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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from________ to__________
Commission File Number 0-6106
UNITED LEISURE CORPORATION
(Exact Name of Small Business Issuer in its Charter)
DELAWARE 13-2652243
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
8800 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92718
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(Address of (Zip Code)
Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (714) 837-1200
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Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class)
CLASS A COMMON STOCK PURCHASE WARRANTS
--------------------------------------
(Title of Class)
Check whether the Issuer (1) has filed all Reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $4,495,500
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of April 9, 1997: $2,865,186
Common Stock, par value $.01 per share -- $.375
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS APRIL 1, 1997
- ------------------------ --------------------------
<S> <C>
Common Stock, par value 12,368,849 shares
$.01 per share
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on
Form 10-KSB. Transitional Small Business Issuer Format: Yes [ ] No [X]
Exhibit Index on Page 56
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The primary business of United Leisure Corporation (the "Company") for
a number of years has been to develop its major asset, a Ground Lease (the
"Ground Lease") covering approximately 300 acres of real estate in Irvine,
California (the "Irvine Property"), through sub-lease, so as to convert the
leased asset into a revenue producing property. In carrying out its historical
business under the Ground Lease, the Company acted primarily as a developer and
manager of the property, rather than as an operator. In the past several years
the Company's ability to operate its business under the Ground Lease has been
severely hampered by the actions of, and continuing litigation with, its
landlord, The Irvine Company ("Irvine"). The term "the Company", as used herein,
includes United Leisure Corporation, its predecessor companies and its
subsidiaries, unless the context otherwise requires.
The Company has been engaged in protracted and expensive litigation
with its landlord, The Irvine Company, concerning the Ground Lease since 1986
("The Irvine Company Litigation"). The initial trial of The Irvine Company
Litigation resulted in a jury verdict of approximately $42,000,000 in favor of
the Company; however, on post-trial motion by Irvine, the Court ordered a new
trial. The Company has appealed this Order. The Company's appeal is currently
scheduled to be heard in August, 1997. See "Legal Proceedings."
Although the initial term of the Ground Lease expired on February 28,
1997, on February 27, 1997 the Company instituted an action for declaratory
relief against Irvine, in which the Company alleges that it has the right to
extend the term of the Ground Lease for an additional 26 years. On March 5, 1997
Irvine filed an action against the Company for unlawful detainer, alleging that
the Ground Lease expired on February 28, 1997 and that Irvine is entitled to
immediate possession of the leasehold premises. The outcome of each of these
actions is a matter of uncertainty. See "Legal Proceedings."
In 1994, in view of the short-term then-remaining on the Ground Lease
and the uncertainties created by the order of the Court for a new trial in The
Irvine Company Litigation, the Board of Directors of the Company determined that
the Company prepare itself for the future by the development of its business
into new fields of endeavor so as to enable the Company to continue its
operations after the completion of The Irvine Company Litigation, regardless of
its ultimate outcome. Accordingly, in 1994, the Board of Directors initiated
several new programs for the expansion of the Company's business. Utilizing its
experience in the children's recreation and education fields, the Company has
engaged in the creation, development and operation of children's play-learning
centers, day camps and an amusement park. In this regard, during 1996 the
Company operated three "Planet Kids," an indoor multimedia interactive play
center for children, four "Camp Frasier" children's day
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camps (including the Company's original Camp Frasier location on the Irvine
Property) and one Frasier's Frontier amusement park. All of the Company's
educational and recreational activities for children are currently located in
Southern California.
In addition to its children's educational and recreational activities,
the Company is also engaged in the development of certain proprietary
interactive multimedia products which it has conceived. See "United Leisure
Interactive," below. In addition, the Company has entered into an agreement with
respect to the future development of a shopping center in Las Vegas, Nevada. See
"Recent Developments," below. Finally, the Company intends to continue to
actively search for complementary acquisitions and/or mergers. The Company has
principally financed the development activities which it has been engaged in
since 1994, from proceeds received from an underwritten public offering in 1994,
which raised net proceeds of approximately $14,855,187 for the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company was originally organized for the primary purpose of
developing and operating a chain of African wildlife preserve and theme
amusement parks known as "Lion Country Safari." The Company's last park
operation, located in Irvine, California, was closed in November, 1984. United
Leisure Corporation is the successor by change of name to Lion Country Safari,
Inc., a Delaware corporation which was originally organized in May 1969. United
Leisure Corporation has operated and plans to continue to operate primarily as a
holding company for its operating subsidiaries.
