produces "THE PAIL" by
packing ice cream into pails shipped by another supplier and then shipping the
finished product pursuant to Mr. Cookie Face's instructions.
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Mr. Cookie Face regards its ice cream sandwiches as handmade as the amount of
ice cream in each sandwich is determined by a production worker who draws the
mix for each sandwich by hand onto a wafer or mini cookie from an ice cream
dispensing machine. After production, the ice cream sandwiches are placed in
freezers and then packaged before shipment to retail outlets. With its present
configuration of 24 ice cream dispensing machines and its present freezer and
packaging equipment, management believes that Mr. Cookie Face can ship
approximately $20,000,000 by dollar volume in product (based on its current
pricing) on an annual basis from the Lakewood facility.
Marketing and Distribution
Mr. Cookie Face ice cream products are sold directly or through food brokers to
supermarket and other food chains and through distributors, to convenience
stores. At present, Mr. Cookie Face utilizes more than 40 independent food
brokers under contracts terminable on 30 days notice to attempt to place its
products in various retail outlets . The brokers are compensated on a commission
basis equal to a percentage of Mr. Cookie Face's collections and provide
nationwide coverage. Marketing efforts are also conducted directly by Mr. Cookie
Face's chief executive officer, Frank Koenemund and two full-time salaried
salespersons.
In order for its products to be afforded retail "shelf" space in most
supermarkets, Mr. Cookie Face has been required to pay "slotting" fees to
various supermarket chains ranging from $2,000 to $40,000 per product and will
be required to pay additional slotting fees for each additional type of ice
cream sandwich. No assurances can be given that Mr. Cookie Face will be able to
obtain retail shelf space in additional chains or will be able to obtain
additional shelf space for new products at chains where its present product line
is carried, even with the availability of financial resources to pay additional
slotting fees.
Supermarket and other retail food chains which presently carry Mr. Cookie Face's
products include Pathmark, Waldbaums, A&P, Shoprite, Food Town, Grand Union,
King Kullen, Winn-Dixie, Stop & Shop, Albertsons, Acme and Shaws; in the Los
Angeles area - Vons, Ralph's and Lucky's; and Safeway, Food Lion, Jewel,
Dominicks and Kroger.
Mr. Cookie Face was organized in February 1992 and to date has not conducted any
substantialadvertising of its product line. Advertising has been limited to
radio (primarily in the New York
metropolitan area), in-store promotions, circulars and coupons. Due to a lack
of funds, radio advertising
was discontinued during fiscal 1995. Management believes that Chefs' inability
to provide substantial
funding for Mr. Cookie Face's operations including advertising has had an
adverse effect on its potential
growth. See "Recent Developments."
Seasonal Aspects
During its first two full years of operation after acquisition by the Company,
Mr. Cookie Face experienced its greatest sales volume during the period from May
through August, which management believes is typical in the industry for sales
of ice cream products.
Competition
Mr. Cookie Face's ice cream products compete primarily with other ice cream
products as well as non-ice cream and other frozen dessert products. Various
national and regional ice cream manufacturers with substantially greater
resources than the Company produce ice cream products similar to Mr. Cookie
Face's products. Certain well known competitors with similar "novelty" ice cream
products are Carvel (in the eastern United States), Colemans (in Pennsylvania),
and Klondike's "Big Bear" square ice cream sandwich (nationwide). The Kroger
chain has recently commenced to manufacture and market ice cream sandwiches
which may result in a discontinuance in the shipping of Mr. Cookie Face products
to such chain. In addition, there are relatively few entry barriers to new
manufacturers and/or products. Management believes that in addition to product
quality and appearance, accessibility of retail "shelf" space, entry into new
markets before competitors and advertising are major competitive factors. No
assurances can be given that Mr. Cookie Face will be able to successfully
compete.
9
<PAGE>
Trademark
Mr. Cookie Face filed an application with the United States Patent Office in
1992 to register the
trademark "MISTER COOKIE FACE." On July 26, 1994, the application was granted
and the trademark
was registered. Mr. Cookie Face regards this trademark to be of material
importance to its business.
Employees
In addition to Frank Koenemund who devotes substantially all of his working time
to Mr. Cookie Face's
business as chief executive and chief marketing officer and president, two of
the Company's executive
officers also serve as executive officers of Mr. Cookie Face. Mr. Cookie Face
also employs a plant
manager, two full-time salaried salespersons and Mr. Koenemund's wife who
performs administrative
functions. Mr. Cookie Face's production operations are performed by
approximately 80 production
workers who do not belong to a union. Mr. Cookie Face regards its employee
relationships to be
satisfactory. See "Ice Cream Operations - Production."
Item 2. Description of Property
The Company's executive and administrative offices are located in an
approximately 4,000 square foot two story Company owned building of cinder block
construction at 62 Broadway, Point Pleasant Beach, New Jersey.
Mr. Cookie Face produces its ice cream products from approximately 15,600 square
feet of leased premises in Lakewood, New Jersey pursuant to a lease expiring in
January 1998. At present, Mr. Cookie Face has 24 ice cream dispensing machines,
freezers and packaging equipment at the facility capable of producing
approximately $20,000,000 of product sales annually (based on current pricing).
Mr. Cookie Face management regards its current production equipment to be in
good condition, reasonable wear and tear excepted.
See Item 1 herein for a description of the Company's operating restaurants.
Item 3. Legal Proceedings
In August 1993, the Company filed a Registration Statement on Form SB-2 (File
No. 33-66936) with respect to a proposed public offering of its securities. In
October 1993, the Securities and Exchange Commission (the "Commission") issued a
formal order of private investigation concerning the Company (HO-2781). The
order alleged that members of the staff had reported information to the
Commission which tended to show that certain persons, including persons
associated with Chefs, and persons associated with broker dealer firms who make
a market in Chefs' securities, may have, in connection with the offer, purchase,
or sale of Chefs' securities, employed devices, schemes or artifices to defraud;
obtained money or property by means of untrue statements of material facts or
omissions to state material facts; or may have engaged in transactions,
practices or courses of business which operated or would operate as a fraud upon
other persons, including purchasers or sellers of Chefs' securities, in that,
among other things, such persons may have engaged in a scheme to dominate,
control and manipulate the market for Chefs' securities, and that Chefs'
Registration Statement (filed in August 1993) may have included untrue
statements of material facts or omitted to state material facts necessary in
order to make the statements therein not misleading, concerning among other
things, recent activity in the market for Chefs' securities, the market price
for Chefs' securities, or the possible existence of a scheme to dominate,
control and manipulate the market for Chefs' securities.
The Commission deemed that if the alleged acts and practices were true, they
would constitute possible violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934 and be the possible basis for the issuance of a
stop order pursuant to the Securities Act of 1933 suspending the effectiveness
of the Registration Statement and therefore issued a formal order of private
investigation with respect to these allegations.
10
<PAGE>
Chefs' management was unaware, and remains unaware of any violations of law
concerning activity in the market for Chefs' securities, the market price for
Chefs' securities or the existence of a scheme to dominate, control or
manipulate the market for Chefs' securities. During the more than two-year
period of the Commission's private investigation, the market price for Chefs'
common stock, which was trading at approximately $5 per share at the time of
filing of the Registration Statement in August 1993, declined to approximately
$.50 per share. As a result, the Company's management determined that the
proposed public offering was no longer viable and on March 28, 1996, the
Commission granted the Company's application to withdraw the Registration
Statement thereby removing any possibility of the Commission issuing a stop
order suspending the effectiveness of the Registration Statement.
The failure to complete the proposed public offering contemplated by the
Registration Statement has prevented the Company from adequately funding the
growth of Mr. Cookie Face. This has resulted in the inability of Mr. Cookie Face
to expand its markets and product lines as originally planned. See Note 4 of
Notes to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on Tuesday,
December 19, 1995. At the
meeting, the following five individuals, namely
Anthony Papalia
James Fletcher
Martin Fletcher
Frank Koenemund
Jack Mariucci
were each elected to serve as directors of the Company until the next annual
meeting of stockholders and until their successors are elected and qualify. In
addition, by a vote of 7,262,055 in favor and 361,716 against, stockholders
ratified the grant of five-year options to Frank Koenemund and to Jack Mariucci
to purchase 750,000 shares and 150,000 shares of Chefs' common stock at an
exercise price of $1.00 per share. Also at the meeting, by a vote of 10,132,627
in favor and 297,769 against, stockholders ratified three-year employment
contracts between the Company and Anthony Papalia as president and Martin
Fletcher as controller at annual salaries of $150,000 and $87,000 respectively.
If either individual's employment is terminated other than for cause, he would
become entitled to a Severance Payment equal to the amount of his compensation
over the balance of the contract term. Each individual would also be entitled to
terminate his employment and receive a Severance Payment equal to six months
salary in the event of a "change of control" of the Company.
11
<PAGE>
CHEFS INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
PART II
- - -------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Common Stock is quoted in the over-the-counter market on the NASDAQ Small
Cap System under the symbol "CHEF." The following table sets forth the range of
high and low closing bid prices for the Common Stock for the periods indicated,
as derived from reports furnished by the National Quotation Bureau, Inc.
Bid Prices
Quarter Ended High Low
April 29, 1994 $ 3.25 $ 1.75
July 29, 1994 $ 1.75 $ 1.00
October 28, 1994 $ 1.19 $ .38
January 29, 1995 $ 1.44 $ .44
April 28, 1995 $ .94 $ .44
July 28, 1995 $ .88 $ .38
October 27, 1995 $ .66 $ .38
January 28, 1996 $ .38 $ .25
The above quotations represent prices between dealers and do not include retail
mark-ups, mark-downs or commissions. They do not necessarily represent actual
transactions.
At March 31, 1996, the number of record holders of the Common Stock was 7,642.
Such number of record owners was determined from the Company's shareholder
records and does not include beneficial owners whose shares are held in nominee
accounts with brokers, dealers, banks and clearing agencies.
Pursuant to the Company's Term Loan and Revolving Credit Agreement with First
Union National Bank entered into on January 19, 1996, the Company is restricted
during the period any loans are outstanding under such agreement from paying
dividends on any of its outstanding stock.
12
<PAGE>
Item 6. Selected Consolidated Financial Data
<TABLE>
[In thousands, except per share data]
Y e a r s e n d e d
January 28, January 29, January 30, January 31, January 26,
1 9 9 6 1 9 9 5 1 9 9 4 1 9 9 3 1 9 9 2
<S> <C> <C> <C> <C> <C>
Operating Data:
Gross Revenues $ 31,283 $ 31,916 $ 17,712 $ 15,255 $ 15,164
Operating Expenses $ 18,340 $ 16,115 $ 11,355 $ 9,911 $ 9,903
Net [Loss] Income $ (2,184) $ (257) $ (177) $ 252 $ 225
Net [Loss] Income Per
Common Share $ (.16) $ (.02) $ (.01) $ .01 $ .01
Cash Dividends Per
Common Share $ -- $ -- $ -- $ -- $ --
Balance Sheet Data:
Cash and Cash Equivalents $ 1,411 $ 1,409 $ 1,071 $ 1,139 $ 734
Total Assets * $ 19,309 $ 21,804 $ 20,851 $ 17,774 $ 17,641
Total Long-Term Liabilities $ 1,687 $ 1,857 $ 615 $ 1,603 $ 1,638
Total Liabilities $ 4,225 $ 4,538 $ 3,328 $ 3,225 $ 3,343
Working Capital $ 1,842 $ 1,195 $ 287 $ 489 $ 817
Stockholders' Equity $ 15,084 $ 17,266 $ 17,523 $ 14,549 $ 14,298
* At fiscal year end 1996, 1995, 1994, 1993 and 1992, includes $1,221, $3,529, $3,590, $645 and $669
of goodwill.
13
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In fiscal 1996, the Company sustained a loss of $2,184,100 compared to losses of
$257,100 in 1995 and $176,600 in 1994. The loss for 1996 includes an impairment
loss of $2,195,700 from writing down long-lived assets, primarily goodwill.
Approximately $171,000 of the impairment loss was in connection with restaurant
operations, and $2,024,750 was in connection with the Company's Mr. Cookie Face
("MCF") ice cream operations. The loss is due to the early adoption of Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets To Be Disposed Of," and its effect on
the measurement of estimated future cash flows primarily of the ice cream
operations which has been impacted by the lack of funds anticipated from an
aborted public offering. The fiscal 1995 loss included registration costs of
$270,700 which were written off as a result of the Company's inability to
complete the offering. Sales decreased by 2% to $31,282,700 in fiscal 1996. 1995
sales of $31,916,200 represented an 80% increase over 1994 primarily due to the
MCF expansion. Segment results are summarized below.
Restaurants
The restaurants realized a net loss of $336,300 for fiscal 1996 compared to net
income of $184,200 in 1995 and 1994 net income of $271,200. Sales for 1996 were
$16,571,300, an increase of $527,600 over 1995 sales of $16,043,700. The
improvement can be attributed to a sales increase of $1,334,200 at the Belmar,
New Jersey, Lobster Shanty which operated during the entire fiscal 1996 period
compared to only three months in fiscal 1995 offset by a loss of sales of
$314,600 at the Quakerbridge, New Jersey, LaCrepe restaurant which was sold
during fiscal 1995 and by lower sales of $491,900 for the restaurants that
operated throughout both years. The extreme winter weather in the Northeast
accounts for the majority of the sales decline in these restaurants in fiscal
1996. 1995 sales represented an increase of 4.7% over 1994 sales of $15,317,600.
Gross profit for 1996 was 66.7% of sales, slightly less than 67% in 1995 and
67.3% in 1994. Management was able to offset some of the higher cost of sales by
raising menu prices slightly.
Payroll and related expenses were 30.4% of sales in 1996 versus 29.5% in 1995
and 29.1% in 1994. The main components of the increase were salary increases and
higher workers' compensation insurance costs. The Company's restaurant servers
and busboys are the only employees who earn the minimum wage. In view of the
fact that the bulk of such individuals are employed in the Company's New Jersey
operations and that New Jersey's minimum wage is almost 20% higher than the
federal minimum wage, management does not believe that an increase in the
federal minimum wage requirement would adversely impact operations in a material
way.
Other operating expenses were 21.7% of sales in 1996 compared to 21% for both
1995 and 1994. The main components of the 1996 increase were increased rent for
the Belmar, New Jersey restaurant, higher advertising and promotional costs and
increased property and casualty insurance costs. Depreciation and amortization
costs increased by $50,000 in 1996 due to capital expenditures. General and
administration expenses were $129,000 higher in 1996 versus 1995. The main
components of the increase included an increase in group health insurance costs
of $70,000 resulting from a year of higher medical claims versus premiums paid
and increased payrolls and related expenses of $76,000 resulting from wage
increases. General and administrative expenses were essentially the same for
1995 and 1994.
The loss of $54,300 in 1996 from the closing of restaurants resulted from the
closing of the Company's Eatontown, New Jersey, La Crepe restaurant. The
restaurant was closed for renovations in December when the original 20-year
lease with the mall expired. Management executed a new lease with the mall
owners and opened the Company's first "Garcia's" Mexican restaurant in April of
1996. The 1995 gain of $76,400 on the sale of restaurants resulted from the sale
of the Company's Quakerbridge, New Jersey, La Crepe liquor license and the early
termination of the lease. During fiscal 1994, the Company realized a gain of
$71,300 from the sale of its Fort Meyers, Florida property.
14
<PAGE>
Interest expense was $13,100 lower in 1996 than 1995 due to debt reduction and
1995 interest expense was $79,000 lower than 1994 because the 1994 interest
expense included the early pay-off of the Cocoa Beach, Florida restaurant
mortgage. Interest income was $19,500 higher in 1996 than 1995 due to increased
amounts of cash available for short-term investments.
The Company operated a total of nine restaurants in all three fiscal years, but
ended fiscal 1996 with eight in operation due to the closure of its La Crepe
restaurant in December. However, that restaurant opened in April 1996 as the
Company's first "Garcia's" restaurant.
Mister Cookie Face ("MCF")
MCF sustained a net loss of $1,847,800 for fiscal 1996 compared to losses of
$441,400 in 1995 and $447,900 in 1994. Sales were $14,711,300 for fiscal 1996
compared to $15,872,600 for 1995 and $2,394,800 in 1994. The decrease in 1996
sales resulted primarily from increased competition from several new novelty ice
cream products, and due to a shortage of capital, a reduction in the payment of
slotting fees to purchase space in supermarket display cases as well as the
extreme winter weather in the Northeast. The increase in sales for 1995 over
1994 resulted primarily because MCF was only in operation for seven months in
1994.
The core six-pack sandwich business decreased during fiscal 1996. Two new
products introduced during fiscal 1996, Club Pack (12-pack of three flavors
designed for club stores such as the Price Club) and Feature Flavor (a variety
of six-packs designed to minimize slotting fees) met with limited success. MCF
also repackaged its singles product (individually wrapped ice cream sandwiches
offered in a variety of flavors designed for convenience stores) in order to
improve its marketability. Subsequent to the 1996 year-end, MCF entered into an
agreement with one of its ice cream suppliers whereby the supplier will produce
and ship a new MCF product, "The Pail," which consists of one and one-half
quarts of ice cream to be offered in ten different flavors. "The Pail" was
recently introduced into a few markets in order to determine customer
acceptance.
In May 1995, the Mister Cookie Face restaurant opened. However, due to
disappointing sales, the restaurant closed in September 1995. The restaurant
lost $160,700 during fiscal 1996.
Gross profit was 35% of sales in 1996 versus 33% in 1995 and 38% in 1994. Lower
ice cream costs and modest price increases in selective markets more than offset
increased packaging and labor costs and higher promotional price discounts given
to supermarket chains. 1995's gross profit was lower than 1994 because of higher
promotional discounts.
Other operating expenses were 23.7% of sales in 1996 compared to 27.9% and 34%
for the prior two years. The 1996 improvement consists mainly of decreases of
$545,500 in slotting fees and $398,000 in advertising costs. A radio advertising
campaign run during fiscal 1995 was not repeated in 1996. The improvement in
1995 versus 1994 was due primarily to the large increase in sales volume.
Depreciation and amortization expenses increased by $80,400 in 1996 due to plant
capital expenditures and equipment purchases and improvements and asset
purchases incurred at the MCF restaurant. 1995 increased by $170,000 over 1994
primarily due to the amortization of the goodwill resulting from the Company's
purchase of MCF. General and administrative expenses increased by $250,000 in
1996 primarily due to increased salaries and benefits of $119,000, higher travel
and entertainment costs of $22,000 due to efforts to introduce MCF products to
new markets including overseas, higher plant utility costs of $35,000 and
$20,000 in additional bank fees due to financing costs. In 1995, administrative
expenses increased by $272,000 over 1994 due to the fact that MCF operated for
five additional months in fiscal 1995. Frank Koenemund, in connection with the
Company's acquisition of MCF in July 1993, executed an approximately four and
one-half year employment contract with MCF (through January 31, 1998, since
extended to January 31, 2001) agreeing to serve as President and Chief Executive
Officer and to devote at least 90% of his working time to such duties. Pursuant
to his employment contract, as amended effective October 30, 1995, Mr. Koenemund
is now compensated at an annual salary of $150,000 and is also entitled to an
annual bonus equal to the following percentages of MCF's pre-tax income
(excluding extraordinary expense) provided that no losses from any fiscal period
will be carried over to reduce profits in any other fiscal period.
15
<PAGE>
MCF Pre-Tax Income percentage Bonus
On amounts up to $1,000,000 10%
On amounts in excess of $1,000,000 but not in excess of $2,000,000 7.5%
On amounts in excess of $2,000,000 but not in excess of $3,000,000 5%
On amounts in excess of $3,000,000 2.5%
Based on the bonus formula, Mr. Koenemund earned a bonus of $54,253 for fiscal
1996. He did not earn a bonus in either of the two previous years.
As previously stated, the Company adopted SFAS No. 121 effective for fiscal
1996. Based on forecasted nine-year discounted cash flows and taking into
consideration the Company's inability to expand MCF's markets and products as
originally planned, due to the failure to complete the proposed public offering,
the Company recorded an impairment loss of $2,024,700 from writing down MCF
goodwill.
Interest expense increased by $8,000 in fiscal 1996 as compared to fiscal 1995,
due to borrowings used for working capital needs.
Liquidity and Capital Resources
The Company's ratio of current assets to current liabilities was 1.73:1 at
January 28, 1996, compared to 1.45:1 and 1.11:1 for the previous two years.
Working capital was $1,842,400 at January 28, 1996 compared to $1,195,200 and
$286,500 at the conclusion of each of the prior two years. Net cash flows from
financing activities were a negative $174,000 in 1996 resulting from debt
proceeds offset by debt repayment. Debt proceeds included a $350,000 three-year
loan (part of a $625,000 loan which includes old debt) which has been used to
finance a portion of the "Garcia's" renovation. In January 1996, the Company
reached an agreement with its primary bank to restructure debt. The $2,000,000
revolving line of credit was split into two parts, a $1,000,000 five-year term
loan at 7.5% and a $1,000,000 line of credit at LIBOR +2% due in May 1997. Net
investing activities in 1996 were a negative $872,900 resulting from capital
expenditures which included outlays for restaurant improvements and equipment of
$558,500 and $314,400 for MCF equipment and the MCF restaurant. Net cash from
operating activities was $1,049,200. Changes in operating assets included a
$129,000 increase in inventories primarily due to slow sales resulting from the
severe winter weather and an increase of $111,000 in accounts receivable from
the ice cream operation. The material change in operating liabilities was a
$92,000 decrease in accounts payable and accrued expenses reflecting the weak
winter sales. In fiscal 1995, net cash flows from financing activities were
$956,000 resulting from net bank borrowings while investing activities were a
negative $1,124,600 resulting from capital expenditures of $465,900 for the
restaurants and $501,400 at MCF and the acquisition of a restaurant offset by
proceeds from the sale of another restaurant. Changes in operating assets and
liabilities in 1995 included a $749,000 increase in inventories due to increased
sales volume at MCF, a $246,000 decrease in other assets and a $253,000 increase
in accounts payable and accrued expenses due to increased sales volumes. During
fiscal 1994, net cash flows from financing activities were a negative $933,400
including the early pay-off of a restaurant mortgage of $854,700. Capital
expenditures included $742,300 for restaurants and $363,100 for MCF. Material
changes in operating assets and liabilities in 1994 included an increase in
inventories of $245,400 due to the acquisition of MCF, an increase in other
assets of $277,800 resulting from equipment deposits and prepaid registration
costs and an increase of $540,600 in accounts payable and accrued expenses due
to the acquisition of MCF.
Subsequent to the year ended January 28, 1996, the Company drew down an
additional $300,000 from its line of credit leaving an available balance of
$575,000. Additionally, the Company has $350,000 available in a line of credit
secured by its Toms River, New Jersey restaurant.
16
<PAGE>
Management anticipates that funds from operations, the $1,000,000 credit line
and the $350,000 line will be sufficient to meet obligations in fiscal 1997,
including routine capital expenditures. The expenditures necessary to open
"Garcia's" estimated at approximately $633,000 was paid with existing cash and
$350,000 in proceeds from the new three-year term loan.
Inflation
It is not possible for the Company to predict with any accuracy the effect of
inflation upon the results of its operations in future years. The price of food
is extremely volatile and projections as to its performance in the future vary
and are dependent upon a complex set of factors. The Company is currently
experiencing food and paper cost increases due to supply shortages.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Chefs International, Inc.
Point Pleasant, New Jersey
We have audited the accompanying consolidated balance sheets
of Chefs International, Inc. and its subsidiaries as of January 28, 1996 and
January 29, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three fiscal years in the
period ended January 28, 1996. 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 audit
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 consolidated 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 Chefs International, Inc. and its subsidiaries as of January 28,
1996 and January 29, 1995, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended January
28, 1996, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to the financial
statements, for the year ended January 28, 1996, the Company adopted a new
accounting standard promulgated by the Financial Accounting Standards Board,
changing its method of accounting for impairment of long-lived assets and
goodwill relating to those assets.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey March 22, 1996, except as to Note 17, for which the date is
March 28, 1996
18
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - ---------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------
<TABLE>
January 28, January 29,
<S> <C> <C>
1 9 9 6 1 9 9 5
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,411,154 $ 1,408,957
Investments 350,000 100,000
Accounts Receivable [Net of Allowance of $15,000
and $3,878, Respectively] 494,326 383,138
Miscellaneous Receivables 102,714 128,675
Inventories 1,890,309 1,761,273
Prepaid Expenses 131,235 93,705
--------------- ---------------
Total Current Assets 4,379,738 3,875,748
--------------- ---------------
Property, Plant and Equipment - At Cost 19,032,083 19,065,295
Less: Accumulated Depreciation 6,543,545 6,111,219
--------------- ---------------
Property, Plant and Equipment - Net 12,488,538 12,954,076
--------------- ---------------
Other Assets:
Investments 356,000 606,000
Goodwill - Net 1,221,448 3,528,859
Liquor Licenses - Net 752,347 777,031
Due from Employees 5,818 12,529
Due from Related Parties 11,782 --
Deposits and Other Assets 92,954 49,575
--------------- ---------------
Total Other Assets 2,440,349 4,973,994
--------------- ---------------
Total Assets $ 19,308,625 $ 21,803,818
=============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
19
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------
<TABLE>
January 28, January 29,
1 9 9 6 1 9 9 5
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,105,537 $ 1,471,349
Accrued Payroll 144,487 172,240
Accrued Expenses 563,768 351,781
Notes and Mortgages Payable to Banks 408,500 333,000
Capital Lease Obligations - Current 86,344 93,286
Other Liabilities 228,695 258,920
--------------- ---------------
Total Current Liabilities 2,537,331 2,680,576
--------------- ---------------
Long-Term Debt:
Due to Related Party 74,857 --
Notes and Mortgages Payable to Banks 1,341,500 1,500,000
Capital Lease Obligations - Long-Term 188,797 275,141
--------------- ---------------
Total Long-Term Debt 1,605,154 1,775,141
--------------- ---------------
Other Liabilities 82,396 82,396
--------------- ---------------
Commitments and Contingencies -- --
--------------- ---------------
Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized
50,000,000 Shares; Issued and Outstanding 13,466,243
and 13,459,576, Respectively 134,662 134,595
Additional Paid-in Capital 32,214,707 32,212,586
Accumulated [Deficit] (17,265,625) (15,081,476)
--------------- ---------------
Total Stockholders' Equity 15,083,744 17,265,705
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 19,308,625 $ 21,803,818
=============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
20
<PAGE>
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - ---------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- - ---------------------------------------------------------------------
For the years ended
January 28, January 29, January 30,
1 9 9 6 1 9 9 5 1 9 9 4
<S> <C> <C> <C>
SALES $ 31,282,207 $ 31,916,257 $ 17,712,293
Cost of Goods Sold 15,014,719 15,920,043 6,485,019
---------------- --------------- ---------------
Gross Profit 16,267,988 15,996,214 11,227,274
---------------- --------------- ---------------
Operating Expenses [Income]:
Payroll and Related Expenses 5,134,832 4,734,671 4,455,080
Other Operating Expenses 7,077,456 7,819,627 4,074,802
Depreciation and Amortization 1,372,826 1,241,949 1,036,010
Suspended Registration Expenses -- 270,750 --
General and Administrative Expenses 2,504,577 2,125,045 1,860,207
Loss [Gain] on Closing and Sale of Restaurants 54,355 (76,467) (71,318)
Impairment Loss of Long-Lived Assets 2,195,750 -- --
---------------- --------------- ---------------
Total Operating Expenses 18,339,796 16,115,575 11,354,781
---------------- --------------- ---------------
[Loss] from Operations (2,071,808) (119,361) (127,507)
---------------- --------------- ---------------
Other Income [Expense]:
Interest Expense (205,301) (210,586) (144,725)
Interest Income 92,960 72,817 95,568
---------------- --------------- ---------------
Total Other [Expense] - Net (112,341) (137,769) (49,157)
---------------- --------------- ---------------
[Loss] Before Income Taxes (2,184,149) (257,130) (176,664)
Provision for Income Taxes -- -- --
---------------- --------------- ---------------
Net [Loss] $ (2,184,149) $ (257,130) $ (176,664)
================ =============== ===============
Net [Loss] Per Share $ (.16) $ (.02) $ (.01)
================ =============== ===============
See Notes to Consolidated Financial Statements.
</TABLE>
21
<PAGE>
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - -----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------------------
Capital Additional Total
Number Stock Paid-in Accumulated Stockholders'
of Shares Par Value Capital [Deficit] Equity
<S> <C> <C> <C> <C> <C>
Balance - January 31, 1993 12,458,389 $ 124,584 $ 29,072,596 $ (14,647,682) $ 14,549,498
Common Stock Issued in
Connection with Acquisition 1,000,000 10,000 3,139,990 -- 3,149,990
Common Stock Issued - 3:1
Split Fractional Shares 1,082 10 -- -- 10
Net [Loss] for the Year -- -- -- (176,664) (176,664)
-------------- --------------- --------------- ----------------- --------------
Balance - January 30, 1994 13,459,471 134,594 32,212,586 (14,824,346) $ 17,522,834
Common Stock Issued - 3:1
Split Fractional Shares 105 1 -- -- 1
Net [Loss] for the Year -- -- -- (257,130) (257,130)
-------------- --------------- --------------- ----------------- --------------
Balance - January 29, 1995 13,459,576 134,595 32,212,586 (15,081,476) 17,265,705
Common Stock Options
Exercised 6,667 67 2,121 -- 2,188
Net [Loss] for the Year -- -- -- (2,184,149) (2,184,149)
-------------- --------------- --------------- ----------------- --------------
Balance - January 28, 1996 13,466,243 $ 134,662 $ 32,214,707 $ (17,265,625) $ 15,083,744
============== =============== =============== ================= ==============
See Notes to Consolidated Financial Statements.
</TABLE>
22
<PAGE>
<TABLE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------
For the years ended
January 28, January 29, January 30,
1 9 9 6 1 9 9 5 1 9 9 4
<S> <C> <C> <C>
Operating Activities:
Net [Loss] $ (2,184,149) $ (257,130) $ (176,664)
---------------- --------------- ---------------
Adjustments to Reconcile Net [Loss] to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 1,372,826 1,241,949 1,036,010
Loss on Asset Disposals 2,512 3,225 129,477
Loss [Gain] on Closing and Sale of Restaurants 54,355 (76,467) (71,318)
Impairment Loss of Long-Lived Assets 2,195,750 -- --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Inventories (129,036) (748,915) (245,414)
Prepaid Expenses (37,530) 25,621 (26,477)
Other Assets (48,450) 246,948 (277,870)
Accounts Receivable (111,188) 154,663 (59,540)
Miscellaneous Receivable 25,961 (28,571) 11,349
Increase [Decrease] in:
Accounts Payable (365,812) 143,238 446,341
Accrued Expenses and Other Liabilities 274,009 110,550 94,290
---------------- --------------- ---------------
Total Adjustments 3,233,397 762,915 1,036,848
---------------- --------------- ---------------
Net Cash - Operating Activities 1,049,248 505,785 860,184
---------------- --------------- ---------------
Investing Activities:
Capital Expenditures (872,953) (955,902) (1,105,389)
Proceeds from Sale of Restaurant -- 211,273 895,897
Payment Received on Mortgage Receivables -- -- 104,495
Sale or Redemption of Investments -- 347,000 297,000
Purchase of Investments -- (460,000) (146,000)
Loans to Acquired Company Prior to Acquisition -- -- (100,000)
Purchase of Subsidiary - Cash Acquired -- -- 59,696
Acquisition of Restaurant -- (267,008) --
---------------- --------------- ---------------
Net Cash - Investing Activities (872,953) (1,124,637) 5,699
---------------- --------------- ---------------
Financing Activities:
Repayment of Debt (1,701,286) (1,294,270) (1,178,474)
Proceeds from Debt 1,525,000 2,250,618 245,000
Proceeds from Exercise of Stock Options 2,188 -- --
---------------- --------------- ---------------
Net Cash - Financing Activities (174,098) 956,348 (933,474)
---------------- --------------- ---------------
Net Increase [Decrease] in Cash and
Cash Equivalents - Forward $ 2,197 $ 337,496 $ (67,591)
See Notes to Consolidated Financial Statements.
</TABLE>
23
<TABLE>
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------------------------------------------------------
For the years ended
January 28, January 29, January 30,
1 9 9 6 1 9 9 5 1 9 9 4
<S> <C> <C> <C>
Net Increase [Decrease] in Cash and Cash
Equivalents - Forwarded $ 2,197 $ 337,496 $ (67,591)
Cash and Cash Equivalents - Beginning of Years 1,408,957 1,071,461 1,139,052
---------------- --------------- ---------------
Cash and Cash Equivalents - End of Years $ 1,411,154 $ 1,408,957 $ 1,071,461
================ =============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 197,752 $ 202,400 $ 139,536
Income Taxes $ -- $ -- $ 6,500
</TABLE>
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
As of June 30, 1993, the Company acquired all of the outstanding common stock
of Mister Cookie Face for 1,000,000 shares of its common stock in a business
combination accounted for as a purchase.
During fiscal 1994, the Company acquired $139,052 of equipment which was
financed through capital leases.
During fiscal 1996, the Company acquired equipment from a director/employee
for an interest free note valued at $74,857.
See Notes to Consolidated Financial Statements.
24
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
[1] Nature of Operations and Summary of Significant Accounting Policies
The Company is involved in two businesses, the restaurant business and the
manufacturing and sale of ice cream products. The Company operated eight and
nine seafood restaurants at January 28, 1996 and January 29, 1995, respectively.
The restaurants are generally operated under the tradename of Lobster Shanty and
are located in New Jersey and Florida. The Company's ice cream operations are
located in New Jersey where ice cream products are manufactured. Products are
generally sold to retailers throughout the United States.
Segment information for fiscal 1996, 1995 and 1994 are as follows:
<TABLE>
Ice Cream
Fiscal 1996 Restaurants Products Total
- - ----------- ----------- -------- -----
<S> <C> <C> <C>
Sales $ 16,571,357 $ 14,711,350 $ 31,282,707
Operating [Loss] (382,806) (1,689,002) (2,071,808)
Assets 15,920,320 3,388,305 19,308,625
Depreciation and Amortization 990,867 381,958 1,372,826
Capital Expenditures 530,382 342,571 872,953
Fiscal 1995
Sales $ 16,043,702 $ 15,872,555 $ 31,916,257
Operating Income [Loss] 170,468 (289,829) (119,361)
Assets 16,317,017 5,486,801 21,803,818
Depreciation and Amortization 940,435 301,514 1,241,949
Capital Expenditures 420,160 535,742 955,902
Fiscal 1994
Sales $ 15,317,592 $ 2,394,700 $ 17,712,293
Operating Income [Loss] 211,792 (339,299) (127,507)
Assets 16,197,304 4,511,148 20,708,452
Depreciation and Amortization 993,649 42,361 1,036,010
Capital Expenditures 742,287 363,102 1,105,389
</TABLE>
Principals of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and all of its wholly-owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
Concentrations of Credit Risk - The Company's ice cream business has accounts
receivable in the normal course of business. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers. Management believes risk of loss is limited.
The Company maintains cash balances at several financial institutions in New
Jersey and Florida. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured cash balances totaled approximately
$1,502,000 and $1,473,000 at the end of fiscal years 1996 and 1995,
respectively.
The Company also maintains a highly liquid money market account which is
classified as a cash equivalent. These investments, which all mature in three
months or less, are uninsured. Balances in this account totaled $46,602 and
$4,552 at the end of fiscal year 1996 and 1995, respectively.
25
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- - ----------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Investments - Investments consist solely of certificates of deposit stated at
cost, which approximates market value and are classified as current or long-term
based on maturities at the balance sheet date.
Inventories - Inventories consist of food, beverages and supplies for the
restaurant operations and raw materials and finished goods for the ice cream
manufacturing and distribution operation. Inventories are stated at the lower of
cost [determined by the first-in, first-out method] or market.
Property, Plant and Equipment and Depreciation - Plant and equipment are carried
at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method. The costs
of maintenance and repairs are expensed as incurred, whereas significant
betterments and renewals are capitalized.
Goodwill - Goodwill represents cost in excess of fair value of property acquired
and is being amortized over estimated useful lives ranging from 10 to 40 years
under the straight-line method.
Management of the Company evaluates the periods of goodwill amortization to
determine whether later events and circumstances warrant revised estimates of
useful lives. Management also evaluates whether the carrying value of goodwill
has become impaired. This evaluation is done by comparing the carrying value of
goodwill to the value of projected discounted net cash flow from related
operations. Impairment, if any, is measured by the amount the carrying value of
goodwill exceeds the projected discounted net cash flows.
Effective for fiscal 1996, the Company has adopted Statement of Financial
Accounting Standards ['SFAS"] No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" [See Note 4].
Liquor Licenses - Liquor licenses are amortized over 40 years under the
straight-line method.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
Advertising - The Company expenses advertising costs as incurred. Advertising
costs for fiscal 1996, 1995 and 1994 were $1,798,545 $2,222,362 and $584,403,
respectively.
[2] Inventories
Inventories consist of the following:
<TABLE>
January 28, January 29,
1 9 9 6 1 9 9 5
<S> <C> <C>
Raw Materials $ 412,468 $ 539,159
Finished Goods 1,477,841 1,222,114
--------------- ---------------
Totals $ 1,890,309 $ 1,761,273
------ =============== ===============
</TABLE>
26
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- - --------------------------------------------------------------------------------
<TABLE>
[3] Property, Plant and Equipment
The classification of property, plant and equipment together with their
estimated useful lives is as follows:
January 28, January 29, Estimated
1 9 9 6 1 9 9 5 Useful Life
<S> <C> <C> <C>
Land $ 2,335,026 $ 2,335,026 N/A
Buildings and Improvements 12,547,356 12,531,683 20 - 40 Years
Leasehold Improvements 716,476 886,210 Term of Lease
Furniture and Equipment 2,838,405 2,699,873 5 - 10 Years
China, Glassware and Utensils 88,147 105,830 *
Equipment Held Under Capital Leases 506,673 506,673 5 - 10 Years
----------------- -----------------
Totals $ 19,032,083 $ 19,065,295
------ ================= =================
* Carried at original cost for each restaurant. All replacement purchases are charged to expense as
incurred.
</TABLE>
Accumulated depreciation for equipment held under capital leases was $130,506
and $76,163 at January 28, 1996 and January 29, 1995, respectively, and the
related depreciation expense was $54,343, $53,126 and $12,990 for fiscal 1996,
1995 and 1994, respectively.
In June 1993, the Company sold a former restaurant located in Fort Myers,
Florida for $896,000 resulting in a gain of $71,318. The net cash proceeds were
used to pay off a mortgage on another restaurant owned by the Company.
In September 1994, the Company sold a former restaurant located in Quakerbridge,
New Jersey for $211,273 resulting in a gain of $76,467.
In November 1995, the Company licensed the rights to the "Garcia's" tradename
for a six-county area in Central New Jersey. Consideration will be 3% of sales
as generated.
In December 1995, the "La Crepe" Restaurant in Eatontown, New Jersey was closed
for renovations. It is expected to reopen in April 1996 under the tradename
"Garcia's". A loss of $54,355 was recognized on the closing. Management
estimates the entire project will cost $633,000, of which $165,000 was expended
at the end of fiscal 1996.
[4] Intangible Assets
As of the end of fiscal 1996 and 1995, intangible assets consist of:
<TABLE>
Liquor
Fiscal 1996 Goodwill Licenses
<S> <C> <C>
Cost $ 1,998,875 $ 987,307
Less: Accumulated Amortization 777,427 234,960
-------------- ---------------
Net $ 1,221,448 $ 752,347
--- ============== ===============
Fiscal 1995
Cost $ 4,123,453 $ 987,307
Less: Accumulated Amortization 594,594 210,276
-------------- ---------------
Net $ 3,528,859 $ 777,031
--- ============== ===============
</TABLE>
Amortization expense is $207,517, $202,581 and $135,756 for fiscal 1996, 1995
and 1994, respectively.
27
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- - --------------------------------------------------------------------------------
[4] Intangible Assets [Continued]
During the fourth quarter of fiscal 1996, the Company adopted SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The Company recorded an impairment loss of $2,195,750 from writing
down goodwill and property and equipment. Facts and circumstances leading to the
impairment loss consist primarily of the application of the measurement
techniques of SFAS No. 121 to the cash flows of the Company's ice cream
operations due to its inability to expand its markets and products as previously
planned [See Note 17]. In addition, approximately $171,000 was written down in
connection with restaurant operations.
Fair value was determined for the ice cream operations through estimating the
fair value of ice cream manufacturing equipment, leasehold improvements and the
product trade name and trade mark using discounted cash flows. For the
restaurants, fair value was generally determined through estimating the fair
value of real property and liquor licenses based on the prices of similar assets
and appraisals.
The impairment loss recorded is the difference between these estimated fair
values and the carrying values of the ice cream operations and the individual
restaurants.
A significant assumption for the cash flows forecast is a nine year period for
ice cream operations.
[5] Notes and Mortgages Payable
Notes and mortgages payable as of the end of fiscal 1996 and 1995, are as
follows:
As of January 28, 1996
Note Payable, Due November 15, 2000, at 7.51% fixed,
collateralized by real estate $ 1,000,000
Note Payable, Due November 15, 1998, at 7.51%
fixed, collateralized by real estate 625,000
Revolving Credit, Due May 31, 1997, at LIBOR + 2%,
collateralized by all corporate assets 125,000
Total 1,750,000
Less: Current Portion 408,500
Total Long-Term Debt $ 1,341,500
-------------------- ==============
As of January 29, 1995
Line of Credit, Due February 25, 1996, at prime plus
1-1/8%, collateralized by all corporate assets $ 1,225,000
Note Payable, Due November 25, 1995, at prime plus
1%, collateralized by real estate 233,000
Note Payable, Due February 1, 1996 at prime,
collateralized by real estate 225,000
Note Payable, Due September 30, 1997 at prime plus
1%, collateralized by real estate 150,000
Total 1,833,000
Less: Current Portion 333,000
Total Long-Term Debt $ 1,500,000
-------------------- ==============
28
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- - --------------------------------------------------------------------------------
[5] Notes and Mortgages Payable [Continued]
Availability under the revolving credit, and an additional $350,000 line of
credit, at January 28, 1996 was $1,225,000. The Company borrowed an additional
$300,000 under the line subsequent to January 28, 1996.
The note and mortgage payables are due in periodic installments through the due
dates.
At January 28, 1996, annual maturities of debt are as follows:
1997 $ 408,500
1998 533,500
1999 408,000
2000 200,000
2001 200,000
Thereafter --
--------------
Total $ 1,750,000
----- ==============
All of the above obligations are due to the same financial institution.
The loan covenant governing the borrowings includes, among other items,
requirements to maintain certain working capital and tangible net worth amounts
and restrictions on dividends.
[6] Capital Lease Obligations
The Company leases machinery and equipment under capital leases expiring in
2000. Future minimum payments by the Company under capital leases consist of the
following at January 28, 1996:
Payments Due in Fiscal:
1997 $ 105,353
1998 91,404
1999 91,404
2000 24,254
Thereafter --
--------------
Total Minimum Lease Payments 312,415
Amount Representing Interest 37,274
Present Value of Minimum Lease Payment 275,141
Less: Current Portion 86,344
Capital Lease Obligations - Long-Term $ 188,797
------------------------------------- ==============
[7] Transactions with Related Parties
A principal stockholder of the Company is the principal owner of a partnership
which leases the Vero Beach Restaurant to the Company. The lease for Vero Beach
is on a month-to-month basis and requires monthly payments of $10,000. Total
rent expense was $120,000 for fiscal 1996, 1995 and 1994.