The Company's principal executive offices are located at 8800 Irvine
Center Drive, Irvine, California 92718. Its telephone number is (714) 837-1200.
RECENT DEVELOPMENTS
In 1996 the Company's management continued to take such action as it
deemed necessary and appropriate in order to prepare for the continuation of the
Company's operations after the termination of the Irvine Ground Lease.
Children's Recreational and Educational Activities. During 1996 the
Company opened one additional Planet Kids location in Fountain Valley,
California. The Company currently operates three Planet Kids locations. In
addition, during the summer of 1996, the Company had its first full operating
season of two new Camp Frasier locations, one in El Cajon, California and one in
Foothill Ranch, California.
Investment in Las Vegas Shopping Center. In January 1997 the Company
acquired a 50% membership interest in United Hotel & Casino, L.L.C., a Delaware
limited liability company ("UHC") formed for the purpose of acquiring a shopping
center on the Las Vegas Strip in Las Vegas, Nevada, known as The Silver City
Casino/Las Vegas Plaza Shopping Center (the "Las Vegas Shopping Center"). The
Las Vegas Shopping Center consists of approximately 97,000 square feet of
rentable space situated on approximately 8.5 acres of
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land. If the property is acquired, UHC intends to eventually develop the
property into a major theme center which will include a casino, hotel, mall and
theme restaurants. The major tenant of the Shopping Center is currently the
Silver City Casino, which is managed by Circus Circus. The property is located
directly across from the Circus Circus and Stardust Hotels. UHC is run by a
management committee of three individuals, one of whom is appointed by the
Company.
The purchase of the Las Vegas Shopping Center is conditioned on the
current trust deed lender's approval of the assignment and assumption of the
non-recourse trust deed loan which currently encumbers this property. Because
the lender has refused to give its approval, the seller of the Shopping Center
and UHC have filed an action for declaratory judgment to cause the lender to
give its approval. See "Legal Proceedings." The pending escrow for the sale of
the Shopping Center provides that if such approval is not obtained by July 31,
1997, and if UHC is unable to arrange for alternate financing, then either UHC
or the seller of the property may terminate the escrow.
The Company acquired a fifty percent membership interest in UHC and has
made an initial capital contribution to UHC of $125,000. In addition, the
Company has agreed to contribute, as an additional capital contribution,
one-half of the costs of the action filed against the lender and, in the event
that the Las Vegas Shopping Center is acquired by UHC, the Company has agreed to
make an additional capital contribution of $3,375,000, which funds would be used
primarily for the future development of the Las Vegas Shopping Center. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Investment in HEP II L.P. In April 1996 the Company acquired fifty
percent of the limited partnership interests in HEP II L.P., a California
limited partnership formed in March 1996, for a capital contribution in the
amount of $1,500,000. HEP II L.P. is engaged in the motion picture production
business. The HEP II Limited Partnership will terminate when limited partners
receive a return of 200% on their investment in the partnership. Limited
partners in HEP II are to receive 99% of all distributions made by the
partnership until they receive a 110% return of their investment and thereafter
they receive 50% of distributions until a 200% return is achieved. The general
partner of HEP II is HIT Entertainment, Inc., a California corporation ("HIT").
Harry Shuster, the Chairman of the Board and Chief Executive Officer of the
Company is the Chairman of the Board of HIT as well as one of its principal
stockholders. Brian Shuster, a director of the Company, is the President of
HIT. See "Certain Relationships and Related Transactions."
Financing Activities. In September 1996 the Company entered into a
financing agreement in which it agreed to pledge the sum of $875,000 in order to
support a letter of credit required to be provided by Grand Havana Enterprises,
Inc. (formerly, United Restaurants, Inc. ("GHEI")) in connection with a lease
that corporation had entered into. In consideration for providing this pledge of
collateral for GHEI's letter of credit, GHEI agreed to pay the Company an amount
equal to 10% per annum on the amount of the pledged cash collateral as it exists
from time to time. The cash collateral is to be replaced by GHEI in full by
March 1998. As additional consideration the Company received
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100,000 shares of the stock of GHEI and a warrant to purchase an additional
100,000 shares of common stock of GHEI at an exercise price of $.75 per share.
All of these options were exercised by the Company in February 1997. Harry
Shuster is the Chairman of the Board, President, Chief Executive Officer and a
principal stockholder of GHEI. See "Certain Relationships and Related
Transactions."
In February 1997 the Company entered into an additional financing
agreement with GHEI pursuant to which the Company agreed to loan GHEI up to an
aggregate of $1,250,000 in order to fund the development of two private
membership restaurant and cigar clubs being developed by GHEI. The loan, which
may be advanced in increments from time to time as requested by GHEI, bears
interest at the rate of 8% per annum on the outstanding principal amount and is
due and payable in full on September 30, 1997. As additional consideration for
this loan, the Company received 75,000 shares of the stock of GHEI. In addition,
if the loan is not repaid on September 30, 1997, it will become payable on
demand and the Company would then be entitled to receive an additional 25,000
shares of the common stock of GHEI. See "Certain Relationships and Related
Transactions."
In addition to providing financing to GHEI, the Company acquired an
additional 333,333 shares of the common stock of GHEI and warrants to purchase
an additional 333,333 shares of common stock of GHEI, exercisable at $1.50 per
share, in a private placement conducted by GHEI in October 1996, for an
aggregate cash consideration paid by the Company of $250,000. All of these
options were exercised by the Company in February 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions."
THE IRVINE PROPERTY
General
After closing the operation of the Company's African wildlife preserve
and theme amusement park in 1984, the Company turned its attention to the
development of the Company's most valuable asset, the Ground Lease covering the
300-acre tract located in Irvine, California. The Company developed this
property, with emphasis on leisure-time use and attractions, primarily through
subleases.
The Company has subleased certain portions of the Irvine Property as
described below. Each of the subleases described below expired by its terms in
February 1997; however, the major sublessees continue to conduct activities on
the Irvine Property, and if the Company's action against the Irvine Company to
extend the term of the Ground Lease is successful, the Company anticipates that
it would continue to act as sublessor with respect to the subleases described
below. In addition, pursuant to the terms of the Ground Lease, the Company has
the right to remove the leasehold improvements made to the Irvine Property at
the expiration of the Ground Lease. Two of the Company's sublessees, Irvine
Meadows, the operator of the Irvine Meadows Amphitheater, and The Splash, the
operator of Wild Rivers Water Park, brought actions against the Company
seeking injunctions against the Company from removing the improvements on the
subleased premises at the
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expiration of the term of the Ground Lease. On February 19, 1997 Irvine
Meadows was granted an injunction, but the Company intends to appeal this
ruling. On February 6, 1997, The Splash was denied a preliminary injunction,
which ruling has been appealed by The Splash. See "Legal Proceedings."
Amphitheater Sublease
The Company is a party to a Sublease Agreement, entered into in 1980
(the "Amphitheater Sublease"), with Irvine Meadows Amphitheater, a partnership
("Irvine Meadows") pursuant to which the Company subleases approximately 20
acres of the Irvine Property, plus the right to use the 4,000 vehicle parking
lot on the park property to Irvine Meadows for a term which is co-extensive with
the Ground Lease. Irvine Meadows operates a 15,000 seat amphitheater, where
concerts and other entertainment and cultural events are presented. Under the
Amphitheater Sublease, Irvine Meadows pays a base annual rental of $150,000,
against a percentage rental equal to 10% of all gross receipts from ticket
sales. In addition, rental equal to the sum of 2% of all gross receipts from
food sales, 5% of all gross receipts from the sale of beverages, and any
additional rental obligation that may be incurred by the Company as a result of
any activities of the Irvine Meadows or others on the subleased premises other
than those set forth above is paid. One-half of all the Company's revenues
received from ticket sales is paid directly to Irvine in payment of the
Company's rental obligation to Irvine under the Ground Lease and the other half
is to be paid directly to the Company.