The Company purchased restaurant equipment from an employee/director for an
interest free note which has been discounted at 7-1/2% to a value of $74,857.
Loans have been made to two directors for a total outstanding balance at January
28, 1996 of $11,782. Principal and interest payments are made on a regular basis
with interest at 6%.
29
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- - -------------------------------------------------------------------------------
[8] Commitments
The Company leases restaurant, office and storage facilities, and equipment
under operating leases expiring at various times through the year 2008.
Minimum future rental payments under noncancelable operating leases as of
January 28, 1996, are as follows:
Year ending
January
1997 $ 396,778
1998 388,356
1999 234,161
2000 131,687
2001 106,250
There 583,313
--------------
Total Minimum Future Rentals $ 1,840,545
---------------------------- ==============
Rent expense was $483,555, $363,947 and $284,618 for fiscal 1996, 1995 and 1994,
respectively.
The Company has employment agreements with three employee/directors for annual
amounts ranging from $87,000 to $150,000 for periods of three to five years.
Total payments under the agreements over the next five years are $1,461,000. Two
of the agreements provide for lump sum payments in the event of the termination
of the employee/directors without cause or a change in control of the Company,
as defined, for a portion of the unexpired term of the contracts.
Another agreement provides for a director/employee to receive a percentage of
the profits of the ice cream business, based on a scale from 10% to 2.5% of
profits, as defined. Payments under the agreement amounted to $54,253, $-0- and
$-0- for fiscal 1996, 1995 and 1994, respectively.
The Company has an agreement with a director/employee which provides for the
payment of $20,000/year upon retirement. The amount has been partially insured
with a life insurance contract owned by the Company. The net amount is shown as
other liabilities.
In October 1995, the Company entered into a consulting agreement with a
corporation controlled by a director. This corporation will provide marketing,
advertising and promotional services through January 1999 for a fee of $3,000
per month.
[9] Earnings Per Share
Earnings [loss] per share are based on weighted average number of shares
outstanding of 13,463,349, 13,459,576 and 13,010,156 for fiscal years 1996, 1995
and 1994, respectively. The effect of options or warrants is anti-dilutive for
fiscal years 1996, 1995 and 1994.
[10] Stock Options
In June of 1982, the Company's Board of Directors adopted an incentive stock
option plan for key employees which was subsequently approved by the Company's
stockholders. All incentive options granted under the plan were intended to
qualify as incentive stock options under Section 422A of the Internal Revenue
Code. Under the plan, an aggregate of 166,667 shares of common stock were
reserved for issuance. Options may be exercised over a period of five or ten
years from the date of grant and expire in 1996, 1999 and 2000.
30
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- - --------------------------------------------------------------------------------
[10] Stock Options [Continued]
In October 1994, the stockholders approved the grant of 650,000 non-qualified
options to four directors to purchase the Company's stock at $1.25 per share.
The options are for five years.
In October 1995, the stockholders approved the grant of 900,000 non-qualified
options to two directors to purchase the company stock at $1.00 per share. The
options are for five years.
In July 1995, one individual exercised options to buy 6,667 shares of stock at
the option price of $.328 per share. An additional option to buy 1,667 shares
was canceled during the fiscal year.
The following is a summary of both incentive and non-qualified options:
<TABLE>
Shares Under Options
----------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year 805,334 156,334 156,334
Granted or Sold during the year 900,000 650,000 --
Canceled during the year (1,667) (1,000) --
Exercised during the year (6,667) -- --
--------------- -------------- --------------
Outstanding, end of year [Option prices range
from $.328 to 1.25] 1,697,000 805,334 156,334
------------------- =============== ============== ==============
</TABLE>
[11] Income Taxes
Effective February 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the asset and liability
method is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
January 28, January 29,
1 9 9 6 1 9 9 5
<S> <C> <C>
Deferred Tax Assets:
U.S. Federal Tax Loss Carryforwards $ 5,118,000 $ 5,335,000
Impairment Loss 880,000 --
--------------- --------------
Gross Deferred Tax Asset 5,998,000 5,335,000
Less: Valuation Allowance 5,062,000 4,677,000
--------------- --------------
Net Deferred Tax Assets $ 936,000 $ 658,000
-----------------------
Deferred Tax Liability:
Depreciation 936,000 658,000
--------------- --------------
Net Deferred Taxes $ -- $ --
------------------ =============== ==============
</TABLE>
The valuation allowance at the end of both years reduces the deferred tax asset.
net of the deferred tax liability to zero. The net change in the valuation
allowance of $385,000 is primarily due to an increase to offset the gross amount
from the non-deductible impairment loss in the current year.
31
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- - --------------------------------------------------------------------------------
[11] Income Taxes [Continued]
The Company has available at January 28, 1996, operating loss carryforwards as
follows:
Year of Unused Operating
Expiration Loss Carryforwards
1998 $ 289,544
1999 1,217,240
2000 2,341,860
2001 1,838,179
2002 1,509,463
2003 2,072,345
2004 2,942,316
2005 472,062
2009 118,411
2010 285,130
---------------
Totals $ 13,086,550
------ ===============
[12] Fair Value
The following table summarizes the carrying amount and estimated fair value of
the Company's significant financing instruments, all of which are held for
non-trading purposes.
January 28, 1996 January 29, 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Long-Term Debt $ 1,341,500 $ 1,341,500 $ 1,500,000 $ 1,404,000
In assessing the fair value of financial instruments, the Company has used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, trade receivables and payables, related party
receivables and payables, and short-term debt, it was assumed that the carrying
amount approximated fair value for the majority of these instruments because of
their short maturities.
[13] 52-53 Week Year
The Company's year end is the last Sunday in January. The statements of
operations are comprised of a 52-week year for fiscal 1996, 1995 and 1994.
[14] New Authoritative Pronouncements
The FASB has issued SFAS No. 123, "Accounting for Stock-Based Compensation," in
October 1995. SFAS No. 123 uses a fair value based method of accounting for
stock options and similar equity instruments as contrasted to the intrinsic
value based method of accounting prescribed by Accounting Principles Board
["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
has not decided if it will adopt SFAS No. 123 or continue to apply APB Opinion
No. 25 for financial reporting purposes. SFAS No. 123 will have to be adopted
for financial note disclosure purposes in any event. The accounting requirements
of SFAS No. 123 are effective for transactions entered into in fiscal years that
begin after December 15, 1995; the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995.
32
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- - -------------------------------------------------------------------------------
[15] Acquisitions
On July 14, 1993, the Company acquired Mister Cookie Face for 1,000,000 shares
of its common stock as of June 30, 1993, in a business combination accounted for
as a purchase. The purchase price of $3,150,000 exceeded the fair value of the
net assets acquired by $3,056,626, which is being amortized over 9 years under
the straight-line method, after write-down for impairment [See Note 4]. The
results of operations of Mister Cookie Face, Inc. are included in the
consolidated statements of operations from July 1, 1993 onward.
Pro forma information as if the purchase had been made at the beginning of the
fiscal year is as follows:
January 30,
1 9 9 4
Sales $ 18,863,374
===============
[Loss] Before Extraordinary Item $ (159,443)
===============
Net [Loss] $ (159,443)
===============
Earnings [Loss] Per Share $ (.01)
===============
On October 28, 1994, the Company purchased a liquor license and trade name from
a restaurant in New Jersey. The purchase price of $267,008 exceeded the fair
value of the assets acquired by $117,008, which is being amortized over 3 years
under the straight-line method, after adjustment for impairment.
[16] Capital Transactions
On June 8, 1993, the Company effected a one-for-three reverse stock split of its
outstanding common stock, .01 par value, without changing the par value of the
common stock. All share data has been adjusted to reflect this change.
[17] Registration Statement and SEC Investigation
In September 1993, the Company filed a registration statement which was
subsequently withdrawn on March 28, 1996. The Company incurred approximately
$270,750 in registration costs which were written off in fiscal 1995.
. . . . . . . . . . . . . .
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE
To the Stockholders and Board of Directors of
Chefs International, Inc.
Point Pleasant, New Jersey
Our report on the consolidated financial statements of Chefs
International Inc. and its subsidiaries is included on page F-1 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related accompanying financial statement Schedule II -Valuation and
Qualifying Accounts.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 22, 1996
34
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- - ----------------------------------------------------------------
<TABLE>
Additions
Balance at Charged Charged to Deductions Balance at
Beginning Against Other from Close
of Period Income Accounts Reserves of Period
<S> <C> <C> <C> <C> <C>
For the period ended January 28, 1996:
Allowances [Deducted from Accounts
Receivable] $ 3,878 $ 24,693 $ -- $ 13,571 $ 15,000
============== ============== ============= =============== ==============
Amortization of Goodwill [See Note 4] $ 594,594 $ 182,833 $ -- $ -- $ 777,427
============== ============== ============= =============== ==============
Amortization of Other Intangibles
[See Note 4] $ 210,276 $ 24,684 $ -- $ -- $ 234,960
============== ============== ============= =============== ==============
</TABLE>
35
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- - --------------------------------------------------------------------------------
<TABLE>
Additions
Balance at Charged Charged to Deductions Balance at
Beginning Against Other from Close
of Period Income Accounts Reserves of Period
<S> <C> <C> <C> <C> <C>
For the period ended January 29, 1995:
Allowances [Deducted from Accounts
Receivable] $ 33,750 $ -- $ -- $ 29,872 $ 3,878
============== ============== ============= =============== ==============
Amortization of Goodwill [See Note 4] $ 416,149 $ 178,445 $ -- $ -- $ 594,594
============== ============== ============= =============== ==============
Amortization of Other Intangibles
[See Note 4] $ 218,964 $ 24,136 $ -- $ 32,824 $ 210,276
============== ============== ============= =============== ==============
</TABLE>
36
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- - --------------------------------------------------------------------------------
<TABLE>
Additions
Balance at Charged Charged to Deductions Balance at
Beginning Against Other from Close
of Period Income Accounts [A] Reserves of Period
<S> <C> <C> <C> <C> <C>
For the period ended January 30, 1994:
Allowances [Deducted from Accounts
Receivable] $ 11,745 $ 24,085 $ -- $ 2,080 $ 33,750
============== ============== ============= =============== ==============
Amortization of Goodwill [See Note 4] $ 317,204 $ 98,945 $ 12,481 $ -- $ 416,149
============== ============== ============= =============== ==============
Amortization of Other Intangibles
[See Note 4] $ 194,634 $ 24,330 $ -- $ -- $ 218,964
============== ============== ============= =============== ==============
[A] Addition due to acquisition.
</TABLE>
37
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
38
<PAGE>
CHEFS INTERNATIONAL, INC.
- - -------------------------------------------------------------------------
PART III
- - -----------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to each of the
directors and executive officers of the Company:
Name Age Office
Anthony Papalia 38 President, Treasurer, Chief Executive Officer,
Chief Financial Officer and Director
James Fletcher 65 Vice President and Director
Martin W. Fletcher 43 Secretary and Director
Frank Koenemund 52 Director
Jack Mariucci 56 Director
- - ------------
(a) James Fletcher is the father of Martin Fletcher.
The Company does not have an Executive Committee. The term of office of each
director and executive officer expires when his successor is elected and
qualified. Executive officers are elected by and hold office at the discretion
of the Board of Directors.
The following is a brief account of the business experience of each director and
executive officer of the Company during the past five years.
Anthony Papalia has been continuously employed by the Company for the preceding
five years. He has served as a manager of various New Jersey Lobster Shanty
restaurants and as an area supervisor. Mr. Papalia, who was elected senior vice
president and a director of the Company in September, 1985 and president and
treasurer in March 1988, is currently devoting all of his working time to the
business of the Company. In July 1993, he was elected an executive officer and a
director of Mr. Cookie Face.
James Fletcher was elected a vice president of the Company on February 10, 1978
and a director in December, 1978. In April 1980 Mr. Fletcher became general
manager of the Company's Florida seafood restaurants. He is currently devoting
all of his working time to the business of the Company.
Martin Fletcher has been continuously employed by the Company for the preceding
five years in various capacities. He has served as general manager of the
Company's Toms River, New Jersey Lobster Shanty, as area supervisor for its
Florida west coast restaurants, as assistant controller, since September 1987 as
controller and since March 1988 as secretary and a director of the Company. He
is currently devoting all of his working time to the business of the Company. In
July 1993, he was elected an executive officer and a director of Mr. Cookie
Face.
Frank Koenemund was principally engaged from 1988 through 1991 as a principal of
Thin's Inn and Thin N'Creamy, two New Jersey entities packaging and selling diet
cookies in various United States markets. Since February 1992, Mr. Koenemund has
been principally engaged as sole owner and as an executive officer of Mr. Cookie
Face which was acquired by the Company in July 1993, at which time, he was
elected a director of the Company. He currently devotes all of his working time
to the business of the Company.
39
<PAGE>
Jack Mariucci was principally engaged for more than the past five years and
until October 1994 as Executive Vice President and Executive Creative Director
of DDB Needham Worldwide - New York. DDB Needham is a global advertising agency
with offices in cities throughout the world. Mr. Mariucci was also a member of
the New York Management Board of DDB Needham. Since October 1994, Mr. Mariucci
has been principally engaged as an independent marketing consultant. He was
elected a director of the Company in July 1993.
Compliance with Section 16 (a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and on representations that no Forms
5 were required, the Company believes that with respect to fiscal 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
beneficial owners of more than 10% of its equity securities were timely complied
with except for late filings made by Messrs. Koenemund and Mariucci with respect
to stock options authorized at the Company's annual meeting of stockholders held
on December 19, 1995.
Item 11. Executive Compensation
The following table sets forth information concerning the compensation paid or
accrued by the Company during the three fiscal years ended January 28, 1996 to
its Chief Executive Officer as well as to any other executive officer of the
Company or a subsidiary who earned at least $100,000 during fiscal 1996. During
the three-year period ended January 28, 1996, the Company did not grant any
restricted stock awards or have any long-term incentive plan in effect. The
Company maintains a Supplemental Employee Benefit Program for its officers,
supervisors, restaurant managers and assistant managers paying annual
contributions ranging from $1,000 to approximately $3,000 per individual (except
that the contribution for Mr. Koenemund who first became covered under the
Program in June 1995 was $8,352 in fiscal 1996). The Program provides life
insurance death benefits, disability income benefits and retirement income
benefits. James Fletcher is not covered under this Program but the Company
agreed that if he remained in its employ until age 65 and left such employ at
any time thereafter, the Company would pay him $20,000 annually for the ten year
period following such termination of employment or until his death, if he dies
prior thereto. The Company partially funds this obligation with an insurance
policy paying an annual premium of approximately $5,000.
<TABLE>
SUMMARY COMPENSATION TABLE
Name and Annual Compensation Other Annual
Principal Position Fiscal Year Salary Bonus Compensation
<S> <C> <C> <C> <C> <C>
Anthony Papalia 1996 $ 119,692 $ -- $ 2,088(a)
President and Chief 1995 $ 110,600 $ -- $ 2,088(a)
Executive Officer 1994 $ 107,139 $ -- $ 2,088(a)
Frank Koenemund 1996 $ 111,539 $ 54,300 $ 8,352(a)
Chief Executive 1995 $ 100,000 $ -- $ --
Officer of MCF 1994 $ 84,878 $ -- $ --
(a) Represents contributions under the Supplemental Employee Benefit Program.
</TABLE>
40
<PAGE>
<TABLE>
Long-Term Compensation
Restricted
Name and Options Stock LTIP All Other
Principal Position Fiscal Year SARs Awards Payouts Compensation
<S> <C> <C> <C> <C> <C>
Anthony Papalia 1996 -0- 0 $ -- $ --
President and Chief 1995 162,500* 0 $ -- $ --
Executive Officer 1994 -0- 0 $ -- $ --
Frank Koenemund 1996 750,000** 0 $ -- $ --
Chief Executive 1995 162,500* 0 $ -- $ --
Officer of MCF 1994 -0- 0 $ -- $ --
</TABLE>
* Each exercisable to purchase one share of Common Stock at $1.25 per share.
* Each exercisable to purchase one share of Common Stock at $1.00 per share.
Employment Agreement
At the annual meeting of the Company's stockholders held on December 19, 1995,
stockholders ratified employment contracts between the Company and Anthony
Papalia as chief executive officer and chief financial officer and between the
Company and Martin Fletcher as controller. Each contract expires at the
conclusion of the Company's 1999 fiscal year and is automatically renewed on a
year by year basis for up to five consecutive additional one-year terms unless
either party gives at least six months prior notice that he or it does not
desire such renewal. Mr. Papalia's annual salary under the contract is $150,000
and Mr. Fletcher's annual salary under the contract is $87,000. Each individuals
salary is subject to automatic increase in each Renewal Year based on increases
in the Consumer Price Index. If the employment of either individual is
terminated other than for cause, he will become entitled to a Severance Payment
equal to the amount of his compensation over the balance of the contract term.
Each individual is also entitled to terminate his employment and receive a
Severance Payment equal to six months salary in the event of a "change of
control" of the Company.
Frank Koenemund, in connection with the Company's acquisition of Mr. Cookie Face
in July 1993, executed an approximately four and one-half year employment
contract with Mr. Cookie Face (through January 31, 1998) agreeing to serve as
president and chief executive officer and to devote at least 90% of his working
time to such duties. Pursuant to the employment contract, Mr Koenemund was
compensated at an annual salary of $100,000 and was also entitled to an annual
bonus equal to the following percentages of Mr. Cookie Face's pre-tax income
(excluding extraordinary items) provided that no losses from any fiscal period
will be carried over to reduce profits in any other fiscal period.
MCF Pre-Tax Income Percentage Bonus
On amounts up to $1,000,000 10%
On amounts in excess of $1,000,000 but not in excess of $2,000,000 7.5%
On amounts in excess of $2,000,000 but not in excess of $3,000,000 5%
On amounts in excess of $3,000,000 2.5%
On October 30, 1995, the term of Mr. Koenemund's employment contract was
extended through January 31, 2001, his salary was increased commencing October
30, 1995 to an annual rate of $150,000 and the bonus provision was retained.
Based on the bonus formula, Mr. Koenemund, who did not earn a bonus in fiscal
1994 or fiscal 1995, earned a bonus of $54,253 with respect to fiscal 1996.
41
<PAGE>
Effective October 2, 1995, the Company executed a Consulting Agreement with M&M
Creative Services, Inc. ("M&M") retaining M&M as a consultant for an
approximately three-year term through the conclusion of fiscal 1999, to provide
marketing, advertising and similar promotional services for a monthly consulting
fee of $3,000. Jack Mariucci, a director of the Company, is the principal
employee of M&M and his wife is the president and sole stockholder. The
Consulting Agreement requires Mr. Mariucci to devote at least 10% of his working
time in each month to providing the consulting services and terminates, among
other reasons, in the event of Mr. Mariucci's death or disability. The
Consulting Agreement is automatically renewed on a year by year basis for up to
five consecutive additional one-year terms unless either party gives at least
six months prior notice that he or it does not desire such renewal.
Stock Options
On November 18, 1986, the Company's Board of Directors granted Incentive Stock
Options ("ISOs") exercisable to purchase an aggregate 36,334 shares of Chefs's
Common Stock at $.375 per share, pursuant to the Company's 1982 Incentive Stock
Option Plan (the "Plan") to 27 employees including three officers. The options
are exercisable until ten years after the Date of Grant but only by the employee
(or his estate in the event of death). The Company's three present executive
officers each were granted options to purchase 1,667 shares. On November 18,
1986, the closing bid price for the Company's common stock on the NASDAQ system
was $.375. None of such options have been exercised to date and an aggregate
23,334 of such options have been canceled due to terminations of employment.
On November 3, 1989, the Company's Board of Directors granted additional ISOS,
identical in form and exercisable to purchase an aggregate 146,334 shares of
Common Stock at $.328125 per share (equal to the mean between the closing bid
price and the closing asked price for the Common Stock on NASDAQ on November 2,
1989), pursuant to the Plan, to ten employees including three officers. Anthony
Papalia, James Fletcher and Martin W. Fletcher were granted 36,667, 20,000 and
33,000 of these options, respectively. To date, ISOs have been exercised to
purchase an aggregate 6,667 shares and an aggregate 6,664 of such options have
been canceled due to terminations of employment.
The Company's ISO Plan terminated in August 1992.
At Chefs' annual meeting of stockholders held on October 3, 1994, stockholders
approved the grant to four key members of management of stock options
exercisable to purchase an aggregate 650,000 shares of Common Stock. The options
are each exercisable over a term of five years from October 3, 1994 at an
exercise price of $1.25 per share (the last sales price for the Common Stock on
the NASDAQ Small-Cap System on July 29, 1994, the last trading day prior to the
date of grant of the options by the Board of Directors). Each option is
non-transferable (except on death) and is exercisable by the optionee only while
serving as an officer, director or employee of the Company or one of its
subsidiaries. The optionees and the number of shares issuable upon exercise of
the options granted to such optionees are as follows:
Optionee Number of Shares
Anthony Papalia (President, Treasurer, CEO, CFO and Director) 162,500
Martin Fletcher (Secretary and Director) 162,500
Frank Koenemund (President of Mr.Cookie Face subsidiary and Director)162,500
Jack Mariucci (Director) 162,500
42
<PAGE>
At Chefs' annual meeting of stockholders held on December 19, 1995, stockholders
approved the grant to Messrs. Koenemund and Mariucci of stock options
exercisable to purchase 750,000 shares and 150,000 shares of Common Stock
respectively. The options are each exercisable over a term of five years from
December 19, 1995 at an exercise price of $1.00 per share. On October 20, 1995,
the last trading day prior to the date of grant of the options by the Board of
Directors, the last sales price for the Common Stock on the NASDAQ Small-Cap
System was $.40625. Each option is non-transferable (except on death) and is
exercisable, in the case of Mr. Koenemund, only while serving as an officer,
director or employee of the Company or a subsidiary, and in the case of Mr.
Mariucci, only while rendering marketing and advertising services to the Company
or a subsidiary pursuant to a consulting agreement.
The following table illustrates information concerning stock option grants made
during fiscal 1996 to each of the executive officers named in the "Summary
Compensation Table."
<TABLE>
Option Grants in Fiscal 1996
Percent of Potential Realizable
Number of Total Options Value at Assumed Annual
Shares of Granted to Rates of Stock Price
Common Stock "Employees and Exercise Appreciation for
Underlying Consultants" Price Expiration Option Term (1)
Name Options Granted in Fiscal Year Per Share Date 5%($) 10%($)
---- --------------- -------------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Frank Koenemund 750,000 83% $1.00 12/18/00 -0- -0-
</TABLE>
- - -----------
(1) Assumes appreciation at the stated rates in the market price for Chefs'
Common Stock. The option will have no value unless, and only to the extent that
the market price for Chefs' Common Stock appreciates from the grant date to the
exercise date.
The following table sets forth certain information concerning unexercised
options for each of the executive officers named in the "Summary Compensation
Table." No options were exercised by either individual in fiscal 1996.
1996 Fiscal Year-End Option Values
Number of Unexercised Options
at 1996 Fiscal Year-End
Value of Unexercised
In-The-Money
Name Exercisable Unexercisable Options at 1/28/96(1)
Anthony Papalia 38,334 -0- -0-
162,500 -0- -0-
Frank Koenemund 162,500 -0- -0-
750,000 -0- -0-
- - ------------
(1) The option exercise price exceeded the closing bid price for the Common
Stock in the over-the-counter market on the last trading day preceding January
28, 1996.
The foregoing table does not include stock options granted by the Company's
principal stockholder to
purchase shares of Common Stock owned by him. See "Item 13 -
Certain Relationships and Related
Transactions."
43
<PAGE>
Directors' Compensation
Directors who are not employees of the Company or its subsidiaries are
compensated at a monthly rate of $1,500. At present, the sole non-employee
director is Jack Mariucci.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of April 18, 1996 with respect to
their ownership of Chefs' Common Stock by (i) each person known by the Company
to be the beneficial owner of more than 5% of Chefs' outstanding Common Stock,
(ii) each director of the Company, (iii) each executive officer of the Company,
and (iv) all directors and executive officers as a group. The percentages have
been calculated on the basis of treating as outstanding for a particular holder,
all shares of Chefs' Common Stock outstanding on said date and all shares of
Common Stock issuable to such holder in the event of exercise or conversion of
outstanding options, warrants and convertible securities owned by such holder at
said date which are exercisable or convertible within 60 days of such date.
Shares of
Name and Address Common Stock Percentage
of Beneficial Owner Beneficially Owned Ownership
Directors*
Anthony Papalia 700,834(1) 5%
James Fletcher 22,667(2) --
Martin Fletcher 447,167(3) 3%
Frank Koenemund 2,662,500(4) 19%
Jack Mariucci 437,500(5) 3%
All executive officers and directors
as a group (five persons) 4,270,668(1)(2)(3)(4)(5) 28%
Other
Robert E. Brennan 5,299,667(6) 39%
264 Route 537 East
Colts Neck, New Jersey 07722
- - ------------
*The address of each executive officer and director is c/o the Company, 62
Broadway, Point Pleasant Beach, New Jersey 08742.
(1) Includes 200,834 shares issuable upon exercise of stock options granted by
the Company and 500,000 shares issuable upon exercise of options granted by
Robert E. Brennan to purchase shares of Chefs' Common Stock owned by him. See
"Item 13 - Certain Relationships and Related Transactions". (2) Includes 21,667
shares issuable upon exercise of stock options granted by the Company. (3)
Includes 197,167 shares issuable upon exercise of stock options granted by the
Company and 250,000 shares issuable upon exercise of options granted by Robert
E. Brennan to purchase shares of Chefs' Common Stock owned by him. See "Item 13
- - - Certain Relationships and Related Transactions." (4) Includes 912,500 shares
issuable upon exercise of stock options granted by the Company, 1,000,000 shares
of Chefs' Common Stock issued in connection with the July 1993 acquisition of
Mr. Cookie Face and 750,000 shares issuable upon exercise of options granted by
Robert E. Brennan to purchase shares of Chefs' Common Stock owned by him. See
"Item 13 - Certain Relationships and Related Transactions." (5) Includes 312,500
shares issuable upon exercise of stock options granted by the Company and
125,000 shares issuable upon exercise of options granted by Robert E. Brennan to
purchase shares of Chefs' Common Stock owned by him. See "Item 13 - Certain
Relationships and Related Transactions." (6) Includes 1,625,000 shares subject
to options granted by Robert E. Brennan to four of the five directors of the
Company. See "Item 13 - Certain Relationships and Related Transactions."
44
<PAGE>
Robert E. Brennan through his stock ownership may be deemed the controlling
stockholder of the Company.
Item 13. Certain Relationships and Related Transactions
Robert E. Brennan is a principal stockholder of the Company as well as the owner
of Gourmet Associates ("Gourmet") which has leased the Vero Beach, Florida
Lobster Shanty restaurant to the Company since 1979. During the Company's two
most recently completed fiscal years and at present, the lease has been and
continues to be a month to month "net" lease at a monthly rental of $10,000 with
the Company also paying personal property taxes and insurance thereunder.
Management regards this lease to be advantageous to the Company.
On July 23, 1993, Robert E. Brennan, granted options to purchase an aggregate of
3,250,000 of his shares of Chefs Common Stock to Messrs. Koenemund, Papalia,
Martin Fletcher and Mariucci. One half of these options, exercisable at $5.50
per share, expired in July 1995 without being exercised. The balance, all of
which are outstanding, are as follows:
Number of Option Expiration
Optionees Shares Price Date
Frank Koenemund 750,000 $8.00 7/23/96
Anthony Papalia 500,000 $8.00 7/23/96
Martin Fletcher 250,000 $8.00 7/23/96
Jack Mariucci 125,000 $8.00 7/23/96
The options granted to Messrs. Koenemund, Papalia and Fletcher are exercisable
solely while the optionee is employed by the Company and/or a Company subsidiary
and the options granted to Mr. Mariucci are exercisable only while he is a
director of the Company.
In February 1995, Mr. Cookie Face agreed to purchase certain furniture, fixtures
and equipment at a restaurant operated by a corporation wholly-owned by Frank
Koenemund in a strip mall in Manalapan, New Jersey for a $125,000 note, payable
out of 50% of the annual profits derived from Mr. Cookie Face's operation of an
ice cream parlor and restaurant at said location. Chefs' management was of the
opinion that the replacement cost of such furniture, fixtures and equipment
approximated $125,000. Mr. Koenemund represented that his approximate cost for
same two and three years prior was also $125,000. Mr. Cookie Face entered into a
five-year lease for the premises through January 31, 2000 to operate its first
Mister Cookie Face restaurant at such location at an annual rental initially at
approximately $32,000 and reducing to an annual rental in the last year of
$26,700.
In May 1995, the Company opened a Mr. Cookie Face restaurant at the strip mall
location offering a limited menu during lunch and dinner hours as well as Mr.
Cookie Face and other ice cream and dessert products for both on premises
consumption and retail take-out. Due to disappointing sales, the Company closed
this restaurant in September 1995. The restaurant lost $160,700 in fiscal 1996.
In April 1996, Mr Cookie Face sold the restaurant furniture, fixtures and
equipment and assigned the lease for the restaurant to WW Ice Cream Parlors,
Inc. and Welsh Farms, Inc. (collectively "Welsh") at a sales price of $190,000,
payable solely out of certain monetary credits which Welsh agreed to provide Mr.
Cookie Face for future purchases of ice cream mix and ice cream products.
Despite the assignment, Mr. Cookie Face continued to remain liable with Welsh
under the lease. At the same time, Mr. Koenemund's corporation agreed with Mr.
Cookie Face to reduce the principal amount of the above described $125,000 note
to $95,000 and to provide that it would be payable solely out of 50% of the
amount of any monetary credits received by Mr. Cookie Face from Welsh pursuant
to the above described arrangement.
45
<PAGE>
CHEFS INTERNATIONAL, INC.
- - ---------------------------------------------------------
PART IV
- - ---------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The consolidated financial statements of Chefs International, Inc. ("Chefs" or
the "Company") and its wholly owned subsidiaries are included in Part II, Item
8.
(2) Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts is included in this Part IV. All
other schedules are omitted because the required information is not applicable,
not material or included in the consolidated financial statements or notes
thereto.
(3) Exhibits
3.1 Certificate of Incorporation of the Company, as amended(A)
3.2 By-Laws of the Company, as amended(A)
4.1 Specimen Common Stock Certificate(A)
10.1 Monmouth Mall Shopping Center Lease for Garcia's restaurant
10.2 Acquisition Agreement as of June 30, 1993 between the Company
and Frank Koenemund
concerning the acquisition of Mr. Cookie Face(B)
10.3 Employment Agreement as of June 30, 1993 between
Mr. Cookie Face and Frank
Koenemund(B)
10.4 Amendment No. 1 dated as of October 30, 1995 to Employment
Agreement between Mr.
Cookie Face and Frank Koenemund
10.5 Term Loan and Revolving Credit Agreement dated January 19,
1996 between the Company
and First Union National Bank
10.6 Acquisition Agreement dated April 8, 1994 between the Company
and Evelyn's Fish Market,
Inc. for the acquisition of "Evelyn's" restaurant in
Belmar, N.J.(C)
10.7 Lease Agreement dated September 29, 1995 between Evelyn's
Associates and Chefs
International, Inc. for "Lobster Shanty" restaurant in Belmar,
New Jersey(D)
10.8 Employment Agreement dated as of December 19, 1995 between Chefs
and Anthony Papalia
10.9 Employment Agreement dated as of December 19, 1995 between Chefs
and Martin Fletcher
10.10 Consulting Agreement dated as of October 2, 1995 between
Chefs and M&M Creative
Services, Inc.
46
<PAGE>
10.11 Stock Option Agreement dated as of October 3, 1994 between Chefs
and Anthony Papalia. Substantially similar option agreements
were executed by Chefs with Martin Fletcher, Frank Koenemund and
Jack Mariucci as of October 3, 1994 for 162,500 shares each at
an exercise price of $1.25 per share and as of December 19, 1995
with Frank Koenemund (750,000 shares) and Jack Mariucci (150,000
shares) at an exercise price of $1.00 per share
22 Subsidiaries - The following table indicates the wholly owned
subsidiaries of the Company,
their respective states of incorporation, and
(except for Mister Cookie Face, Inc.) the
restaurants operated by each
State of
Name Incorporation Restaurants
Chefs International Florida Lobster Shantys -
Palm Beach, Inc. Vero Beach and Jensen
Beach, Florida
Kev, Inc. New Jersey Lobster Shanty - Pt. Pleasant
Beach, New Jersey
Robbins Parkway New Jersey Lobster Shanty - Toms
Realty Co., Inc. River, New Jersey
Hightstown REB, Inc. New Jersey Lobster Shanty -
Hightstown, New Jersey
Mister Cookie Face, Inc. New Jersey
- - ------------
(A) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form SB-2 (File no. 33-66936) (B) Incorporated by reference to
exhibit filed with the Company's current report on Form 8-K for July 23, 1993
(C) Incorporated by reference to exhibit filed with the Company's annual report
on Form 10-KSB for the fiscal year ended January 30, 1994 (D) Incorporated by
reference to exhibit filed with the Company's annual report on Form 10-KSB for
the fiscal year ended January 29, 1995
The Company did not file any reports on Form 8-K during the last quarter of the
fiscal year ended January 28, 1996.
47
<PAGE>
SIGNATURES
- - --------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) CHEFS INTERNATIONAL, INC.
By:/s/ Anthony C. Papalia
Anthony C. Papalia, President
Date May 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By:/s/ Anthony C. Papalia By: /s/ Frank Koenemund
Anthony C. Papalia, Principal executive, Frank Koenemund, Director
financial and accounting officer and director
Date May 9, 1996 Date May 9, 1996
---------------------- -----------
By:/s/ Martin Fletcher By: /s/ Jack Mariucci,
Martin Fletcher, Director Jack Mariucci, Director
Date May 9, 1996 Date May 9, 1996
-------------------------- -----------
By: /s/ James Fletcher
James Fletcher, Director
Date May 9, 1996
48
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Exhibit 10.1
Monmouth Mall Shopping Center
Lease for Garcia's restaurant
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN EQUITY PROPERTIES AND DEVELOPMENT
ITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP,
AS AGENT FOR OWNER ("LANDLORD") AND
CHEFS INTERNATIONAL, INC., A DELAWARE CORPORATION,
D/B/A GARCIA'S ("TENANT")
AT MONMOUTH MALL
EATONTOWN, NEW JERSEY
49
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TABLE OF CONTENTS
ARTICLE I
REFERENCE PROVISIONS, DEFINITIONS AND EXHIBITS
1
SECTION 1.1. REFERENCE PROVISIONS......................... 1
SECTION 1.2. DEFINITIONS.................................. 4
SECTION 1.3. EXHIBITS AND MANUALS......................... 5
ARTICLE 11
LEASED PREMISES AND THE SHOPPING CENTER...... 5
SECTION 2.1. DEMISE....................................... 5
SECTION 2.2. CHANGES TO SHOPPING CENTER................... 5
SECTION 2.3. RELOCATION...................................6
ARTICLE III
TERM......................................... 6
SECTION 3.1. TERM......................................... 6
SECTION 3.2. SURRENDER OF LEASED PREMISES................. 6
SECTION 3.3. HOLDING OVER................................. 6
ARTICLE IV
USE AND OPERATION OF THE LEASED PREMISES.... 6
SECTION 4.1. USE AND TRADE NAME.......................... 6
SECTION 4.2. CONTINUOUS OPERATION BY TENANT.............. 6
SECTION 4.3. STORE HOURS................................. 7
SECTION 4.4. ADDITIONAL OPERATIONAL COVENANTS............. 7
SECTION 4.5. SIGNS AND ADVERTISING........................ 9
SECTION 4.6. TENANT'S USE OF ROOF.........................10
SECTION 4.7. RETAIL RESTRICTION LIMIT.....................10
ARTICLE V
RENT......................................... 10
SECTION 5.l. RENT PAYABLE.................................10
SECTION 5.2. PAYMENT OF MINIMUM RENT......................10
SECTION 5.3. PAYMENT OF PERCENTAGE RENT....................10
SECTION 5.4. "GROSS SALES" DEFINED.........................11
SECTION 5.5. STATEMENTS OF GROSS SALES....................11
SECTION 5.6. RECORDS AND AUDITS.............................11
SECTION 5.7. TAXES.......................................... 12
SECTION 5.8. PAYMENT OF TAX RENT............................ 12
SECTION 5.9. RENT FOR A PARTIAL MONTH....................... 13
SECTION 5.10. RENT FOR A PARTIAL LEASE YEAR.................. 13
SECTION 5.11. TAXES ON TENANT'S PERSONAL PROPERTY............ 13
ARTICLE VI
COMMON AREAS................................... 13
SECTION 6.1. USE OF COMMON AREAS............................ 13
SECTION 6.2. MANAGEMENT AND OPERATION OF COMMON AREAS.......13
SECTION 6.3. "LANDLORD'S OPERATING COSTS" DEFINED........... 13
SECTION 6.4. TENANT'S PROPORTIONATE SHARE OF LANDLORD'S OPERTING
COSTS.........................................14
ARTICLE VII
UTILITIES..................................... 15
SECTION 7.1. UTILITY CHARGES............................... 15
SECTION 7.2. DISCONTINUANCES AND INTERRUPTIONS OF SERVICE.. 15
ARTICLE VIII
INDEMNITY AND INSURANCE.................... 15
SECTION 8.1. INDEMNITY BY TENANT........................ 15
SECTION 8.2. LANDLORD NOT RESPONSIBLE FOR ACTS OF OTHERS 15
SECTION 8.3. TENANT'S INSURANCE......................... 16
SECTION 8.4. TENANT'S CONTRACTOR'S INSURANCE............ 16
SECTION 8.5. POLICY REQUIREMENTS........................ 16
SECTION 8.6. INCREASE IN INSURANCE PREMIUMS............. 17
SECTION 8.7. WAIVER OF RIGHT OF RECOVERY................ 17
50
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ARTICLE IX
CONSTRUCTION..............................17
SECTION 9.1. CONDITION OF LEASED PREMISES..............17
SECTION 9.2. TENANT IMPROVEMENTS....................... 17
SECTION 9.3. SCHEDULE OF PLAN SUBMISSION FOR INITIAL TENANT
IMPROVEMENTS.............................. 18
SECTION 9.4. SECURITY FOR TENANT'S WORK................ 19
SECTION 9.5. OWNERSHIP OF IMPROVEMENTS................. 19
SECTION 9.6. MECHANIC'S LIENS.......................... 19
SECTION 9.7. RECAPTURE OF CONSTRUCTION COSTS........... 20
ARTICLE X
REPAIRS, MAINTENANCE, LANDLORD'S ACCESS AND
ALTERATIONS............................... 20
SECTION 10.1. REPAIRS BY LANDLORD....................... 20
SECTION 10.2. ALTERATIONS, REPAIRS, MAINTENANCE AND DISPLAYS BY
TENANT
SECTION 10.3. INSPECTIONS AND ACCESS BY LANDLORD...... 21
ARTICLE XI
CASUALTY................................. 21
SECTION 11.1. RIGHT TO TERMINATE....................... 21
SECTION 11.2. LANDLORD'S DUTY TO RECONSTRUCT........... 22
SECTION 11.3. TENANT'S DUTY TO RECONSTRUCT............. 22
SECTION 11.4. INSURANCE PROCEEDS....................... 22
ARTICLE XII
CONDEMNATION............................. 22
SECTION 12.1. TAKING OF LEASED PREMISES................ 22
SECTION 12.2. TAKING OF SHOPPING CENTER................ 23
SECTION 12.3. CONDEMNATION AWARD....................... 23
ARTICLE XIII
MARKETING FUND........................... 23
SECTION 13.1. MARKETING FUND............................... 23
SECTION 13.2. TENANTS CONTRIBUTION TO MARKETING FUND....... 23
SECTION 13.3. LANDLORD'S PARTICIPATION AND CONTRIBUTION.... 23
SECTION 13.4. TENANT'S ADVERTISING......................... 24
ARTICLE XIV
SUBORDINATION AND ATTORNMENT
SECTION 14.1. SUBORDINATION................................ 24
SECTION 14.2. MORTGAGEE'S UNILATERAL SUBORDINATION......... 24
SECTION 14.3. ATTORNMENT................................... 24
SECTION 14.4. QUIET ENJOYMENT.............................. 24
SECTION 14.5. ESTOPPEL CERTIFICATE.................... 24
ARTICLE XV
ASSIGNMENT AND SUBLETTING.............. 25
SECTION 15.1. LANDLORD'S CONSENT REQUIRED............ 25
SECTION 15.2. RIGHT TO TERMINATE AND RECAPTURE....... 25
ARTICLE XVI
DEFAULT AND REMEDIES.................... 26
SECTION 16.1. DEFAULT................................. 26
SECTION 16.2. REMEDIES AND DAMAGES.................... 26
SECTION 16.3. ASSIGNMENT IN BANKRUPTCY................ 27
SECTION 16.4. LEGAL EXPENSES.......................... 27
SECTION 16.5. REMEDIES CUMULATIVE..................... 27
SECTION 16.6. WAIVER.................................. 27
ARTICLE XVII
MISCELLANEOUS PROVISIONS................ 27
SECTION 17.1. NOTICES................................ 27
SECTION 17.2. SHORT FORM LEASE....................... 28
SECTION 17.3. INTEREST AND ADMINISTRATIVE COSTS....... 28
SECTION 17.4. SUCCESSORS AND ASSIGNS.................. 28
SECTION 17.5 LIMITATION ON RIHGT TO RECOVER ......... 28
51
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SECTION 17.6. RELATIONSHIP OF THE PARTIES............ 28
SECTION 17.7. SECURITY DEPOSIT....................... 28
SECTION 17.8. INTERPRETATION.......................... 28
SECTION 17.9. NO MODIFICATION...................... 28
SECTION 17.10. SEVERABILITY........................... 28
SECTION 17.11. TENANT LIABILITY....................... 28
SECTION 17.12. BROKERS COMMISSION.................... 29
SECTION 17.13. OTHER TENANTS........................ 29
SECTION 17.14. RULE AGAINST PERPETUITIES.............. 29
SECTION 17.15. IRREVOCABLE OFFER, NO OPTION........... 29
SECTION 17.16. INABILITY TO PERFORM................... 29
SECTION 17.17. SURVIVAL.............................. 29
SECTION 17.18. LANDLORD'S SELF-HELP................... 29
SECTION 17.19. DUE AUTHORIZATION..................... 29
SECTION 17.20. CONFIDENTIALITY....................... 30
SECTION 17.21. ASBESTOS ABATEMENT .................. 30
SECTION 17.22. PROPOSED REDEVELOPMENT................. 30
SECTION 17.23. CONTINGENCY........................... 30
SECTION 17.24. OPTION TO TERMINATE.................... 31
SECTION 17.25. COMPETITION............................ 31
SECTION 17.26. TERMINATION OF PRIOR LEASE............... 32
SECTION 17.27. DESIGNATED OUTDOOR SEATING AREA......... 32
52
<PAGE>
STANDARD SHOPPING CENTER LEASE AGREEMENT
This Lease Agreement (the "Lease") is made as of the __________ day of
__________, 19____ by and between Equity Properties and Development Limited
Partnership, an Illinois limited partnership ("EPDLP"), as agent for owner
("Landlord"), and Chefs International, Inc., a Delaware corporation ("Tenant").
ARTICLE I
REFERENCE PROVISIONS, DEFINITIONS AND EXHIBITS
As used in this Lease, the following terms shall have the meanings set forth in
Sections 1.1 and 1.2 below.
SECTION 1.1. REFERENCE PROVISIONS.