During the 1995 season the Amphitheater Sublease generated revenues of
$355,119 for the Company's account and during 1996, it generated revenues of
$355,389 for the Company's account. Due to the uncertainty surrounding the
Irvine Company Litigation, it is uncertain whether the Company will receive any
revenue with respect to the Amphitheater Sublease for any period after February
28, 1997. See "Legal Proceedings."
Wild Rivers Water Park
The Company is a party to a Water Park Sublease between the Company and
The Splash, a California limited partnership ("The Splash"), pursuant to which
the Company subleased approximately 15 acres of the Irvine Property on which The
Splash operates a theme family Water Park (the "Water Park"). The term of the
Water Park Sublease is co-extensive with the Company's Ground Lease. The Water
Park Sublease also grants The Splash the right to use the parking area, subject
to certain rights previously granted Irvine Meadows. The Water Park is known as
Wild Rivers, offering a tropical setting with an African theme. There are four
main activity areas on the 15-acre parcel which comprises the Water Park,
featuring a 50-foot tall mountain which provides 18 different water rides. The
Company has a 3.12% limited partnership interest in The Splash. See Note 5 of
"Notes to Consolidated Financial Statements."
Under the terms of the Water Park Sublease, The Splash pays a minimum
annual rent of $475,000, payable $39,583 per month, against a percentage rent
equal to 10% of annual Gross Revenues (as defined). In addition, The Splash
agreed to pay additional rent to cover various increased expenses with respect
to the subleased property during the term of the
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Water Park Sublease, as well as all taxes related to such property. The basis on
which rental under this sublease was calculated is part of the rent dispute with
Irvine in The Irvine Company Litigation. In 1995, The Splash paid the Company
rentals of $584,011 and a limited partner distribution of $45,000 and in 1996
The Splash paid the Company rentals of $686,665 and a limited partner
distribution of $45,000. Due to the uncertainty surrounding the Irvine Company
Litigation, it is uncertain whether the Company will receive any revenue with
respect to the Water Park Sublease after February 28, 1997. See "Legal
Proceedings."
From the original opening of its California animal park, the Company
had an exclusive concession arrangement with Africa Arts of California, Inc.
("Africa Arts") related to the sale of souvenirs, gifts and similar merchandise
on the Irvine Property. In order to terminate this arrangement by reason of the
closing of the animal park operations in 1984, the parties entered into a new
arrangement pursuant to which Africa Arts receives 10% of the gross revenues
received by The Splash or any other party from the sale of such merchandise at
the Water Park, plus 15% of all gross revenues received by the Company from the
sale of such merchandise on the remainder of the Irvine Property. In connection
with this agreement, the Company granted Africa Arts an option to purchase up to
35,000 shares of the Company's Common Stock at an exercise of $1.00 per share.
This option expired on February 28, 1997 without being exercised.
Picnics and Other Subleases
In 1982, the Company converted a portion of the Irvine Property
formerly used as part of the African wildlife preserve into a large park area
which provides two exclusive-use picnic areas for use by companies for their
company picnics and by other groups and organizations. These areas include a
softball field, volleyball courts, basketball courts, large open spaces, picnic
tables, a snack bar and other usual park amenities. Since 1990, the Company has
had a sublease arrangement with James Productions, Inc. ("James"), pursuant to
which James has the right to conduct picnics and other special events in the
picnic areas of the Irvine Property. The Agreement provides a minimum rental for
1990 of $150,000, increasing by 5% for each additional year during the term of
the sublease, against 15% of gross revenues from special events, payable on a
monthly basis each year commencing in March and ending in October. The monthly
payments are in differing amounts to correspond to the timing of the corporate
picnic season in Southern California. The Company received revenues of $191,442
during 1995 and $214,364 during 1996 under this arrangement. Due to the
uncertainty surrounding the Irvine Company Litigation, it is uncertain whether
the Company will receive any revenue from James after February 28, 1997. See
"Legal Proceedings."