A. (i) Original Leased Premises: the "cross-hatched" space
indicated on the lease plan attached as
Exhibit A-1 and containing a total floor space of approximately 3,445 square
feet provided, however, pursuant to the
provisions set forth in Section 9.2(B) below, Landlord shall recapture an area
of the Original Leased Premises (the
"Recapture Area") containing a total floor space of approximately 475 square
feet (as shown cross-hatched on Exhibit
A-3 attached hereto).
(ii) Expansion Space: the "cross-hatched' space indicated
on the lease plan attached as Exhibit A-2
and containing a total floor space of approximately 1,280 square feet.
(iii) New Leased Premises: the "cross-hatched" space
indicated on the lease plan attached as Exhibit A and containing a total floor
space of approximately 4,250 square feet, comprised of both the Original Leased
Premises (less the Recapture Area) and the Expansion Space.
From and after the Possession Date, any reference in the Lease to
the term "Leased Premises" shall be deemed to refer to the New Leased Premises
which is comprised of both the Original Leased Premises and the Expansion Space
and all terms and conditions of the Lease shall apply to the Expansion Space and
the Original Leased Premises during construction of the Expansion Space (as set
forth in Section 9.2[B] below); provided, however, notwithstanding anything to
the contrary contained herein, commencing on the Possession Date and continuing
up to and including the day that is one (1) day prior to the Rent Commencement
Date (as hereinafter defined), all items of Rent and other costs and charges
which this Lease expressly states are calculated on the basis of square footage,
including, but not limited to, Tax Rent, Tenant's Proportionate Share of
Landlord's Operating Costs and Utility Charges shall be calculated based on
3,445 square feet. Notwithstanding anything to the contrary contained herein,
commencing on the Rent Commencement Date, all items of Rent and other costs and
charges which this Lease expressly states are calculated on the basis of square
footage, including, but not limited to, Tax Rent, Tenant's Proportionate Share
of Landlord's Operating Costs and Utility Charges shall be calculated based on
the square footage of the New Leased Premises and shall be payable commencing on
the Rent Commencement Date as provided in this Lease.
B. Term: twelve (12) Lease Years (as defined in Section 1.2(J) below).
C. (i) Commencement Date: January 1, 1996.
(ii) Rent Commencement Date: the earlier of ninety (90) days following the
Possession Date or the
date on which Tenant opens to the public for business in the Expansion Space.
D. Termination Date: the last day of the twelfth (12th) Lease Year,
or if the Term is sooner terminated
pursuant to the provisions of this Lease, the effective date of such
termination.
E. Minimum Rent:
(i) Commencing on the Rent Commencement Date and
continuing through the last day of the fifth
(5th) Lease Year (the "First Period"): One Hundred Six Thousand Two Hundred
Fifty Dollars ($106,250.00) per annum;
and
(ii) Commencing on the first day of the sixth (6th) Lease
Year and continuing through the last day
of the twelfth (12th) Lease Year (the "Second Period"): One Hundred Fourteen
Thousand Seven Hundred Fifty Dollars
($114,750.00) per annum.
F. Percentage Rent: An amount equal to (1) for each Lease
Year (a) Gross Sales (as defined in Section
5.4 below) in excess of (i) Two Million One Hundred Twenty-Five Thousand
Dollars
($2,125,000.00) during the First
Period; and (ii) Two Million Two Hundred Ninety-Five Thousand Dollars
($2,295,000.00) during the Second Period
multiplied by (b) five percent (5%) (the amounts set forth in (i) and (ii)
above
shall each be referred to individually as
the "Full Year Breakpoint" for the Lease Year in question) and (2) for any
Partial Lease Year (as defined in Section 1.2(J)
below), the amount of Gross Sales in excess of the amount arrived at by
multiplying the Full Year Breakpoint, for the
appropriate Lease Year, by a fraction, the numerator of which shall be the
number of days In the Partial Lease
53
<PAGE>
Year and the denominator of which shall be three hundred sixty-five (365) (the
"Partial Year Breakpoint") multiplied by five percent (5%); provided that, it at
any time during any Lease Year or Partial Lease Year Tenant is not open for
business, then the Full Year Breakpoint or Partial Year Breakpoint for such Full
Lease Year or Partial Lease Year, as the case may be, shall be decreased by an
amount equal to such breakpoint multiplied by a fraction, the numerator of which
shall be the number of days in such Lease Year or Partial Lease Year that Tenant
is not open for business and the denominator of which shall be three hundred
sixty-five (365), or the number of days in such Partial Lease Year, whichever is
applicable.
G. (i) Marketing Fund Dues: Fifty Cents ($.50) per square
foot of the Leased Premises per annum,
subject to upward adjustment only pursuant to Section 13.2 below.
(ii) Marketing Fund Initiation Fee: Intentionally Omitted.
(iii) Tenant's Advertising and Promotional Fund
Contribution: Fifty Cents ($.50) per square foot of the Leased Premises per
annum, subject to upward adjustment only pursuant to Section 13.4 below.
H. Security Deposit: Intentionally Omitted.
I. Permitted Use: the operation of a full service sit-down Mexican
restaurant serving the Items specifically set forth on the menu attached hereto
as Exhibit C, and incidental thereto, provided Tenant obtains all applicable
Insurance and necessary permits and licenses, the sale of beer, wine and
alcoholic beverages for on-premises consumption only, and for no other purpose.
Any changes to Tenant's menu shall require the prior written approval of
Landlord. Notwithstanding anything to the contrary contained herein, Tenant
shall be permitted to modify the items on Tenant's menu without Landlord's
consent so long as: (i) Tenant offers for sale Mexican style food items, (ii)
such modification does not violate any lease or other agreements affecting the
Shopping Center (or the extension of any such agreement), and (iii) if Landlord
determines in its sole discretion that such modification is a violation of any
such agreement, then Tenant shall cease selling such item(s) within twenty-four
(24), hours after receipt of notice from Landlord.
J. Tenant Trade Name: Garcia's, Garcia's Mexican Restaurant,
or Garcia's of Scottsdale, and no other
name, subject to the provisions of Section 4.1 below.
K. Notice Address:
TO LANDLORD: With a copy to:
c/o Equity Properties and Rosenberg & Liebentritt, P.C.
Development Limited Partnership Two North Riverside Plaza
Two North Riverside Plaza Suite 1515
Suite 1000 Chicago, Illinois 60606
Chicago, Illinois 60606 Attn: Leasing Group
Attn: Leasing Coordinator
TO TENANT: With a copy to:
Chefs International, Inc. Anthony Mancuso
62 Broadway Street Starkey, Kelly, Blaney & White
Point Pleasant Beach, New Jersey 08742 459 Jck Martin Boulevard
Brick, New Jersey 08724
L. Shopping Center: as shown on the attached Exhibit A,
presently known as Monmouth Mall, which
is located in Eatontown, New Jersey.
M. Possession Date: Tenant is currently In possession of the
Original Leased Premises pursuant to the provisions of the Prior Lease (as
defined in Section 17.26 of this Lease). Tender of possession of the Expansion
Space shall be deemed to have been tendered and accepted upon Tenant's receipt
of a possession notice from Landlord, provided physical possession of the
Expansion Space is tendered to Tenant. Notwithstanding the foregoing, it Tenant
accepts physical possession of the Expansion Space prior to receipt of such
notice, the date Tenant accepts possession shall be deemed to be the Possession
Date. Notwithstanding anything to the contrary contained herein, Landlord shall
not deliver possession of the Expansion Space to Tenant prior to January 1,
1996.
N. Guarantor[s]: None
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto intending to be legally
bound hereby have executed this Lease under their respective hands and seals as
of the day and year first above written. This Lease contains 33 pages, Exhibit A
contains 1 page, Exhibit A-1 contains 1 page, Exhibit A-2 contains 1 page,
Exhibit A-3 contains 1 page, Exhibit B contains 89 pages and Exhibit C contains
6 pages.
LANDLORD:
EQUITY PROPERTIES
AND DEVELOPMENT
LIMITED
PARTNERSHIP, an
Illinois limited
partnership, as
agent for Landlord
By: SC MANAGEMENT,
INC., an Illinois
corporation
WITNESS: Its: General Partner
________________________ By:_______________________________________
Name: Sanford Shkolnik
________________________ Title: Chairman
ATTEST/WITNESS: TENANT:
CHEFS INTERNATIONAL, INC., a Delaware corporation
________________________ By:_______________________________________
Name: Anthony Papalia
________________________ Title: President
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
BE IT REMEMBERED, that on the day of ,19____, before me, a Notary
Public in and for said County, personally appeared EQUITY PROPERTIES AND
DEVELOPMENT LIMITED PARTNERSHIP, an Illinois limited partnership, as agent for
the LANDLORD in the foregoing Lease Agreement by SC Management, Inc., an
Illinois corporation, its General Partner, by Sanford Shkoilnik, its Chairman,
who acknowledged that the signing thereof was the duly authorized act and deed
of said corporation on behalf of said limited partnership as agent as aforesaid
for the uses and purposes therein mentioned.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal on the day and year first above written.
-----------------------------------
Notary Public
My Commission Expires:
- - --------------------
STATE OF ____________ )
) SS
COUNTY OF __________ )
BE IT REMEMBERED, that on the __________ day of _____________,
19____, before me, a Notary Public in and for said County, personally appeared
CHEFS INTERNATIONAL, INC., a Delaware corporation the TENANT in the foregoing
Lease Agreement, by Anthony Papalia, its President, who acknowledged that the
signing thereof was the duty, authorized act and deed of said corporation and
his free and voluntary act and deed as said officer for the uses and purposes
therein mentioned.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal on the day and year first above written.
-------------------------------------
Notary Public
My Commission Expires:
- - -----------------------
55
<PAGE>
SECTION 1.2. DEFINITIONS.
A. Common Areas: all improvements, equipment, signs and area
(as the same may be enlarged,
reduced, replaced, removed or otherwise altered by Landlord), from time to time,
made available by Landlord for the non-
exclusive use or benefit of Landlord, Tenant and other tenants, occupants and
users of the Shopping Center, and their
respective employees, agents, subtenants, concessionaires, licensees, customers
and invitees, or any of them, which may
include (but shall not be deemed a representation as to their availability) the
Enclosed Mall, sidewalks, parking areas,
access roads, driveways, landscaped areas, serviceways, tunnels, loading docks,
roofs, stairs, ramps, elevators, escalators,
public washrooms, community halls or auditoriums, parcel pick-up stations, and
other similar areas and improvements,
all as Landlord shall, from time to time, deem appropriate (in Its reasonable
business judgment).
B. Concessionaire: any person conducting any business in the
Leased Premises by, under or through
Tenant under any sublease, concession or license from Tenant, or otherwise,
whether or not the same was authorized
under the provisions of this Lease.
C. "CPI": The term "CPI" shall mean the Revised Consumer Price
Index for All Urban Consumers published by the Bureau of Labor Statistics of the
United States Department of Labor, for United States City Average, All Items
(1982-84 = 100). If the manner in which the CPI is calculated shall be
substantially revised or if the 1982-1984 average shall no longer be used,
Landlord and Tenant shall select a means to adjust such revised Index which
would produce results equivalent, as practicable, to those which would have been
obtained if the CPI has not been so revised. If the CPI shall become unavailable
to the public because publication is discontinued, or otherwise, Landlord and
Tenant shall select a comparable substitute index based upon changes in the cost
of living or purchasing power of the consumer dollar published by any other
governmental agency, or, if no such index shall then be available, a comparable
index published by a major bank or other financial institution or by a
university or a recognized financial publication. In the event that the U.S.
Department of Labor, Bureau of Labor Statistics, changes the publication
frequency of the CPI so that a CPI is not available to make an adjustment for
the period in question, the adjustment shall be based on the percentage increase
in the CPI for the twelve (12) month period beginning with the closest month
preceding the period in question for which a CPI is available.
D. Department, Variety or Specialty Stores: those premises
(other than Common Areas) within the
Shopping Center which contain floor space of twenty thousand (20,000) square
feet or more.
E. Enclosed Mall: the portion or portions of the Shopping
Center, if any, which are actually enclosed
by walls and roof, as the same may exist, from time to time.
F. Floor Space: the number of square feet in the Original
Leased Premises, the Expansion Space or
the New Leased Premises, as the case may be (as set forth in Section 1.1 [A])
or in other space in the Shopping Center,
as determined by Landlord (in its reasonable business judgment).
G. Interest: the greater of (i) the rate per annum equal to two (2)
percentage points above the rate of interest then most recently publicly
announced by American National Bank and Trust Company of Chicago as its "prime
rate" or "base rate" (the "Prime Rate") as the case may be, or (ii) twelve
percent (12%) per annum. Interest shall be adjusted on the first day of each
month immediately following a month in which a change in such Prime Rate occurs
and such adjustment shall be based upon the average Prime Rate for such
immediately preceding month. If accrual or payment of such interest should be
unlawful, then interest shall be computed at the maximum legal rate.
H. Landlord Related Parties: Landlord, its principals,
beneficiaries, partners, officers, directors, agents,
employees and any Mortgagee(s) (as defined in Section 14.1 below).
I. Laws: all federal, state, county and local governmental
and municipal laws, statutes, ordinances,
rules, regulations, codes, decrees, orders and other such requirements,
applicable equitable remedies and decisions by
courts in cases where such decisions are binding precedents in the state in
which the Shopping Center is located, and
decisions of federal courts applying the Laws of such state, at the time in
question.
J. Lease Year or Partial Lease Year: a period of twelve (12)
consecutive calendar months, the first Lease Year commencing on the Commencement
Date, if the Commencement Date is the first day of a calendar month, and
otherwise on the first day of the first full calendar month following the
Commencement Date. Each succeeding Lease Year shall commence on the anniversary
date of the first Lease Year. Any portion of the Term which is less than a Lease
Year shall be deemed a Partial Lease Year, except that if the Commencement Date
occurs on a date other than the first day of a calendar month, then the period
commencing on the Commencement Date and ending on the last day of the calendar
month in which the Commencement Date occurs shall be included in the first Lease
Year.
K. Managing Agent: the managing agent of the Shopping
Center as designated from time to time by
Landlord. The Managing Agent of the Shopping Center is currently EPDLP.
If Landlord elects to change the Managing
Agent of the Shopping Center, Landlord will notify Tenant in writing of such
change.
L. Owner: the person(s) or entity(ies) that holds legal
title (whether fee or leasehold) to the Shopping
Center or the portion thereof in which the Leased Premises are located.
The terms "owner" and "Landlord" have the same
meaning for purposes of this Lease and may be used interchangeably.
56
<PAGE>
M. Rent: all Minimum Rent and additional rent. All sums
and charges payable by Tenant to Landlord
in addition to the Minimum Rent shall be deemed to be "additional rent" under
this Lease whether or not the same shall
be designated as such. Landlord shall have the same remedies for Tenant's
failure to pay additional rent as for Tenant's
failure to pay Minimum Rent.
N. Satellite Store Space: the aggregate floor space of all premises
in the Shopping Center exclusively appropriated for use by a tenant, whether
occupied or vacant, but excluding the floor space of (i) mezzanine space, (ii)
basement space (if any), (iii) storage space not located within a tenant's or
occupant's primary premises and (iv) Department, Variety and Specialty Stores.
For purposes of this Lease, the floor space described in clauses (i), (ii) and
(iii) herein shall be collectively referred to as the "Ancillary Space".
O. Tenant Related Parties: Tenant, its assignees,
Concessionaires, agents, contractors, employees or
invitees.
SECTION 1.3. EXHIBITS AND MANUALS. The exhibits and manuals listed
in this Section 1.3 are attached
to this Lease and are hereby incorporated in and made a part of this Lease.
Exhibit A - Lease Plan
Exhibit A-1 - Original Leased Premises
Exhibit A-2 - Expansion Space
Exhibit A-3 - Recapture Area
Exhibit A-4 - Designated Outdoor Seating Area
Exhibit B - Construction Information
and Design Criteria
Exhibit C - Menu
ARTICLE 11
LEASED PREMISES AND THE SHOPPING CENTER
SECTION 2.1. DEMISE. Landlord, in consideration of the Rent to be paid and the
other conditions and covenants to be satisfied and performed by Tenant, demises
and leases to Tenant, and Tenant leases and takes from Landlord, the Leased
Premises, each upon the terms and conditions of this Lease; provided, however,
that in addition to other rights provided to or reserved by Landlord in this
Lease or otherwise, Landlord shall have (i) the exclusive right to use both the
exterior faces of the exterior walls of the Leased Premises and, subject only to
Tenant's rights and obligations under Section 4.6 below, the roof of the
Shopping Center, and (ii) the right to install, maintain, use, repair and
replace pipes, ducts, cables, conduits, vents, utility lines and wires to, in,
through, above and below the Leased Premises as and to the extent that Landlord,
may from time to time deem appropriate (in its reasonable business judgment) for
the proper operation and maintenance of the Shopping Center. Landlord shall use
its reasonable efforts to locate said pipes, ducts, cables, conduits, plumbing
vents, utility lines and/or wires in non-sales areas of the Leased Premises,
however, to the extent any of the same are located within sales areas of the
Leased Premises, they shall not be visible to the public.
SECTION 2.2. CHANGES TO SHOPPING CENTER. Exhibit A sets forth the general layout
of the Shopping Center but is not, and shall not be deemed to be, a warranty,
representation or agreement on the part of Landlord that all or any part of the
Shopping Center is, will be, or will continue to be, configured as indicated on
Exhibit A. In addition to other rights provided to or reserved by Landlord under
this Lease, Landlord hereby reserves the right, at any time and from time to
time, to (i) make alterations or additions to, build additional stories on, and
demolish or otherwise change, all or any part of any buildings or other
improvement in or about the Shopping Center, and build other buildings or
improvements in or about the Shopping Center; (ii) construct deck or elevated
parking facilities; and (iii) convey portions of the Shopping Center to others
or withdraw portions from the Shopping Center. Tenant consents to the
performance of all work deemed appropriate by Landlord to accomplish any of the
foregoing, and any inconvenience caused thereby; provided, however, that
Landlord agrees to use reasonable efforts to minimize the interference with
Tenant's business in the Leased Premises. The design and performance of such
work shall be in the sole discretion of Landlord. None of the Landlord Related
Parties (as defined in Section 1.2(H) above) shall be subject to any liability
as a result of any change in the Shopping Center, nor shall the same entitle
Tenant to any compensation or diminution of Rent, or entitle Tenant to terminate
this Lease or constitute an actual or constructive eviction. Notwithstanding
anything to the contrary contained in this Lease, Landlord shall not change the
dimensions or location of the Leased Premises or materially obstruct access to
or visibility of the Leased Premises from the Enclosed Mall without Tenant's
consent (which consent shall not be unreasonably withheld or delayed), unless
Landlord is required to do any of the foregoing by reason of any Law (as defined
in Section 1.2(I) above) as a result of any cause beyond the reasonable control
of Landlord, or in accordance with the provisions of Articles XI or XII below or
unless such access and/or visibility is temporarily affected as a result of
repairs, remodeling, redevelopment, renovation or other construction to the
Shopping Center. Landlord shall use due diligence to complete all such repairs,
remodeling, renovations, redevelopment or other construction.
SECTION 2.3. RELOCATION. INTENTIONALLY OMITTED.
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ARTICLE III
TERM
SECTION 3.1. TERM. The Term shall commence at 12:00 A.M. on the
Commencement Date and shall end at the
end of Normal Mall Hours (as defined in Section 4.3 below) on the Termination
Date. Tenant shall, upon request by
Landlord, confirm the Commencement Date in writing.
SECTION 3.2. SURRENDER OF LEASED PREMISES. On the Termination Date (whether by
lapse of time or otherwise), Tenant shall quit and surrender the Leased Premises
in accordance with the terms of this Lease and in good order, condition and
repair, ordinary wear and tear excepted. Tenant shall also deliver all keys for
the Leased Premises as specified by Landlord, and inform Landlord of all
combinations on locks, safes and any vaults in the Leased Premises.
SECTION 3.3. HOLDING OVER.
A. This Lease shall terminate on the Termination Date pursuant to
the terms of this Lease without the necessity of notice from either Landlord or
Tenant, Tenant's occupancy subsequent to the Termination Date, whether or not
with the consent of Landlord, shall be deemed to be that of a tenancy at
sufferance, subject to all the terms, covenants, and conditions of this Lease,
except that for each day Tenant holds over the Minimum Rent shall be two (2)
times the Minimum Rent and Percentage Rent payable in the last year of the Term
divided by three hundred sixty-five (365) ("Holdover Rent"). No extension or
renewal of this Lease shall be deemed to have occurred by any holding over.
B. In addition to paying to Landlord the Holdover Rent, if Tenant
falls to surrender the Leased Premises to Landlord on the Termination Date as
required by this Lease, Tenant shall indemnity, defend (with counsel acceptable
to Landlord [acting reasonably]) and hold the Landlord Related Parties harmless
from and against all loss, liability, damages and expense (including, without
limitation, attorneys' fees) sustained or incurred by any of the Landlord
Related Parties on account of or resulting from such failure, including, without
limitation, claims made by any succeeding tenant of all or any part of the
Leased Premises.
C. Notwithstanding anything contained herein to the contrary, if
Landlord and Tenant elect to negotiate a renewal of this Lease or a new lease,
during the period of their negotiations occurring after the Termination Date,
Tenant shall continue to pay the Rent payable in the last Lease Year or Partial
Lease Year of the Term, provided that any annual or other periodic escalation of
Rent set forth in this Lease shall continue during the holdover period as it
said holdover period was part of the original Term. Notwithstanding anything to
the contrary contained herein, neither Landlord nor Tenant shall have any
obligation to commence to negotiate, or to continue negotiation of, a renewal of
this Lease or a new lease covering the Leased Premises and in the event that
such negotiation is not commenced or such negotiation is discontinued at any
time by either party in its sole discretion, Tenant shall be liable to pay
Holdover Rent retroactive to the first day of the holdover period as aforesaid.
ARTICLE IV
USE AND OPERATION OF THE LEASED PREMISES
SECTION 4.1. USE AND TRADE NAME. Tenant shall use the Leased Premises solely for
the Permitted Use and for no other purpose, and shall operate its business on
the Leased Premises solely under the Tenant Trade name and under no other name;
provided, however, Tenant may change its Trade Name without Landlord's written
consent provided: (i) the use of the trade name proposed shall not violate any
then existing lease or other agreement affecting the Shopping Center; (ii) the
trade name proposed shall not be similar to the trade name of any other then
existing tenant or occupant in the Shopping Center; (iii) the proposed trade
name is the trade name used by all of the stores operated by Tenant under the
current trade name; (iv) Tenant shall install new internally illuminated
storefront signage with Tenant's new trade name and Tenant shall make all
necessary modifications to the sign band and/or the bulkhead of the Leased
Premises at its sole cost and expense and in accordance with Landlord's
specifications and design criteria for the Shopping Center and Exhibit B
attached hereto; (v) Tenant shall reimburse Landlord the reasonable expenses
incurred by Landlord in modifying any directories that reference Tenant's store
to reflect the new Trade Name; and (vi) Tenant notifies Landlord of its change
of Trade Name at least thirty (30) days prior to said change. On or before the
thirtieth (30th) day after Tenant changes its trade name, Tenant shall submit
drawings to Landlord for Landlord's review and approval prior to the
installation of the sign and/or modification of the sign band and/or bulkhead.
SECTION 4.2. CONTINUOUS OPERATION BY TENANT.
A. Tenant shall (i) carry at all times in the Leased Premises a
full stock of merchandise; and (ii) conduct its business on the Leased Premises
at all times in a first-class manner consistent with reputable business
standards and practices and operate the entire Leased Premises continuously and
uninterruptedly during all of the hours set forth below, during the entire Term
in accordance with the terms of this Lease.
B. If Tenant violates any provision of this Section 4.2, then
Landlord shall have, in addition to all remedies in this Lease provided, the
right to collect upon demand, in addition to the other Rent payable under this
Lease, liquidated damages in an amount equal to twice the Rent per day for each
and every day that such violation
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exists. The payment of such additional rent shall not relieve Tenant of any
of its obligations under this Lease.
SECTION 4.3. STORE HOURS. Tenant shall conduct its business in the Leased
Premises during the hours designated by Landlord as the normal mail hours (the
"Normal Mall Hours"). Tenant acknowledges that as of the date hereof the Normal
Mall Hours are as follows: (i) Monday through Saturday, between the hours of
10:00 a.m. and 9:30 p.m., and (ii) Sunday, between the hours of 12:00 p.m. and
6:00 p.m. Landlord shall have the right to after such Normal Mall Hours from
time to time during the Term of this Lease, provided that Landlord gives Tenant
reasonable prior written notice of such change, and provided further that if
such change includes any additional hours other than the hours specifically
stated in clauses (i) and (ii) above, Tenant shall be obligated to conduct its
business in the Leased Premises during such additional hours if, and only if, at
least one Department, Variety or Specialty Store and seventy-five percent (75%)
of the Satellite Store Space tenants in the Shopping Center are similarly
obligated or otherwise open for business during such additional hours. In
addition, Tenant may conduct its business in the Leased Premises during hours
("Additional Hours") other than Normal Mall Hours as may be determined by
Tenant, provided that Tenant notifies Landlord at least ten (10) days in advance
of the Additional Hours that Tenant intends to be open for business, and in
addition also notifies Landlord at least ten (10) days in advance of any changes
in the Additional Hours Tenant intends to be open for business, and provided
further that Tenant shall pay to Landlord as additional Rent all costs
("Landlord's Incremental Costs") incurred by Landlord which would not have been
incurred by Landlord it Tenant had not notified Landlord that Tenant intended to
operate during such Additional Hours, including, without limitation, all costs
incurred by Landlord in furnishing security, heating, cooling, ventilating,
lighting, maintenance or any other services furnished by Landlord in
anticipation of Tenant being open for business during the Additional Hours. In
the event that Tenant is open for business at any time other than Normal Mall
Hours, except as expressly set forth in the immediately succeeding paragraph,
Tenant shall keep all doors or other entrances (if any) opening from the Leased
Premises onto the Enclosed Mall (the "Mall Entrance") closed and locked and
shall not permit any employee, customer or other person to gain access to the
Enclosed Mall through or by way of the Leased Premises. Except as expressly set
forth in the immediately succeeding paragraph, during any Additional Hours that
Tenant conducts its business at the Leased Premises, Tenant's employees,
customers or any other persons entering or exiting the Leased Premises must
enter and exit through Tenant's exterior entrance/exit to the Shopping Center
parking lot (the "Exterior Entrance").
Notwithstanding anything to the contrary contained in this Section
4.3, if at any time during the Term of this Lease, any governmental entity
having jurisdiction over the Shopping Center prohibits Tenant from utilizing its
Exterior Entrance, Landlord shall permit Tenant's employees, customers and any
other persons to enter and exit from the Leased Premises through the Mall
Entrance during any Additional Hours; provided, however, it Tenant is prohibited
from utilizing its Exterior Entrance as hereinabove described, and Landlord
determines (acting reasonably) that Landlord must place a gate in that portion
of the Enclosed Mall Common Area located directly adjacent to the Leased
Premises in order to prevent anyone exiting the Leased Premises during any
Additional Hours from gaining access to the Enclosed Mall, Tenant hereby agrees
to pay Landlord one hundred percent (100%) of the cost of such gate (and the
installation thereof within thirty (30) days after written demand therefor from
Landlord (which demand shall be accompanied by reasonable documentation
evidencing the cost of purchasing and installing such gate).
Notwithstanding anything to the contrary contained herein, subject
to the conditions contained in this Section 4.3, Tenant shall be permitted to
conduct its business in the Leased Promises during the following hours:
Sunday through Saturday between the hours of 11:00 a.m. and 12:00 midnight.
SECTION 4.4. ADDITIONAL OPERATIONAL COVENANTS. Tenant covenants and agrees, at
all times during the Term and such other times as Tenant occupies the Leased
Premises or any part thereof, to comply, at its own cost and expense, with the
following:
A. Any handling of freight or deliveries to or from the Leased
Premises shall be made in a manner which is consistent with good shopping center
practice and only at such times, in the areas and through the entrances and
exits designated by Landlord. Any truck or machine used for handling freight or
making such deliveries shall have rubber wheels only.
B. All garbage and other refuse shall be kept inside the Leased
Premises in the kind of container specified by Landlord and shall be placed
outside of the Leased Premises prepared for collection in the manner and at the
times and places specified by Landlord. If Landlord elects to furnish or
designate such service for the removal and/or recycling of garbage and other
refuse, Tenant shall use the service furnished or designated by Landlord, but
Tenant shall not be obligated to pay more for such service than the prevailing
competitive rates charged by reputable, independent trash removal and/or
recycling contractors for the same service on a direct and individual basis. If
furnished or billed by Landlord, Tenant shall pay for such service monthly as
additional rent. If Landlord does not provide such service, Tenant shall be
solely responsible for the removal (including any recycling required by any
applicable Law) of all garbage and other refuse from the Leased Premises and
shall pay promptly all charges therefor.
Notwithstanding anything to the contrary contained herein, as of
the date hereof, Tenant is not required to separate "wet" and "dry" garbage,
however, should Landlord, or any local governmental authority having
jurisdiction over the Shopping Center, require such separation of garbage at any
time after the date hereof, Tenant shall comply with the requirements imposed by
Landlord and/or such governmental entity (as the case may be) with respect to
the separation of refuse. In addition to the foregoing, Tenant shall be required
to participate in any recycling program
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currently or from time to time conducted by Landlord at the Shopping Center
during the Term of this Lease. As of the date hereof, there is a Shopping Center
recycling program for dry cardboard, bottles, cans, paper (grade 1 only) and
newspapers.
In addition to the foregoing, Tenant shall (i) remove grease from
the grease trap servicing the Leased Premises and maintain the grease trap
within the Leased Premises in the manner, by such means, and at such times
consistent with the operation of a first-class restaurant and (ii) remove grease
from the "Grease Guard(s)" (or its equivalent) (as described in Section 9.2[B]
below) at Tenant's roof-mounted exhaust equipment outlets and shall maintain the
Grease Guard(s) in such a manner as to prevent grease from coming into contact
with the Shopping Center roof. Grease waste shall be placed in a sealed
container, as reasonably approved by Landlord, designated specifically for
grease waste and capable of being wheeled and emptied as required by local code,
local governmental authority or Landlord, but in no event less than one (1) time
per week. Such grease waste container shall be located within an area to be
approved by Landlord, which approval shall not be unreasonably withheld. Any
relocation of such grease waste container shall be subject to the Landlord's
prior written approval, in the event Tenant fails to maintain the Grease
Guard(s) as set forth in this paragraph, Landlord may cause such grease to be
removed and, as necessary, the roof of the Shopping Center so damaged by
Tenant's failure to remove such grease to be repaired and Tenant shall reimburse
Landlord for the cost thereof upon demand.
C. Tenant shall not (i) suffer, allow or permit any vibration,
noise, odor or flashing or bright light to emanate from the Leased Premises;
(ii) paint or cause to be displayed, painted or placed, any handbills, bumper
stickers or other advertising devices on any vehicle(s) parked in the parking
area(s) of the Shopping Center, whether belonging to Tenant, its employee(s), or
any other person(s); (iii) solicit business or distribute, or cause to be
distributed, in the Common Areas any handbills, promotional materials or other
advertising; (iv) conduct or permit any other activities in the Leased Premises
that might constitute a nuisance; (v) permit the parking of vehicles so as to
interfere with the use of any driveway, corridor, walkway, parking area, mall or
any other Common Area; or (vi) use or occupy the Leased Premises or do or permit
anything to be done therein which in any manner might cause injury or damage in
or about the Shopping Center.
D. Tenant may maintain a slightly negative air pressure in the
Leased Premises so as to permit a slight drawing of heated or cooled air from
other areas of the Shopping Center as indicated on Tenant's plans and
specifications and subject to Landlord's approval of same, which approval shall
not be unreasonably withheld. Tenant shall also keep the Leased Premises heated
or air-conditioned, as the case may require, at least to the same temperature as
the Landlord is endeavoring to maintain in the Shopping Center.
E. Tenant shall use and allow to be used all plumbing within the
Leased Premises and the Shopping Center only for the purpose for which it is
designed, and no foreign substance of any kind shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from a violation of this
provision shall be paid for by Tenant upon demand.
F. Tenant shall contract for and utilize termite and pest
extermination services for the Leased Premises as
necessary.
G. Tenant shall keep any display windows or signs in or on the
Leased Premises well lighted during such hours and days that the Shopping
Center, or the portion thereof in which Tenant is located, is lighted by
Landlord.
H. Tenant shall contract for and utilize a window-cleaning service
and maintain the windows in the Leased Premises in a reasonably clean condition
and in a manner consistent with a first class shopping center. If Tenant fails
to keep its windows clean, Landlord may cause the same to be kept clean (through
a service or otherwise) and Tenant shall pay the cost thereof upon demand.
I. Tenant shall use good faith efforts to avoid any action which
would cause any work stoppage, picketing, labor disruption or dispute, or any
interference with the business or the rights and privileges of Landlord or any
other tenant, occupant or other person lawfully in the Shopping Center (any such
event shall be referred to collectively herein as a "Labor Dispute"). If any
action or inaction on the part of any Tenant Related Party causes a Labor
Dispute, Tenant shall have any pickets removed and, if deemed necessary by
Landlord, terminate at any time any construction work being performed in the
Leased Premises giving rise to such Labor Dispute, until such time as Landlord
shall have given its written consent for the resumption of such work (which
consent shall not be unreasonably withheld), and Tenant shall have no claim for
damages of any nature against any of the Landlord Related Parties in connection
therewith, nor shall the date of the commencement of the Term be extended as a
result thereof.
J. Tenant shall pay before delinquency all fees and charges
and shall maintain all licenses and permits required
for Tenant to lawfully use the Leased Premises as contemplated by this Lease.
K. Tenant shall (i) use the Shopping Center name as existing, or as
the same may be changed from time to time, in designating the location of the
Leased Premises in all newspaper or other advertising, and all other references
to the location of the Leased Premises; and (ii) to the extent Tenant mentions
in local advertising the location of any of its stores, Tenant shall include its
Trade Name and the address and identity of Tenant's business in the Leased
Premises in all such advertisements made by Tenant in any manner, in any medium.
L. Tenant shall not conduct or permit to be conducted any auction,
fire, "going out of business" or similar type of sale; provided, however, that
this provision shall not restrict the absolute freedom (as between Landlord and
Tenant) of Tenant to determine its own selling prices nor shall it preclude
periodic, seasonal, promotional or clearance sales held in the ordinary course
of business.
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M. Tenant shall not place a load on any floor in the Shopping
Center exceeding the load which it was designed to carry, nor shall Tenant
install, operate or maintain thereon any heavy item or equipment except in such
manner as to achieve a proper distribution of weight.
N. Tenant shall not install, operate or maintain in the Leased
Premises or in any other area of the Shopping Center any electrical equipment
which does not bear the Underwriters Laboratories seal of approval, or its
equivalent, or which would overload the electrical system or any part thereof
beyond its capacity for proper, efficient and safe operation as determined by
Landlord (in its reasonable business judgment), taking into consideration the
overall electrical system and the present and future requirements therefor in
the Shopping Center.
0. To the extent required by Landlord (in its reasonable business
judgment), or any applicable Law, Tenant shall provide sound barriers for all
mechanical systems serving the Leased Premises.
P. Tenant shall not store, display, sell, or distribute any
alcoholic beverages or any dangerous materials
without the prior written consent of Landlord.
Q. Tenant shall not sell, distribute or display any item or provide
any service in any manner which, in Landlord's good faith judgment, is
inconsistent with the quality of operation of the Shopping Center or may tend to
injure or detract from the moral character or image of the Shopping Center
within the community, without limiting the generality of the foregoing, Tenant
shall not permit any "adult" entertainment or nudity in the Leased Premises and
shall not sell, distribute or display any paraphernalia commonly used in the use
or ingestion of illicit drugs, or any x-rated, pornographic or so-called "adult"
newspaper, book, magazine, film, picture, video tape, video disk, or other
similar representation or merchandise of any kind.
R. Tenant shall comply with and shall cause the Leased Premises to
comply with all Laws affecting the Leased Premises or any part or the use
thereof. Notwithstanding the foregoing, except as provided below, Tenant shall
have no obligation to comply with any such Laws to the extent the same require
structural alterations or structural repairs to the Leased Premises
(collectively, the "Structural Work"), all of which required Structural Work
shall be the obligation of Landlord (except that the foregoing does not in any
way relieve Tenant from any responsibility to pay its share of Landlord's
Operating Costs as provided in this Lease), except to the extent that such
Structural Work is (a) to the storefront of the Leased Premises, (b) caused by
an act or omission of Tenant, or Tenant's agents, employees or contractors, (c)
required as a result of Tenant's specific use of the Leased Premises or the
particular configuration of the Leasehold Improvements within the Leased
Premises, (d) necessitated by any improvement, alteration or addition to the
Leased Premises performed by or at the direction of Tenant, (e) to any
improvement, alteration or addition to the Leased Premises performed by or at
the direction of Tenant, or (f) required of Tenant in its capacity as an
employer, in any of which cases such Structural Work shall be performed at
Tenant's sole cost and expense, and at Landlord's option, shall be performed by
Tenant.
S. Tenant shall not operate or permit to be operated on the Leased
Premises any coin or token operated vending machine or similar device including,
without limitation, telephones, amusement devices and machines for sale of
beverages, foods, candy, cigarettes or other goods, but Tenant shall have the
right to operate vending machines located in a non-sales area of the Leased
Premises for the exclusive use of Tenant's employees.
T. If Landlord designates any portion of the Shopping Center
parking area for employee parking ("Employee Parking Areas"), Tenant and
Tenant's employees shall park their motor vehicles only in said Employee Parking
Areas.
U. Tenant shall comply with and observe all other reasonable rules
and regulations established by Landlord, from time to time, provided such rules
and regulations shall be uniformly and non-discriminatorily applicable to all
other similarly situated Satellite Store Space tenants.
SECTION 4.5. SIGNS AND ADVERTISING. Tenant shall not place or permit to be
placed on the exterior of the Leased Premises or the door, window or roof,
within any display window space or within five (5) feet behind the entry to the
Leased Premises, any sign, decoration, lettering or advertising matter without
Landlord's prior written approval, except that Tenant may utilize such material
within the Leased Premises on a temporary basis (collectively, the "Temporary
Signs") to advertise special sales or promotional events without Landlord's
approval provided that such Temporary Signs are professionally made, in good
taste and not taped to any window of the Leased Premises. Tenant shall submit to
Landlord reasonably detailed drawings of its proposed signs (other than
Temporary Signs) for review and approval by Landlord prior to utilizing same.
All signs, awnings, canopies, decorations, lettering, advertising matter or
other items used by Tenant shall be insured and maintained at all times by
Tenant in good condition, operating order and repair. Flashing signs are
prohibited. Tenant shall install one internally illuminated, individually
lettered sign or other type of sign as specified by Landlord above the
storefront of the Leased Premises and professionally lettered name signs on its
service doors both in accordance with plans and specifications therefor approved
by Landlord.
Landlord shall have the right, after twenty-four (24) hours prior
written notice to Tenant and without any liability for damage to the Leased
Premises reasonably caused thereby, to remove any items displayed or affixed in
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or to the Leased Premises which Landlord determines (in its reasonable business
judgment) to be in violation of the provisions of this Section 4.5.
SECTION 4.6. TENANT'S USE OF ROOF. No radio or television aerial or other device
shall be erected on the roof or exterior walls of the Leased Premises or the
building in which the Leased Premises are located without first obtaining
Landlord's written consent. If the Leased Premises are located immediately under
the roof of the Shopping Center, then Tenant is hereby given a non-exclusive
right to use that part of the roof of the building in which the Leased Premises
are located within the lines formed by projecting the perimeter wall lines of
the Leased Premises vertically, such use being solely for the installation and
maintenance of Tenant's heating, ventilating and air conditioning system, if
any; provided, however, that (i) roof penetrations shall be made only with
Landlord's prior written consent and by a contractor designated by Landlord;
(ii) Tenant shall, at its expense, promptly repair, utilizing a contractor
designated by Landlord, any damage or wear to the roof resulting in whole or in
part from the use described in this Section 4.6; and (iii) Landlord may relocate
Tenant's equipment at any time at Landlord's expense.
SECTION 4.7. RETAIL RESTRICTION LIMIT. Tenant covenants and agrees that during
the Term, neither Tenant nor any guarantor of this Lease (and if Tenant or such
guarantor is a corporation or partnership, its respective officers, directors,
stockholders, affiliates or partners) shall directly or indirectly, operate,
manage or have any interest in any other store or business whose primary use is
the operation of a full service sit-down Mexican restaurant (including, without
limitation, any concession or department operated within another store or
business), within a radius of five (5) miles of the Shopping Center. This
covenant, however, shall be inapplicable to any store or business of Tenant in
operation on the date of this Lease, provided that Tenant has heretofore
disclosed the existence of such store or business in writing to Landlord and
provided further that the nature and character of such existing store or
business remain the same and such store is continuously operated at the same
location. If the covenant contained in this Section 4.7 is breached, Landlord
may, at its option, in addition to all of its other rights and remedies set
forth in Article XVI of this Lease, include all gross sales generated by any
violative store or business in calculating the Gross Sales for the purposes of
this Lease, in which event the terms and conditions set forth in Sections 5.3
through 5.6 shall apply to the business of such violative store.
ARTICLE V
RENT
SECTION 5.1. RENT PAYABLE.
A. Tenant shall pay the Rent payable under this Lease to Landlord,
without prior demand therefor or any setoff or deduction whatsoever, at the
times set forth in this Lease in lawful money of the United States, at the place
designated from time to time by Landlord by notice given to Tenant. Unless
another time shall be expressly provided for payment, Rent shall be due and
payable on demand or together with the next succeeding installment of Minimum
Rent, whichever shall first occur. Tenant's covenant to pay Rent shall be
independent of every other covenant set forth in this Lease. Tenant shall also
pay to Landlord all applicable sales or other taxes which may be imposed on any
item of Rent at the same time as such item of Rent is due and payable to
Landlord. In addition to constituting a default under this Lease, if Tenant
shall fail to make any payment of Rent when due, Tenant shall pay a late charge
of One Hundred Dollars ($100.00) to reimburse Landlord for its additional
administrative costs in processing such payment. Unless Landlord notifies Tenant
otherwise, all Rent payments shall be made payable and sent to: Monmouth Mall,
Route 35 & Wyckoff Road, Eatontown, New Jersey 07724.
B. Any payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due from Tenant to Landlord shall be treated as payment on
account. The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon or in any letter accompanying such check, that
such lesser amount is payment in full shall be given no effect, and Landlord may
accept such check without prejudice to any other rights or remedies which
Landlord may have against Tenant.
SECTION 5.2. PAYMENT OF MINIMUM RENT. Tenant shall pay to Landlord the Minimum
Rent provided in Section 1.1(E) , in equal monthly installments, in advance,
commencing on the Rent Commencement Date and on the first day of each and every
calendar month thereafter throughout the Term.
SECTION 5.3. PAYMENT OF PERCENTAGE RENT. Tenant shall pay to Landlord Percentage
Rent for each Lease Year or Partial Lease Year commencing on the twentieth
(20th) day of the month immediately following the month in which the Gross Sales
(as hereinafter defined in Section 5.4(A) below) first exceed the Full Year
Breakpoint or Partial Year Breakpoint as the case may be, and on the twentieth
(20th) day of each month thereafter during the remainder of such Lease Year or
Partial Lease Year.
SECTION 5.4. "GROSS SALES" DEFINED.
A. The term "Gross Sales" shall mean: the total price charged
for all goods, merchandise, tickets, trade-
ins, beverages and food sold, leased or licensed, and all services or other
operations or items sold or rendered, at, in,
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on or from the Leased Premises by Tenant or any Concessionaire, whether for cash
or on a charge, credit, time basis or otherwise, without reserve or deduction
for inability or failure to collect, including, but not limited to, the
following: (i) orders originated or accepted by Tenant at the Leased Premises
but delivery or performance is made from or at any place other than the Leased
Premises, or vice versa: (ii) orders received or filled at the Leased Premises
made by mail, telephone or other means; (iii) sales by means of mechanical and
other vending machines in the Leased Premises; (iv) all service, finance or
interest charges imposed by Tenant on any type of account or note receivable, to
the extent that the principal amount thereof consists of monies which were or
should have been included in Gross Sales; and (v) all gross income received by
Tenant from its operations in, at, on or from the Leased Premises (including,
without limitation, the type of transactions described above) which Tenant or
any Concessionaire in the ordinary course of business would credit or attribute
to its business upon the Leased Premises and which are neither included in nor
excluded from Gross Sales by the other provisions of this Lease, but without any
duplication; and in all cases without deduction or allowance for cost of
inventory, or other costs or expenses of purchasing, selling and transporting,
or other costs or expenses related to overhead or franchise fees or taxes,
except as specifically provided in Section 5.4(B) below.
B. There shall not be included, or if included in the calculation
of Gross Sales, there shall be deducted, as the case may be, provided that
specific record is made at the time of each transaction: (i) the actual net
amount of refunds, credits or allowances actually made or allowed by Tenant in
accordance with reasonable business practices upon transactions included within
Gross Sales where the item is returned by the purchaser to and accepted by
Tenant (provided that anything given in exchange for returned items and any such
credits to customers shall be included in Gross Sales when used); (ii) sales or
retailer's excise taxes which are separately added by Tenant to the sales price,
paid directly by the customer, collected by Tenant and actually paid over by
Tenant to the governmental taxing authorities, but not deducting from Gross
Sales any other tax of any nature; (iii) the exchange of merchandise between the
stores of Tenant where such exchanges are made solely for the convenient
operation of Tenant's business and not for the purpose of consummating a sale
which has been made at, on, in or from the Leased Premises; (iv) returns to
shippers or manufacturers for credit; (v) sales of fixtures which are not part
of Tenant's stock in trade; (vi) bulk sales or wholesale transfers of
merchandise not in the ordinary course of business; and (vii) the following,
only to the extent that they do not, in the aggregate, exceed two percent (2%)
of Gross Sales in any Lease Year or Partial Lease Year: (a) sales to employees
of Tenant at a discount; (b) Tenant's accounts receivable consisting of bad
checks and bad debts; provided, however, if such accounts are actually collected
later, the amounts shall be included in Gross Sales at such time, and further
provided Tenant shall use reasonable efforts within the retail trade to collect
such bad checks and bad debts; (c) service charges levied against sales through
the use of national bank cards or other similar third party credit services such
as Visa or MasterCard and check verification charges; and (d) the amount
received from the sale of gift certificates until such certificates are treated
as a sale at the Leased Premises pursuant to Tenant's bookkeeping practices.
SECTION 5.5. STATEMENTS OF GROSS SALES.
A. Within twenty (20) days after the end of each calendar month
included in the Term, Tenant shall deliver to Landlord a written statement
certified by Tenant setting forth (i) the amount of Gross Sales made during such
month; (ii) the aggregate amount of Gross Sales made during such Lease Year or
Partial Lease Year including such month; (iii) the amount of deductions or
exclusions from Gross Sales taken in accordance with Section 5.4(B) above, if
any; (iv) the aggregate Percentage Rent due for such Lease Year or Partial Lease
Year; (v) the amount of Percentage Rent previously paid by Tenant to Landlord
for such Lease Year or Partial Lease Year; and (vi) the total Percentage Rent
then due for such month.
B. On or before the sixtieth (60th) day following each Lease Year
or Partial Lease Year included in the Term, Tenant shall deliver to Landlord a
written certified statement setting forth the items required under Sections
5.5(A)(ii), (iii), (iv) and (v) with respect to such Lease Year or Partial Lease
Year.
C. If Tenant shall fail to deliver any statement of Gross Sales
when due and does not cure such failure within ten (10) days after written
notice from Landlord, in addition to all of Landlord's other rights and remedies
hereunder, (i) Tenant shall pay to Landlord, as additional rent, an amount equal
to One Hundred Dollars ($100.00) per day for each day such statement is overdue;
and (ii) upon not less than three (3) days' prior notice to Tenant, Landlord
shall have the right to cause an audit of all books, records and bank accounts
of Tenant and any Concessionaire pertaining to the business conducted in the
Leased Premises and to prepare the statements which Tenant has failed to
deliver. The statement(s) prepared by Landlord shall be conclusive on Tenant
absent manifest error, and Tenant shall promptly pay all expenses incurred in
the preparation of such statement(s) and all sums, if any, as may be shown by
such audit to be due as Percentage Rent.
SECTION 5.6. RECORDS AND AUDITS.
A. The business of Tenant and any Concessionaire upon the Leased
Premises shall be operated so that a duplicate dated sales slip, dated invoice,
register receipt or similar evidence of payment, serially numbered, shall be
issued with each transaction resulting in Gross Sales or exclusions therefrom,
Tenant shall keep at the Leased Premises or at the home or regional office of
Tenant, a general ledger, sales receipts, sales records and other supporting
documentation for at least three (3) years after the end of the period to which
they pertain. All such documentation shall disclose in detail all information
required to permit Landlord to verity Tenant's Gross Sales and conform to, and
be in accordance with, generally accepted accounting principles consistently
applied. If the documentation Tenant is required to maintain pursuant to this
Section 5.6(A) is insufficient to permit Landlord to verify Gross Sales and
exclusions therefrom, Tenant shall pay to Landlord, upon demand, the cost of any
examination
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or audit performed pursuant to Section 5.6(B) below, including, without
limitation, all reasonable travel expenses Incurred by Landlord in conducting
such examination and/or audit. If any audit is required or a controversy arises
regarding Percentage Rent, Tenant shall retain its books and records until such
audit is terminated or controversy is resolved notwithstanding the expiration of
the Term.
B. Landlord, its agents and employees shall have the right at any
time during normal business hours after not less than five (5) days' prior
written notice to Tenant, to cause an examination or complete audit to be made
of the documentation described in Section 5.6(A) and such other documentation,
including, without limitation, bank accounts as Landlord shall reasonably
require. If any audit or examination shall disclose that any statement of Gross
Sales understates Gross Sales for the reporting period (i) to any extent, Tenant
shall pay to Landlord upon demand the resultant deficiency in Percentage Rent,
together with interest thereon; and (ii) to the extent of three percent (3%) or
more, Tenant shall pay to Landlord as additional rent, upon demand, the cost of
the audit or examination including, without limitation, all reasonable travel
expenses incurred by Landlord in conducting such audit.
SECTION 5.7. TAXES. The term "Taxes" shall mean all federal, state, local
governmental, special district and special service area taxes and assessments,
exactions, impact fees and charges (including, without limitation, lease, rent
or occupancy taxes) and other governmental charges and levies, general and
special, ordinary and extraordinary, unforeseen as well as foreseen of any kind
and nature (including interest thereon whenever the same may be payable in
installments) which Landlord shall pay or become obligated to pay or which are
or shall become levied, due and payable or liens upon, assessed directly or
indirectly against all or any portion of the Shopping Center (or any of the
rents received therefrom) arising out of the use, occupancy, ownership, leasing,
management, repair, replacement or operation of the Shopping Center, any part
thereof, appurtenance thereto or property, fixtures or equipment therein imposed
by any authority having jurisdiction over the Shopping Center or any part
thereof, in the amount billed and payable immediately prior to the date the same
are delinquent together with the costs (including, without limitation,
reasonable attorneys' fees) of any negotiation, contest or appeal pursued by
Landlord to reduce or prevent an increase in any portion of such Taxes,
regardless of whether any reduction or limitation is obtained, and all of
Landlord's administrative costs with respect to the foregoing, all of which
shall arise during the Term or which shall be attributable to the period
included in the Term. No inheritance, estate, franchise, corporation, income or
profit tax that is or may be imposed upon Landlord personally shall be deemed to
be included in "Taxes". Notwithstanding anything contained herein to the
contrary, Tenant's obligation hereunder to reimburse Landlord for payment of
Taxes shall not include penalties imposed for late payment of Taxes.
SECTION 5.8. PAYMENT OF TAX RENT.
A. Tenant's proportionate share of Taxes (the "Tax Rent") for each
Tax Year (as hereinafter defined) shall be computed by multiplying the amount of
the Taxes less any Deductible Contributions (hereinafter defined) to Taxes, by a
fraction, the numerator of which shall be the floor space of the Leased Premises
and the denominator of which shall be the floor space of the Satellite Store
Space (excluding the floor space of all Separately Assessed Tenants and all
Temporary Tenants [each as hereinafter defined]) which is leased and occupied.
The leased and occupied Satellite Store Space for a Tax Year shall be the
average of the leased and occupied Satellite Store Space on the first day of
each calendar month in such Tax Year. For purposes of this Section 5.8,
"Deductible Contributions" shall mean all contributions to Taxes made by (i) all
Separately Assessed Tenants, (ii) all Temporary Tenants, (iii) all Ancillary
Tenants (as hereinafter defined) and (iv) all Department, Variety or Specialty
Stores who are not Separately Assessed Tenants. "Separately Assessed Tenant"
shall mean any tenant (excluding Tenant) whose premises within the Shopping
Center are separately assessed and included on a separate tax bill and who is
obligated to pay the entire amount of such tax bill directly to the taxing
authorities or to Landlord. "Temporary Tenant" shall mean any tenant or occupant
(excluding Tenant) who occupies Satellite Store Space within the Shopping Center
pursuant to a lease, license or other similar agreement with an original stated
term of twelve (12) months or less. "Ancillary Tenant" shall mean any tenant or
occupant of the Shopping Center who occupies Ancillary Space (as defined in
Section 1.2[N] above) in the Shopping Center, provided that if such Ancillary
Tenant occupies other space in the Shopping Center in addition to such Ancillary
Space, the "Deductible Contributions" made by such Ancillary Tenant shall only
include the contributions to Taxes (or in the case of Section 6.4, contributions
to Landlord's Operating Costs) that are directly attributable to the Ancillary
Space occupied by such Ancillary Tenant. The term "Tax Year" means each twelve
(12) month period established as the real estate tax year by the taxing
authorities having jurisdiction over the Shopping Center.
B. Tax Rent shall be paid by Tenant in equal monthly installments
in such amounts as are estimated and billed by Landlord for each Tax Year during
the Term, with the first installment being due on the Rent Commencement Date and
each succeeding installment being due on the first day of each calendar month
thereafter. If at any time during a Tax Year (or after a Tax Year if the final
amount of the Taxes has not been determined) it shall appear that Landlord has
underestimated the Tax Rent for such Tax Year, Landlord may adjust the amount of
the monthly installments of Tax Rent and bill Tenant for any deficiency which
may have accrued during such Tax Year. After Landlord's receipt of the final tax
bills for each Tax Year, Landlord shall notify Tenant of the amount of Taxes for
the Tax Year in question and the amount of the Tax Rent for such Tax Year. Any
overpayment or deficiency in the Tax Rent for such Tax Year shall be adjusted
between Landlord and Tenant as follows: Tenant shall pay Landlord or Landlord
shall credit to Tenant's account (or, it such adjustment is at the end of the
Term, pay Tenant), as the case may be, within thirty (30) days after the
aforesaid notification to Tenant, the amount of any such excess or deficiency of
Tax Rent paid or payable by Tenant.
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SECTION 5.9. RENT FOR A PARTIAL MONTH. For any portion of a calendar month
included at the beginning or end of the Term, Tenant shall pay 1/30th of each
monthly installment of Rent for each day of such portion in advance at the
beginning of such portion.
SECTION 5.10. RENT FOR A PARTIAL LEASE YEAR. During any Partial Lease Year for
each item of Rent which is calculated on an annual basis but payable in monthly
installments (such as, but not limited to, Marketing Fund Dues and Tenant's
Advertising and Promotional Contribution), Tenant shall pay an amount equal to
the product arrived at by multiplying the annual amount of such item of Rent
payable for the first full Lease Year, in the case of a Partial Lease Year at
the beginning of the Term, or for the last full Lease Year, in the case of a
Partial Lease Year at the end of the Term, by a fraction, the numerator of which
shall be the number of days in the Partial Lease Year and the denominator of
which shall be 360.
SECTION 5.11. TAXES ON TENANT'S PERSONAL PROPERTY. If any such tax,
excise on rents or otherimposition, however described, is levied or assessed
by any taxing authority on
account of Tenant's interest in this Lease, Landlord's receivables, the Rent,
Tenant's inventory, the Leasehold Improvements, any Tenant Property, or it any
other taxes are imposed upon this Lease, Tenant's right to occupy the Leased
Premises, Tenant's investment or business operation in the Leased Premises
(including, without limitation, any and all documentary stamps or similar taxes
assessed upon this Lease or the consideration received by Landlord by reason of
this Lease), then Tenant shall be responsible therefor and shall pay the same
before delinquency. If any taxing authority requires that any such tax or excise
on rents or other imposition, however described, for which Tenant is responsible
(other than the Taxes included in the calculation of the Tax Rent) be paid by
Tenant, but collected by Landlord for and on behalf of such taxing authority and
forwarded by the Landlord to such taxing authority, then the same shall be paid
by Tenant to Landlord at such times as such taxing authority shall require and
be collectible by Landlord and the payment thereof enforced in the same fashion
as provided for the enforcement of payment of Rent.
ARTICLE VI
COMMON AREAS
SECTION 6.1. USE OF COMMON AREAS. During the Term, Tenant, its employees, agents
and customers shall have a non-exclusive license, in common with Landlord and
all others to or for whom Landlord has given or may hereafter give rights to use
the Common Areas (as the same may exist from time to time), but such license
shall at all times be subject to the exclusive control and management by
Landlord and such reasonable rules and regulations as Landlord may, from time to
time, impose.
SECTION 6.2. MANAGEMENT AND OPERATION OF COMMON AREAS. Landlord shall
operate,
decorate, repair, equip and maintain, or shall cause to be decorated, operated,
repaired, equipped and maintained, the Common Areas in a manner deemed by
Landlord, in its reasonable business judgment, to be appropriate. In connection
with the exercise of its rights under this Section 6.2, Landlord may: (i)
utilize the Common Areas for promotions, exhibits, food facilities and any other
use which Landlord, in its reasonable business judgment, deems appropriate for
such Common Areas, (ii) erect, install, remove and lease, kiosks, planters,
pools, sculpture and other improvements within the Common Areas; (iii) enter
into, modify and terminate easements and other agreements pertaining to the use
and maintenance of any part of the Shopping Center; (iv) close temporarily all
or any portion of the Common Areas; (v) grant individual tenants and others the
right to conduct sales in the Common Areas; (vi) restrict parking by tenants and
other occupants of the Shopping Center, their employees, agents, and
concessionaires and the respective visitors and invitees of each; (vii) close
all or any portion of the Shopping Center and in connection therewith, seal off
all entrances to the Shopping Center or any portion thereof to such extent as
may, in the sole opinion of Landlord, be necessary to prevent a dedication
thereof or the accrual of any rights to any person or to the public thereon;
(viii) temporarily suspend any and all services, facilities and access by the
public to all or any part of the Shopping Center on legal holidays or due to any
event beyond the reasonable control of Landlord; and (ix) do and perform any
other acts in and to said Common Areas as, in the exercise of good business
judgment, Landlord shall deem advisable.
SECTION 6.3. "LANDLORD'S OPERATING COSTS" DEFINED. The term "Landlord's
Operating Costs" shall mean all costs and expenses incurred in a manner deemed
by Landlord, in its reasonable business judgment, to be appropriate and for the
best interest of the Shopping Center in connection with the operation,
equipping, replacement, maintenance and repair of the Shopping Center (and all
systems, structures and Common Areas related thereto), including, without
limitation, the costs and expenses of: (i) lighting, cleaning, painting, paving
and striping of the Shopping Center, (ii) removing snow, ice, garbage, trash and
debris from the Shopping Center, (iii) operating, maintaining, repairing and
replacing ducts, conduits and similar items, fire protection systems, sprinkler
systems, security alarm systems, storm and sanitary drainage systems and other
utility systems, signs and markers, on and off site traffic regulation and
control signs and devices, (iv) expanding, adding to or reconfiguring the Common
Areas (or any portion thereof), (v) all insurance applicable to the Shopping
Center with types, amounts, and deductibles determined by Landlord; (vi)
interior and exterior planting, replanting and replacing flowers, shrubbery,
plants, trees, and other landscaping; (vii) complying with any environmental
standards and complying with any other Laws; (viii) all repairs, equipping,
operation, maintenance, replacement and improvements of or to the Shopping
Center, including, without limitation, floors, ceilings, roofs, windows,
escalators, elevators and any other portions of the structure of the Shopping
Center and all parking areas and structures, transportation equipment and
systems and similar facilities, plus interest at the rate per annum equal to the
lesser of: (a) two (2) percentage points above the
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average annual Prime Rate for the Operating Cost Year (hereinafter defined) in
question; and (b) the maximum legal rate ("CAM Interest") on the unamortized
portion, if any, of the cost of such repairs, replacements and improvements;
(ix) the purchase, maintenance, repair and inspection of all machinery and
equipment used in the operation or maintenance of the Shopping Center and all
personal property taxes and other charges incurred in connection with such
machinery and equipment, plus CAM Interest on the portion of the original cost
of such machinery and equipment not previously included in Landlord's Operating
Costs; (x) all license and permit fees and any and all parking surcharges that
may result from any Laws, including the cost of obtaining and operating public
transportation or shuttle bus systems, if the same are deemed advisable by
Landlord or are required by any applicable Laws; (xi) music program services and
loudspeaker systems, whether rented or purchased; (xii) personnel, including,
without limitation, management, security and maintenance personnel employed in
connection with the management, operation, maintenance and repair of the
Shopping Center, and other personnel hired to direct traffic and the parking of
automobiles in the parking areas, and all costs and expenses relating to the
employment of such personnel, including, without limitation, the salaries,
benefits and insurance costs of such personnel, provided that Landlord shall
make a reasonable allocation of the costs and expenses of any management and
maintenance personnel that perform services for properties other than the
Shopping Center amongst the properties (including the Shopping Center) for which
such personnel perform services; (xiii) the operation, management and
maintenance of the Landlord's office in the Shopping Center; (xiv) all utility
costs relating to the Common Areas; and (xv) Landlord's administrative costs and
overhead costs in an amount, in the aggregate, equal to fifteen percent (15%) of
the total of all other Landlord's Operating Costs. Landlord's Operating Costs
shall not include, however: (a) depreciation; (b) costs of repairs and
replacements to the extent that proceeds of insurance or condemnation awards are
received therefor; (c) the cost of a "Capital Expenditure" as defined under the
Internal Revenue Code Section 263 and the regulations prescribed thereunder, in
effect as of the date of this Lease, unless such cost is amortized over the
"useful life" of such Capital Expenditure, in which event Landlord's Operating
Costs for each year included in the period selected by Landlord shall include
the cost of such Capital Expenditure as amortized over such period, plus CAM
Interest on the portion of such cost which has not been included in Landlord's
Operating Costs in any year; (d) fines or penalties resulting from Landlord's
breach of this Lease or imposed upon Landlord by any governmental authority as a
result of the violation of any Law, by any of the Landlord Related Parties; (e)
the cost of any item or service to the extent of any direct reimbursement
Landlord actually receives with respect thereto from Tenant or any other tenant
or occupant of the Shopping Center (other than reimbursement Landlord receives
through payment of a proportionate or other share of Landlord's Operating
Costs); (f) the cost of building out leasable space in preparation for occupancy
(excluding any portion of said cost that results from repairs, replacements or
maintenance work that would otherwise have been performed or were otherwise
required); (g) the amount of brokerage commissions paid by Landlord in
connection with the leasing of space by Landlord in the Shopping Center; (h)
principal and interest payments to service the debt under any mortgage secured
by the Shopping Center; (i) lease rentals under any ground or underlying lease
affecting the Shopping Center; (j) Taxes and Tax Rent; (k) the cost of
construction of new gross leasable floor space; and (i) the cost of any
abatement work pursuant to Section 17.21, performed by Landlord unless such
abatement work is required in connection with improvements (the cost of which is
includable in Landlord's Operating Costs under this Section 6.3), maintenance,
repair or replacements at the Shopping Center which would be undertaken and
performed by Landlord in the ordinary course regardless of the presence or
absence of asbestos-containing materials.
SECTION 6.4. TENANT'S PROPORTIONATE SHARE OF LANDLORD'S OPERATING COSTS.In and
for each Operating Cost Year (as hereinafter defined) or partial Operating Cost
Year during the Term, Tenant shall pay Landlord, as additional rent, a
proportionate share of Landlord's Operating Costs ("Tenant's Proportionate Share
of Landlord's Operating Costs"), which shall be computed by multiplying the
amount of the Landlord's Operating Costs less any Deductible Contributions
(hereinafter defined) to Landlord's Operating Costs by a fraction, the numerator
of which shall be the floor space of the Leased Premises and the denominator of
which shall be the floor space of the Satellite Store Space (excluding the floor
space of all Exterior Tenants (hereinafter defined) and all Temporary Tenants
[as defined in Section 5.8]) which is leased and occupied. The leased and
occupied Satellite Store Space for an Operating Cost Year shall be the average
of the leased and occupied Satellite Store Space on the first day of each
calendar month in such Operating Cost Year. Tenant's Proportionate Share of
Landlord's Operating Costs shall otherwise be paid and adjusted in the same
manner the Tax Rent is paid and adjusted pursuant to Section 5.8, but for
Operating Cost Years or portions thereof, if the Term does not begin or end at
the beginning or end of an Operating Cost Year, and provided that for purposes
of this Section 6.4, "Deductible Contributions" shall mean all contributions to
Landlord's Operating Costs made by (i) all Exterior Tenants, (ii) all Temporary
Tenants, (iii) all Ancillary Tenants (as defined in Section 5.8) and (iv) all
Department, Variety or Specialty Stores who are not Exterior Tenants. "Exterior
Tenant" shall mean any tenant (other than Tenant) in the Shopping Center who
does not have a storefront on the Enclosed Mall. "Operating Cost Year" shall
mean each twelve month period established by Landlord (from time to time) as the
Operating Cost Year at the Shopping Center. Notwithstanding anything in this
Lease to the contrary, there will be no duplication in charges to the Tenant by
reason of the provision in this Lease setting forth Tenant's obligation to
reimburse Landlord for Landlord's Operating Costs or by reason of any other
provision in this Lease.
ARTICLE VII
UTILITIES
SECTION 7.1. UTILITY CHARGES.
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A. Tenant shall pay all rents and charges for water, sewer,
electricity, gas, heat, steam, hot and/or chilled water, air-conditioning,
ventilating, telephone service and other utilities supplied to the Leased
Premises, however supplied (the "Utility Charges"), when the same become due. If
any such utilities are not separately metered, then in addition to Tenant's
payments of separately metered charges, Tenant shall pay to Landlord on, at
Landlord's option, either the first day of each calendar month or within ten
(10) days after receipt of a bill therefor, Tenant's proportionate share of such
Utility Charges which shall be calculated as follows: the Utility Charges for
such utilities plus Landlord's reasonable administrative costs shall be
multiplied by a fraction, the numerator of which shall be the floor space of the
Leased Premises and the denominator of which shall be the total floor space
occupied by tenants using such utilities. Landlord may, at any time, install
submeters in connection with the utility services furnished to the Leased
Premises and thereupon collect all or any part of the Utility Charges directly
from Tenant provided that such Utility Charges shall not exceed the rates Tenant
would be charged if billed directly by the local utility therefor for the same
services. Landlord, in its sole discretion, shall have the right, at all times,
to alter any and all utilities, and the equipment relating thereto, serving the
Shopping Center or any portion thereof, provided such alteration by Landlord
does not result in a diminution of the utility service to the Leased Premises.
Tenant shall execute and deliver to Landlord without delay such documentation as
may be required to effect such alteration.
B. If Tenant shall require natural gas for the operation of
Tenant's business in the Leased Premises, Tenant shall, at its own expense,
arrange for such natural gas utility service from the local gas company in a
manner approved by Landlord (which approval shall not be unreasonably withheld).
SECTION 7.2. DISCONTINUANCES AND INTERRUPTIONS OF SERVICE. None of
the Landlord Related
Parties shall be liable to Tenant in damages or otherwise for the quality,
quantity, failure, unavailability, discontinuance or disruption of any utility
service (including any discontinuance pursuant to the immediately succeeding
sentence) and the same shall not (i) constitute a termination of this Lease;
(ii) an actual or constructive eviction of Tenant; or (iii) entitle Tenant to an
abatement of Rent or other charges (except as specifically set forth herein).
Landlord also reserves the right to discontinue, without notice to Tenant, any
heating, ventilation, air-conditioning or other utility services furnished by
Landlord at any time if Tenant fails to pay timely any Utility Charges due under
this Lease. Notwithstanding the foregoing, if such disruption or interruption of
service is due solely to Landlord's negligence and said interruption of service
shall continue for more than forty-eight (48) hours after notice thereof from
Tenant to Landlord and prohibit Tenant from operating its business in the Leased
Premises, Minimum Rent shall abate until the earlier of the date of restoration
of service or the reopening of Tenant's business in the Leased Premises.
ARTICLE VIII
INDEMNITY AND INSURANCE
SECTION 8.1. INDEMNITY BY TENANT. Except for losses, liabilities, obligations,
damages, penalties, claims, costs, charges, and expenses resulting from the
negligence of any of the Landlord Related Parties, Tenant shall indemnify,
defend and hold the Landlord Related Parties harmless against and from all
losses, liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including, without limitation, reasonable architects' and attorneys'
fees, which maybe imposed upon, incurred by, or asserted against any of the
Landlord Related Parties and arising, directly or indirectly, out of or in
connection with the use or occupancy or maintenance of the Leased Premises by,
through or under Tenant, and (without limiting the generality of the foregoing)
any of the following occurring during the Term: (i) any work or thing done in,
on or about the Leased Premises or any part thereof by any of the Tenant Related
Parties; (ii) any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Leased Premises or any part thereof, (iii) any
act or omission of Tenant or any of the Tenant Related Parties (but as to
Tenant's invitees, only to the extent such act or omission occurs within the
Leased Premises); (iv) any injury or damage to any person or property occurring
in, on or about the Leased Premises or any part thereof; (v) any failure on the
part of Tenant to perform or comply with any of the covenants, agreements, terms
or conditions contained in this Lease with which Tenant, on its part, must
comply or perform; or (vi) any Transfer (as defined in Section 15.1) or proposed
Transfer. In case any action or proceeding is brought against any of the
Landlord Related Parties by reason of any of the foregoing, Tenant shall, at
Tenant's sole cost and expense, resist or defend such action or proceeding by
counsel approved by Landlord, which approval shall not be unreasonably withheld.
SECTION 8.2. LANDLORD NOT RESPONSIBLE FOR ACTS OF OTHERS. Except for
losses, liabilities,
obligations, damages, penalties, claims, costs, charges, and expenses resulting
from the negligence of any of the Landlord Related Parties, none of the Landlord
Related Parties shall be liable for, and Tenant waives, all claims for loss or
damage to Tenant's business or damage to person or property sustained by Tenant
or any person claiming by, through or under Tenant resulting from any accident
or occurrence in, on or about the Leased Premises or any other part of the
Shopping Center, including, without limitation, claims for loss, theft or damage
resulting from: (i) any equipment or appurtenances becoming out of repair; (ii)
injury done or occasioned by wind or weather; (iii) any defect in or failure to
operate, for whatever reason, of any utility, improvement, system or structure
in the Shopping Center; (iv) any act, omission or negligence of other tenants,
licensees or any other persons or occupants of the Shopping Center or of
adjoining or contiguous buildings, of owners of adjacent or contiguous properly
or the public, or by operations in the construction of any private, public or
quasi-public work; or (v) any other cause of any nature. To the maximum extent
permitted by law, Tenant agrees to use and occupy the Leased Premises, and to
use such other potions of the Shopping Center as Tenant is herein given the
right to use, at Tenant's own risk.
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SECTION 8.3. TENANT'S INSURANCE. At all times commencing on and after the
earlier of (i) the Possession Date, (ii) the Commencement Date, or (iii) the
date Tenant enters the Leased Premises for any purpose, Tenant shall carry and
maintain, at its sole cost and expense:
A. Commercial General Liability Insurance with a broad form
comprehensive general liability endorsement applicable to the Leased Premises
and its appurtenances providing, on an occurrence basis, a minimum combined
single limit of Two Million Dollars ($2,000,000) and containing a contractual
liability endorsement.
B. Plate glass insurance and all risks of physical loss insurance
written at replacement cost value and with a replacement cost endorsement
covering all of Tenant's Property in the Leased Premises, and all Leasehold
Improvements installed in the Leased Premises. Notwithstanding the foregoing,
Tenant may self-insure for damage to or breakage of any plate glass in the
Leased Premises. If at any time this Lease is canceled or terminated by either
party as herein permitted following any casualty loss which Tenant has
self-insured in whole or in part (an "uninsured loss") and Landlord would have
been entitled to receive and retain the insurance proceeds payable because of
such casualty if the uninsured loss had been covered by insurance, then Tenant
shall promptly pay to Landlord an amount equal to the insurance proceeds that
would have been payable with respect to the uninsured loss if Tenant had carried
insurance in the form and amount required by the terms of this Lease rather than
self-insuring such loss.
C. Business interruption insurance covering periods of not less
than one (1) year in the following amounts: (i) for the first Lease Year an
amount equal to one and one-half (1-1/2) times the Minimum Rent and (ii) for the
succeeding Lease Years or Partial Lease Years, in amounts not less than the Rent
and Tenant's other operating expenses for the preceding twelve (12) month period
(the "Business Interruption Coverage"). Notwithstanding anything to the contrary
contained herein, Tenant does not have to maintain the Business Interruption
Coverage, provided that if Tenant does not maintain such Business Interruption
Coverage, any loss or damage to Tenant which would have been covered by such
Business Interruption Coverage shall be deemed for the purposes of Section 8.7,
below, to be covered by and recoverable by Tenant under a valid and collectible
policy of insurance and Tenant shall be deemed to be self insuring with respect
thereto.
D. Whenever good business practice, in accordance with industry
standards, indicates the need of additional insurance coverage or different
types of insurance in connection with the Leased Premises or Tenant's use and
occupancy thereof, Tenant shall, upon request, obtain such insurance at Tenant's
expense and provide Landlord with evidence thereof.
E. If alcoholic beverages are sold, used, delivered or stored on,
in or from the Leased Premises, Tenant shall maintain throughout the Term of
this Lease at its expense, insurance with combined single limits of not less
than Two Million Dollars ($2,000,000) covering any claims arising under
applicable law relating to the manufacture, storage, sale, use or giving away of
any alcoholic or other intoxicating liquor or beverage, which claims could be
asserted against Landlord, Tenant or the Leased Premises. Such insurance shall
be in such amounts as may be reasonably specified by Landlord. Nothing in this
section shall be construed to permit Tenant to sell, use, deliver or store
alcoholic beverages on, in or from the Leased Premises unless such sale, use,
delivery or storage is specifically permitted by Landlord pursuant to Section
1.1(I) herein.
SECTION 8.4. TENANT'S CONTRACTOR'S INSURANCE. Before any alterations, additions,
improvements or construction are undertaken, Tenant shall carry and maintain, at
its expense, or Tenant shall require any contractor performing work on the
Leased Premises to carry and maintain, at no expense to Landlord, in addition to
worker's compensation insurance as required by the jurisdiction in which the
Shopping Center is located, All Risk Builder's Risk Insurance in the amount of
the replacement cost of the Tenant Improvements and Commercial General Liability
Insurance (including, without limitation, Contractor's Liability coverage,
Contractual Liability coverage, Completed Operations coverage, a Broad Form
Property Damage coverage and Contractor's Protective liability) written on an
occurrence basis with a minimum combined single limit of Two Million Dollars
($2,000,000); such limit may be accomplished by means of an umbrella policy.
SECTION 8.5. POLICY REQUIREMENTS. Any company writing any insurance which Tenant
is required to maintain or cause to be maintained pursuant to Sections 8.3 and
8.4 (all such insurance, as well as any other insurance carried by Tenant with
regard to the Leased Premises, shall be referred to as "Tenant's Insurance"
shall at all times be a company with at least a Best's rating of A-VII and each
such company shall be licensed and qualified to do business in the State in
which the Leased Premises are located. The form of such Tenant's Insurance shall
be subject to Landlord's approval (which approval shall not be unreasonably
withheld). Tenant's Insurance may be carried under a blanket policy covering the
Leased Premises and any other of Tenant's locations. All policies evidencing
Tenant's Insurance (other than any worker's compensation insurance) shall (i)
specify Tenant and "owner(s) and its (or their) principals, beneficiaries,
partners, officers, directors, employees, agents and mortgagee(s)" (and any
other designees of Landlord as the interest of such designees shall appear) as
additional insured and (ii) contain endorsements that the insurer(s) will give
to Landlord and its designees at least thirty (30) days' advance written notice
of any change, cancellation, termination or lapse of said insurance. Any
Tenant's Insurance covering the Leasehold Improvements against damage by fire or
other casualty shall provide that any loss to any of the Leasehold Improvements
shall be adjusted jointly with Landlord and Tenant and that Landlord shall be
named as a loss payee. Tenant shall deliver to Landlord at least fifteen (15)
days prior to the time Tenant's Insurance is first required to be carried by
Tenant, and upon renewals at least fifteen (15) days prior to the expiration of
the term of any such insurance coverage, a certificate of insurance of all
policies evidencing Tenant's Insurance. The limits of Tenant's insurance shall
in no event limit Tenant's liability under this Lease, at law or in equity.
If Tenant fails to perform its obligations under this Article
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VIII, then Landlord may, but shall not be required to, perform any such
obligations on behalf of Tenant and add the cost of the same as additional rent,
payable on demand.
SECTION 8.6. INCREASE IN INSURANCE PREMIUMS. Neither Tenant nor any of the other
Tenant Related Parties shall do or fail to do anything which will (i) violate
the terms of or increase the rate of, any of Landlord's or any other tenant or
occupant's insurance policies; (ii) prevent Landlord from obtaining such
policies of insurance acceptable to Landlord or any Mortgagee; or (iii)
contravene the rules, regulations and recommendations of Landlord's insurance
companies, the Fire Insurance Rating Organization or any similar body having
jurisdiction over the Leased Premises or the National Board of Fire Underwriters
or any similar body exercising similar functions in connection with the
prevention of fire or the correction of hazardous conditions. In the event of
the occurrence of any of the events set forth in this Section 8.6, Tenant shall
pay Landlord upon demand, as additional rent, the cost of the amount of any
increase in any such insurance premium.
SECTION 8.7. WAIVER OF RIGHT OF RECOVERY. Notwithstanding anything set forth in
this Lease to the contrary, Landlord and Tenant do hereby waive any and all
right of recovery, claim, action or cause of action against the other and their
respective Related Parties for any loss or damage that may occur to Landlord or
Tenant or any party claiming by through or under Landlord or Tenant, as the case
may be, their respective property, the Shopping Center or the Leased Premises or
any addition or improvements thereto, or any contents therein, by reason of
fire, the elements or any other cause, regardless of cause or origin, including
the negligence of Landlord or Tenant, or their respective Related Parties, which
loss or damage is covered by valid and collectible policies of insurance, to the
extent of the insurance proceeds that are recoverable under such insurance
policies. All insurance policies carried by either party with respect to the
Shopping Center of the Leased Premises, whether or not required to be carried by
this Lease and if such policies can be so written and either do not result in
additional premium or the other party agrees to pay upon demand any resulting
additional premium, shall permit the waiving of any right of recovery on the
part of the insured against the other party for any loss or damage to the extent
such rights have been waived by the insured prior to the occurrence of such loss
or damage. In the event that Tenant is permitted to and self-insures any risk
which would have been covered by the insurance required to be carried by Tenant
pursuant to Section 8.3 of this Lease or Tenant fails to carry any insurance
required to be carried by Tenant pursuant to Section 8.3 of this Lease, then all
loss or damage to Tenant, its business, its property, the Leased Premises or any
additions or improvements thereto or contents thereof that would have been
covered by such insurance had Tenant maintained it shall, for purposes of the
waiver set forth in this Section 8.7, be deemed covered and recoverable by
Tenant under valid and collectible policies of insurance.
ARTICLE IX
CONSTRUCTION
SECTION 9.1. CONDITION OF LEASED PREMISES. By taking possession of the Leased
Premises, Tenant is deemed to have (i) inspected the Leased Premises; (ii)
accepted the Leased Premises "AS IS" with no representation or warranty by or on
behalf of Landlord as to the condition or suitability of the Leased Premises or
of the Shopping Center for Tenant's proposed improvements thereto or use
thereof; and (iii) agreed that Landlord has no obligation to improve or repair
the Leased Premises or the Shopping Center except as follows:
The Landlord will perform only the following work (the "Landlord's
Work") in the Leased Premises in a good and workmanlike manner, at Landlord's
sole cost and expense:
Erect demising partitions (metal studs only, no dry wall separating
the Leased Premises from the adjacent premises.
SECTION 9.2. TENANT IMPROVEMENTS.
A. Any and all other improvements to and remodeling of the Leased
Premises required pursuant to this Lease or otherwise (the "Tenant
Improvements") including, without limitation, the initial Tenant Improvements
(hereinafter defined), shall be performed by (i) Tenant at Tenant's sole cost
and expense, (ii) in accordance with plans and specifications approved by
Landlord and the terms of this Lease (including, without limitation, Exhibit B),
(iii) in a first-class workmanlike manner with first-class materials, (iv) by
duly qualified or licensed persons and (v) without interference with the
operation of Landlord or other occupants of the Shopping Center. Upon receipt of
Landlord's written approval of such plans and specifications, Tenant shall
promptly commence and diligently pursue to completion the construction of the
initial Tenant Improvements in accordance with the provisions set forth in this
Article IX. As of the Possession Date, Tenant shall perform all duties and
obligations imposed by this Lease including, without limitation, the obligation
to pay Continuing Rent (pursuant to Section 17.26 below), provided that Tenant's
obligation to pay Minimum Rent, Percentage Rent, Tax Rent, Tenant's
Proportionate Share of Landlord's Operating Costs, Marketing Fund dues, and
Tenant's Advertising and Promotional Fund Contribution, pursuant to this Lease
shall accrue from and after the Rent Commencement Date.
B. The initial Tenant Improvements shall mean and include, without
limitation, all improvements, remodeling and redecorating required by Landlord
in connection with Tenant's initial occupancy of the Leased Premises, which
shall include, but not be limited to, all required demolition (including the
demolition of all existing leasehold improvements located in the Recapture
Area), the furnishing and installation of a construction barricade,
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new wall, floor and ceiling treatments and finishes, new demising walls, new
electrical and lighting systems, new HVAC system (including new roof top unit)
and exhaust hoods and equipment equipped with "grease guards" (or equivalent) at
the roof, new plumbing system including grease trap as required by applicable
Law, new sprinkler system, new fire protection system, new smoke evacuation
system, new interior and exterior storefront construction and finishes, new
neutral piers, new internally illuminated storefront signage and new store
displays and interior fixturing and furnishing all in accordance with Landlord's
specifications, set forth in Exhibit B, together with all necessary
modifications to the mechanical systems within the Leased Premises and providing
service to the Leased Premises, as required by all applicable Laws or necessary
to accommodate the initial Tenant Improvements. Tenant acknowledges that the
Leased Premises is a reconfiguration of one or more premises and Tenant agrees
that as a part of the initial Tenant Improvements Tenant will perform all
demolition and construction work necessary to make the Leased Premises an
integrated whole with integrated systems that are independent from those of any
other premises, all in accordance with plans and specifications approved by
Landlord and Exhibit B attached hereto. Notwithstanding anything to the contrary
contained herein, Tenant shall also be required to provide a decorative
enclosure around the Designated Outdoor Seating Area (as defined in Section
17.27 below) as a part of the Tenant's initial Tenant Improvements.
Subject to any applicable Law, in the event of a direct conflict
between the final plans and specifications for the initial Tenant Improvements,
as finally approved by Landlord, and the construction provisions contained in
this Lease (including, without limitation, Exhibit B), the final Landlord
approved plans and specifications shall control Tenant's construction of the
initial Tenant Improvements and shall supersede any directly inconsistent
construction provisions contained in this Lease (including, without limitation,
Exhibit B), but only to the extent the approved plans and specifications deal
with an item specifically.
SECTION 9.3. SCHEDULE OF PLAN SUBMISSION FOR INITIAL TENANT IMPROVEMENTS.
A. Not later than seven (7) days after the date of this Lease,
Tenant shall notify Landlord of the identify and mailing address of, the
licensed architect engaged by Tenant for the preparation of plans for the
Initial Tenant Improvements and Landlord agrees to accept such licensed
architect as Tenant's authorized agent.
B. Not later than fifteen (15) days after the date of this Lease,
Tenant, at Tenant's expense, shall cause Tenant's architect to prepare and
deliver to Landlord for Landlord's approval one (1) set each of prints and
sepias of preliminary plans illustrating Tenant's design concept.
C. Not later than forty-five (45) days after the date of this
Lease, Tenant, at Tenant's expense, shall cause Tenant's architect to prepare
and deliver to Landlord for Landlord's approval four (4) sets of final plans and
specifications for the initial Tenant Improvements plus one (1) sepia set.
D. Landlord agrees to review Tenant's plans and specifications
within ten (10) business days after receipt thereof and notify Tenant of the
matters, if any, in which said plans fail to conform to Landlord's construction
requirements or otherwise fail to meet with Landlord's approval (which approval
shall not be unreasonably withheld). Tenant shall cause said plans to be revised
in such manner as to comply with Landlord's requirements within ten (10) days
after Landlord's notice to Tenant and Tenant shall submit revised plans for
Landlord's approval. When Landlord has approved Tenant's plans or revised plans,
as the case may be, Landlord shall initial and return one (1) set of approved
plans to Tenant showing the date of Landlord's approval. Tenant shall not
commence the work within the Leased Premises until Landlord has approved
Tenant's final plans, unless Landlord's prior approval has been obtained in
writing. Notwithstanding anything to the contrary contained herein, Landlord's
approval of any plans and specifications submitted by Tenant pursuant to this
Section 9.3 or otherwise is not intended and shall not be deemed to constitute a
representation, warranty or assurance of any kind that such plans and
specifications and the Tenant Improvements shown thereon comply with applicable
Laws or that the same are structurally sound and Tenant shall be solely
responsible for causing such compliance and for the quality and structural
integrity of any Tenant Improvements and Tenant acknowledges that it is not
relying on any of the Landlord Related Parties for the same.
E. Notwithstanding anything contained in this Lease to the
contrary, Tenant is required to complete the initial Tenant Improvements on or
before the date Tenant opens for business in the Leased Premises and Tenant is
required to open for business to the public in the Leased Premises on or before
ninety (90) days following the Possession Date.