PLANET KIDS
In June 1994, the Company entered into a joint venture with Master
Glazier's Karate International, Inc. ("MGK"), a publicly traded company engaged
in the operation of karate centers in New Jersey and Pennsylvania. The parties
formed a new company, Planet Kids, Inc., which initially was equally owned. As
of June 20, 1995, the Company bought out
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MGK's interest in the joint venture, thus becoming the sole stockholder in
exchange for the return of MGK's initial investment of $500,000, plus accrued
interest of approximately $40,500. In addition, for the risk undertaken by MGK,
the Board of the Directors granted to MGK an option to acquire up to 150,000
shares of the Common Stock of United Leisure Corporation at an exercise price of
$.01 per share. This option was exercised in 1995. The Planet Kid's concept is
to operate state-of-the-art children's play-learning centers to be operated out
of leased premises and target children ages 1 through 13. Each center provides
children with interactive multimedia educational games, exercise playgrounds,
educational computers, party facilities and other indoor activities. Management
believes that the development of children's play-learning centers, a relatively
new industry, is a good vehicle to exploit the Company's experience.
Planet Kids opened its first play-learning center in Laguna Hills,
California in July 1995 and its second in Orange, California in December 1995. A
third center in Fountain Valley, California was opened in September, 1996. In
addition, Planet Kids has granted a license to PT Planet Kidsindo, Jakarta,
Indonesia, to construct and operate a Planet Kids center in the Orient in return
for a development fee in the amount of $100,000. The Company intends to continue
to operate its three existing Planet Kids locations but has no plans to continue
to expand its Planet Kids operations to additional locations at the current
time.
CAMP FRASIER AND FRASIER'S FRONTIER
The Company opened its first Camp Frasier day camp on the Irvine
Property during the summer of 1982. During its years of operating its first Camp
Frasier location on the Irvine Property, the Camp experienced a steadily
increasing number of campers as well as increased revenues and operated at a
capacity level for the last several years, with 640 campers participating in the
Camp Frasier located on the Irvine Property in the summer of 1996. The Camp
Frasier program is offered to children between the ages of 3 and 13 and is
designed to provide significant flexibility in attendance requirements, with a
minimum of ten days per camper during the summer. Campers are provided with
planned activity programs which include educational activities, horseback
riding, swimming, arts and crafts, fishing, and other standard day camp fare. In
recent years, the Company has added a rope challenge course, gocarts and karate
to the curriculum. Although due to the termination of the Ground Lease, the
Company's Camp Frasier in Irvine may have had its last summer season in 1996,
the Company has opened three additional Camp Frasier day camps in Southern
California in which it is following programs similar to those developed at its
initial Irvine location.
During 1995 the Company's Camp Frasier operations served an aggregate
of approximately 850 campers and realized revenues of $999,047. During 1996 the
Company served approximately 844 campers and realized revenues of $1,069,354.
The Company generally operates its Camp Frasier locations for nine weeks during
the summer to correspond with the area school schedules.
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In April 1995, the Company obtained the right to operate a portion of
Featherly Regional Park as a Camp Frasier day camp. The park is located in Yorba
Linda in Orange County, California. This transaction occurred late in the 1995
season and the new Camp Frasier in Yorba Linda operated for only the latter
portion of the 1995 summer day camp season and had its first full season in
1996. During 1996, the Camp Frasier at Yorba Linda served approximately 114
campers and had revenues of $137,241. See "Description of Property."
In April 1995 the Company acquired certain real and personal property
in El Cajon, near San Diego California, for an aggregate purchase price of
$1,650,000. The Company acquired the amusement park that was already located on
the property and in addition, opened an additional Camp Frasier location on this
property. As payment of the purchase price for this property the Company paid
$800,000 in cash, assumed an existing note payable secured by the property in
the amount of $120,000 and executed a purchase money note in the amount of
approximately $730,000. The amusement park was subsequently renovated by the
Company and reopened as "Frasier's Frontier." The Camp Frasier location on this
property had its first full season of operations in the summer of 1996. During
1996, its first full summer of operations, the Camp Frasier in El Cajon,
California served approximately 43 campers and had revenues of $54,837. See
"Description of Property."
In March 1996 the Company entered into a lease with the County of
Orange to operate its fourth Camp Frasier location in Foothill Ranch, Orange
County, California. The lease is for a term of 15 years and provides that the
Company shall pay as annual rental the greater of the minimum annual rental or
the percentage rental. The minimum annual rental is $10,000 for the first year,
$20,000 for the second year and $30,000 for years 3 through 5. The percentage
rental is equal to 15% of the gross receipts of the Company from the day camp
and any swimming programs or lessons conducted by the Company. The Company
operated its Foothill Ranch Camp Frasier for the full summer season in 1996.
During 1996 this Camp Frasier served approximately 47 campers and had revenues
of $52,960. See "Description of Property."
The Company has determined to continue to operate its existing Camp
Frasier day camp locations and its Frasier's Frontier amusement park, but has no
plans to continue to expand these operations at the current time.
UNITED LEISURE INTERACTIVE
Management of the Company, in exploring new avenues for the expansion
of the Company's business, has conceived several ideas for proprietary
interactive multimedia products. Some of these ideas relate to games and
interactive educational products that could be utilized at the children's
play-learning centers operated by the Company, by other users, or marketed to
specific end users and/or to the general public.
In pursuing these new products, the Company has utilized a portion of
the proceeds received from the public offering completed in 1994, developing new
products for the
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World Wide Web (WWW) via the Internet. The first such product, being developed
by the Company, is called Netcruise and will allow for booking cruises through
the Internet. Brian Shuster, a director of the Company, renders certain
consulting services to the Company in connection with the development of the
Company's interactive multimedia products. See "Certain Relationships and
Related Transactions."
BUSINESS SEGMENT INFORMATION
The Company's operations for 1995 and 1996 consisted of two business
segments, both segments conducting operations in Southern California. The first
business segment consists of facility rentals, pursuant to which the Company
subleases or otherwise allows others to use the Irvine Property. The Ground
Lease for the Irvine Property terminated in February 1997, and although the
Company has filed an action with respect to extending the term of the Ground
Lease, there is great uncertainty as to whether the Ground Lease will be
extended beyond February 1997. See "Legal Proceedings." The second business
segment consists of children's educational and recreational activities, which
during 1996, included the operation of four Camp Frasiers, a day camp operated
during the summer months, three Planet Kids, the Company's play-learning center
operations, and one Frasier's Frontier, an amusement park. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
Southern California is an area of the country which emphasizes tourism
and is a major leisure time center. The leisure time attractions carried out on
the Irvine Property pursuant to the Ground Lease are subject to competition from
other leisure time, entertainment and recreation attractions, including theme
and other amusement parks and spectator sports events, many of which are located
near the Irvine Property. The Irvine Meadows Amphitheater competes with the
Arrowhead Pond in Anaheim, California as well as with several other concert
locations in Southern California. There is also another water park, "Raging
Waters", located approximately 30 miles from the Irvine Property. The Water Park
also competes directly with beaches and pools in the Southern California area.