F. Landlord acknowledges that as of the Possession Date Tenant is
open for business in the Original Leased Premises. Notwithstanding anything to
the contrary contained herein, in order to facilitate performance of the initial
Tenant Improvements, Tenant shall have the right to close for business to the
public in the Original Leased Premises for a period which shall not exceed
ninety (90) days (the "Permitted Closure") during the Construction Period (as
hereinafter defined). During the Construction Period, pursuant to this Section
9.3(F), Tenant shall continue to pay all Continuing Rent (as defined in Section
17.26 below) pursuant to the terms of Section 17.26 below. The term
"Construction Period" as used herein shall be deemed to be the period of time
commencing on the date that Tenant commences construction of the initial Tenant
Improvements (the "Start Date") and ending on the earlier to occur of (i) the
date that is ninety (90) days after the Possession Date, and (ii) the date the
initial Tenant Improvements in the Leased Premises are substantially complete.
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SECTION 9.4. SECURITY FOR TENANT'S WORK. INTENTIONALLY OMITTED.
SECTION 9.5. OWNERSHIP OF IMPROVEMENTS. All present and future alterations,
additions or improvements made in, on or to the Leased Premises, by either
party, including, without limitation, all equipment and non-trade fixtures,
light fixtures, roof-top air-conditioning units, pipes, ducts, conduits,
plumbing, wiring, paneling, partitions, mezzanines, floors, floor and wall
coverings, and similar items (the "Leasehold Improvements") shall be deemed the
property of Landlord and unless Landlord directs otherwise, shall remain upon
and be surrendered with the Leased Premises as part thereof in good order,
condition and repair, ordinary wear and tear excepted, upon Tenant's vacation or
abandonment of the Leased Premises. If Landlord directs, Tenant shall remove
kitchen exhaust hoods and walk-in freezers in the Leased Premises on or
immediately prior to the Termination Date or the termination of Tenant's right
to possession and shall restore the Leased Premises to the same condition as
existed prior to the installation of such property. All movable goods,
inventory, furniture, trade fixtures and other movable personal property
belonging to Tenant which are installed or stored in the Leased Premises by
Tenant and are not permanently affixed to the Leased Premises, shall remain
Tenant's property ("Tenant's Property") and shall be removed by Tenant on or
prior to the Termination Date (or the termination of Tenant's right to
possession of the Leased Premises, whichever is applicable) provided that: (i)
Tenant is not in default under this Lease; and (ii) Tenant shall immediately
repair any damage to the Leased Premises caused by the removal of any of
Tenant's Property and restore the Leased Premises to the same condition as
existed prior to the installation of such property.
Notwithstanding the foregoing, provided Tenant is not in default
hereunder, Landlord agrees to subordinate its security Interest as described in
this Section 9.5 to Tenant's lenders, ("Lender") if any, requiring a priority
position under the following circumstances:
(a) Lender is financing Tenant's purchase of the equipment or
inventory in which Landlord is
subordinating its security interest (the "Equipment");
(b) that Tenant shall furnish Landlord with a complete schedule of
the Equipment financed pursuant to the terms hereof, which schedule shall be
updated in the event of any changes,
(c) that Tenant shall be prohibited from financing any
non-moveable fixture or permanent improvement
to the leasehold;
(d) that Tenant shall cause any and all Lenders to give
Landlord notice of any public or private sale by
such Lender of Tenant's Equipment;
(e) that no public or private sale by any Lender shall be
heldon the Leased Premises; and
(f) Lender can enter the Leased Premises for purpose of
removal of the Equipment only if:
(1) permitted by the agreement between Lender and Tenant
, and
(2) Lender agrees to restore or repair all damage to the
Leased Premises caused by such removal,
and
(3) Lender gives Landlord notice in the event that any
of Tenant's moveable trade fixtures or Equipment are
removed from the Leased Premises, and
(4) Lender indemnities Landlord for any claim, liability
or expense (including reasonable attorney's fees)
arising out of or in connection with Lender's
removal of the Equipment and Lender's entry and
activities upon the Leased Premises.
(g) Landlord's subordination shall not be effective unless and
until a separate agreement is entered into between Lender and Landlord
respecting the foregoing items.
The statutory lien for rent is not hereby waived, the express
contractual lien herein granted being in addition and supplementary thereto.
SECTION 9.6. MECHANIC'S LIENS. No mechanic's or other lien shall be allowed
against the Shopping Center or the estate of Landlord. If any mechanic's or
other lien shall at any time be filed against the Leased Premises by reason of
work, labor, services or materials performed or furnished, or alleged to have
been performed or furnished, to or for the benefit of Tenant or anyone claiming
by, through or under Tenant, Tenant shall forthwith cause the same to be
discharged of record or bonded to the satisfaction of Landlord. If Tenant shall
fail to cause such lien to be so discharged or bonded within ten (10) days after
notice of the filing thereof, then, in addition to any other right or remedy of
Landlord, Landlord may, but shall not be obligated to, discharge the same, by
paying the amount claimed to be due without inquiring as to the validity of any
such lien, and the amount so paid by Landlord, including attorneys' fees
incurred by Landlord in connection therewith, shall be due and payable by Tenant
to Landlord upon demand as additional rent.
SECTION 9.7. RECAPTURE OF CONSTRUCTION COSTS. To the extent Tenant constructs
the initial Tenant Improvements in the Leased Premises in accordance with the
plans and specifications approved by Landlord and in accordance with Exhibit B
(attached hereto and made a part hereof) and provided Tenant has furnished
Landlord with
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the following documents in a form and substance acceptable to Landlord: (i) a
certificate of occupancy, (ii) proof of completion of construction in accordance
with the plans and specifications approved by Landlord, (iii) paid bills, and
(iv) Tenant's affidavit, final lien waivers and sworn statements affidavits from
all contractors, subcontractors, materialmen, and all others performing work in
the Leased Premises in the form required by Landlord or, if no form is
specified, in accordance with the statutory and local requirements of the
jurisdiction in which the Shopping Center is located, and if Tenant is not in
default under this Lease at each relevant time, Tenant may reduce amounts due
and owing under the Lease as Minimum Rent in accordance with this Section 9.7
until it has recaptured an aggregate amount (the "Construction Allowance") equal
to the lesser of: (a) One Hundred Twenty Thousand Dollars ($120,000.00) and (b)
the amount of the "hard" costs (i.e., the cost and expense of labor and
materials for the initial Tenant Improvements [other than Tenant's Property])
actually incurred by Tenant in constructing the initial Tenant Improvements.
Tenant shall be entitled to recapture such Construction Allowance by applying it
as a credit against the Minimum Rent as it becomes due hereunder by offsetting
the Offset Amount (hereinafter defined) against each installment of Minimum Rent
due until Tenant has recaptured an aggregate amount equal to the Construction
Allowance. For purposes of this Section 9.7, the term Offset Amount shall mean
Two Thousand Dollars ($2,000.00). Notwithstanding anything to the contrary
contained herein, all documents which Tenant submits to Landlord under clause
(iv) above must be notarized originals. Nothing contained herein shall be deemed
to obligate Landlord to grant to Tenant any portion of the credit with respect
to the cost of any initial Tenant Improvements which may not have been completed
in accordance with the plans and specifications approved by Landlord and Exhibit
B. In the event Tenant is unable to recapture the full amount set forth above,
Tenant shall have no further right to recapture nor any right or claim against
Landlord for any unrecapturable amount. Notwithstanding anything to the contrary
contained herein, at any time prior to the date that the entire amount of the
Construction Allowance has been recaptured pursuant to this Section 9.7,
Landlord may elect, in its sole discretion, to make a cash payment to Tenant
(the "Allowance Payment") in lieu of all or any portion of the Construction
Allowance not yet applied by Tenant as a credit against Minimum Rent pursuant to
this Section 9.7 (such portion of the Construction Allowance shall be referred
to herein as the "Subject Portion"), and such Allowance Payment shall be in an
amount equal to the amount of such Subject Portion discounted to present value
using a discount rate equal to two (2) percentage points above the rate of
interest then most recently publicly announced by American National Bank and
Trust Company of Chicago as its "prime rate" or "base rate", as the case may be.
If Landlord makes such an Allowance Payment to Tenant in accordance with the
foregoing, Tenant shall have no further rights to apply any portion of the
Subject Portion as a credit against Minimum Rent pursuant to this Section 9.7.
All documents required to be submitted to Landlord under this Section 9.7 shall
be mailed to: Equity Properties and Development Company, Two North Riverside
Plaza, Suite 1000, Chicago, Illinois 60606, Attention: Lease Administration
Department.
ARTICLE X
REPAIRS, MAINTENANCE, LANDLORD'S ACCESS AND ALTERATIONS
SECTION 10.1. REPAIRS BY LANDLORD. Subject to the terms and conditions set forth
in Articles XI, XII and Sections 4.6 and 17.16, Landlord shall make, or cause to
be made all necessary repairs (structural or otherwise) to the Common Areas
(excluding, however, any areas any tenant or any other occupant of the Shopping
Center is obligated to repair), provided Landlord has actual knowledge of the
necessity for such repair.
SECTION 10.2. ALTERATIONS, REPAIRS, MAINTENANCE AND DISPLAYS BY TENANT.
A. Any alterations or improvements made by Tenant in or to the
Leased Premises or any part thereof shall (i) be subject to Landlord's prior
written approval thereof (which approval shall not be unreasonably withheld),
and (ii) performed in accordance with the provisions of Article IX. Tenant
shall, at its sole expense, cause plans and specifications therefor to be
prepared by an architect or other duly qualified person for Landlord's approval.
In addition, Tenant shall not paint or decorate any part of the exterior of the
Leased Premises, or any part of the interior visible from the exterior thereof,
without first obtaining Landlord's written approval.
Notwithstanding the provisions contained in this Section 10.2 and
provided Tenant is not in default under this Lease, Tenant shall have the right
to make non-structural interior alterations to the Leased Premises without
obtaining Landlord's prior written consent provided that: (i) such interior
alterations shall be completed in a good and workmanlike manner in accordance
with Landlord's design criteria for the Shopping Center and the plans and
specifications for the Leased Premises originally approved by Landlord; and (ii)
the cost of any such interior alterations shall not exceed in the aggregate
Fifteen Thousand Dollars ($15,000.00) per Lease Year.
B. Tenant shall at all times during the Term, from and after the
Possession Date, at its own cost and expense, maintain the Leased Premises in
good order, condition and repair and make all necessary replacements and repairs
to the Leased Premises (other than any repairs required to be made by Landlord
pursuant to Sections 10.1, 11.2 or 12.1). Tenant's obligations shall include,
without limitation, repairing, maintaining, and making replacements to items
such as the following, but only to the extent the same are located within or
exclusively serving the Leased Premises: floors (other than structural floors);
walls (other than the exterior face or service corridor walls); ceilings;
utility meters; pipes and conduits; fixtures; any loading dock servicing the
Leased Premises (including any mechanical systems pertinent to the drainage
thereof); subject to Section 4.6, electrical, heating, ventilating and
air-conditioning equipment and systems (whether such electrical, heating,
ventilating and air-conditioning equipment and systems are located inside the
Leased Premises or on the roof of the Shopping Center) which are installed by
Tenant or which
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exclusively serve the Leased Premises; sprinkler equipment and other equipment
within the Leased Premises; the storefront(s); security grilles or similar
enclosures; locks and closing devices; window sashes, casements and frames;
glass; and doors and door frames.
C. Tenant shall initiate and carry out a program of regular
maintenance and repair of the Leased Premises, including the painting or
refinishing of all areas of the interior and the storefront of the Leased
Premises, so as to impede, to the extent possible, deterioration by ordinary
wear and tear and to keep the same in attractive condition. After the first five
(5) years of the Term, Tenant shall, at its expense, refurbish the Leased
Premises to the extent necessary so that (i) the furnishings, floor covering,
wall covering, fixtures, equipment and surfaces visible to customers in the
interior of the Leased Premises shall be substantially in the same condition and
appearance as at the commencement of the Term and (ii) the exterior of the
Leased Premises (including the storefront and storefront sign) shall be neat,
presentable and attractive. Tenant shall not be required, pursuant to this
Section 10.2(C) to reconstruct the Leased Premises nor to reconstruct the
storefront of the Leased Premises. Tenant shall submit plans and specifications
to Landlord for its approval covering said refurbishing within thirty (30) days
after the start of the fifth (5th) Lease Year and Tenant agrees to make such
changes thereto as Landlord may request (acting reasonably). Tenant shall remain
open for business during the refurbishing and shall complete the refurbishing
within ninety (90) days after Landlord has approved said plans and
specifications. Tenant shall not be required to refurbish under this Section
more than once every five (5) years.
Tenant shall install and maintain, at all times, displays of
merchandise in the show windows (if any) of the Leased Premises. All articles
and the arrangement, style, color and general appearance thereof, shall be in
keeping with the character and standards of the Shopping Center, as determined
by Landlord.
SECTION 10.3. INSPECTIONS AND ACCESS BY LANDLORD. Tenant shall permit Landlord,
its agents, employees and contractors to enter all parts of the Leased Premises
during the Normal Mall Hours upon forty-eight (48) hours notice to Tenant (which
notice may be given to Tenant's on-site manger) (except in the event of an
emergency, in which case no notice is required) (and in emergencies at any time)
to inspect or exhibit the same or to make any repairs or alterations thereto as
Landlord may see fit, provided that Landlord agrees to use its reasonable
efforts not to unreasonably disturb Tenant's conduct of business in the Leased
Premises.
ARTICLE XI
CASUALTY
SECTION 11.1. RIGHT TO TERMINATE.
A. In the event of a fire or other casualty ("Casualty"), if (i)
the buildings (taken in the aggregate) in the Shopping Center shall be damaged
to the extent of more than twenty-five percent (25%) of the cost of replacement
thereof; or (ii) the proceeds of Landlord's insurance recovered or recoverable
as a result of a Casualty and retained by Landlord shall be insufficient to pay
fully for the cost of replacement of the Leased Premises or the building or
buildings damaged; or (iii) the Leased Premises or the building in which the
Leased Premises is located shall be damaged as a result of any cause which is
not covered by Landlord's insurance; or (iv) the Leased Premises shall be
damaged in whole or in part during the last two (2) Lease Years or in any
Partial Lease Year at the end of the Term; or (v) either or both of the Leased
Premises or the building in which the Leased Premises is located shall be
damaged to the extent of twenty-five percent (25%) or more of the cost of
replacement thereof; or (vi) the Shopping Center is damaged to such extent that
in the sole judgment of Landlord, it cannot be operated as an economically
viable unit; then, in any such event, Landlord may terminate this Lease by
notice given to Tenant within one hundred eighty (180) days after the settlement
of the loss resulting from the Casualty between Landlord and Landlord's
insurer(s) (or within one hundred eighty [180] days after the determination by
Landlord's insurers that such loss was not covered by Landlord's insurance, if
applicable). If Landlord terminates this Lease as aforesaid, then the
Termination Date shall be the date set forth in the notice to Tenant, which date
shall not be less than thirty (30) days after the date of said notice. The "cost
of replacement" shall be determined by the company or companies selected by
Landlord's insurers, or if there shall be no such determination, by a person
selected by Landlord qualified to determine such "cost of replacement". Landlord
agrees that whenever in this Section 11.1 (A) it has the right to cancel
Tenant's Lease it will not do so unless it shall likewise endeavor to cancel the
leases of other Satellite Store Space tenants similarly situated in Tenant's
building whose leases grant Landlord such a right to cancel.
In the event of a Casualty affecting the Leased Premises, Tenant
shall have the right to terminate this Lease if (a) the Leased Premises shall be
damaged in whole or in part, during the last two (2) Lease Years or in any
Partial Lease Year at the end of the Term and the cost to repair or restore the
Leased Premises exceeds twenty-five percent (25%) of the cost of replacement
thereof; (b) Landlord fails to begin any restoration work it is obligated to
perform on the Leased Premises within six (6) months after the date of the
Casualty; or (c) Landlord begins to restore the Leased Premises, if it is
required to do so, within such six (6) month period but fails to complete such
work within one (1) year from the date of the Casualty. Tenant's right to
terminate this Lease under this Section 11.1(A) shall be exercised by giving
Landlord written notice of such exercise within thirty (30) days after the date
of the Casualty in
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the case of clause (a) above and within thirty (30) days after the end of the
six (6) month period and one (1) year period, respectively, in the case of
clauses (b) and (c) above, and the effective date of the termination shall be
the date that is thirty (30) days after the date Landlord receives the
applicable notice.
B. If the Casualty shall render the Leased Premises untenantable,
in whole or in part, and provided that the Casualty or the occurrence causing
the untenantability of the Leased Premises is not caused by or primarily
attributable to Tenant or Tenant Related Parties, all Rent (other than
Percentage Rent) shall abate proportionately during the period of such
untenantability on the basis of the ratio which the amount of floor space of the
Leased Premises rendered untenantable bears to the total floor space of the
Leased Premises. Such abatement of Rent shall terminate on the earlier of (i)
the date any repair and restoration work is substantially completed by Landlord
pursuant to its obligations, if any, under Section 11.2, or thirty (30) days
after such date in the event Tenant is required to perform repair work pursuant
to Section 11.3, or (ii) the date Tenant reopens for business in the portion of
the Leased Premises previously rendered untenantable. Notwithstanding anything
to the contrary contained herein, in the event as a result of a Casualty only a
portion of the Leased Premises is damaged which results in Tenant being unable
to operate its business within that portion of the Leased Premises not so
damaged or destroyed, the Leased Premises shall be deemed to be completely
untenantable for purposes of this Section 11.1(B). Except to the extent
specifically set forth in this Section 11.1, neither the Rent nor any other
obligations of Tenant under this Lease shall be affected by any Casualty, and
Tenant hereby specifically waives all other rights it might otherwise have under
law or by statute.
SECTION 11.2. LANDLORD'S DUTY TO RECONSTRUCT. Provided this Lease is not
terminated pursuant to Section 11.1 or any other provision of this Lease, and
subject to Landlord's ability to obtain the necessary permits therefor and the
availability of insurance proceeds, Landlord shall repair or reconstruct or
demolish and rebuild the Leased Premises to a substantially similar condition as
existed prior to the Casualty. Notwithstanding anything to the contrary
contained herein, in no event shall any of the Landlord Related Parties be
liable for interruption of Tenant's business or for damage to or repair of any
of those items which Tenant is required to insure, including all Tenant's
Property and Leasehold Improvements.
SECTION 11.3. TENANT'S DUTY TO RECONSTRUCT. Provided this Lease is not
terminated pursuant to any provision of this Lease, Tenant shall promptly
commence and diligently pursue to completion the repair and refixturing of the
Leased Premises to a substantially similar condition as existed prior to the
Casualty, and otherwise in accordance with the terms and conditions of this
Lease. Tenant shall reopen for business in the Leased Premises as soon as
practicable after the occurrence of the Casualty.
SECTION 11.4. INSURANCE PROCEEDS. All proceeds of insurance carried by Tenant
covering the Leasehold Improvements and Tenant's Property shall belong to and be
payable to Tenant. If this Lease is terminated by Landlord or Tenant pursuant to
Section 11.1 of this Lease, or if this Lease is terminated pursuant to any other
Section hereof, or if Tenant does not repair, redecorate and refixture the
Leased Premises pursuant to Section 11.3 of this Lease, the proceeds covering
the Leasehold Improvements shall belong to and be payable to Landlord and any
such proceeds received by Tenant shall be paid by Tenant to Landlord.
Should this Lease be terminated as a result of a Casualty and to
the extent Landlord receives insurance proceeds specifically allocated to the
permanent Leasehold Improvements installed in the Leased Premises by or at the
direction of Tenant ("Allocated Insurance Proceeds"), Landlord shall pay Tenant
an amount equal to the lesser of: (a) the Allocated Insurance Proceeds and (b)
an amount equal to the portion of the cost actually incurred by Tenant
(excluding any portion of such cost paid by or on behalf of Landlord either
directly or indirectly as reimbursement to Tenant in cash or a credit against
Rent or otherwise) for its permanent Leasehold Improvements as reported to
Landlord (accompanied by supporting bills, invoices, paid receipts or other
evidence of the cost of such improvements reasonably acceptable to Landlord)
calculated by dividing such cost by the number of Lease Years (including a
fractional amount representing any Partial Lease Year[s]) in the initial Term of
this Lease and multiplying the resulting quotient by the number of Lease Years
(including a fractional amount representing any Partial Lease Year[s]) remaining
in the initial Term of this Lease as of the effective date of the cancellation
(the "Unamortized Improvement Cost").
ARTICLE XII
CONDEMNATION
SECTION 12.1. TAKING OF LEASED PREMISES.
A. If any portion of the Leased Premises shall be taken under the
power of eminent domain by any public or quasi-public authority (a "taking"),
either party shall have the right to terminate this Lease as of the date
physical possession of the property taken is delivered to the condemning
authority (hereinafter referred to as the "effective date of the taking) by
giving notice to the other party of such election within thirty (30) days after
the effective date of the taking.
B. If there is a taking of a portion of the Leased Premises and
this Lease shall not be terminated pursuant to Section 12.1(A), then (i) as of
the effective date of the taking, this Lease shall terminate only with respect
to the portion taken; (ii) after the effective date of the taking and during the
balance of the Term, the Minimum Rent,
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and the Full and Partial Year Breakpoints, if any, shall be reduced by
multiplying the same by a fraction, the numerator of which shall be the floor
space not so taken and the denominator of which shall be the floor space of the
Leased Premises immediately prior to the taking; (iii) as soon as reasonably
possible after the effective date of the taking, Landlord shall, at its expense
and to the extent feasible, restore the remaining portion of the Leased Premises
to a complete unit; provided, however, that Landlord shall not be required to
expend more on such alteration or restoration work than an amount equal to the
net proceeds of the condemnation award actually received and retained by
Landlord which is allocable to the Leased Premises.
SECTION 12.2. TAKING OF SHOPPING CENTER. If there is a taking of twenty-five
percent (25%) or more of the leasable floor space within the Shopping Center or
it there is a taking of any portion of the Shopping Center so as to render, in
Landlord's judgment, the remainder unsuitable for use as a shopping center,
regardless in either case as to whether or not there is a taking of the Leased
Premises, Landlord shall have the right to terminate this Lease upon thirty (30)
days' written notice to Tenant.
SECTION 12.3. CONDEMNATION AWARD. All compensation awarded for any taking of the
Leased Premises (including, without limitation, the Leasehold Improvements) or
the Shopping Center or any interest in either shall belong to and be the
property of the Landlord, and Tenant hereby assigns to Landlord all its right,
title and interest in any such award, except to the extent that this Lease is
terminated and Tenant files a claim, at its sole cost and expense, and the
condemning authority specifically awards to Tenant or specifically allocates a
portion of the award to Tenant for the Unamortized Improvement Cost calculated
as set forth in Section 11.4 as of the effective date of the taking, and
Tenant's relocation expenses and lost goodwill; provided, however, the filing of
such claim by Tenant or allocation by the condemning authority to Tenant does
not adversely affect or diminish the award which would otherwise have been
received by Landlord had Tenant not filed such a claim and received such award.
ARTICLE XIII
MARKETING FUND
SECTION 13.1. MARKETING FUND. Landlord may establish, or has established, a
Marketing Fund (the "Fund") for the purpose of promoting the Shopping Center,
Tenant shall participate in advertising programs designated by Landlord in
connection with the Fund and shall comply with all other reasonable rules and
regulations established by Landlord in connection with the Fund.
SECTION 13.2. TENANT'S CONTRIBUTION TO MARKETING FUND. Tenant shall
contribute to the Fund
one-twelfth (1/12) of the annual amount set forth in Section 1.1(G)(i), (as
adjusted at the time and in the manner provided below) on the Rent Commencement
Date and on the first day of each calendar month thereafter throughout the Term.
As of the first (1st) day of January immediately following the Commencement
Date, and as of the first (1st) day of January of each year thereafter
throughout the Term, the annual Fund dues shall be increased to an amount equal
to the Fund dues in effect for the immediately preceding year increased by the
greater of five percent (5%) or a percentage equal to the percentage increase in
the CPI during the immediately preceding calendar year. Any Fund dues payable
for a partial calendar month shall be appropriately prorated.
SECTION 13.3. LANDLORD'S PARTICIPATION AND CONTRIBUTION.
A. The amounts collected by Landlord in connection with the Fund
shall be used by Landlord to pay all costs and expenses associated with programs
for the promotion of the Shopping Center, which programs may include, without
limitation, the following (but which shall not be deemed a representation as to
the actual provision of such programs): special events, displays, signs, decor,
seasonal events, advertising for the Shopping Center, visual merchandising
services for tenants, and the distribution of promotional literature designed to
attract customers. In addition, Landlord may use the Fund dues to defray the
cost of administration of the Fund, including, without limitation, the salary
and related costs and benefits of a manager and related administrative
personnel, and rent allocable to any management office within the Shopping
Center devoted to use by such personnel. Landlord shall have the right and
option to employ or cause to be employed the Marketing Manager and other
personnel of the Fund, and to provide or cause to be provided promotional
services, which, in Landlord's reasonable judgment, are desirable to administer
the Fund and promote the activities of the Shopping Center. All such personnel
shall be under the exclusive control and supervision of Landlord. Subject to
Section 13.3(B), if applicable, Tenant hereby authorizes the Fund to reimburse
Landlord for providing such personnel and any other costs incurred by Landlord
in assisting the Fund or providing services thereto.
B. Landlord shall contribute twenty-five percent (25%) of the total
amount of the Marketing Fund dues paid to Landlord, if any, by the tenants of
the Shopping Center. As all or part of such cash contribution, Landlord may
elect to contribute all or part of the services of a Marketing Manager and such
other personnel and services as Landlord deems appropriate and the reasonable
rent allocable to any management office within the Shopping Center devoted to
use by the Fund for its activities. Landlord's obligations, if any, under this
Section 13.3 shall not be binding upon any Mortgagee or purchaser at a
foreclosure sale.
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SECTION 13.4. TENANT'S ADVERTISING. Tenant shall contribute to a promotional and
advertising program to be administered by Landlord an amount ("Tenant's
Advertising and Promotional Fund Contribution") equal to one-twelfth (1/12th) of
the annual amount set forth in Section 1.1(G) (iii) , (as adjusted at the time
and in the manner provided below) on the Rent Commencement Date and on the first
day of each calendar month thereafter throughout the Term. As of the first (lst)
day of January immediately following the Commencement Date, and as of the first
(1st) day of January of each year thereafter throughout the Term, Tenant's
Advertising and Promotional Fund Contribution shall be increased to an amount
equal to the Tenant's Advertising and Promotional Fund Contribution in effect
for the immediately preceding year increased by the greater of five percent (5%)
or a percentage equal to the percentage increase in the CPI during the
immediately preceding calendar year. Any Tenant's Advertising and Promotional
Fund Contribution payable for a partial calendar month shall be appropriately
prorated.
ARTICLE XIV
SUBORDINATION AND ATTORNMENT
SECTION 14.1. SUBORDINATION. Tenant's rights under this Lease are and shall
remain subject and subordinate to the operation and effect of: (i) all present
and future ground or underlying leases involving all or any part of the Shopping
Center; or (ii) any mortgage, deed of trust or other security instrument now or
hereafter affecting the Leased Premises or the Shopping Center; or (iii) all
renewals, modifications, replacements, consolidations and extensions of or
participation in those transactions evidenced by documents referred to in (i)
and (ii) above, whether the same shall be in existence on the date hereof or
created hereafter (any such lease, mortgage, deed of trust or other instrument
being referred to as a "Mortgage" and the person or persons having the benefit
of same being referred to as a "Morgagee"). Tenant's acknowledgment and
agreement of subordination provided for in this Section 14.1 is self-operative
and no further instrument of subordination shall be required; however, Tenant
shall execute such further assurances thereof as may be requested, from time to
time, by Landlord.
SECTION 14.2. MORTGAGEE'S UNILATERAL SUBORDINATION. If and as a Mortgagee shall
so elect, this Lease and Tenant's rights hereunder shall be superior and prior
in right to its Mortgage, with the same force and effect as it this Lease had
been executed, delivered and recorded prior to the execution, delivery and
recording of such Mortgage.
SECTION 14.3. ATTORNMENT. If any person shall succeed to all or part of
Landlord's interest in the Leased Premises, whether by purchase, foreclosure,
deed in lieu of foreclosure, power of sale, termination of lease or otherwise,
and if and as so requested or required by such successor-in-interest, Tenant
shall, without charge, attorn to such successor-in-interest.
SECTION 14.4. QUIET ENJOYMENT. Landlord covenants that it has full right, power
and authority to make this Lease and that Tenant, on paying all of the Rent and
performing all of Tenant's other obligations in this Lease, shall peaceably and
quietly have, hold and enjoy the Leased Premises during the Term without
hindrance, ejection or molestation by any person lawfully claiming by, through
or under Landlord, subject, however, to all Mortgages, encumbrances, easements
and underlying leases to which this Lease may be or become subject and
subordinate, from time to time.
SECTION 14.5. ESTOPPEL CERTIFICATE.
A. As often as may be requested by Landlord, Tenant shall promptly
and without cost to Landlord duly execute and deliver to Landlord or to any
other person designated by Landlord a written instrument certifying: (i) that
this Lease is unmodified and in full force and effect (or if there has been a
modification, that the same is in full force and effect as modified, and stating
the modification); (ii) the dates, if any, to which the Rent, and other sums and
payments due under this Lease have been paid; (iii) whether Landlord has
breached the performance of any covenants, terms and conditions on Landlord's
part to be performed under this Lease, and the nature of Landlord's breach, if
any; and (iv) such other relevant information as Landlord or any Mortgagee may
reasonably request. Landlord may prepare said document for Tenant's signature
and send the same to Tenant for Tenant's signature and in the event that Tenant
does not execute and return the same to Landlord within thirty (30) days, Tenant
shall be deemed to have certified all information contained therein.
B. Upon request of Landlord, Tenant shall give prompt written
notice to any Mortgagee of any default of Landlord under this Lease, and Tenant
shall allow such Mortgagee a reasonable length of time (in any event, not less
than sixty (60) days from the date of such notice) in which to cure any such
default.
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ARTICLE XV
ASSIGNMENT AND SUBLETTING
SECTION 15.1. LANDLORD'S CONSENT REQUIRED.
A. Without first obtaining Landlord's prior written consent (which
consent Landlord may withhold in its sole and absolute discretion), Tenant shall
not sublet all or any portion of the Leased Premises, nor shall Tenant pledge,
hypothecate or assign all or any of its interest in this Lease, whether for
collateral purposes or otherwise. Any such subletting or assignment shall be
referred to as a "Transfer", and the person to whom Tenant's interest is
transferred shall be referred to as a "Transferee." For purposes of this Article
XV, a Transfer shall include any change in the control of Tenant or any
guarantor, if the same is a corporation (other than a corporation listed on a
"national securities exchange" as defined in the Securities Exchange Act of
1934) of a partnership. For purposes of this Article XV, "control" shall mean
the possession (directly or indirectly) of the power to direct or cause the
direction of management and policies of the Tenant (or the guarantor, as the
case may be) whether by ownership of securities or otherwise, provided that the
issuance of shares in a public offering registered under the Securities Exchange
Act of 1933 shall not be deemed a change in control for purposes of this Article
XV.
Notwithstanding anything to the contrary contained herein, Tenant
may assign its entire interest under this Lease or sublet the entire Leased
Premises (but not a part thereof) to a wholly owned corporation or controlled
subsidiary or parent of the Tenant or to any successor to Tenant by purchase,
merger, consolidation or reorganization (hereinafter collectively referred to as
"Corporate Transfers") without the consent of Landlord, provided (i) tenant is
not in default under this Lease; (ii) if such proposed Transferee is a successor
to Tenant by purchase said proposed Transferee shall acquire all or
substantially all of the stock or assets of Tenant's business or, if such
proposed Transferee is a successor to Tenant by merger, consolidation or
reorganization, the continuing or surviving corporation shall own all or
substantially all of the assets of Tenant; (iii) such proposed Transferee shall
have a net worth which is equal to or greater than Tenant's net worth at the
date, of this Lease; and (iv) such proposed Transferee operates the business in
the Leased Premises for the Permitted Use and no other purpose. Tenant shall
give Landlord written notice at least thirty (30) days prior to the effective
date of such Corporate Transfer. As used herein, the term "controlled
subsidiary" shall mean a corporate entity wholly owned by Tenant or at least
fifty-one percent (51%) of whose voting stock is owned by Tenant.
B. Any Transfer by Tenant consented to by Landlord (or permitted
under this Article XV without Landlord's consent) shall be only for the
Permitted Use and for no other purpose, and in no event shall any Transfer
(including a Corporate Transfer) release or relieve Tenant from any of its
obligations under this Lease. If Landlord consents to a Transfer (or if such
Transfer is permitted under this Article XV without Landlord's consent), the
permitted Transferee shall assume Tenant's obligations under this Lease and such
Transferee, at least thirty (30) days prior to the effective date of the
permitted Transfer, shall deliver to Landlord the proposed sublease, assignment
and assumption agreement or other instrument evidencing the Transfer, which
shall be subject to Landlord's approval, which shall not be unreasonably
withheld. In the event of a Transfer (i) in the nature of an assignment, Tenant
shall pay as additional rent to Landlord all monies and other consideration of
every kind whatsoever paid or payable to Tenant for such Transfer and for all
property transferred to the Transferee as part of the consideration including,
without limitation, non-trade fixtures and other Leasehold Improvements, but
excluding Tenant's Property (collectively, all of the foregoing shall be
referred to as the "Transfer Consideration"); provided, however, Tenant shall be
entitled to exclude from the Transfer Consideration the Unamortized Improvement
Cost calculated as set forth in Section 11.4 as of the effective date of the
Transfer; and (ii) in the nature of a sublease, Tenant shall pay as additional
rent to Landlord along with the monthly payments of Rent due under this Lease,
the Transfer Consideration less the Rent (exclusive of Rent attributable to a
default of Tenant hereunder) reserved under this Lease as reasonably determined
by Landlord, provided, however, Tenant shall be entitled to exclude from the
Transfer Consideration the Unamortized Improvement Cost calculated as set forth
above. For purposes of this Section 15.1(B) only, the term "Tenant's Property"
shall be deemed to include goodwill and any other intangible personal properly
associated with Tenant's business, but in no event shall it be deemed to include
Tenant's interest under this Lease. If said Transfer requires the consent of
Landlord pursuant to this Article XV, Tenant shall pay to Landlord upon demand
as additional rent Landlord's reasonable attorneys' fees and administrative
expenses incurred in connection with any Transfer.
C. Any Transfer without Landlord's consent shall not be binding
upon Landlord, and shall confer no rights upon any third person. Each such
unpermitted Transfer shall, without notice or grace period of any kind,
constitute a default by Tenant under this Lease. The acceptance by Landlord of
the payment of Rent following any Transfer prohibited by this Article XV shall
not be deemed to be either a consent by Landlord to any such Transfer or a
waiver by Landlord of any remedy of Landlord under this Lease. Consent by
Landlord to any one Transfer shall not constitute a waiver of the requirement
for consent to any other Transfer. No reference in this Lease to assignees,
Concessionaires, subtenants or licensees shall be deemed to be a consent by
Landlord to the occupancy of the Leased Premises by any such assignee,
Concessionaire, subtenant or licensee.
SECTION 15.2. RIGHT TO TERMINATE AND RECAPTURE. With respect to any
Transfer requiring
Landlord's consent, in lieu of consenting to any proposed Transfer, Landlord
shall have the right, but not the obligation, to terminate this Lease and
recapture the Leased Premises upon thirty (30) days notice to Tenant unless,
within five (5) business days after Landlord's notice to Tenant exercising its
option to cancel and terminate this Lease, Tenant notifies Landlord in writing
that Tenant is withdrawing its request for Landlord's consent to such Transfer,
in which event such exercise by Landlord of such option to cancel shall be void
and of no further force and effect.
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ARTICLE XVI
DEFAULT AND REMEDIES
SECTION 16.1. DEFAULT.
A. Any one or more of the following events shall constitute a
default by Tenant under this Lease: if, (i) Tenant fails to pay, when due, any
portion of Rent due hereunder; (ii) Tenant fails to observe or perform any of
the terms, conditions or covenants of this Lease to be observed or performed by
Tenant (other than those involving the payment of money and those set forth in
the following clause (iii)) and, such breach shall not have been cured for a
period of seven (7) days after written notice thereof from Landlord to Tenant
unless such failure, within Landlord's reasonable judgment, cannot be cured
within said seven (7) days, in which event Tenant shall not be in default if
Tenant commences to cure such breach within the seven (7) day period and
diligently proceeds to complete the same; (iii) Tenant vacates or abandons the
Leased Premises or Tenant shall not open for business in the Leased Premises in
accordance with Article IX or shall fail to continuously operate its business in
the Leased Premises as required by the terms of this Lease; (iv) Tenant fails
during any twelve (12) month period to perform any covenant or agreement under
this Lease after Tenant shall have defaulted under this Lease on two previous
occasions during such twelve (12) month period, even though such default or
defaults had been cured by Tenant; (v) Tenant defaults under any other lease or
agreement between Landlord and Tenant, and such default is not cured within any
applicable cure period; (vi) Tenant or any guarantor of this Lease shall file a
petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or shall
file any petition or answer seeking any reorganization, dissolution or similar
relief under any applicable Law or if Tenant or any such guarantor shall seek or
consent to the appointment of a trustee, receiver or liquidator of Tenant or
such guarantor or the business of either, shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
when due; (vii) there shall be filed against Tenant or any guarantor of this
Lease an involuntary petition in bankruptcy or any proceeding seeking to
reorganize, dissolve or liquidate Tenant or such guarantor, or if a trustee or
receiver shall be appointed for Tenant or such guarantor or over the business or
substantially all of the property of either of them, and such petition,
proceeding, trustee or receiver is not dismissed with prejudice within thirty
(30) days; (viii) any execution or attachment shall be issued against Tenant or
any of Tenant's Property, whereby all or any part of the Leased Premises or
Tenant's interest under this Lease shall be taken or occupied, and such
execution or attachment, shall not be set aside, vacated or discharged within
thirty (30) days after the issuance of same; or (ix) if Tenant is operating its
business in the Leased Premises as a franchisee under a franchise agreement, any
termination or expiration of said franchise agreement prior to the end of the
Term of this Lease. An event provided for in clauses (iii) through (ix),
inclusive, shall be a default without notice or grace period of any kind.
B. Upon the occurrence of any event described in Section 16.1(A),
Landlord shall have all the rights and remedies provided in Section 16.2 in
addition to all other remedies available under this Lease or provided at law or
in equity.
SECTION 16.2. REMEDIES AND DAMAGES.
A. Upon the occurrence of any event described in Section 16.1(A),
Landlord may elect to terminate this Lease or to terminate Tenant's right to
possession without terminating this Lease and to enter upon the Leased Premises
and expel Tenant or any persons or entities occupying the Leased Premises and so
to repossess and enjoy the Leased Premises. If this Lease or Tenant's right to
possession under this Lease shall at any time be terminated under the terms and
conditions of this Section 16.2 or in any other way, Tenant hereby covenants and
agrees to immediately surrender and deliver up the Leased Premises peaceably to
Landlord.
B. If Landlord elects to terminate Tenant's right to possession
under this Lease, but not to terminate this Lease, Landlord may, relet the
Leased Premises (or any part thereof for the account of Tenant at such rentals
and upon such terms and conditions as Landlord shall deem appropriate, and to
the extent Landlord receives the rents therefor, Landlord shall apply the same
first to the payment of such expenses as Landlord may have incurred in
recovering possession of the Leased Premises (including, without limitation,
legal expenses and attorneys' fees) and for putting the same into good order and
condition and preparing or altering the same for re-rental, and any other
expenses, commissions and charges paid, assumed or incurred by or on behalf of
Landlord in connection with the reletting of the Leased Premises, and then to
the fulfillment of the covenants of Tenant under this Lease. Tenant shall pay to
Landlord the Rent and all other sums payable up to the time of such termination
of this Lease or Tenant's right to possession under this Lease, and thereafter,
Tenant covenants to pay Landlord until the end of the Term of this Lease the
equivalent of the amount of all the Rent and all other sums required to be paid
by Tenant under this Lease less the net avails of such reletting, if any, during
the same period, and the same shall be due and payable by Tenant to Landlord on
the dates such Rent and other sums are due under this Lease. Any reletting by
Landlord shall not be construed as an election on the part of Landlord to
terminate this Lease unless a notice of such intention is given by Landlord to
Tenant. Notwithstanding any reletting without termination of this Lease,
Landlord may at any time thereafter elect to terminate this Lease. In any event,
Landlord shall not be liable for, nor shall Tenant's obligations hereunder be
diminished by reason of any failure by Landlord to relet the Leased Premises or
any failure by Landlord to collect any sums due upon such reletting, provided
that Landlord shall use reasonable efforts to mitigate the
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damages recoverable against Tenant in the event that Tenant defaults under this
Lease and Tenant's right to ossession of the Leased Premises is terminated under
this Article XVI; provided, however, except to the extent required byapplicable
Law, Landlord shall have no obligation to relet the Leased Premises before
Landlord leases other vacant space in the Shopping Center, or to relet the
Leased Premises to any potential tenant who Landlord could reasonably reject as
a Transferee pursuant to Article XV hereof.
C. If Landlord elects to terminate this Lease instead of
terminating only Tenant's right to possession, Landlord shall have the right to
recover against Tenant as damages for loss of the bargain, and not as a penalty,
the excess (if any), as determined by Landlord, of (i) the then present value of
the projected Rent and all other sums payable by Tenant hereunder (as determined
by Landlord on the basis of reasonable estimates) that would have accrued for
the balance of the Term of this Lease less (ii) the then present value of the
fair market value of the Leased Premises for the balance of such term.
SECTION 16.3. ASSIGNMENT IN BANKRUPTCY. In the event of an assignment by
operation of law under the Federal Bankruptcy Code, or any State bankruptcy or
insolvency law and Landlord is prevented from or elects not to terminate this
Lease under Section 16.2, the assignee shall provide Landlord with adequate
assurance of future performance of all of the terms, conditions and covenants of
this Lease, which shall include, without limitation, assumption of all the
terms, covenants and conditions of this Lease by the assignee and the making by
the assignee of the following express covenants to Landlord: (i) that assignee
has sufficient capital to pay the Rent and other charges due under this Lease
for the entire Term; (ii) that assumption of this Lease by the assignee will not
cause Landlord to be in violation or breach of any provision in any other lease,
financing agreement or operating agreement relating to the Shopping Center; and
(iii) that such assignment and assumption will not disrupt or impair any
existing tenant mix in the Shopping Center.
SECTION 16.4. LEGAL EXPENSES. In the event that Landlord should retain counsel
and/or institute any suit against Tenant for violation of or to enforce any of
the covenants or conditions of this Lease, or should Tenant institute any suit
against Landlord for violation of any of the covenants or conditions of this
Lease, or should either party institute a suit against the other for a
declaration of rights hereunder, or should either party intervene in any suit in
which the other is a party, to enforce or protect its interest or rights
hereunder, the prevailing party in any such suit shall be entitled to all of its
costs, expenses and reasonable fees of its attorney(s) in connection therewith.
SECTION 16.5. REMEDIES CUMULATIVE. No reference to any specific right or remedy
in this Lease shall preclude Landlord from exercising any other right, from
having any other remedy, or from maintaining any action to which it may
otherwise be entitled under this Lease, at law or in equity.
SECTION 16.6. WAIVER.
A. Neither Landlord nor Tenant shall be deemed to have waived any
breach of any term, covenant, or condition herein contained unless the same has
been specifically waived by such party in writing. Any such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition herein contained.
B. Tenant hereby waives any and all rights of redemption and all
rights to relief from forfeiture granted by or under any applicable Law. To the
fullest extent permitted by law, Tenant waives the right to a trial by jury and
the right to file any counterclaims or cross-claims other than compulsory
counterclaims or cross-claims in actions for recovery of possession of the
Leased Promises only.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
SECTION 17.1. NOTICES.
A. Whenever any demand, request, approval, consent or notice
("Notice") shall or may be given to either of the parties by the other, each
such Notice shall be sent by registered or certified mail with return receipt
requested, or sent by overnight courier service (such as Federal Express) at the
respective addresses of the parties as set forth in Section 1.1(K). Any Notice
under this Lease delivered by registered or certified mail shall be deemed to
have been given and effective on the earlier of (a) the third day following the
day on which the same shall have been mailed with sufficient postage prepaid or
(b) the delivery date indicated on the return receipt; Notice sent by overnight
courier service shall be deemed given, and effective upon the day after such
notice is delivered to or picked up by the overnight courier service. Either
party may, at any time, change its Notice Address by giving the other party
Notice in accordance with the above, stating the change and setting forth the
new address.
B. If any Mortgagee shall notify Tenant that it is the holder of a
Mortgage affecting the Leased Premises, no Notice thereafter sent by Tenant to
Landlord shall be effective unless and until a copy of the same shall also be
sent to such Mortgagee in the manner prescribed in this Section 17.1 and to such
address as such Mortgagee shall designate.
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C. Any notice from Landlord may be given by Landlord,
Landlord's Managing Agent for the Shopping
Center or Landlord's attorneys.
SECTION 17.2. SHORT FORM LEASE. This Lease shall not be recorded
without the express written consent of
Landlord. A "short form lease" may be recorded only if Landlord requests or
consents in writing to such recording.
Recording, filing and like charges shall be paid by the requesting party.
SECTION 17.3. INTEREST AND ADMINISTRATIVE COSTS. If (i) Tenant fails to make any
payment under this Lease when due, (ii) Landlord performs or causes the
performance of any obligation of Tenant under this Lease, or (iii) Landlord
incurs any costs or expenses as a result of Tenant's default under this Lease,
then Tenant shall pay, upon demand, the amount due under (i), or the amount of
such costs and expenses incurred under (ii) or (iii) above, plus Interest (as
defined in Section 1.2(G) above) from the date such payment was due or from the
date Landlord incurs such costs or expenses plus Landlord's administrative costs
in connection therewith.
SECTION 17.4. SUCCESSORS AND ASSIGNS. This Lease and the covenants and
conditions herein contained shall inure to the benefit of and be binding upon
Landlord, and Tenant and their respective permitted successors and assigns. Upon
any sale or other transfer by Landlord of its interest in the Leased Premises,
Landlord shall be relieved of any obligations under this Lease occurring
subsequent to such sale or other transfer. Notwithstanding the foregoing, if
Tenant is a single individual and dies or becomes incapacitated, Landlord
reserves the right to terminate this Lease upon thirty (30) days advance Notice
to Tenant or Tenant's legal representative.
SECTION 17.5. LIMITATION ON RIGHT OF RECOVERY AGAINST LANDLORD. It i
specifically
understood and agreed that none of the, Landlord Related Parties shall be
personally liable for any of the covenants, conditions or provisions of this
Lease. In the event of a breach or default by Landlord of any of its obligations
under this Lease, Tenant shall look solely to the equity of the Landlord in the
Shopping Center (which shall include all rents and other income from the
Shopping Center, subject to all Mortgages and other encumbrances affecting the
Shopping Center) for the satisfaction of Tenant's remedies. The limitation
contained in this Section 17.5 shall not limit or impair Tenant's right to seek
and obtain injunctive relief against Landlord, its agents, employees or
contractors for the satisfaction of Tenant's remedies, The limitations on
Tenant's right of recovery against the Landlord Related Parties set forth in
this Section 17.5 shall survive the expiration of the Term of this Lease
(whether by lapse of time or otherwise).
SECTION 17.6. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall
be deemed to be construed as creating the relationship of principal and agent or
of partnership or joint venture between Landlord and Tenant, it being understood
and agreed that neither the method of computing Rent nor any other provision
contained herein nor any acts of the parties hereto shall be deemed to create
any relationship between the parties other than that of Landlord and Tenant.
SECTION 17.7. SECURITY DEPOSIT. INTENTIONALLY OMITTED.
SECTION 17.8. INTERPRETATION. Whenever used herein, the singular shall include
the plural and the plural shall include the singular, as necessary, and the use
of any gender shall include either gender, as necessary. This Lease and the
rights and obligations of the parties hereunder shall be construed in accordance
with the laws of the State in which the Shopping Center is located.
SECTION 17.9. NO MODIFICATION. This Lease is intended by the parties as a final
expression of their agreement and as a complete and exclusive statement of the
terms thereof, all negotiations, considerations and representations between the
parties having been incorporated herein. Acceptance of a course of performance
rendered under this or any prior agreement between the parties or their
affiliates shall not be relevant or admissible to determine the meaning of any
of the terms of this Lease. No representations, understandings, agreements,
warranties or promises with respect to the Leased Premises or the building or
Shopping Center of which they are a part or with respect to past, present or
future tenancies, rents, expenses, operations or any other matter have been made
or relied upon in the making of this Lease other than those specifically set
forth herein. This Lease can be modified only by a written instrument signed by
Landlord and Tenant.
SECTION 17.10. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances, other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
SECTION 17.11. TENANT UNABILITY. If two or more individuals, corporations,
partnerships or other persons (or any combination of two or more thereof shall
sign this Lease as Tenant, the liability of each such individual, corporation,
partnership or other persons to pay the Rent and perform all other obligations
hereunder shall be deemed to be joint and several, and all notices, payments and
agreements given or made by, with or to any one of such individuals,
corporations, partnerships or other persons shall be deemed to have been given
or made by, with or to all of them.
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SECTION 17.12. BROKER'S COMMISSION. Each of the parties represents and warrants
to the other that except as expressly set forth in this Section 17.12, such
party has not dealt with any broker in connection with this Lease and that such
party has no knowledge of any claims for brokerage commissions or finders' fees
in connection with this Lease. Each party agrees to indemnity and defend the
other against, and hold it harmless from, all liability arising from any claim
for brokerage commissions or finders' fees of any kind (including, without
limitation, attorneys' fees incurred in connection therewith) in connection with
this Lease, any amendment hereto or any Transfer, which claim arises (directly
or indirectly) out of an agreement, contract, course of dealings or relationship
between such a party and the claiming party.
SECTION 17.13. OTHER TENANTS. Landlord reserves the absolute right to effect
other tenancies in the Shopping Center as Landlord shall determine in the
exercise of its sole business judgment. Tenant does not rely on the fact, nor
does Landlord represent, that any specific tenant, Department, Variety or
Specialty Store or occupant, or the number of tenants, Department, Variety or
Specialty Stores or occupants, shall occupy any space in the Shopping Center
during the Term. A vacation of premises or cessation of operations by any other
tenant(s) in the Shopping Center shall not in any way release Tenant from its
obligations under this Lease.
SECTION 17.14. RULE AGAINST PERPETUITIES. If the Term of this Lease shall not
have commenced within five (5) years from the date of this Lease, then this
Lease shall thereupon become null and void and have no further force and effect.
SECTION 17.15. IRREVOCABLE OFFER, NO OPTION. In consideration of Landlord's
administrative expense in considering this Lease, Tenant's submission to
Landlord of this Lease, duly executed by Tenant, shall constitute Tenant's
irrevocable offer to continue for fourteen (14) days from and after receipt by
Landlord or until Landlord shall deliver to Tenant written notice of rejection
of Tenant's offer, whichever shall first occur. If within said fourteen (14) day
period Landlord shall neither return this Lease duly executed by Landlord nor so
advise Tenant of Landlord's rejection of Tenant's offer, then Tenant shall be
free to revoke its offer. Although Tenant's execution of this Lease shall be
deemed an offer irrevocable by Tenant, the submission of this Lease by Landlord
to Tenant for examination shall not constitute a reservation of or option for
the Leased Premises. This Lease shall become effective only upon execution
thereof by both parties and delivery thereof to Tenant.
SECTION 17.16. INABILITY TO PERFORM. If Landlord or Tenant is delayed or
prevented from performing any of its obligations under this Lease, except for
Tenant's obligation for payment of money, by reason of strike or labor troubles
or any cause whatsoever beyond its control, the period of such delay or such
prevention shall be deemed added to the time herein provided for the performance
of any such obligation by either party. Notwithstanding the foregoing, Tenant's
obligation to open initially may be deferred only by an industry-wide strike.
For purposes of this Section 17.16, a cause or event shall not be deemed to be
beyond a party's control, if it is within the control of such party's agents,
employees or contractors.
SECTION 17.17. SURVIVAL. Notwithstanding anything to the contrary contained in
this Lease, the expiration of the Term of the Lease, whether by lapse of time or
otherwise, shall not relieve either party from their respective obligations
accruing during or attributable to any portion of the Term, subject to the
provisions of Section 17.5.
SECTION 17.18. LANDLORD'S SELF-HELP. In addition to Landlord's rights of
self-help set forth elsewhere in this Lease or as provided by law or in equity,
if Tenant at any time fails to perform any of its obligations under this Lease
in a manner satisfactory to Landlord, Landlord shall have the right but not the
obligation, with two (2) days prior notice (except in the case of any dangerous
condition or emergency, in which case no notice shall be required) to perform or
cause to be performed such obligations on behalf and at the expense of Tenant.
In such event, Landlord's costs and expenses incurred with respect thereto
shall, upon demand, be paid for by Tenant as additional rent. The performance by
Landlord of any such obligation shall not constitute a release or waiver of any
of Tenant's obligations under this Lease.
SECTION 17.19. DUE AUTHORIZATION. If Tenant is a corporation or a partnership,
the person(s) executing this Lease on behalf of Tenant hereby covenant and
warrant that: Tenant is a duly formed corporation or a duly created partnership
(as the case may be) in good standing, qualified to do business in the State in
which the Shopping Center is located; such persons are duly authorized by such
corporation or partnership to execute and deliver this Lease on behalf of such
corporation or partnership; and this Lease constitutes a valid and binding
agreement of Tenant in accordance with the terms hereof.
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SECTION 17.20. CONFIDENTIALITY. It is agreed and understood that Tenant may
acknowledge only the existence of this Lease by and between Landlord and Tenant,
and that Tenant may not disclose any of the terms and provisions contained in
this Lease to any tenant or other occupant in the Shopping Center or to any
agent, employee, subtenant or assignee of such tenant or occupant. Tenant
acknowledges that any breach by Tenant of the agreements set forth in this
Section 17.20 shall cause Landlord irreparable harm. The terms and provisions of
this Section 17.20 shall survive the termination of this Lease (whether by lapse
of time or otherwise).
SECTION 17.21. ASBESTOS ABATEMENT. In the event Landlord desires or is required
by any applicable Law to remove, encapsulate, enclose, remediate or otherwise
abate asbestos-containing materials located within the Leased Premises
("abatement work"), then Landlord agrees to perform or cause the performance of
such work at Landlord's sole cost. If Tenant is required to cease its operation
at the Leased Premises or interrupt or delay its construction or opening at the
Leased Premises in order for such abatement work to be performed, then Tenant's
Minimum Rent and all other Rent (excluding Percentage Rent and any past due Rent
or charges due as a result of any default of Tenant under this Lease) shall
abate for the period of time beginning on the commencement of the abatement work
and ending upon the completion of the abatement work. Notwithstanding anything
to the contrary herein, in the event the abatement work is required before,
during or after the Term as a result of: (i) anything done by Tenant, its
agents, employees or contractors; or (ii) any activities of Tenant, its agents,
employees or contractors in, on or about the Leased Premises, then the abatement
work shall be performed by or at the direction of Landlord at Tenant's sole cost
and expense, and Tenant shall reimburse Landlord for the cost of such abatement
work within five (5) days after written demand by Landlord from time to time
during the performance of such work and Tenant shall not be entitled to any
abatement of Minimum Rent or any other Rent as a result of the abatement work.
Landlord shall use reasonable efforts to not perform such asbestos abatement
work during the months of October, November or December of any year and Landlord
shall notify Tenant at least thirty (30) days prior to commencement of the
abatement work, unless the governmental authority requiring the abatement work
requires the abatement work to be performed in October, November or December or
sooner than thirty (30) days from the time Landlord is required by such
governmental body to perform such work.
Unless agreed in writing by any Mortgagee, the obligations of
Landlord set forth in this Section 17.21 shall not be binding upon any person
acquiring the interest of Landlord as a result of any foreclosure or any other
action or proceeding instituted under or in connection with the mortgage held by
such Mortgagee. The Rent abatement provided in the preceding paragraph shall
constitute Landlord's sole obligations with respect to asbestos or
asbestos-containing material at the Shopping Center and Tenant's sole and
exclusive remedy therefor and, except for any claims resulting from the
negligence of any of the Landlord Related Parties, Tenant hereby waives any and
all claims Tenant may now or hereafter have based upon any inconvenience,
interruption of Tenant's business or any other loss, cost, damage, claim or
expense which may be suffered or incurred as a result of the presence of
asbestos or asbestos-containing materials within the Leased Premises or the
removal or abatement of the same.
At all times during the Term of this Lease and except for the
abatement work described above, Tenant shall comply with and conform its
activities to (i) all applicable Laws respecting the handling of
asbestos-containing materials or performing of routine maintenance activities in
the vicinity of asbestos-containing materials and (ii) any asbestos operation
and maintenance program initiated by Landlord. Tenant's obligations under this
Section 17.21 shall survive the expiration of the Term of this Lease whether by
lapse of time or otherwise.
SECTION 17.22. PROPOSED REDEVELOPMENT. Tenant acknowledges that as of the date
hereof, Landlord has commenced a general redevelopment of the Shopping Center or
a portion thereof (the "Redevelopment"). Notwithstanding anything to the
contrary contained in this Lease, Tenant further acknowledges that if Landlord
determines, in its sole and absolute discretion, to perform all or any portion
of such proposed Redevelopment, the exact location, configuration and size of
the Shopping Center, the Satellite Store Space, any and all Department, Variety
and Specialty Stores and the Common Areas shall be subject to change and/or
adjustment. During the Redevelopment, barricades and other obstacles may be
placed in and around the Shopping Center and/or the Leased Premises and the
Redevelopment work may temporarily affect access to or visibility of the Leased
Premises, provided that Landlord shall use reasonable efforts to perform the
Redevelopment with as little interference to Tenant's business in the Leased
Premises as is possible under the circumstances. If the Redevelopment work
requires minor reductions in the size of the Leased Premises as a result of
columns, shafts or other installations, Tenant hereby consents to such work and
to such minor reduction and agrees to temporarily close for business at the
Leased Premises if requested to do so in writing by Landlord in order to
facilitate such Redevelopment work; provided, however, that commencing on the
date that Tenant closes at Landlord's request all Rent shall abate until the
earlier to occur of (i) the date Landlord notifies Tenant that Tenant may reopen
Tenant's business in the Leased Premises and (ii) the reopening of Tenant's
business in the Leased Premises. Subject to the provisions of this Section
17.22, Tenant shall have no approval rights whatsoever with respect to the
proposed Redevelopment, the plans and specifications therefor or the
construction thereof. Nothing contained in this Section 17.22 shall be deemed to
be a representation or warranty of any kind whatsoever that Landlord shall
perform all or any portion of the Redevelopment.
SECTION 17.23. CONTINGENCY. INTENTIONALLY OMITTED.
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SECTION 17.24. OPTION TO TERMINATE. INTENTIONALLY OMITTED
SECTION 17.25. COMPETITION.
A. To the extent Landlord is not prohibited by any existing or
future Law, and provided Tenant is not In default under this Lease, Landlord
covenants not to enter into a lease agreement for space at the Enclosed Mall
portion of the Shopping Center with a Competitor (as hereinafter defined) for a
term scheduled to commence during the Term of this Lease. If Landlord enters
into a lease for space in the Enclosed Mall portion of the Shopping Center with
a Competitor for a term that commences during the Term of this Lease, and Tenant
is not in default under this Lease, then, as Tenant's sole remedy therefor, in
lieu of the Minimum Rent and Percentage Rent provided in Sections 1.1(E) and
1.1(F), respectively, of this Lease, commencing on the date of the opening for
business of such Competitor, Tenant shall pay to Landlord substitute rent
("Substitute Rent") equal to five percent (5%) of Gross Sales (as defined in
Section 5.4) per annum until such time as (i) the Competitor closes its store;
(ii) the Competitor's lease terminates; (iii) that Competitor's primary use is
no longer a use specified in clauses (a), (b) or (c) of Section 17.25(B) below;
(iv) tenant's primary use is no longer the Subject Primary Use (as hereinafter
defined); or (v) the Competitor's primary use is the use specified in clause (c)
of Section 17.25(B), but the third (3rd) Lease Year has ended and a
Non-Traditional Mexican Restaurant (as hereinafter defined) is no longer deemed
to be a Competitor for purposes of this Section 17.25, at which time the
Substitute Rent Period shall end and Tenant shall again pay to Landlord Minimum
Rent and Percentage Rent as provided in Sections 1.1(E) and 1.1(F),
respectively, of this Lease. Notwithstanding anything to the contrary contained
herein, for the sole purpose of calculating Percentage Rent due for the Lease
Year[s] and/or Partial Lease Year[s] in which the Substitute Rent Period begins
and ends; if such period does not begin on the first day of the Lease Year (or
Partial Lease Year) and/or end on the last day of the Lease Year (or Partial
Lease Year), such Lease Year or Partial Lease Year (as the case may be) shall be
treated as a Partial Lease Year and the applicable Breakpoint shall be prorated
for a Partial Lease Year as provided In Section 1.1 (F). Any time during the
Term when Tenant is entitled to pay Substitute Rent to Landlord is hereinafter
referred to a "Substitute Rent Period."
Substitute Rent shall be paid to Landlord commencing on the
twentieth (20th) day of the month immediately following the month in which the
Substitute Rent Period began, and on the twentieth (20th) day of each month
thereafter until the end of such Substitute Rent Period, provided that
Substitute Rent for the last month of such Substitute Rent Period shall be
payable on the twentieth (20th) day of the month immediately following the month
in which such Substitute Rent Period ended. During any Substitute Rent Period,
Tenant shall remain obligated to provide statements of Gross Sales as provided
in Section 5.6 of this Lease, but substituting the words "Substitute Rent"
whenever the words "Percentage Rent" appear in said Sections 5.5 and 5.6 of this
Lease.
B. For purposes of this Section 17.25, a "Competitor" shall mean
any Satellite Store Space tenant located within the Enclosed Mall portion of the
Shopping Center (i) whose lease or other agreement with Landlord (collectively
an "Occupancy Agreement") is dated on or after the date of this Lease and (ii)
whose primary use is the operation of: (a) a full service sit-down Mexican
restaurant (the "Subject Primary Use"), (b) a fast food Mexican restaurant
(i.e., Taco Bell, Taco Viva), or (c) a fast food restaurant serving primarily
Mexican-inspired cuisine (such as, for example, burritos, tacos, quesadillas)
(the "Non-Traditional Mexican Restaurant"). For purposes of this Section
17.25(B), a menu item shall be deemed to be Mexican-inspired cuisine (as opposed
to Mexican cuisine) if the filling is not traditional Mexican filling or such
filling is prepared together with other items or ingredients that are not
typically used in traditional Mexican cuisine. Competitor shall not in any event
include: (aa) a tenant open for business on the date of this Lease or any
assignee or sublessee of any such tenant or any renewal or extension of the
Occupancy Agreement of such tenant, or (bb) a tenant whose Occupancy Agreement
is dated prior to the date of this Lease or any assignee or sublessee of any
such tenant or any renewal or extension of the Occupancy Agreement of such
tenant, (cc) a tenant who has been permitted to assume an Occupancy Agreement or
otherwise operate its business in the Shopping Center based upon or as a result
of a bankruptcy, insolvency or similar action, or (dd) any Department, Variety
or Specialty Store. Notwithstanding anything to the contrary contained herein,
commencing on the first day of the fourth (4th) Lease Year, a Non-Traditional
Mexican Restaurant shall no longer be included in the definition of Competitor
and shall not be deemed a Competitor for purposes of this Section 17.25.
C. In the event the Substitute Rent Period granted in this Section
17.25 continues uninterrupted for a period of twelve (12) consecutive months,
Tenant may, by written notice give to Landlord within thirty (30) days after the
end of such twelve (12) month Period, terminate this Lease. In the event Tenant
gives such notice to terminate to Landlord within such thirty day (30) period,
this Lease shall terminate on the one hundred- eightieth (180th) day after such
notice to terminate is received by Landlord with the same force and effect as if
this Lease by its terms expired on such date. Tenant's right to terminate this
Lease as provided in this paragraph shall be automatically and irrevocably
waived unless such written notice to terminate is given by Tenant to Landlord
within such thirty (30) day period.
D. Tenant shall indemnity, defend and hold Landlord harmless
against and from all liabilities, obligations, damages, penalties, claims,
costs, charges and expenses, including without limitation, reasonable attorney's
fees, which may be imposed upon, incurred by, or asserted against Landlord
arising, directly or indirectly, out of or in connection with the terms of this
Section 17.25. In case any action or proceeding is brought against Landlord by
reason of the foregoing, Tenant shall, at Tenant's sole cost and expense, resist
or defend such action or proceeding with counsel approved by Landlord.
SECTION 17.26. TERMINATION OF PRIOR LEASE.
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A. Tenant is currently occupying the Original Leased Premises under
a certain lease between U.S.I.F. Wynnewood Corporation, as
predecessor-in-interest to Landlord, and Tenant, dated March 10, 1975 as amended
by that certain Letter Agreement dated September 10, 1975, that certain Letter
Agreement dated September 11, 1975, that certain Letter Agreement dated August
22, 1977, that certain Lease Modification Agreement dated September 1, 1977 and
that certain Amendment to Lease dated January 1, 1990 (the "Second Amendment")
(collectively, the "Prior Lease"). Effective as of the Possession Date of this
Lease, the Prior Lease is terminated and Landlord shall be released from its
obligations arising from or connected with the provisions of the Prior Lease
provided that Landlord shall satisfy, perform and fulfill all covenants and
obligations under the Prior Lease applicable to the period up to and including
the Possession Date of this Lease. Effective as of the Possession Date of this
Lease, Tenant shall be released from its obligations arising from or connected
with the provisions of the Prior Lease provided that Tenant shall satisfy,
perform and fulfill all covenants and obligations under the Prior Lease
applicable to the period prior to and including the Procession Date of this
Lease.
B. Tenant represents and warrants that it is the rightful owner of
all the tenant's interest in the Prior Lease, that Tenant has not made any
disposition, assignment, sublease or conveyance of the Prior Lease or Tenant's
interest therein, that Tenant has no knowledge of any fact or circumstance which
would give rise to any claim, demand, action or cause of action arising out of
or in connection with Tenant's occupancy of the Leased Premises under the Prior
Lease, and that no other person or entity has an interest in the Prior Lease,
collateral or otherwise. The representation and warranty set fourth in this
Section 17.26(B) shall be deemed to be remade in full by Tenant as of the
Possession Date of this Lease.
C. Notwithstanding anything contained in this Section to the
contrary, Tenant shall indemnity, defend (with counsel approved by Landlord) and
hold Landlord harmless from and against any and all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses (including without
limitation attorneys' fees) which may be imposed upon, incurred by, or asserted
against Landlord and arising, directly or indirectly, out of or in connection
with the use, nonuse, possession, occupancy, condition, operation, maintenance
or management of the Original Leased Premises or any part thereof prior to and
including the Possession Date of this Lease, any act or omission of Tenant or
any of its assignees, concessionaires, agents, contractors, employees or
invitees, any injury or damage to any person or property occurring in, on or
about the Original Leased Premises or any part thereof prior to and including
the Possession Date of this Lease, or any failure on the part of Tenant to
perform or comply with any of the covenants, agreements, terms or conditions
contained in the Prior Lease to be observed or performed by Tenant.
D. Notwithstanding anything in this Section 17.26 to the contrary,
for and in consideration of the early termination of the Prior Lease, and not as
a penalty, the obligation of Tenant under the Prior Lease to pay all Continuing
Rent (as herein defined) shall survive the termination of the Prior Lease and
notwithstanding that the Prior Lease has been terminated and Tenant has no
further rights under the Prior Lease, the Continuing Rent shall be paid at the
times, in the manner and otherwise in accordance with the terms of the Prior
Lease as if the same had not been terminated pursuant hereto. For purposes of
this Section 17.26 only, the term "Continuing Rent" shall mean Minimum Rent,
Percentage Rent, Tenant's pro rata share of real estate taxes (as defined in
Section 2.3 of the Prior Lease), Enclosed Mall Expense (as defined in Section
2.4 of the Prior Lease), Parking Area Expense (as defined in Section 2.4 of the
Prior Lease), Marketing Fund dues (as defined in Section 2.5 of the Prior Lease
[as modified by Paragraph 2 of the Second Amendment]), Tenant's Promotional and
Advertising Contribution (as defined in Paragraph 1 of the Second Amendment),
Tenant's proportionate share of Landlord's insurance premiums (as defined in
Section 6.1(D)(2) of the Prior Lease), utility charges (as defined in Section
2.6 of the Prior Lease), if any, and any and all payments and charges which
Tenant would have been required to pay under the Prior Lease it the Prior Lease
were still in full force and effect for the period commencing on the Possession
Date and continuing through and including the day that Is one (1) day prior to
the Rent Commencement Date.
E. During the Construction Period, pursuant to Section 9.3(F)
above, Tenant shall continue to pay all Continuing Rent due pursuant to the
terms of Section 17.26(D) above; provided, however, for purposes of calculating
the Percentage Rent portion of the Continuing Rent due for the calendar year or
partial calendar year in which Tenant so closes, the Minimum Rent due for such
calendar year or partial calendar year shall be deemed to be the total Minimum
Rent due for such calendar year or partial calendar year decreased by an amount
equal to such total annual Minimum Rent multiplied by a fraction, the numerator
of which is the number of days Tenant is not open for business in the Original
Leased Premises in accordance with Section 9.3(F) of this Lease and the
denominator of which is three hundred sixty-five (365) (or the number of days in
such partial calendar year [whichever is applicable]). Notwithstanding anything
to the contrary contained herein, the provisions of the foregoing sentence shall
In no event reduce or abate, in any manner, Tenant's obligation to pay the full
Minimum Rent portion of the Continuing Rent as required herein.
SECTION 17.27. DESIGNATED OUTDOOR SEATING AREA. Landlord hereby agrees
that Tenant may use
that portion of the sidewalk located immediately adjacent to the exterior of the
Leased Premises fronting the parking area of the Shopping Center, as more fully
indicated on Exhibit A-4 attached hereto and made a part hereof, as an
additional seating area (the "Designated Outdoor Seating Area") consisting of
tables, chairs and trash receptacles, furnished by Tenant at its sole cost and
expense (collectively, the "Designated Outdoor Area Furniture"), in a manner
approved by Landlord and in accordance with all applicable Laws, provided that:
(a) the exact location of such Designated Outdoor Seating Area is depicted on
Tenant's final plans and specifications for the initial Tenant Improvements and
approved by both Landlord and all applicable governmental and/or
quasi-governmental authorities; (b) the Designated Outdoor Area Furniture,
including, without limitation, the color, design, material, finish, method of
installation, size and the exact location of the Designated Outdoor Area
Furniture shall be depicted on Tenant's final plans and specifications for the
initial Tenant Improvements and approved by Landlord and all applicable
governmental and/or quasi-governmental authorities; (c) Tenant uses such
Designated Outdoor Seating Area for the sole purpose of
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<PAGE>
providing seating to patrons purchasing beverages and/or food described in
Section 1.1(1) hereof from the Leased Premises; (d) such Designated Outdoor
Seating Area is operated only during Normal Mall Hours, (e) Tenant installs no
more than four (4) tables and sixteen (16) chairs in such Designated Outdoor
Seating Area; and (f) Tenant installs at least two (2) trash receptacles in such
Designated Outdoor Seating Area. The square footage of the Designated Outdoor
Seating Area shall be included within the definition of the Leased Premises for
all purposes of this Lease, provided that the square footage of the Designated
Outdoor Seating Area shall not be included within the definition of the Leased
Premises for the purpose of calculating any time of Rent.
Tenant shall be responsible for busing the Designated Outdoor
Seating Area which shall include, without limitation, wiping of table tops and
chairs, depositing trash in and removing trash from the receptacles in the
Designated Outdoor Seating Area, spot cleaning of the sidewalk as necessary in
the event of customer spills, all Designated Outdoor Area Furniture Work (as
hereinafter defined), and all costs associated therewith. In the event Tenant
does not perform the foregoing responsibilities to the satisfaction of either
Landlord or the Burrough of Eatontown, New Jersey, or if any applicable
governmental or quasi-governmental authority revokes its license and/or permits
for such Designated Outdoor Seating Area, Landlord shall have the right to
either: (aa) perform such Tenant responsibilities and bill Tenant for Landlord's
costs therefor; or (bb) terminate, upon ten (10) days written notice to Tenant
(or such shorter period as such authority shall require), Tenant's right to use
the Designated Outdoor Seating Area. If Landlord terminates Tenant's right to
use the Designated Outdoor Seating Area, Tenant shall cease operation of such
Designated Outdoor Seating Area and shall remove all of the Designated Outdoor
Area Furniture on or before the tenth (10th) day following Tenant's receipt of
said notice (or such shorter period as such authority shall require) and shall
restore the Designated Outdoor Seating Area to the same condition as existed
prior to the installation of such Designated Outdoor Seating Area Furniture.
Notwithstanding the foregoing, if at any time after the
Commencement Date, Landlord, in its reasonable business judgment, determines
that all or any portion of the Designated Outdoor Area Furniture requires repair
or replacing (such repair or replacement is collectively referred to herein as
the "Designated Outdoor Area Furniture Work"), Tenant shall perform such
Designated Outdoor Area Furniture Work at its sole cost and expense. In the
event Tenant replaces all or any portion of the Designated Outdoor Area
Furniture, the design, quantity and color of the same shall be approved by
Landlord.
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<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is made as of this
__________ day of __________, 199__ by and between Equity Properties and
Development Limited Partnership, an Illinois limited partnership, as Agent for
owner ("Landlord"), and Chefs International, Inc., a Delaware corporation,
d/b/a/ Garcia's ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain lease dated
November 29, 1995 (the lease, together with all written modifications thereto,
is referred to herein as the "Lease") for certain premises (the "Leased
Premises") more particularly described in the Lease in a shopping center known
as Monmouth Mall (the "Shopping Center"), located in Eatontown, New Jersey; and
WHEREAS, the parties hereto are desirous of amending the Lease in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the Leased Promises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree that the Lease is amended, as follows:
1 . LEASED PREMISES. Effective as of the date hereof
(the "Effective Date"), Sections 1.1(A)(ii) and (iii) of
the Lease shall be deleted in their entireties and the following inserted in
lieu thereof:
"(ii) Expansion Space: the "cross-hatched" space indicated
on the lease plan attached as Exhibit A-2 and
containing a total floor space of approximately 1,401 square feet.
(iii) New Leased Promises: the "cross-hatched" space
indicated on the lease plan attached as Exhibit A and
containing a total floor space of approximately 4,371 square feet, comprised
of both the Original Leased Premises (less the Recapture
Area) and the Expansion Space."
2. MINIMUM RENT. Effective as of the Effective Date,
Section 1.1(E) of the Lease shall be deleted in its entirety
and the following inserted in lieu thereof
E. Minimum Rent:
(i) Commencing on the Rent Commencement Date and continuing
through the last day of the fifth (5th) Lease
Year (the "First Period"): One Hundred Nine Thousand Two Hundred Seventy-Five
Dollars ($109,275.00) per annum; and
(ii) Commencing on the first day of the sixth (6th) Lease
Year and continuing through the last day of the twelfth
(12th) Lease Year (the "Second Period"'). One Hundred Eighteen Thousand
Seventeen Dollars ($118,017.00) per annum."
3. PERCENTAGE RENT. Effective as of the Effective Date,
Section 1.1(F) of the Lease shall be deleted in its
entiretly and the following inserted in lieu thereof
F. Percentage Rent: An amount equal to (1) for each Lease
Year (a) Gross Sales (as defined in Section 5.4 below) in excess of (i) Two
Million One Hundred Eighty-Five Thousand Five Hundred Dollars ($2,185,500.00)
during the First Period; and (ii) Two Million Three Hundred Sixty Thousand Three
Hundred Forty Dollars ($2,360,340.00) during the Second Period multiplied by (b)
five percent (5%) (the amounts set forth in (i) and (ii) above shall each be
referred to individually as the "Full Year Breakpoint" for the Lease Year in
question) and (2) for any Partial Lease Year (as defined in Section 1.2(J)
below), the amount of Gross Sales in excess of the amount arrived at by
multiplying the Full Year Breakpoint, for the appropriate, Lease Year, by a
fraction, the numerator of which shall be the number of days in the Partial
Lease Year and the denominator of which shall be three hundred sixty-five (365)
(the "Partial Year Breakpoint") multiplied by five percent (5%); provided that,
if at any time during any Lease Year or Partial Lease Year Tenant is not open
for business, then the Full Year Breakpoint or Partial Year Breakpoint for such
Full Lease Year or Partial Lease Year, as the case may be, shall be decreased by
an amount equal to such breakpoint multiplied by a fraction, the numerator of
which shall be the number of days in such Lease Year or Partial Lease Year that
Tenant is not open for business and the denominator of which shall be three
hundred sixty-five (365), or the number of days in such Partial Lease Year,
whichever is applicable,"
4. POSSESSION DATE. Effective as of the Effective Date,
Section 1.1(M) of the Lease shall be deleted in its
entirety and the following inserted in lieu thereof;
"M Possession Date: Tenant is currently in possession of the
Original Leased Premises pursuant to the provisions
of the Prior Lease (as defined in Section 17.26 of this Lease). Tender of
possession of the Expansion Space shall be deemed to have
been tendered and accepted on January 4, 1996."
5. RENT ABATEMENT. Effective as of the Effective Date,
Section 9.3(F) of the Lease shall be deleted in its
entirety and the following inserted in lieu thereof;
"F. Landlord acknowledges that as of the Possession Date Tenant is
open for business in the Original Leased Premises. Notwithstanding anything to
the contrary contained herein, in order to facilitate performance of the initial
Tenant Improvements, Tenant shall have the right to close for business to the
public in the Original Leased Premises for a period which shall not exceed
ninety (90) days (the "Permitted Closure") during the Construction Period (as
hereinafter defined). Notwithstanding anything to the contrary contained in
Section 17.26 below, during the Construction Period in the event Tenant (i) is
in possession of the Expansion Space and is closed for business to the public in
the Leased Premises, Tenant shall not be obligated to pay the Continuing Rent
(as defined in Section 17.26 below) pursuant to the terms of Section 17.26
below, provided, however, Tenant shall be required to pay any and all Utility
Charges for the Leased Premises when the same become due. The term "Construction
Period" as used herein shall be deemed to be the period of time commencing on
the date that Tenant commences construction of the initial Tenant Improvements
(the "Start Date") and ending on the earlier to occur of (i) the date that is
ninety (90) days after the Possession Date, and (ii) the date the initial Tenant
Improvements in the Leased Premises are substantially complete."
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6. TERMINATION OF PRIOR LEASE. Effective as of the Effective
Date, Section 17.26(A) of the
Lease shall be deleted in its entirety and the following inserted in lieu
thereof
"SECTION 17.26. TERMINATION OF PRIOR LEASE.
A. Tenant is currently occupying the Original Leased Premises under
a certain lease between U.S.I.F. Wynnewood Corporation, as
predecessor-in-interest to Landlord, and Tenant, dated March 10, 1975 as amended
by that certain Letter Agreement dated September 10, 1975, that certain Letter
Agreement dated September 11, 1975, that certain Letter Agreement dated August
22, 1977, that certain Lease Modification Agreement dated September 1, 1977 and
that certain Amendment to Lease dated January 1, 1990 (the "Second Amendment")
(collectively, the "Prior Lease"). Effective as of 11:59 P.M. of December 31,
1995 (the "Prior Lease Termination Date"), the Prior Lease is terminated and
Landlord shall be released from its obligation arising from or connected with
the provisions of the Prior Lease provided that Landlord shall satisfy, perform
and fulfill all covenants and obligations under the Prior Lease applicable to
the period up to and including the Prior Lease Termination Date, Effective as of
the Proper Lease Termination Date, Tenant shall be released from its obligations
arising from or connected with the provisions of the Prior Lease provided that
Tenant shall satisfy, perform and fulfill all covenants and obligations under
the Prior Lease applicable to the period prior to and including the Prior Lease
Termination Date.
B. Tenant represents and warrants that it is the rightful owner of
all the tenants interest in the Prior Lease, that Tenant has not made any
disposition, assignment, sublease or conveyance of the Prior Lease or
Tenant'sinterest therein, that Tenant has no knowledge of any fact or
circumstance which would give rise to any claim, demand, action or cause of
action arising out of or in connection with Tenant's occupancy of the Leased
Premises under the Prior Lease, and that no other person or entity has an
interest in the Prior Lease, collateral or otherwise. The representation and
warranty set forth in this Section 17.26(B) shall be deemed to be remade in full
by Tenant as of the Prior Lease Termination Date.
C. Notwithstanding anything contained in this Section to the
contrary, Tenant shall indemnify, defend (with counsel approved by Landlord) and
hold Landlord harmless from and against any and all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses (including without
limitation attorneys' fees) which may be imposed upon, incurred by, or asserted
against Landlord and arising, directly or indirectly, out of or in connection
with the use, nonuse, possession, occupancy, condition, operation, maintenance
or management of the Original Leased Premises or any part thereof prior to and
including the Prior Lease Termination Date, any act or omission of Tenant or any
of its assignees, concessionaires, agents, contractors, employees or investees,
any injury or damage to any person or property occurring in, on or about the
Original Leased Premises or any part thereof prior to and including the Prior
Lease Termination Date, or any failure on the part of Tenant to perform or
comply with any of the covenants, agreements, terms or conditions contained in
the Prior Lease to be observed or performed by Tenant.
D. Subject to the provisions contained in Section 9.3(F) above and
notwithstanding anything in this Section 17.25 to the contrary, for and in
consideration of the early termination of the Prior Lease, and not as a penalty,
the obligation of Tenant under the Prior Lease to pay all Continuing Rent (as
herein defined) shall survive the termination of the Prior Lease and
notwithstanding that the Prior Lease has been terminated and Tenant has no
further fights under the Prior Lease, the Continuing Rent shall be paid at the
times, in the manner and otherwise in accordance with the terms of the Prior
Lease as if the same had not been terminated pursuant hereto. For purposes of
this Section 17.26 only, the term "Continuing Rent" shall mean Minimum Rent,
Percentage Rent, Tenant's pro rata share of real estate taxes (as defined in
Section 2.3 of the Prior Lease), Enclosed Mall Expense (as defined in Section
2.4 of the Prior Lease), Parting Area Expense (as defined in Section 2.4 of the
Prior Lease), Marketing Fund dues (as defined in Section 2.5 of the Prior Lease
[as modified by Paragraph 2 of the Second Amendment]), Tenant's Promotional and
Advertising Contribution (as defined in Paragraph 1 of the Second Amendment) and
Tenant's proportionate share of Landlord's insurance premiums (as defined in
Section 6.1(D)(2) of the Prior Lease) as if the Prior Lease were still in full
force and effect for the period commencing on the Prior Lease Termination Date
and continuing through and including the day that is one (1) day prior to the
Rent Commencement Date. Notwithstanding anything to the contrary contained
herein, and although not contained in the definition of Continuing Rent, Tenant
shall also be required to continue to pay all utility charges (as defined in
Section 2.6 of the Prior Lease), if any, supplied to the Leased Premises,
however supplied when the same become due.
E. Subject to the provisions contained in Section 9.3(F) above,
during the Construction Period, Tenant shall continue to pay all Continuing Rent
due pursuant to the terms of Section 17.26(D) above, provided, however, for
purposes of calculating the Percentage Rent portion of the Continuing Rent due
for the calendar year or partial calendar year in which Tenant so closes, the
Minimum Rent due for such calendar year or partial calendar year shall be deemed
to be the total Minimum Rent due for such calendar year or partial calendar year
decreased by an amount equal to such total annual Minimum Rent multiplied by a
fraction, the numerator of which is the number of days Tenant is not open for
business in the Original Leased Premises in accordance with Section 9.3(F) of
this Lease and the denominator of which is three hundred sixty-five (365) (or
the number of days in such partial calendar year [whichever is applicable]).
Notwithstanding anything to the contrary contained herein, the provisions of the
foregoing sentence shall in no event reduce or abate, in any manner, Tenants
obligation to pay the full Minimum Rent portion of the Continuing Rent as
required herein."
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7. EXHIBITS. Effective as of the Effective Date, Exhibit A attached
hereto shall be substituted for the Exhibit A attached to the Lease and all
references to Exhibit A in the Lease shall be deemed to be a reference to the
Exhibit A attached hereto. Effective as of the Effective Date, Exhibit A-2
attached hereto shall be substituted for the Exhibit A-2 attached to the Lease
and all references to Exhibit A-2 in the Lease shall be deemed to be a reference
to the Exhibit A-2 attached hereto.
8. DELETED SECTIONS., Notwithstanding the deletion of certain
section of the Lease pursuant to this Amendment, or anything to the contrary
contained in this Amendment, such deleted sections shall control and the
provisions of those sections deleted shall remain in full force and effect with
respect to obligations accruing prior to the effective date of any such deletion
pursuant to this Amendment.
9. DEFINITIONS. For purposes of this Amendment the term "owner"
shall mean the person(s) or entity(ies) that holds legal title (whether fee or
leasehold) to the Shopping Center or the portion thereof in which the Leased
Premises are located. The terms "owner" and "Landlord" have the same meaning for
purposes of this Amendment and may be used interchangeably. Any other term which
is capitalized, but not defined in this Amendment, which is capitalized and
defined in the Lease shall have the same meaning for purposes of this Amendment
as it has for purposes of the Lease.
10. CONFLICT OF PROVISIONS. In the event of any conflict between
the Lease and this Amendment, the terms, conditions and provisions of the latter
shall govern. However, except as herein expressly amended, all of the terms,
covenants, conditions and provisions of the Lease shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties have hereunder set their hands and
seals as of the day and year first above written.
Signed and acknowledged in the LANDLORD:
presence of:
EQUITY PROPERTIES AND DEVELOPMENT LIMITED
PARTNERSHIP, an Illinois limited partnership, as agent for
Landlord
by SC MANAGEMENT, INC., an Illinois Corporation
Its: General Partner
________________ _________________________________________
Name:Sanford Shkolnik
________________ Title:Chairman
TENANT:
CHEFS INTERNATIONAL, INC., a Delaware Corporation
By:_________________________________________
Name: Anthony C. Papalia
Title: President
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<PAGE>
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
BE IT REMEMBERED, that on the __________ day of _______, 19____.,
before me, a Notary Public in and for said County, personally appeared EQUITY
PROPERTIES AND DEVELOPMENT LIMITED PARTNERSHIP, an Illinois limited partnership,
as agent for the LANDLORD in the foregoing Amendment by SC Management, Inc., an
Illinois corporation, by Sanford Shkolnik, its Chairman, who acknowledged that
the signing thereof was the duly authorized act and deed of said corporation on
behalf of said limited partnership as agent as aforesaid for the uses and
purposes therein mentioned.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal on the day and year first above written.
---------------------------------
Notary Public
My Commission Expires:
- - -------------------
STATE OF _____________ )
) SS
COUNTY OF ___________ )
BE IT REMEMBERED, that on the ___________ day of __________ , 1996, before
me, a Notary Public in and for said County personally appeared Chefs
International, Inc., a Delaware corporation ____________________, its
_______________ President, the TENANT in the foregoing Amendment, who
acknowledged that the signing thereof was the duly authorized act and deed of
said corporation and his free and voluntary act and deed as said officer for the
uses and purposes therein mentioned.
IN TESTIMONY WHEREOF, I have hereunto hand and affixed my official seal on
the day and year first above written.
-------------------------------------
Notary Public
My Commission Expires:
- - --------------------
89
<PAGE>
Exhibit 10.4
Amendment No. 1 dated as of October 30, 1995
to Employment Agreement between
Mr. Cookier Face and Frank Koenemund
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated as of October 30, 1995 to an EMPLOYMENT
AGREEMENT (the "Agreement") entered into as of June 30, 1993 between MISTER
COOKIE FACE, INC, ("Employer") and FRANK KOENEMUND ("Employee").
WITNESSETH
WHEREAS the parties executed the Agreement as of June 30, 1993
providing for employment by the Employer of the Employee as President and Chief
Executive Officer of Employer through January 31, 1998 at an annual salary of
$100,000; and
WHEREAS the parties hereby agree to amend the Agreement to extend
the term thereof to January 31, 2001 and to increase the annual salary
(commencing October 30, 1995) to $150,000;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Employment Term. The first sentence of Section 2 of the
Agreement is hereby modified to provide that the Agreement shall terminate on
January 31, 2001 (or such other date as shall coincide with the last day of
Chefs International, Inc.'s 2001 fiscal year).
2. Salary. The first sentence of Section 4 (a) of the Agreement is
hereby modified to provide that commencing October 30, 1995 until termination of
the Agreement, the Employer shall pay Employee a salary at the annual rate of
$150,000, less withholding.
3. Other Provisions. Except as specifically amended above,
the parties hereto hereby reaffirm
each provision of the Agreement as of the date hereof.
IN WITNESS WHEREOF, the undersigned have each duly executed this
Agreement as of the date first above written.
EMPLOYER:
MISTER COOKIE FACE, INC.
By_____________________________________
Anthony Papalia, Vice President
EMPLOYEE:
-------------------------------------
Frank "Doc" Koenemund
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Exhibit 10.5
Term Loan and Revolving Credit Agreement
dated January 19, 1996 between the
Company and First Union National Bank
<PAGE>
TERM LOAN AND REVOLVING CREDIT AGREEMENT (NJ)
THIS TERM LOAN AND REVOLVING CREDIT AGREEMENT (together with all exhibits hereto
and any amendments and modifications hereto in effect from time to time, the
"Agreement") is made this 19th day of January, 1996, by and between FIRST UNION
NATIONAL BANK (the "Bank") and CHEFS INTERNATIONAL, INC. (the "Borrower").
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged and intending to be legally bound hereby, the
Bank and the Borrower agree as follows:
A.= Credit Accommodations. Subject to the terms and conditions hereinafter
set forth, the Bank
agrees to extend to the Borrower the following credit accommodations:
1. Term Loan A. The Bank shall make a term loan ("Term Loan A") to
the Borrower in the amount of Six Hundred Twenty Five Thousand
Dollars ($625,000.00) on the date hereof. Term Loan A shall be
evidenced by a Term Note in the form provided the Borrower by
the Bank (together with any attachments thereto and amendments
and modifications thereof in effect from time to time, "Term
Note A"). Term Note A will bear interest at the rate and will
be repaid as set forth in Term Note A.
2. Term Loan B. The Bank shall make a term loan ("Term Loan B") to
the Borrower in the amount of One Million Dollars
($1,000,000.00) on the date hereof. Term Loan B shall be
evidenced by a Term Note in the form provided the Borrower by
the Bank (together with any attachments thereto and amendments
and modifications thereof in effect from time to time, "Term
Note B" and together with Term Note A, the "Term Notes"), Term
Note B will bear interest at the rate and will be repaid as set
forth in Term Note B.
3. Revolver.
a. Revolver. The Bank shall extend a revolving credit facility
(the "Revolver") to the Borrower, expiring on May 31, 1997 (the
"Expiration Date"), under which the Bank, subject to the
following terms and conditions, will make advances (each a
"Revolving Credit Loan") to the Borrower from time to time and
the Borrower may borrow, repay, and reborrow such amounts up to
the Maximum Principal Amount. Amounts outstanding under the
Revolver shall be evidenced by a Revolving Credit Note in the
form provided the Borrower by the Bank (together with any
attachments thereto and amendments or modifications thereof in
effect from time to time, the "Revolving Credit Note").
b. Maximum Principal Amount. The maximum aggregate
principal amount of advances
to be outstanding at any time hereunder shall be One Million
Dollars ($1,000,000.00).
c. Payment Terms. Each Revolving Credit Loan will bear
interest at the rate and will
be repaid as set forth in Revolving Credit Note.
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<PAGE>
d. Notice of Borrowing. The Borrower shall give the Bank (i)
written notice of the amount and date of each advance requested
under the Revolver no later than 11:00 a.m. three Working Days
(as defined below) prior to the date of such proposed advance,
in the form of the "Notice of Borrowing Under Revolving Credit"
attached to the Revolving Credit Note as Exhibit A, or, (ii) if
the Bank permits, in its sole and absolute discretion, an oral
request of the amount and date of each proposed advance,
provided such oral request is confirmed promptly after the oral
request by such written Notice of Borrowing Under Revolving
Credit. No LIBOR Loan may be continued as such when any Event
of Default or event which, with the giving of notice, or the
passage of time, or both, would become an Event of Default has
occurred and is continuing, but shall be automatically
converted to the Prime Rate on the last day of the Interest
Period applicable thereto for the remainder of the term of the
Revolver. Each advance shall be in an amount equal to Ten
Thousand Dollars ($1,000,000.00) or any whole multiple thereof,
provided, however, that the outstanding principal balance under
the Revolver shall not exceed, at any time, the Maximum
Principal Amount.
e. Computation. Interest and any fees or compensation
based
upon a per annum rate
shall be calculated on the basis of a 360 day year for the
actual number of days elapsed.
f. Reduction of Commitment. The Borrower shall have the right,
upon not less than ten (10) Business Days prior written notice
to the Bank, to terminate all or part of the unused portion of
the commitment under the Revolver. Any partial reduction of
such unused commitment shall be in an amount equal to One
Hundred Thousand Dollars ($100,000.00) or any whole multiple
thereof.
g. No Novation of Existing Notes. A portion of Term Loan A
(approximately $275,000) will be used to consolidate certain
existing debt from the Borrower to the Bank as evidenced by
that certain Long Term Installment Note, dated November 21,
1994, in the original principal amount of $150,000 from the
Borrower to First Fidelity Bank, N.A., now known as the Bank,
and that certain Commercial Loan Note, dated January 17, 1991,
in the original principal amount of $425,000 from the Borrower
to First National Bank of Toms River, N.J., predecessor in
interest to the Bank; and a portion of Term Loan B will be used
to refinance certain existing indebtedness from the Borrower to
the Bank as evidenced by that certain Revolving Credit Note,
dated February 25, 1994, in the original principal amount of
$2,000,000 from the Borrower to First Fidelity Bank, N.A., now
known as the Bank; without any discharge or extinguishment of
indebtedness evidenced by the notes described above, or
termination of any lien or release of any collateral granted as
security for the obligations thereunder. Neither this Agreement
nor the Notes are intended to create a novation. From and after
the date hereof, this Agreement, the Notes and the other Loan
Documents shall govern the rights, powers, remedies, duties and
obligations of the Borrower and the Bank with respect to the
Liabilities.
B. Debiting of Account. The Borrower agrees to maintain an account
(the "Account") at the Bank continuously until the Liabilities
due hereunder are paid in full. The Bank may, and the Borrower
authorizes the Bank to, debit the Account for the amount of any
payment as and when such payment becomes due hereunder.
Notwithstanding the foregoing, the Bank and any Affiliate may,
and the Borrower authorizes the Bank and any Affiliate to, debit
any account and/or certificate of deposit maintained by the
Borrower with the Bank or any Affiliate for the
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amount of any payment, as and when such payment becomes due
hereunder, whether such payment is for accrued interest,
principal or expense, even if debiting such account results in a
loss or reduction of interest to the Borrower or the imposition
of a penalty applicable to the early withdrawal of time deposits.
Such authorization shall not affect the Borrower's obligation to
pay when due all amounts payable hereunder, whether or not there
are sufficient funds in any accounts of the Borrower. The
Borrower agrees to fund the Account from time to time in amounts
sufficient to make the payments hereunder as and when they become
due. The foregoing rights of the Bank and its Affiliates to debit
the Borrower's accounts shall be in addition to, and not in
limitation of, any rights of set-off which the Bank and/or any
Affiliate may have hereunder or under any Loan Document.
C. Definitions. The following terms used throughout this Agreement
shall have the meanings
assigned below:
1. Affiliate. The term "Affiliate" means First Union
Corporation and any of its direct and
indirect affiliates and subsidiaries including, but not
limited to, First Union National Bank.
2. Business Day. The term "Business Day" means any day other
than a Saturday, Sunday,
or a day on which the Bank is authorized or obligated by law
or executive order to be
closed.
3. Collateral. The term "Collateral" means any and all property
of any Obligor (as defined
below) now or hereafter in the possession, custody or control
of the Bank or any Affiliate
including, but not limited to, any balance or share of any
deposit, trust or agency account
and all collateral described in any and all Loan Documents
(as defined below), the additional
collateral described in Section L of this Agreement, and any
other property of any Obligor
now or hereafter subject to a security agreement, mortgage,
pledge agreement, assignment,
hypothecation or other document granting the Bank or any
Affiliate a security interest or
other lien or encumbrance.
4. Consolidated. The term "Consolidated" shall mean an accounting
presentation which
includes any consolidated subsidiaries of the Borrower.
5. Dumping. The term "Dumping" means the releasing, spilling,
emptying, pouring, emitting,
dumping or otherwise discharging of any substance into the
environment.
6. LIBOR Loan. The term "LIBOR Loan" means a loan which bears
interest based upon
LIBOR.
7. GAAP. The term "GAAP" means generally accepted accounting
principles in effect from
time to time in the United States.
8. Liabilities. The term "Liabilities" means any and all
obligations and indebtedness of every kind and description of
the Borrower and/or any Obligor owing to the Bank or any
Affiliate, whether or not under the Loan Documents, including,
without limitation, all obligations under any swap agreements
as defined in 11 U.S.C. ss.101 between the Bank and the
Borrower whenever executed, and whether such debts or
obligations are primary or secondary, direct or indirect,
absolute or contingent, sole, joint or several, secured or
unsecured, due or to
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become due, contractual or tortious, arising by operation of
law or otherwise, or now or hereafter existing, whether
incurred by the Borrower and/or any Obligor as principal,
surety, endorser, guarantor, accommodation party or otherwise,
including, without limitation, principal, interest, fees,
including late fees and expenses, including attorneys' fees and
costs and/or the allocated fees and costs of the Bank's in
house legal counsel or that have been or may hereafter be
contracted or incurred.
9. Loan Documents. The term "Loan Documents" means all credit
accommodations, notes,
loan agreements, guaranties, security agreements, mortgages,
instruments, pledge agreements,
assignments, acceptance agreements, commitments, facilities,
reimbursement agreements and
any other agreements and documents, now or hereafter existing,
creating, evidencing,
guarantying, securing or relating to any or all of the
Liabilities, together with all amendments,
modifications, renewals, or extensions thereof (but not
including swap agreements as defined
in 11 U.S. C. ss.101), between the Borrower and the Bank,
whenever executed.
10. Loans. The term "Loan" means each of the Term Loans and each
Revolving Credit Loan and
the term "Loans" means the Term Loans and the Revolving Credit
Loans.
11. Natural Resources. The term "Natural Resources" means each
and all of the atmosphere,
air, waters, earth, land, minerals, flora, fauna, fish,
shellfish, wildlife, biota, and/or other
natural resources.
12. Note. The term "Notes" means the Term Notes and the Revolving
Credit Note.
13. Obligor. The term "Obligor" means the Borrower, each and
every member of the Borrower
if the Borrower is a partnership, and each and every maker,
endorser, guarantor and surety
of or for the Liabilities.
14. Prime Rate. The term "Prime Rate" means the rate of interest
established by the Bank as its reference rate in making loans,
and is not tied to any external rate of interest or index. The
rate of interest charged hereunder shall change automatically
and immediately as of the date of any change in the Prime Rate
without notice to the Borrower.
15. Swap Agreement. The term "Swap Agreement" means that certain
ISDA Master Agreement entered into between the Borrower and the
Bank, dated January 19, 1996, including the Schedule and all
Confirmations (as such terms are defined in the ISDA Master
Agreement).
16. Telerate Page 3750. The term "Telerate Page 3750" means, the
display designated as "Page 3750" on the Dow Jones Telerate
Service (or such other page as may replace that page on that
service for the purpose of displaying London interbank offered
rates of major banks).
17. Working Day. The term "Working Day" means any day on which
dealings in foreign
currencies and exchange between banks may be carried on in New
York City, New York.
D. Use of Proceeds; No Purchases of Margin Stock. The proceeds of the
Loans will be used only
---------------------------------------------
in connection with the Borrower's business for the following
purposes: Term Loan, A will be used
to finance renovations for Garcia's Restaurant ($350,000) and
consolidate existing debt
($275,000); Term Loan B will be used to refinance outstandings under
the Bank's existing
$2,000,000 revolving credit facility to the Borrower; the Revolver
will replace the existing
$2,000,000 revolving credit facility and will be used to finance the
working capital needs of Mister
Cookie Face, Inc. None of the proceeds of the Loans will be used to
purchase or carry any
"margin security" or extend credit for such purpose within the
meaning of Regulations G or U of
the Board of Governors of the Federal Reserve System.
E. Fees. The Borrower shall pay to the Bank the following
nonrefundable fees:
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1. Facility Fee. One-time facility fees ("Facility Fees") equal
to one-quarter of one percent
(1/4%) of each of Term Loan A and Term Loan B or Four Thousand
sixty Two Dollars and
50/100 ($4,062.50) which fee is payable on or before the date
of this Agreement. The
Borrower acknowledges that the Facility Fees are a liquidated
damages amount and, together
with the amounts payable by the Borrower under Paragraph 0.2.
hereof, constitute reasonable
compensation to the Bank for the Bank's expenses and services
arising in connection with the
preparation of this Agreement and the other Loan Documents to
be executed in connection
herewith and preparing for the closing of the transaction
described herein. Notwithstanding
anything to the contrary in this Agreement, the Bank may, in
its sole discretion, charge the
Borrower additional facility fees in the event that the Loans
are ever modified, renewed or
extended.
2. Unused Commitment Fee. An unused commitment fee of
three-eights of one percent
(3/8%) per annum on the average undrawn amount of the Revolver
will be payable by the
Borrower to the Bank quarterly in arrears on or prior to the
fifth Business Day following the
Borrower's receipt of a statement therefor;
F. Prepayment. The circumstances under which the Loans may be prepaid
are governed by the
Notes. No prepayment hereunder shall affect in any way any interest
rate swap between the
Borrower and the Bank.
G. Capital Adequacy. If after the date hereof, the Bank shall have
determined that the adoption of
----------------
any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank
or comparable agency charged with the interpretation or
administration thereof, or compliance by
the Bank with any request or directive regarding capital adequacy
(whether or not having the force
of law) of any such authority, central bank or comparable agency,
has or would have the effect of
reducing the rate of return on the Bank's capital as a consequence
of its obligations hereunder to
a level below that which the Bank could have achieved but for such
adoption, change or
compliance (taking into consideration the Bank's policies with
respect to capital adequacy) by an
amount deemed by the Bank to be material, then from time to time,
within 15 days after demand
by the Bank, the Borrower shall pay to the Bank such additional
amount or amounts as will
compensate the Bank for such reduction. The Bank will promptly
notify the Borrower of any
event of which it has knowledge, occurring after the date hereof,
which will entitle the Bank to
compensation pursuant to this Section G.
H. Representations and Warranties. The Borrower represents and warrants
with respect to itself and, to the extent applicable, each of its
consolidated subsidiaries, and agrees that each such representation
and warranty shall be deemed ta be restated at the time of each
borrowing hereunder and continuation of any LIBOR Loan hereunder,
that:
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1. Organization; Authority. The Borrower is a corporation duly
organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization or formation, is duly
qualified as a foreign corporation and is in good standing
under the laws of each jurisdiction
in which it is required to be qualified because of the business
owns, and has the necessary power and authority to enter into
and perform its obligations
under the Loan Documents and all other documents required by
the Bank in connection
therewith. The execution and performance of the Loan Documents
have been duly authorized
by all necessary proceedings on the part of the Borrower, and,
upon their execution and
delivery, they will be valid, binding, and enforceable in
accordance with their terms; the
Borrower's execution and performance of the Loan Documents will
not violate any orders,
laws or regulations applicable to the Borrower, any
organizational documents of the
Borrower, or any instruments, indentures or agreements
(including any provisions pertaining
to subordinated debt) to which the Borrower is a party or by
which the Borrower or any of
its properties are bound; and all consents, approvals,
licenses, franchises, patents, trademarks
and other general intangibles required in connection with this
Agreement, the other Loan
Documents or the operation of the Borrower's business have been
obtained and are in full
force and effect. The Borrower's subsidiaries and affiliates,
if any, are duly organized, validly
existing, and in good standing under the laws of the
jurisdictions of their organization.
2. Financial Statements. All financial statements, statements as
to ownership of the Borrower and its assets, and other
statements and information delivered to the Bank were prepared
in accordance with GAAP, consistently applied, are true and
correct, and disclose all presently outstanding indebtedness or
obligations of the Borrower, including contingent obligations,
obligations under leases of property from others, and all liens
and encumbrances, including tax liens, against its properties
and assets; and there have been no adverse changes in the
Borrower's financial condition or business since the date of
such statements.
3. Suits. There are no actions, suits, proceedings, or claims
pending or threatened against the
Borrower or any of its property; and the Borrower's business
is in compliance with all
applicable orders, laws and regulations.
4. Defaults. The Borrower is not in default under any agreement to
which the Borrower is a party or by which the Borrower or any
of its property is bound, or under any indenture or instrument
evidencing any indebtedness of the Borrower, and neither the
Borrower's execution of nor performance under the Loan
Documents will create a default or any lien or encumbrance
under any such agreement, indenture or instrument other than a
lien or encumbrance in favor of the Bank.
5. ERISA. No employee benefit plan established or maintained by
the Borrower which is
subject to the Employee Retirement Income Security Act, 29
U.S.C.ss.1001 et seq. ("ERISA")
-- ----
has an accumulated funding deficiency (as such term is defined
in ERISA). No material
liability to the Pension Benefit Guaranty Corporation (or any
successor thereto under ERISA)
has been incurred by the Borrower with respect to any such plan
and no Reportable Event
under ERISA has occurred. The Borrower has no actual or
anticipated liability underss.4971
of the Internal Revenue Code ("Code") (relating to tax on
failure to meet the minimum
funding standard ofss.412 of the Code) with respect to any
employee benefit plan to which it
contributes but which is not maintained or established by it.
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6. Tax Returns and Taxes. The Borrower has filed all federal,
state and local tax returns required to be filed and has paid
all taxes, assessments and governmental charges and levies
thereon, including interest and penalties, except where the
same are being contested in good faith by appropriate
proceedings and for which adequate reserves have been set
aside, and no liens for taxes have been filed and no claims are
being assessed by a governmental authority with respect to any
taxes. The charges, accruals and reserves on the books of the
Borrower with respect to taxes or other governmental charges
are adequate.
7. Compliance with Laws. The Borrower has complied with all
requirements of foreign, federal, state and local law in
connection with the acquisition, ownership and operation of the
Borrower's business and property including, without limitation,
any and all applicable requirements of environmental protection
laws.
8. Environmental Compliance. To the best of the Borrower's
knowledge, after due inquiry and investigation, no lien has
attached to any revenues or any real or personal property owned
by the Borrower in any jurisdiction, arising from an
intentional or unintentional action or omission of the Borrower
or any previous owner and/or operator of said real property,
resulting from the dumping of hazardous substances or wastes
into the atmosphere or waters or onto lands, any of which may
have damaged any Natural Resources.
9. No Notification of Dumping of Hazardous Substances. The
Borrower has not received a summons, citation, directive,
letter, or other communication, written or oral, from any
jurisdiction, or political sub-division or any agency or
instrumentality thereof, concerning any intentional or
unintentional action or omission on the Borrower's part
resulting in the dumping of hazardous substances into the
atmosphere or waters, or onto the lands in any jurisdiction,
any of which has resulted in damage to the Natural Resources.
I. Conditions.
1. Documents Required for Term Loans or Initial Advance under
Revolver. The obligation of the Bank to make the Term Loans or
the initial advance under the Revolver is subject to the Bank's
receipt of the following documents, duly executed and delivered
by the Obligor thereunder, and in form and substance
satisfactory to the Bank:
a. The Notes and this Agreement;
b. Certified resolutions of the Board of Directors of the
Borrower authorizing the
Borrower to borrow hereunder and to execute, deliver and
perform its obligations under
the Loan Documents. Such resolution shall contain such
other provisions as shall be
required by the Bank;
c. Certified resolutions of the Board of Directors of each
Obligor hereunder authorizing
such Obligor to unconditionally guaranty repayment of
the Liabilities;
d. A second Mortgage, Assignment of Leases and Security
Agreement from the Borrower with respect to property
located at Lots 49 and 49.01, Block 669, Ocean City, New
Jersey, including all improvements, furniture, fixtures
and equipment, located thereon, subject only to an
existing mortgage in favor of the Bank;
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e. A first Mortgage, Assignment of Leases and Security
Agreement from the Borrower with respect to property
located at Lots 5 and 6, Block 171, and Lots 7,8,9 and
10, Block 165 Point Pleasant Beach, New Jersey,
including all improvements, furniture, fixtures and
equipment, located thereon;
f. A first Mortgage, Assignment of Leases and Security
Agreement from the Borrower with respect to property
located at Lots ________, Block ________, Point Pleasant
Beach, New Jersey, including all improvements,
furniture, fixtures and equipment, located thereon (Bank
has existing mortgage, Lobster Shanty and Wharfside
Restaurant);
g. An Unconditional Guaranty and Suretyship Agreement from
each of Mister Cookie
Face, Inc.; Chef's International Palm Beach, Inc.; Kev,
Inc.; Robbins Parkway Realty,
Inc.; and Hightstown Reb, Inc.;
h. A Security Agreement from Mister Cookie Face, Inc.
granting to the Bank a first lien
in and security interest on all its assets;
i. Opinions of the Borrower's and any other Obligor's
counsel as the Bank shall require
in form and substance satisfactory to the Bank; and
j. Such other documents as the Bank may reasonably require,
including, without limitation, other agreements,
instruments, or indentures to which an Obligor is a
party, including, without limitation, financing
statements, proofs, opinions, guaranties and other
written assurances.
2. Requirements for Any Advance or Continuation of any LIBOR Loan.
The obligation of the Bank to make any advance or permit
continuation of any LIBOR Loan is subject to and conditioned
upon the following:
a. The representations and warranties contained in Section
hereof are correct on and as
of the date of each such advance or continuation;
b. No Event of Default described in Section M hereof, and
no event which, with the giving
of notice, or the passage of time, or both, would become
an Event of Default, has
occurred and is continuing;
c. There has been no material adverse change in the
Borrower's or any other Obligor's
condition, financial or otherwise, since the date of
this Agreement; and
d. All of the Loan Documents remain in full force andffect.
J. Affirmative Covenants. The Borrower covenants and agrees that so
long as there are any
outstanding Liabilities hereunder or otherwise or the Bank shall
have any obligation hereunder,
the Borrower and each of its consolidated subsidiaries shall:
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1. Financial Statements. Furnish to the Bank the following
financial information: (a) not later
than 120 days after the end of each fiscal year, consolidated
and consolidating audited year-
end financial statements for the Borrower, and for each of its
consolidated subsidiaries
including, but not limited to, statements of financial
condition, income and cash flows, a
reconciliation of net worth, notes to financial statements
and any other information that may
assist the Bank in assessing the Borrower's financial condition
(all of the above prepared in
accordance with GAAP, consistently applied, and accompanied by
an opinion, satisfactory
in form and substance to the Bank, by an independent Certified
Public Accountant ("CPA")
acceptable to the Bank, and certified as true, correct and
complete by the Borrower's chief
financial officer); (b) not later than 60 days after the end of
each fiscal quarter, the Borrower's
consolidated and consolidating financial statements, including,
but not limited to, statements
of financial condition, income and cash flows, and a
reconciliation of net worth (certified as
true, correct and complete by the Borrower's chief financial
officer); (c) the following
statements and schedules pertaining to the Borrower's business
operations, monthly and at
such other times as may be requested by the Bank: accounts
receivable agings, accounts,
payable agings, inventory schedules and tax returns; (d) not
later than five (5) calendar days
after receipt thereof by the Borrower, a copy of any management
letter or report for the
Borrower prepared by a CPA; (e) not later than 120 days after
the end of each fiscal year and
not more than sixty days after the end of each fiscal quarter,
the Borrower's consolidating
financial statements, including, but not limited to, statements
of financial condition and
income and income statements by store location (all of the
above prepared in a format
acceptable to the Bank, certified as true, correct and complete
y the Borrower's chief
financial officer); (f) not later than 30 days prior to the end
of each fiscal year, consolidating
cash flow projections for the subsequent fiscal year in a
format acceptable to the Bank; and
(g) such other information respecting the operations,
financial or otherwise, of the Borrower
or any of its subsidiaries, as the Bank may from time to time
reasonably request;
2. Compliance Certificate. Furnish to the Bank, together with
each set of financial statements
described in clauses (a) and (b) of Paragraph 1 of Section J, a
compliance certificate signed
by the Borrower's chief financial officer, certifying that: (a)
all representations and warranties
set forth in this Agreement and in any other Loan Document are
true and correct as of the
date thereof; (b) none of the covenants in this Agreement or in
any other Loan Document has
been breached; and (c) no event has occurred which, alone, or
with the giving of notice or the
passage of time, or both, would constitute an Event of Default
under this Agreement or under
the other Loan Documents;
3. Required Hedge. Hedge the floating interest expense of Term
Loan A and Term Loan B for the full term of each Loan by
maintaining either: (i) the Swap Agreement; or (ii) a
comparable interest rate swap agreement with Bank or other
counter party acceptable to Bank in a notional amount equal to
the then principal balance of each Term Loan and providing for
a fixed rate sufficient to satisfy the Debt Service Coverage
Ratio requirement set forth below, and containing such other
terms and conditions as shall be reasonably acceptable to Bank.
4. Notice of Certain Events. Promptly give written notice to the
Bank of: (a) the details of any
Reportable Events (as defined in ERISA) which have occurred;
(b) the occurrence of any
event which alone or with notice, the passage of time, or both,
would constitute an Event of
Default; (c) the commencement of any proceeding or litigation
which, if adversely determined,
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would adversely affect its financial condition or ability to
conduct business; and (d) the formation of any subsidiary of
the Borrower after the date of this Agreement, which notice
shall be accompanied by the resolution of the Board of
Directors of such subsidiary authorizing such subsidiary to
execute a guaranty of the Liabilities, satisfactory in form and
substance to the Bank, together with such guaranty duly
executed by such subsidiary,
5. Preservation of Property; Insurance. Keep and maintain, and
require its subsidiaries to
keep and maintain, all of its and their properties and assets
in good order and repair; maintain
extended coverage, general liability, hazard, business
interruption, property and other
insurance in amounts deemed satisfactory to the Bank and as is
customary for businesses
similar to the Borrower's business and deliver to the Bank
certificates of all such insurance
in effect; and cause all such policies covering any Collateral
and covering business
interruption to contain loss payee endorsements in favor of the
Bank and to be subject to
cancellation or reduction in coverage only upon 30 days prior
written notice thereof to the
Bank at its address set forth in this Agreement;
6. Taxes. Pay and discharge, and require its subsidiaries to pay
and discharge, when due, all
taxes, assessments or other governmental charges imposed on
them or any of their respective
properties, unless the same are currently being contested in
good faith by appropriate
proceedings and adequate reserves are maintained therefor;
7. Operation of Properties. Operate its properties, and cause
those of its subsidiaries to be operated in compliance with all
applicable orders, rules and regulations promulgated by the
jurisdictions and agencies thereof where such properties are
located, and duly file or cause to be filed such reports and/or
information returns as may be required or appropriate under
applicable orders, regulations or law;
8. Access to Properties, Books and Records. Permit the Bank's
representatives and/or agents full and complete access to any
or all of the Borrower's and its subsidiaries' properties and
financial records, to make extracts from and/or audit such
records and to examine and discuss the Borrower's properties,
business, finances and affairs with the Borrower's officers and
outside accountants;
9. Environmental Liens. In the event that there shall be filed a
lien against any property of the
Borrower by any jurisdiction, political sub-division, agency or
instrumentality thereof arising
from an intentional or unintentional act or omission of the
Borrower, resulting in the Dumping
of hazardous substances or wastes into the atmosphere or waters
or onto lands then, within
thirty (30) days from the date that the Borrower is given
notice that the lien has been placed
against such property, or within such shorter period of time in
the event that such jurisdiction,
political sub-division, agency, or instrumentality thereof has
commenced steps to cause such
property to be sold pursuant to the lien, either (a) pay the
claim and remove the lien from the
applicable property or (b) furnish to such jurisdiction,
political subdivision, agency or
instrumentality thereof that imposed the lien with one of the
following: (i) a bond satisfactory
to such jurisdiction, political sub-division, agency, or
instrumentality thereof that imposed the
lien in the amount of the claim out of which the lien arises,
(ii) a cash deposit in the amount
of the claim out of which the lien arises, or (iii) other
security reasonably satisfactory to such
jurisdiction, political sub-division, agency, or
instrumentality thereof in an amount sufficient
to discharge the claim out of which the lien arises; and
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10. Removal of Hazardous Substances. Should the Borrower cause or
permit any intentional or unintentional act or omission
resulting in the Dumping of hazardous substances or wastes into
the atmosphere or waters, or onto the lands resulting in damage
to the Natural Resources without having obtained a permit
issued by the appropriate governmental authorities, the
Borrower shall promptly clean up same in accordance with all
applicable federal, state, and local orders, statutes, laws,
ordinances, rules and regulations.
K. Negative Covenants. So long as any Liabilities are outstanding,
or the Bank has any
commitment to make advances hereunder, the Borrower and its
consolidated subsidiaries shall not,
without the prior written consent of the Bank:
1. Incur Indebtedness; Creation of Lien. Incur, create, or assume
any indebtedness including, without limitation, obligations
under capitalized leases, except: (i) indebtedness owing to the
Bank; (ii) indebtedness existing on the date hereof and
previously reported in writing to and permitted by the Bank;
(iii) indebtedness not to exceed $150,000.00 in any fiscal year
for the purpose of purchasing machinery and equipment; and (iv)
trade indebtedness arising in the ordinary course of the
Borrower's business;
2. Loans. Make any loans or advances to others including,
without limitation, officers,
directors, shareholders, principals, partners or affiliates of
the Borrower or any Obligor,
provided that Borrower shall be permitted to make loans or
advances to its officers and
employees not to exceed an aggregate of $50,000.00 outstanding
at any time;
3. Creation of Lien. Create, permit, or suffer the creation of
any liens, security interests or
other encumbrances on any of its property, real or personal,
except liens, security interests
or encumbrances in favor of the Bank or existing on the date
hereof and previously reported
in writing to and permitted by the Bank;
4. Sale of Assets; Liquidation; Merger; Acquisitions. Convey,
lease, sell, transfer or assign any assets except in the
ordinary course of the Borrower's business for value received;
liquidate or discontinue its normal operations with intent to
liquidate; enter into any merger or consolidation; or acquire
all or substantially all of the assets, stock or other equity
interests of another entity;
5. Payment of Dividends; Redemption of Stock. Pay any dividends,
make any withdrawal from its capital, make any other
distributions and/or repurchase, redeem, or otherwise acquire,
or set aside reserves to acquire, any of its outstanding stock,
partnership or other equity interests, except for such actions
by any subsidiaries in favor of the Borrower;
6. Accounts. Sell, assign, transfer or dispose of any of its
accounts or notes receivable, with
or without recourse, except to the Bank;
7. Guaranty Obligations. Become a guarantor, surety, obligor or
otherwise become directly,
indirectly or contingently liable for the debts or obligations
of others, except for the benefit
of the Bank or its Affiliates, and except as an endorser of
checks or drafts negotiated in the
ordinary course of the Borrower's business;
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8. Lease Obligations. Incur, create, or assume any commitment to
make any Lease Payments other than those existing on the date
hereof and previously reported in writing to and approved by
the Bank if the aggregate amount payable thereunder in any one
fiscal year would exceed $50,000.00; "Lease Payments" shall
mean any direct or indirect payment or payments, whether as
rent or otherwise, including fees or service or finance
charges, under any lease, rental or other agreement for the use
of the property of any person and/or entity other than the
Borrower whether or not such agreement contains an option to
purchase.
9. Sale-Leaseback Transactions. Enter into any sale-leaseback
transaction or any transaction
howsoever termed which would have the same or substantially the
same result or effect as a
sale-leaseback;
10. Prepayment of Other Indebtedness. Prepay any amounts not
required to be prepaid,
except to the Bank or any Affiliate, or cause or permit to be
accelerated any amounts on any
outstanding indebtedness now existing or hereafter arising;
11. Expenses for Fixed Assets. Expend for fixed assets during any
one fiscal year of the
Borrower an aggregate amount exceeding $900,000.00, provided
however that such expenses
shall not exceed $1,250,000.00 for the fiscal year ended
January 30, 1997;
12. Sale or Issuance of Stock. Sell, issue, or agree to sell or
issue, any shares (voting, non-
voting, preferred or common) of the Borrower, or purchase any
such shares;
13. Investments. Purchase or make any investment in the stock,
securities or evidences of
indebtedness of or loan to any other person or entity
(including, without limitation, entities
owned or controlled by any officers, directors, shareholders
principals, partners or affiliates
of the Borrower) except (a) the United States Government or its
agencies, or (b) certificates
of deposit of United States domestic banks having a ratio of
qualifying total capital to
weighted risk assets of not less than eight (8%) percent, at
least four (4%) percent of which
is Tier I capital, and total capital and surplus in excess of
$50,000,000. "Qualifying total
capital" and "Tier I capital" shall be defined from time to
time pursuant to regulations
published by the Office of the Comptroller of the Currency and
the Federal Deposit Insurance
Corporation;
14. Hazardous Substances. Cause or permit to exist a Dumping of
hazardous substances or
wastes into the atmosphere or waters or onto lands resulting
in damage to the Natural
Resources unless the Dumping is pursuant to and in compliance
with the conditions of a
permit issued by the appropriate federal, state, or local
governmental authorities;
15. Consolidated Working Capital. Permit Consolidated Working
Capital of the Borrower and its consolidated subsidiaries at
the end of any fiscal year to be less than $600,000.00;
"Working Capital" is defined, at any date, as the excess of
Current Assets over Current Liabilities; Current Assets and
Current Liabilities shall mean all assets and liabilities
which, in accordance with GAAP, should be classified as current
assets and current liabilities, respectively;
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16. Consolidated Current Ratio. Permit the ratio of Consolidated
Current Assets to
Consolidated Current Liabilities at the end of any fiscal year
to be less than 1.25:1.00; For
purposes of this covenant only Current Liabilities will be
deemed to include any amounts
outstanding under the Revolver;
17. Consolidated Tangible Net Worth. Permit Consolidated Tangible
Net Worth at any time
to be less than $12,900,000, such minimum amount to increase by
$100,000 on each
subsequent fiscal year end after and including January 31, 1997
, so that, for example, the
required minimum Tangible Net Worth for the fiscal year
beginning February 1, 1997 and
ending January 31, 1998 would be $13,000,000; "Tangible Net
Worth" is defined, at any date,
as (a) the aggregate amount at which all assets of the Borrower
would be shown on a balance
sheet at such date after deducting capitalized research and
development costs, capitalized
interest, debt discount and expense, goodwill, patents,
trademarks, copyrights, franchises,
licenses, amounts owing from officers, directors, shareholders,
principals, partners or affiliates
of the Borrower and any investments in any entities owned or
controlled by any of the
foregoing, and such other assets as are properly classified
as "intangible assets" less (b) the
aggregate amount of indebtedness, liabilities (including tax
and other proper accruals) and
reserves of the Borrower and its consolidated subsidiaries
(excluding Approved Subordinated
Debt); "Approved Subordinated Debt" means any indebtedness
for borrowed money that is
permitted by this Agreement and that is owing on the date
hereof or is subordinated to the
Liabilities on terms approved in writing by the Bank; or
18. Debt to Equity Ratio Requirements. Permit the ratio of
Consolidated Total Liabilities to Consolidated Tangible Net
Worth at any time to exceed .55:1; "Total Liabilities" is
defined at any date as all liabilities of the Borrower which
would properly appear on the liabilities side of a balance
sheet, other than capital stock, capital surplus, retained
earnings, minority interests, deferred credit, Approved
Subordinated Debt and contingency reserves under GAAP.
19. Debt Service Coverage Ratio. Permit its Debt Service Coverage
Ratio to be less than 1.25
to 1.0, measured annually. "Debt Service Coverage Ratio" means
the ratio of net income plus
interest expense (after giving effect to the fixed interest
rate payable under the Swap
Agreement) plus income tax expense plus depreciation and
amortization of the Borrower and
its consolidated subsidiaries for any fiscal year minus
Capital Expenditures to interest expense
(after giving effect to the fixed interest rate payable under
the Swap Agreement) of the
Borrower and its consolidated subsidiaries for such period plus
the current portion of long
term debt and capital leases of the Borrower and its
consolidated subsidiaries (as reflected on
the Borrower's consolidated financial statements as of the end
of the fiscal period immediately
preceding such current period) to be less than 1.25:1. Capital
Expenditures is defined as those
expenditures required on an annual basis to maintain existing
restaurant locations and MCF
machinery and equipment.
20. Cash and Cash Equivalents. Permit Consolidated Cash and Cash
Equivalents at any time to be less than $750,000.00; "Cash and
Cash Equivalents" is defined at any date as: (i) cash in banks;
(ii) certificates of deposit of United States domestic banks
acceptable to Bank; and (iii) securities issued by the United
States Government or its agencies and acceptable to the Bank.
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L. Additional Collateral. As additional collateral security for the
payment of the Borrower's
indebtedness and obligations to the Bank hereunder, under the other
Loan Documents, and/or
otherwise, the Borrower hereby grants to the Bank a continuing
security interest in and lien of the
first priority upon and hereby assigns to the Bank all funds,
balances, deposits, accounts, certificates
of deposit, securities and/or other property of any kind of the
Borrower and in which the Borrower
has an interest, now or hereafter in the possession, custody, or
control of the Bank or any Affiliate.
M. Events of Default. Each of the following shall constitute an event
of default ("Event of Default")
hereunder:
1. Breach. A breach by any Obligor of any term, provision,
obligation, covenant, representation, or warranty arising under
(a) this Agreement or any other Loan Document, including, without
limitation, failure to make any payment when due; (b) any present
or future agreement or instrument with or in favor of the Bank,
including, without limitation, the failure to make any payment
when due; or (c) any present or future agreement or instrument
for borrowed money or other financial accommodations with any
other person or entity;
2. Voluntary Bankruptcy. Any Obligor commences any bankruptcy,
reorganization, debt arrangement, or other case or proceeding
under the United States Bankruptcy Code or under any similar
foreign, federal, state, or local statute, or any dissolution or
liquidation proceeding, or makes a general assignment for the
benefit of creditors, or takes any action for the purpose of
effecting any of the foregoing;
3. Involuntary Bankruptcy. Any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under the United
States Bankruptcy Code or under similar foreign, federal, state
or local statute, or any dissolution or liquidation proceeding,
is involuntarily commenced against or in respect of any Obligor
or an order for relief is entered in any such proceeding;
4. Appointment of Receiver. The appointment, or the filing, of a
petition seeking the
appointment, of a custodian, receiver, trustee, or liquidator
for any Obligor or any of its
property, or the taking of possession of any part of the
property of any Obligor at the instance
of any governmental authority;
5. Insolvency. Any Obligor becomes insolvent (however defined),
is generally not paying its
debts as they become due, or has suspended transaction of its
usual business;
6. Reorganization. The dissolution, merger, consolidation, or
reorganization of any Obligor;
7. Material Misstatement. Any statement, representation or warranty
made in or pursuant to
this Agreement or any other Loan Document or to induce the Bank
to enter into this Agreement
or to enter into the transactions referred to in this Agreement
shall prove to be untrue or
misleading in any material respect;
8. Material Adverse Change. The occurrence of a material adverse
change in the financial
condition of any Obligor or the occurrence of any event which,
in the sole opinion of the Bank,
impairs the financial responsibility of any Obligor, including,
without limitation, a change in
management or ownership of any Obligor;
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9. Cross Default. The occurrence of a default under any other
obligation by Borrower or any
Obligor in favor of Bank, including obligations arising under
any "swap agreement" (as defined
in 11 U.S.C. ss.101), or under any instrument securing or
evidencing such obligation, whether
or not such obligation is otherwise secured;
10. Granting of Security Interest. Any Obligor transfers or grants
any lien on or security interest
in any of its property on which the Bank has a lien and/or
security interest, without the prior
written consent of the Bank;
11. Entry of Judgment. The filing, entry, or issuance of any
judgment in excess of $50,000 in the
aggregate, or any execution, garnishment, attachment, distraint,
or lien against any Obligor or
its property ; the entry of any order enjoining or restraining
any Obligor and/or restraining or
seizing any property of any Obligor; or
12. Transfer of Assets. Any Obligor transfers or sells all or
substantially all of its assets, without
the prior written consent of the Bank.
N. Remedies.
1. Acceleration of Liabilities; Other Remedies. Upon and following
the occurrence of an
Event of Default described in Section M hereof (other than the
Events of Default described in
Paragraphs 2 and 3 of Section M), at the Bank's sole option, the
Bank's commitment, if any, to
make any further advances or loans to the Borrower hereunder
shall terminate, and all Liabilities
shall immediately become due and payable in full, all without
protest, presentment, demand or
further notice of any kind to the Borrower or any other Obligor,
all of which are expressly
waived. Upon the occurrence of the Event of Default described
in Paragraph 2 or 3 of Section
M, immediately and automatically, the Bank's commitment, if any,
to make any further advances
or loans to the Borrower hereunder, shall terminate and all
Liabilities shall immediately become
due and payable in full, all without protest, presentment, demand
or further notice of any kind
to the Borrower or any other Obligor, all of which are expressly
waived. Upon and following
an Event of Default, the Bank may, at its option, exercise any
and all rights and remedies it has
under this Agreement, any other Loan Document and/or applicable
law, including, without
limitation, the right to charge and collect interest on the
principal portion of the Liabilities at
a rate equal to the lesser of: (i) the highest rate of interest
set forth in the Loan Documents, or
(ii) the highest rate of interest allowed by law, such rate of
interest to apply to the Liabilities,
at the Bank's option, upon and after an Event of Default,
maturity, whether by acceleration or
otherwise, and the entry of a judgment in favor of the Bank
with respect to any or all of the
Liabilities. Upon and following an Event of Default, the
Bank may proceed to protect and
enforce the Bank's rights under any Loan Document and/or
under applicable law by action at
law, in equity or other appropriate proceeding including,
without limitation, an action for
specific performance to enforce or aid in the enforcement
of any provision contained herein or
in any other Loan Document.
2. Right of Set off. If any of the Liabilities shall be due and
payable or any one or more Events of Default shall have occurred,
whether or not the Bank shall have made demand under any Loan
Document and regardless of the adequacy of any Collateral for the
Liabilities or other means of obtaining repayment of the
Liabilities, the Bank shall have the right, without notice
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to the Borrower or any other Obligor, and is specifically
authorized hereby to set-off against and apply to the then unpaid
balance of the Liabilities any items or funds of the Borrower
and/or any Obligor held by the Bank or any Affiliate, any and all
deposits (whether general or special, time or demand, matured or
unmatured) or any other property of the Borrower and/or any
Obligor, including, without limitation, securities and/or
certificates of deposit, now or hereafter maintained by the
Borrower and/or any Obligor for its or their own account with the
Bank or any Affiliate, and any other indebtedness at any time
held or owing by the Bank or any Affiliate to or for the credit
or the account of the Borrower and/or any Obligor, even if
effecting such set-off results in a loss or reduction of interest
or the imposition of a penalty applicable to the early withdrawal
of time deposits. For such purpose, the Bank shall have, and the
Borrower hereby grants to the Bank, a first lien on and security
interest in such deposits, property, funds and accounts and the
proceeds thereof.
3. Turnover of Property held by Affiliate. The Borrower further
authorizes any Affiliate, upon
and following the occurrence of an Event of Default, at the
request of the Bank, and without
notice to the Borrower, to turn over to the Bank any property of
the Borrower, including,
without limitation, funds and securities, held by the Affiliate
for the Borrower's account and to
debit, for the benefit of the Bank, any deposit account
maintained by the Borrower with such
Affiliate (even if such deposit account is not then due or
there results a loss or reduction of
interest or the imposition of a penalty in accordance with law
applicable to the early withdrawal
of time deposits), in the amount requested by the Bank up to the
amount of the Liabilities, and
to pay or transfer such amount or property to the Bank for
application to the Liabilities.
4. Remedies Cumulative; No Waiver. The rights, powers and remedies
of the Bank provided in this Agreement and any of the Loan
Documents are cumulative and not exclusive of any right, power or
remedy provided by law or equity. No failure or delay on the part
of the Bank in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial
exercise preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
O. Miscellaneous.
1. Notices. Notices and communications under this Agreement and
the other Loan Documents
shall be in writing and shall be given by either
(a) hand-delivery, (b) first class mail (postage
prepaid), (c) reliable overnight commercial courier
(charges prepaid), or (d) telecopy, to the
addresses and telecopy numbers listed in this Agreement.
Notice given by telecopy shall be
deemed to have been given and received when sent. Notice by
overnight courier shall be
deemed to have been given and received on the date scheduled for
delivery. Notice by mail
shall be deemed to have been given and received three
(3) calendar days after the date first
deposited in the United States mail. Notice by hand deliver
shall be deemed to have been
given and received upon delivery. A party may change its address
and/or telecopier number by
giving written notice to the other party as specified herein.
2. Costs and Expenses. Whether or not the transactions contemplated
by the Loan Documents
are fully consummated, the Borrower shall promptly pay
(or reimburse, as the Bank may elect)
all costs and expenses which the Bank has incurred or may
hereafter incur in connection with
the negotiation, preparation, reproduction, interpretation,
perfection, monitoring, administration
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and enforcement of the Loan Documents, the collection of all
amounts due under the Loan Documents, and all amendments,
modifications, consents or waivers, if any, to the Loan
Documents. Such costs and expenses shall include, without
limitation, the fees and disbursements of counsel to the Bank
(including the Bank's in-house counsel), the costs of appraisals,
costs of environmental studies, searches of public records, costs
of filing and recording documents with public offices, internal
and/or external audit and/or examination fees and costs, stamp,
excise and other taxes and costs and expenses incurred by the
Bank, and the fees of the Bank's accountants, consultants or
other professionals. The Borrower's reimbursement obligations
under this paragraph shall survive any termination of the Loan
Documents.
3. Payment Due on a Day Other Than a Business Day. If any payment
due or action to be taken under this Agreement or any Loan
Document falls due or is required to be taken on a day that the
Bank is not open for business, such payment or action shall be
made or taken on the next succeeding Business Day and such
extended time shall be included in the computation of interest.
4. Governing Law. This Agreement shall be construed in accordance
with and governed by the
substantive laws of the State of New Jersey without reference to
conflict of laws principles.
5. Integration. This Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral
negotiations and prior writings with respect to the subject
matter hereof and thereof.
6. Amendment; Waiver. No amendment of this Agreement, and no
waiver of any one or more
of the provisions hereof shall be effective unless set forth in
writing and signed by the parties
hereto.
7. Successors and Assigns. This Agreement (a) shall be binding upon
the Borrower and the Bank and, where applicable, their respective
heirs, executors, administrators, successors and permitted
assigns, and (b) shall inure to the benefit of the Borrower and
the Bank and, where applicable, their respective heirs,
executors, administrators, successors and permitted assigns;
provided, however, that the Borrower may not assign its rights
hereunder or any interest herein without the prior written
consent of the Bank, and any such assignment or attempted
assignment by the Borrower shall be void and of no effect with
respect to the Bank.
8. Sale, Assignment or Participations. The Bank may from time to
time sell or assign, in whole
or in part, or grant participations in some or all of the Loan
Documents and/or the obligations
evidenced thereby. The holder of any such sale, assignment or
participation, if the applicable
agreement between the Bank and such holder so provides,
(a) shall be entitled to all of the
rights, obligations and benefits of the Bank and (b) shall
be deemed to hold and may exercise
the rights of set-off or banker's lien with respect to any and
all obligations of such holder to the
Borrower, in each case as fully as though the Borrower were
directly indebted to such holder.
The Bank may, in its discretion, give notice to the Borrower of
such sale, assignment or
participation; however, the failure to give such notice shall not
affect any of the Bank's or such
holder's rights hereunder. The Borrower authorizes the Bank to
provide information
concerning the Borrower to any prospective purchaser, assignee or
participant. The
information provided may include, but is not limited to, amounts,
terms, balances, payment
history, return item history and any financial or other
information about the Borrower. The
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Borrower agrees to indemnify, defend, release the Bank, and hold
the Bank harmless, at the Borrower's cost and expense, from and
against any and all lawsuits, claims, actions, proceedings, or
suits against the Bank or against the Borrower and the Bank,
arising out of or relating to the Bank's reporting or disclosure
of such information.
9. Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Agreement or
any instrument or agreement required hereunder. In lieu of any
illegal or unenforceable provision in this Agreement, there shall
be added automatically as a part of this Agreement a legal and
enforceable provision as similar in terms to such illegal or
unenforceable provision as may be possible.
10. Consent to Jurisdiction and Service of Process. The Borrower
irrevocably appoints each
and every owner, partner and/or officer of the Borrower as its
attorneys upon whom may be
served, by regular or certified mail at the address set forth in
this Agreement, any notice,
process or pleading in any action or proceeding against it
arising out of or in connection with
this Agreement or any of the other Loan Documents. The Borrower
hereby consents that any
action or proceeding against it may be commenced and maintained
in any court within the State
of New Jersey or in the United States District Court for the
District of New Jersey by service
of process on any such owner, partner and/or officer. The
Borrower further agrees that such
courts of the State of New Jersey and the United States District
Court for the District of New
Jersey shall have jurisdiction with respect to the subject matter
hereof and the person of the
Borrower and all Collateral for the Liabilities. Notwithstanding
the foregoing, the Borrower
agrees that any action brought by the Borrower shall be commenced
and maintained only in a
court in the federal judicial district or county in which the
Bank has its principal place of
business in New Jersey.
11. Indemnification.
a. If, after receipt of any payment of all or any part of the
Liabilities, the Bank is compelled or agrees, for settlement
purposes, to surrender such payment to any person or entity for
any reason (including, without limitation, a determination that
such payment is void or voidable as a preference or fraudulent
conveyance, an impermissible set-off, or a diversion of trust
funds), then this Agreement and the other Loan Documents shall
continue in full force and effect, and the Borrower shall be
liable for, and shall indemnify, defend and hold harmless the
Bank with respect to the full amount so surrendered.
b. The Borrower shall indemnify, defend and hold harmless the
Bank with respect to any and all claims, expenses, demands,
losses, costs, fines or liabilities of any kind (including,
without limitation, those involving death, personal injury or
property damage and including reasonable attorneys fees and
costs) arising from or in any way related to any hazardous
materials or a dangerous environmental condition within, on,
from, related to or affecting any real property owned or occupied
by the Borrower including, without limitation, any and all claims
that may arise as a result of an intentional or unintentional act
or omission of the Borrower, any previous owner and/or operator
of real property owned or occupied by the Borrower that resulted
in the Dumping of hazardous substances or wastes into the
atmosphere or waters or onto the lands and that resulted in
damage to the Natural Resources or to any persons or property.
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c. The provisions of this paragraph shall survive the termination
of this Agreement and the other Loan Documents and shall be and
remain effective notwithstanding the payment of the Liabilities,
the release of any security interest, lien or encumbrance
securing the Liabilities or any other action which the Bank may
have taken in reliance upon its receipt of such payment. Any
action by the Bank shall be deemed to have been conditioned upon
any payment of the Liabilities having become final and
irrevocable.
12. Inconsistencies. The Loan Documents are intended to be
consistent. However, in the event of any inconsistencies among
any of the Loan Documents, such inconsistency shall not affect
the validity or enforceability of each Loan Document. The
Borrower agrees that in the event of any inconsistency or
ambiguity in any of the Loan Documents, the Loan Documents shall
not be construed against any one party but shall be interpreted
consistent with the Bank's policies and procedures.
13. Headings. The headings of sections and paragraphs have been
included herein for convenience
only and shall not be considered in interpreting this Agreement.
14. Schedules. If a Schedule and/or an Exhibit is attached hereto,
the provisions thereof are
incorporated herein.
15. Judicial Proceeding; Waivers.
a. EACH PARTY TO THIS AGREEMENT AGREES THAT ANY SUIT, ACTION OR
PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY ANY PARTY HERETO OR ANY SUCCESSOR OR ASSIGN OF
ANY PARTY, ON OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT
AND NOT BY A JURY.
b. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION
OR PROCEEDING. FURTHER, EACH PARTY WAIVES ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
c. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE
BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS
SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties by themselves or their duly authorized
representative have executed this Agreement the day and year first above
written.
ATTEST: CHEFS INTERNATIONAL, INC.
By:___________________________ By_______________________________
Name: Martin W. Fletcher Name: Anthony C. Papalia
Title: Secretary Title: President
Address: 62 Broadway Address: 62 Broadway
Point Pleasant Beach, New Jersey Point Pleasant Beach, New Jersey
telecopier pier No.: ______________________
FIRST UNION NATIONAL BANK
By:________________________________
Name: Joseph J. Lebel, III
Title: Vice President
Address: 1889 Highway 27
Edison, New Jersey 08817
Telecopier No.: (908) 819-4177
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Exhibit 10.8
Employment Agreement dated as of December 19, 1995
between Chefs and Anthony Papalia
<PAGE>
EMPLOYMENT CONTRACT
This Employment Contract (the "Contract") is made and entered into
as of the 19th day of December, 1995 by and between Chefs International, Inc., a
Delaware corporation with its principal offices at 62 Broadway, Point Pleasant
Beach, New Jersey 08742 ("CHEFS") and Anthony Papalia, an individual residing at
813 W. Laurel Avenue, Point Pleasant Beach, New Jersey 08742 (the "Employee").
WITNESSETH:
WHEREAS CHEFS desires to employ the Employee in the capacities and
on the terms and
conditions herein set forth; and
WHEREAS the Employee agrees to be employed by CHEFS and to serve in
such capacities on
said terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. EMPLOYMENT
CHEFS hereby agrees to employ the Employee and the Employee hereby
accepts employment on a full-time basis as chief executive officer and chief
financial officer of CHEFS. In such capacities, Employee shall perform such
duties as are typical or appropriate in such capacities of employment, subject
to and under the direction of CHEFS' Board of Directors. In addition, the
Employee shall perform such other duties for CHEFS as CHEFS may reasonably
request, or as may be necessary or desirable in performing or carrying out the
intention of this Contract. Without additional compensation, the Employee shall
also serve in such executive officerships, if elected, and shall provide such
services for, and consult with and advise such corporations (including
subsidiaries) affiliated with CHEFS as CHEFS may from time-to-time reasonably
specify. 2. TERM OF EMPLOYMENT
The employment of the Employee pursuant to this Contract shall
commence on December 19, 1995 and shall end in January 1999 at the end of the
third year of CHEFS' three complete fiscal years next succeeding the current
fiscal year which ends on January 28, 1996 (the "Initial Term"). The term of
this Contract shall also be subject to renewal pursuant to Section 5 herein.
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3. COMPENSATION
During the period that this Contract is in effect, CHEFS shall pay
Employee and provide him with the following benefits as compensation for all of
his services to be rendered hereunder:
3.1 Salary - $150,000 per annum.
3.2 Automobile - Employee shall be provided by CHEFS with an
automobile for his use with CHEFS paying all insurance, operating, maintenance
and repair costs.
3.3 Employee Benefit Plans - CHEFS will provide the Employee with
participation on an equitable basis in any employee benefit plan established for
senior management of CHEFS or any of its subsidiaries.
3.4 Split-Dollar Policy - CHEFS has purchased a split-dollar
insurance policy from
Northwestern Mutual Life Insurance Company insuring the Employees life pursuant
to a retirement plan for
the Employee's benefit. Employee is fully vested therein. CHEFS agrees to
continue to pay the premiums
on this policy during the term of the Contract.
4. TERMINATION OF EMPLOYMENT
4.1 Death - If Employee dies while this Contract is in effect, on
the date of his death, this Contract shall terminate and no further amounts and
benefits will be required to be paid or made available hereunder after the date
of his death, except that the rights to the policy referred to in paragraph 3.4
and all proceeds therefrom shall be transferred to Employee's designated
beneficiaries other than amounts to be retained by CHEFS in reimbursement of
aggregate premiums thereunder paid by CHEFS.
4.2 Disability - If the Employee becomes Totally Disabled during
the term of this Contract so that he can no longer devote at least 75% of his
working time to CHEFS' business, CHEFS may terminate Employee's employment by
written notice to him. In such event and after such effective date of
termination, no further amounts and benefits required to be paid or made
available hereunder after such termination will be paid or made available except
that any disability policy then in effect with respect to the Employee shall be
assigned to him and all rights to the policy referred to in paragraph 3.4 shall
be transferred to the Employee.
4.3 Termination by CHEFS "Without Cause" - If CHEFS terminates this
Contract without cause, in lieu of all amounts and benefits required to be paid
or made available hereunder after such termination, CHEFS
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(i) shall pay the Employee severance pay equal to the salary
due for the remaining term of
this Contract. Such severance payment shall be paid in a lump sum or weekly at
the Employee's option;
(ii) shall pay the Employee's medical or health benefits for
the remaining term of the contract
or for one year, whichever is greater;
(iii) shall transfer title to the Company car to the Employee at no
cost to Employee; and (iv) shall transfer all rights to the policy
referred to in paragraph 3.4 to Employee. 4.4 Termination by CHEFS
"For Cause" - If CHEFS terminates this Contract "For Cause,"
no further benefits of any kind will be paid to the Employee. For purposes of
this Contract, "For Cause" means (i) conviction of, or a plea of nolo contendere
with respect to a felony involving fraud or dishonesty or any other crime for
which a term of imprisonment in excess of one (1) year could be imposed; or (ii)
Employee's material breach of any of the terms of this Employment Contract which
material breach is not cured within 90 days after receipt of written notice from
CHEFS to Employee; or (iii) judgment consented to by or rendered against the
Employee on which any regulatory licensor of CHEFS or any subsidiary bases a
threatened license revocation.
4.5 Voluntary Termination by Employee Due to "Change in Control" -
If the Employee elects to terminate this Contract due to a "Change in Control"
of CHEFS (which option may be elected by the Employee by written notice given
within 30 days after a "Change in Control"), in lieu of all amounts and benefits
required to be paid or made available hereunder after such termination, CHEFS
(i) shall pay the Employee severance pay equal to six months
of salary at the annual rate then
in effect. Such severance payment shall be paid in a lump sum or weekly at the
Employee's option;
(ii) shall pay the Employee's medical or health benefits until
the Employee obtains comparable
coverage, but for not more than six months;
(iii) shall transfer title to the Company car to the Employee at no
cost to Employee; and (iv) shall transfer all rights to the policy
referred to in paragraph 3.4 to Employee.
For purposes of this Contract, "Change of Control" means with respect to CHEFS
(i) any "person" (as such term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) who is not as of the date
of this Contract, a more than 10% "beneficial owner" (as defined in Rule
113
<PAGE>
13d-3 under the Exchange Act) of the voting power of CHEFS' outstanding
securities, becoming directly or indirectly, the "beneficial owner" of
securities of CHEFS representing 20% or more of the combined voting power of
CHEFS' then outstanding securities; or (ii) during any period of two (2)
consecutive years during the term of this Contract, individuals who at the
beginning of such period constituted CHEFS' Board of Directors and any new
director whose election by the Board of nomination for election by the CHEFS
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office, who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of CHEFS' Board of
Directors.
5. RENEWAL PROVISIONS
This Employment Contract shall renew automatically for up to five
consecutive additional one-year terms (the "Renewal Years") commencing at the
end of the Initial Term, unless no later than six calendar months prior to the
conclusion of the Initial Term or of any subsequent one-year term, either party
hereto gives notice to the other party that he or it does not desire such
renewal. For the first Renewal Year, if the Contract continues in effect, the
Employee's annual salary hereunder shall be increased (but never decreased) by
the same percentage increase as the percentage increase in the Consumer Price
Index, All Items for the New York metropolitan area, from the date of this
Contract to the first day of such first Renewal Year. Employee's annual salary
shall be similarly increased (but never decreased) for each subsequent Renewal
Year based on the percentage increase in the said Consumer Price Index from the
first day of the immediately preceding Renewal Year to the first day of the
subsequent Renewal Year.
6. MISCELLANEOUS
6.1 New Jersey law shall govern this Contract.
6.2 This Contract shall not be modified or rescinded except
in a writing signed by both parties
hereto.
6.3 This Contract shall be binding on the parties hereto and
their respective successors and
assigns.
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6.4 Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
received after delivery by hand, or two (2) business days after sending by
recognized overnight delivery services such as Federal Express, or mailed by
registered or certified mail, return receipt requested; if to CHEFS or to the
Employee, at the address set forth on the first page of this Contract, or to
such other address as the recipient party shall designate by notice to the other
party in the manner specified herein.
6.5 Any dispute or controversy arising from or relating to this
Contract shall be decided by arbitration in New York City in accordance with the
commercial rules and regulations of the American Arbitration Association and the
parties hereto hereby consent to such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Contract as of the date first above written.
EMPLOYER:
CHEFS INTERNATIONAL, INC.
By________________________________
James Fletcher, Vice President
EMPLOYEE:
----------------------------------
Anthony Papalia
115
<PAGE>
Exhibit 10.9
Employment Agreement dated as of December 19, 1995
between Chefs and Martin Fletcher
<PAGE>
EMPLOYMENT CONTRACT
This Employment Contract (the "Contract") is made and entered into
as of the 19th day of December, 1995 by and between Chefs International, Inc., a
Delaware corporation with its principal offices at 62 Broadway, Point Pleasant
Beach, New Jersey 08742 ("CHEFS") and Martin Fletcher, an individual residing at
397 Clark Drive, Brick, New Jersey 08724 (the "Employee").
WITNESSETH:
WHEREAS CHEFS desires to employ the Employee in the capacity and
on the terms and
conditions herein set forth; and
WHEREAS the Employee agrees to be employed by CHEFS and to serve
in such capacity on
said terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. EMPLOYMENT
CHEFS hereby agrees to employ the Employee and the Employee hereby
accepts employment on a full-time basis as controller of CHEFS. In that
capacity, Employee shall perform such duties as are typical or appropriate in
such capacity of employment, subject to and under the direction of CHEFS' chief
executive officer and/or Board of Directors. In addition, the Employee shall
perform such other duties for CHEFS as CHEFS may reasonably request, or as may
be necessary or desirable in performing or carrying out the intention of this
Contract. Without additional compensation, the Employee shall also serve in such
executive officerships, if elected, and shall provide such services for, and
consult with and advise such corporations (including subsidiaries) affiliated
with CHEFS as CHEFS may from time-to-time reasonably specify.
116
<PAGE>
2. TERM OF EMPLOYMENT
The employment of the Employee pursuant to this Contract shall
commence on December 19,
1995 and shall end in January 1999 at the end of the third year of CHEFS' three
complete fiscal years next
succeeding the current fiscal year which ends on January 28, 1996 (the "Initial
Term"). The term of this
Contract shall also be subject to renewal pursuant to Section 5 herein.
3. COMPENSATION
During the period that this Contract is in effect, CHEFS shall pay
Employee and provide him with the following benefits as compensation for all of
his services to be rendered hereunder:
3.1 Salary - $87,000 per annum.
3.2 Automobile - Employee shall be provided by CHEFS with an
automobile for his use with CHEFS paying all insurance, operating, maintenance
and repair costs.
3.3 Employee Benefit Plans - CHEFS will provide the Employee with
participation on an equitable basis in any employee benefit plan established for
senior management of CHEFS or any of its subsidiaries.
3.4 Split-Dollar Policy - CHEFS has purchased a split-dollar
insurance policy from
Northwestern Mutual Life Insurance Company insuring the Employee's life pursuant
to a retirement plan for
the Employee's benefit. Employee is fully vested therein. CHEFS agrees to
continue to pay the premiums
on this policy during the term of the Contract.
4. TERMINATION OF EMPLOYMENT
4.1 Death - If Employee dies while this Contract is in effect, on
the date of his death, this Contract shall terminate and no further amounts and
benefits will be required to be paid or made available hereunder after the date
of his death, except that the rights to the policy referred to in paragraph 3.4
and all proceeds therefrom shall be transferred to Employee's designated
beneficiaries other than amounts to be retained by CHEFS in reimbursement of
aggregate premiums thereunder paid by CHEFS.
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4.2 Disability - If the Employee becomes Totally Disabled during
the term of this Contract so that he can no longer devote at least 75% of his
working time to CHEFS' business, CHEFS may terminate Employee's employment by
written notice to him. In such event and after such effective date of
termination, no further amounts and benefits required to be paid or made
available hereunder after such termination will be paid or made available except
that any disability policy then in effect with respect to the Employee shall be
assigned to him and all rights to the policy referred to in paragraph 3.4 shall
be transferred to the Employee.
4.3 Termination by CHEFS "Without Cause" - If CHEFS terminates this
Contract without cause, in lieu of all amounts and benefits required to be paid
or made available hereunder after such termination, CHEFS
(i) shall pay the Employee severance pay equal to the salary due
for the remaining term of this
Contract. Such severance payment shall be paid in a lump sum or weekly at the
Employee's option;
(ii) shall pay the Employee's medical or health benefits for the
remaining term of the contract
or for one year, whichever is greater;
(iii) shall transfer title to the Company car to the Employee at no
cost to Employee; and (iv) shall transfer all rights to the policy
referred to in paragraph 3.4 to Employee. 4.4 Termination by CHEFS
"For Cause" - If CHEFS terminates this Contract "For Cause,"
no further benefits of any kind will be paid to the Employee. For purposes of
this Contract, "For Cause" means (i) conviction of, or a plea of nolo contendere
with respect to a felony involving fraud or dishonesty or any other crime for
which a term of imprisonment in excess of one (1) year could be imposed; or (ii)
Employee's material breach of any of the terms of this Employment Contract which
material breach is not cured within 90 days after receipt of written notice from
CHEFS to Employee; or (iii) judgment consented to by or rendered against the
Employee on which any regulatory licensor of CHEFS or any subsidiary bases a
threatened license revocation.
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<PAGE>
4.5 Voluntary Termination by Employee Due to "Change in Control" -
If the Employee elects to terminate this Contract due to a "Change in Control"
of CHEFS (which option may be elected by the Employee by written notice given
within 30 days after a "Change in Control"), in lieu of all amounts and benefits
required to be paid or made available hereunder after such termination, CHEFS
(i) shall pay the Employee severance pay equal to six months of
salary at the annual rate then
in effect. Such severance payment shall be paid in a lump sum or weekly at the
Employee's option;
(ii) shall pay the Employee's medical or health benefits until the
Employee obtains comparable coverage, but for not more than six months;
(iii) shall transfer title to the Company car to the Employee at no
cost to Employee; and (iv) shall transfer all rights to the policy
referred to in paragraph 3.4 to Employee.
For purposes of this Contract, "Change of Control" means with respect to CHEFS
(i) any "person" (as such term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) who is not as of the date
of this Contract, a more than 10% "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of the voting power of CHEFS' outstanding securities,
becoming directly or indirectly, the "beneficial owner" of securities of CHEFS
representing 20% or more of the combined voting power of CHEFS' then outstanding
securities; or (ii) during any period of two (2) consecutive years during the
term of this Contract, individuals who at the beginning of such period
constituted CHEFS' Board of Directors and any new director whose election by the
Board of nomination for election by the CHEFS shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office, who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of CHEFS' Board of Directors.
119
<PAGE>
5. RENEWAL PROVISIONS
This Employment Contract shall renew automatically for up to five
consecutive additional one-year terms (the "Renewal Years") commencing at the
end of the Initial Term, unless no later than six calendar months prior to the
conclusion of the Initial Term or of any subsequent one-year term, either party
hereto gives notice to the other party that he or it does not desire such
renewal. For the first Renewal Year, if the Contract continues in effect, the
Employee's annual salary hereunder shall be increased (but never decreased) by
the same percentage increase as the percentage increase in the Consumer Price
Index, All Items for the New York metropolitan area, from the date of this
Contract to the first day of such first Renewal Year. Employee's annual salary
shall be similarly increased (but never decreased) for each subsequent Renewal
Year based on the percentage increase in the said Consumer Price Index from the
first day of the immediately preceding Renewal Year to the first day of the
subsequent Renewal Year.
6. MISCELLANEOUS
6.1 New Jersey law shall govern this Contract.
6.2 This Contract shall not be modified or rescinded except in
a writing signed by both parties
hereto.
6.3 This Contract shall be binding on the parties hereto and
their respective successors and
assigns.
6.4 Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
received after delivery by hand, or two (2) business days after sending by
recognized overnight delivery services such as Federal Express, or mailed by
registered or certified mail, return receipt requested; if to CHEFS or to the
Employee, at the address set forth on the first page of this Contract, or to
such other address as the recipient party shall designate by notice to the other
party in the manner specified herein.
120
<PAGE>
6.5 Any dispute or controversy arising from or relating to this
Contract shall be decided by arbitration in New York City in accordance with the
commercial rules and regulations of the American Arbitration Association and the
parties hereto hereby consent to such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Contract as of the date first above written.
EMPLOYER:
CHEFS INTERNATIONAL, INC.
By_______________________________
Anthony Papalia, President
EMPLOYEE:
------------------------------
Martin Fletcher
121
<PAGE>
Exhibit 10.10
Consulting Agreement dated as of October 2, 1995
between Chefs and M&M Creative Services, Inc.
PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered
into effective as of October 2, 1995 by and between Chefs International, Inc., a
Delaware corporation with its principal offices at 62 Broadway, Point Pleasant
Beach, New Jersey 08742 ("CHEFS") and M&M Creative Services, Inc., a New Jersey
corporation with a principal place of business at 22 Monroe Drive, Marlboro, New
Jersey 08742 ("M&M").
WITNESSETH:
WHEREAS CHEFS desires to retain M&M and its principal employee,
Jack Mariucci to provide CHEFS with marketing, advertising and similar
promotional services on the terms and conditions herein set forth; and
WHEREAS M&M agrees to be retained by CHEFS and to provide its
services including those of its principal employee, Jack Mariucci, on said terms
and conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. RETENTION AS A CONSULTANT
CHEFS hereby agrees to retain M&M and M&M hereby agrees to serve
CHEFS as a consultant providing marketing, advertising and similar promotional
services (the "Promotion Services") to CHEFS and in connection therewith, to
have Mr. Mariucci devote in each calendar month, not less than 10% of his
working time in providing the Promotion Services. The Promotion Services shall
be rendered as directed by CHEFS' Board of Directors and shall promote CHEFS as
a publicly owned corporation, its restaurant chain and the products of its
Mister Cookie Face subsidiary. 2. TERM
The term of this Agreement shall commence on October 2, 1995 and
shall end in January 1999 at the end of the third year of CHEFS' three complete
years succeeding CHEFS fiscal year which ends on January 28, 1996 (the "Initial
Term"). The term of this Agreement shall also be subject to renewal pursuant to
Section 5 herein.
122
<PAGE>
3. COMPENSATION
During the period that this Agreement is in effect, CHEFS shall pay
M&M the sum of Three
Thousand ($3,000) Dollars per calendar month in full compensation for its
(and Mr. Mariucci's) services
hereunder.
4. TERMINATION OF CONSULTING AGREEMENT
Anything to the contrary herein contained notwithstanding, this
Agreement shall terminate;
a) upon the death or disability of Mr. Mariucci; or
b) with respect to Mr. Mariucci or any other employee of M&M, upon
his or her conviction of,
or his or her plea of nolo contendere with respect to a felony involving fraud
or dishonesty or any other
crime for which a term of imprisonment in excess of one (1) year could be
imposed, or upon a judgment
being consented to by or rendered against any such employee on which any
regulatory licensor of CHEFS
or any subsidiary bases a threatened license revocation.
5. RENEWAL PROVISIONS
This Consulting Agreement shall renew automatically for up to five
consecutive additional one-year terms (the "Renewal Years") commencing at the
end of the Initial Term, unless no later than six (6) calendar months prior to
the conclusion of the Initial Term or of any subsequent one-year term, either
party hereto gives notice to the other party that it does not desire such
renewal.
6. MISCELLANEOUS
6.1 New Jersey law shall govern this Agreement.
6.2 This Agreement shall not be modified or rescinded except
in a writing signed by both
parties hereto.
6.3 This Agreement shall be binding on the parties hereto and
their respective successors and
assigns.
123
<PAGE>
6.4 Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
received after delivery by hand, or two (2) business days after sending by
recognized overnight delivery services such as Federal Express, or mailed by
registered or certified mail, return receipt requested; if to CHEFS or to M&M,
at the address set forth on the first page of this Agreement, or to such other
address as the recipient party shall designate by notice to the other party in
the manner specified herein.
6.5 Any dispute or controversy arising from or relating to this
Agreement shall be decided by arbitration in New York City in accordance with
the commercial rules and regulations of the American Arbitration Association and
the parties hereto hereby consent to such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Agreement as of the date first above written.
CHEFS INTERNATIONAL, INC.
By:________________________________
Anthony Papalia, President
M&M CREATIVE SERVICES, INC.
by_________________________________
Marie Mariucci, President
CONSENTED TO:---------------------------
Jack Mariucci (Individually)
124
<PAGE>
Exhibit 10.11
ock Option Agreement dated as of October 3, 1994
between Chefs and Anthony Papalia.
<PAGE>
STOCK OPTION
AGREEMENT made
as of this 3rd
day of October,
1994 between
CHEFS
INTERNATIONAL,
INC., a
Delaware
Corporation
(hereinafter
referred to as
the "Company")
and Anthony
Papalia
residing at 813
W. Laurel
Avenue, Point
Pleasant Beach,
N.J. 08742
(hereinafter
referred to as
the "Optionee).
Pursuant to a determination by the Board of Directors of the
Company ratified by the Company's stockholders on October 3, 1994 (hereinafter
referred to as the "Date of Grant") , the Company desires, in connection with
the service of the Optionee as a member of the Company's senior management, to
provide the Optionee with an opportunity to acquire Common Stock, par value $.0l
per share (hereinafter referred to as "Common Stock"), of the Company on
favorable terms and hereby increase his proprietary interest in the continued
progress and success of the business of the Company.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Company and the Optionee hereby agree as follows:
1. Confirmation of Grant of Option. The Company hereby confirms
that the Optionee has been irrevocably granted on the Date of Grant as a matter
of inducement and agreement, and in addition to and not in lieu of salary or
other compensation for services, the right to purchase (hereinafter referred to
as the "Option") an aggregate of 162,500 shares of Common Stock on the terms and
conditions herein set forth, subject to adjustment as provided in Section 9
hereof.
2. Purchase Price. The purchase price of shares of Common
Stock covered by the Option
will be $1.25 per share, being not less than the fair market value of a share of
Common Stock on the Date
of Grant.
3. Exercise of Option. The Option may be exercised in whole or in
part, at any time commencing on the Date of Grant and prior to the expiration of
five years from the Date of Grant. The Option may be exercised, as provided in
this Section 3, by notice and payment to the Company as provided in Sections 11
and 12 hereof.
4. Term of Option. The term of the Option will be a period of five
years from the Date of Grant, subject to earlier termination or cancellation as
provided in this Agreement. Except as otherwise provided in Sections 6 and 7
hereof, the Option will not be exercisable unless the Optionee shall, at the
time of exercise, be serving as an officer, director or employee of the Company
or one of its subsidiaries. As used in this Agreement, the term "subsidiary"
refers to and includes each "subsidiary corporation" within the meaning of the
term as defined in Section 425(f) of the Internal Revenue Code of 1954, as
amended.
The holder of the Option will not have any rights to
dividends or any other rights of a
shareholder with respect to any shares of Common Stock subject to the Option
until such shares shall have been issued to him (as evidenced by the appropriate
entry on the books of a duly authorized transfer agent of the Company, provided
that the date of issue shall not be earlier than the Closing Date with respect
to such shares pursuant to Section 11 hereof) upon purchase of such shares upon
exercise of the Option.
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<PAGE>
5. Non-transferability of Option. The Option will not be
transferable otherwise than by will or by the laws of descent and distribution,
and the Option may be exercised during the lifetime of the Optionee only by him.
More particularly, but without limiting the generality of the foregoing, the
Option may not be assigned, transferred (except as provided in the next
preceding sentence) or otherwise disposed of, or pledged or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment or other process. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option attempted contrary to the
provisions of this Agreement, or any levy of execution, attachment or other
process attempted upon the Option, will be null and void and without effect. Any
attempt to make any such assignment, transfer, pledge, hypothecation or other
disposition of the Option or any attempt to make any such levy or execution,
attachment or other process will cause the Option to terminate immediately upon
the happening of any such event if the Board of Directors of the Company, at any
time, should, in its sole discretion, so elect, by written notice to the
Optionee or to the person then entitled to exercise the Option upon the
provisions of Section 7 hereof; provided, however, that any such termination of
the Option under the foregoing provisions of this Section 5 will not prejudice
any rights or remedies which the Company or any subsidiary may have under this
Agreement or otherwise.
6. Exercise Upon Cessation of Service. If the Optionee ceases to
serve as an officer, director or employee of the Company or of any of its
subsidiaries for any reason whatsoever except as provided in Section 7 hereof
with respect to death or permanent disability, or as provided in Section 8
hereof with respect to termination for cause, the Option may, subject to the
provisions of Sections 5 and 8, be exercised to the extent the Optionee would
have been entitled under Section 3 hereof to exercise the Option on the date
next preceding the date of termination of such service, by the Optionee at any
time during the period ending one month after the termination of such service,
at the end of which period the Option shall terminate. In no event may the
Option be exercised after the expiration of the term provided in Section 4
hereof.
The Option will not be affected by any change of duties or
position of the Optionee so
long as he continues to be an officer, director or employee of the Company or
any subsidiary. If the Optionee is granted a temporary leave of absence, such
leave of absence will be deemed a continuation of his service with the Company
or any subsidiary for the purposes of this Option Agreement, but only if and so
long as the Company or the subsidiary consents thereto. Retirement, whether or
not pursuant to any retirement or pension plan of the Company or any subsidiary,
will be deemed to be a termination of service for all purposes of this
Agreement.
7. Exercise Upon Death or Permanent Disability. If the Optionee
dies or becomes permanently disabled while he is serving as an officer, director
or an employee of the Company or any subsidiary, the Option may, subject to the
provisions of Sections 5 and 8 hereof, be exercised to the extent the Optionee
would have been entitled under Section 3 hereof to exercise the Option on the
day next preceding the date of his death or permanent disability, by the estate
of the Optionee or by the person or persons (including the estate of any such
person or persons who have died) who acquire the right to exercise the Option by
bequest or inheritance or by reason of the death of the Optionee (or by reason
of the death of any person or persons entitled to exercise the Option pursuant
to this Section 7), or by the Optionee in the event of his permanent disability,
at any time within the period ending one year after the death or permanent
disability of the Optionee, at the end of which period the Option shall
terminate. In no event may the Option be exercised after the expiration of the
term provided in Section 4 hereof.
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<PAGE>
8. Service. The Optionee will serve the Company or a subsidiary in
good faith and use his best efforts to promote its interests. The service
rendered shall be in such capacity or capacities and at such rate of
compensation as the Company or such subsidiary shall from time to time in its
discretion determine, except as may otherwise be provided. If the Optionee
violates the provisions of this Section 8 without the express written consent of
the Company or such subsidiary, or if his service is terminated with the Company
or any of its subsidiaries by the Board of Directors of the Company for cause,
the Option will thereupon immediately terminate without prejudice to any rights
or remedies which the Company or such subsidiary may have against the Optionee
under this Agreement or otherwise.
9. Adjustments. In the event of a stock dividend, stock split-up,
share combination, exchange of shares, recapitalization, merger, consolidation,
acquisition, or disposition of property or shares, reorganization, liquidation
or other similar changes or transactions, of or by the Company, the Board of
Directors of the Company or the Board of Directors of any corporation which
merges with, or acquires the stock or assets of, the Company shall make such
adjustment of the number and class of shares then covered by the Option, or of
the option price, or both, as it shall in its sole judgment, deem appropriate to
give proper effect to such event.
10. Registration. The Optionee understands that neither the Option
nor the shares of Common Stock subject thereto and issuable upon the exercise
thereof are registered under the Securities Act of 1933, as amended. The
Optionee represents that the Option is being acquired by him and that such
shares of Common Stock will be acquired by him for investment, without any
present intention of selling or otherwise disposing of all or any part of the
Common Stock.
11. Method of Exercise of Option. Subject to the terms and
conditions of this Agreement,
the Option will be exercisable by notice and payment to the Company in
accordance with the procedure
prescribed herein. Each such notice shall:
(a) state the election to exercise the Option and the
number of shares in respect of
which it is being exercised;
(b) contain a representation and agreement as to
investment intent with respect to such shares in form
satisfactory to the Company's counsel; and (c) be signed
by the person or persons entitled to exercise the Option,
and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof,
satisfactory to counsel for the Company of the right of
such person or persons to exercise the Option.
Upon the receipt of such notice, the Company will specify,
by written notice to the person
or persons exercising the Option, a date and time (such date and time being
herein called the Closing Date) and place for payment of the full purchase price
of such shares, The Closing Date will not be more than fifteen days from the
date the notice of exercise is received by the Company unless another date is
agreed upon by the Company and the person exercising the Option or is required
upon advice of counsel for the Company in order to meet the requirement of
Section 13 hereof.
Payment of the purchase price of any shares of Common
Stock, in respect of which the
Option shall be exercised, will be made by such person or persons at the place
specified by the Company on or before the Closing Date by delivering to the
Company a check (fully collectable) payable to the order of the Company. The
Option will be deemed to have been exercised with respect to any particular
shares of Common Stock, if, and only if, the preceding provisions of this
Section 11 and the provisions
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<PAGE>
of Section 12 hereof shall have been complied with, in which event the Option
will be deemed to have been exercised on the Closing Date. Anything in this
Agreement to the contrary notwithstanding, any notice of exercise given pursuant
to the provisions of this Section 11 will be void and of no effect if all the
preceding provisions of this Section 11 and the provisions of Section 13 shall
not have been complied with. The certificate or certificates for shares of
Common Stock as to which the Option shall be exercised will be registered in the
name of the person or persons exercising the Option and will be delivered on the
Closing Date to the person or persons exercising the Option at the place
specified for the closing, but only upon compliance with all of the provisions
of this Agreement.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the proper address. All
notices to the Company shall be addressed to it at its office at 62 Broadway,
Point Pleasant Beach, New Jersey 08742, attention of the President. All notices
to the Optionee or other person or persons then entitled to exercise the Option
shall be addressed to the Optionee or such other person or persons at the
Optionee's address below specified. Anyone to whom a notice may be given under
this Agreement may designate a new address by notice to that effect.
13. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Company's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, and the requirements of any stock exchange
upon which the Common Stock may then be listed.
14. Reservation of Shares. The Company shall at all times
during the term of the Option
reserve and keep available such number of shares of the class of stock then
subject to the Option as will be
sufficient to satisfy the requirements of this Agreement.
15. Limitation of Action. The Optionee acknowledges that every
right of action accruing to him and arising out of or in connection with this
Agreement against the Company or a subsidiary will, irrespective of the place
where an action may be brought, cease and be barred by the expiration of three
years from the date of the act or omission in respect of which such right of
action arises.
16. Resale of Common Stock. Upon any sale or transfer of the Common
Stock purchased upon exercise of the Option, the Optionee shall deliver to the
Company an opinion of counsel satisfactory to the Company to the effect that
either (i) the Common Stock to be so sold or transferred has been registered
under the Securities Act of 1933, as amended, and that there is in effect a
current prospectus meeting the requirements of Subsection 10(a) of said Act
which is being or will be delivered to the purchaser or transferee at or prior
to the time of delivery of the certificates evidencing the Common Stock to be
sold or transferred, or (ii) such Common Stock may then be sold without
violating Section 5 of said Act.
17. Legending of Certificates. The certificates for the
Common Stock issued upon exercise
of this option shall bear a legend substantially similar to the following
legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE
OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS
NOT REQUIRED.
128
<PAGE>
In addition, stop transfer instructions will be issued against such
certificates.
18. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the Company. All obligations
imposed upon the Optionee and all rights granted to the Company under this
Agreement will be binding upon the Optionee's heirs, legal representatives and
successors.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its name by its President or a Vice-President and its corporate seal
to be hereunto affixed and attested by its Secretary or one of its Assistant
Secretaries and the Optionee has hereunto set his hand and seal all as of the
day, month and year first above written.
CHEFS INTERNATIONAL, INC.
By:________________________________
James Fletcher, Vice President
ATTEST:
- - -------------------------------
Secretary
(L.S.)
Optionee Anthony Papalia
812 W. Laurel Avenue
Point Pleasant Beach, NJ 08742
(Address of Optionee)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(CONSOLIDATED BALANCE SHEET AND STATEMENTOF EARNINGS AND IS QUALIFIED.)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JAN-28-1996
<CASH> 1,411,154
<SECURITIES> 0
<RECEIVABLES> 513,204
<ALLOWANCES> 18,878
<INVENTORY> 1,890,309
<CURRENT-ASSETS> 4,379,738
<PP&E> 19,032,083
<DEPRECIATION> 6,543,545
<TOTAL-ASSETS> 19,308,625
<CURRENT-LIABILITIES> 2,537,331
<BONDS> 0
0
0
<COMMON> 134,662
<OTHER-SE> 14,949,082
<TOTAL-LIABILITY-AND-EQUITY> 19,308,625
<SALES> 31,282,707
<TOTAL-REVENUES> 31,282,707
<CGS> 15,014,719
<TOTAL-COSTS> 18,339,796
<OTHER-EXPENSES> (92,960)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,301
<INCOME-PRETAX> (2,184,149)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,184,149)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,184,149)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