The Company is also subject to significant competition in connection
with its Camp Frasier operations, Planet Kids operations and Frasiers' Frontier
amusement park. There are a number of day camp operations throughout the
Southern California area which will compete with the Company's Camp Frasier
locations. The Company believes the most important competitive factors with
respect to a day camp operation are location and the reputation of the
particular camp operation. The Company believes the reputation of the Camp
Frasier which it operated on the Irvine Property since the early 1980's will
allow its more recently opened Camp Frasier locations to compete effectively. In
the children's educational and play-center business, there are already several
large companies participating, including Discovery Zone, an affiliate of
Blockbuster Video, as well as many small, local
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entrants. The Company believes that the most important competitive elements with
respect to its Planet Kids locations are location and the imagination applied to
the activities provided for the centers' customers. The Company believes that
its emphasis on high-tech interactive activities will allow it to compete
effectively in this market. The Company's Frasiers' Frontier Amusement Park will
compete with other amusements parks, both larger and smaller than Frasiers'
Frontier, in the Southern California area as well as with other children's
recreational activities.
EMPLOYEES
At March 1, 1997, the Company had 31 full-time employees and 63
part-time employees. In addition, the Company retained approximately 220
seasonal employees in 1996 who worked at the Company's Camp Frasier locations
and at Frasier's Frontier. In addition, Harry Shuster, Chairman of the Board,
President and Chief Executive Officer, is employed by the Company as a
consultant. See "Executive Compensation -- Consulting and Employment
Agreements."
ITEM 2. DESCRIPTION OF PROPERTY.
The Company is the lessee of a 300-acre tract of real estate located
near the intersection of the San Diego and Laguna Freeways south of Los Angeles,
California under a Ground Lease with Irvine. The Company initially entered into
the Ground Lease in February 1969. Until November 11, 1984, the Company operated
an African wildlife preserve and theme amusement park on a portion of the Irvine
Property. At that date, these park operations were closed. Since the closure of
the Company's African wildlife preserve the Company has acted primarily as a
developer and manager of the Irvine Property through its sublease activities.
Although the initial term of the Ground Lease expired on February 28,
1997, the Company has initiated an action against Irvine in which the Company
alleges that it has the right to extend the term of the Ground Lease for an
additional 26 years. Irvine has filed an action against the Company for unlawful
detainer, alleging that the Ground Lease expired on February 28, 1997. The
outcome on these issues is a matter of uncertainty. See "Legal Proceedings."
The Ground Lease provides for a percentage rental of 5% of gross
admissions (with a minimum set at the $292,500) basic rental plus a percentage
of the gross receipts to the Company from all new concessions and subleases on
the property of 15%, plus 2% to 5% of gross receipts of any food and beverage
served on the property, all of which amounts are part of the disputed rental
issues in The Irvine Company Litigation. The Company also remains responsible
for certain other expenses with respect to the property, including taxes,
maintenance and insurance, which are generally assumed on a pro rata basis by
the Company's sublessees. See "Description of Business -- The Irvine Property;"
"Legal Proceedings."
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In The Irvine Company Litigation, it is Irvine's position that the rent
was not paid for a period prior to and through 1990, while the Company's
position is that it owes no rent at all because of Irvine's many unexcused
material breaches of the Ground Lease. The Company also contends that, if the
proper formulas are applied, the Company has overpaid the rent and is due a
refund of several hundred thousand dollars. This dispute will be decided as part
of The Irvine Company Litigation with other lease and rental issues. In the
initial trial on these issues, the jury found for the Company on all rent
issues, and, in addition, awarded the Company $42,000,000 in damages. However,
the trial judge granted Irvine a new trial. The Company has appealed this ruling
and the appeal is currently scheduled for argument in August 1997. If a new
trial is ordered there can be no assurance that the Company will be successful
on these same rent issues in a second trial. See "Legal Proceedings."
In connection with its children's recreational activities, the Company
has acquired one piece of real property and has entered into a number of leases.
In April 1995 the Company acquired certain real property located in El Cajon in
San Diego County, California on which the Company currently operates one Camp
Frasier as well as its Frasier's Frontier Amusement Park (the "El Cajon
Property"). The El Cajon Property was acquired for a purchase price of
approximately $1,650,000, payable $800,000 in cash, assumption of an existing
note payable secured by the property in the amount of $120,000 (the "Assumed
Note") and the execution of a purchase money note secured by the property in the
amount of approximately $730,000 (the "Purchase Money Note"). The Assumed Note
is payable interest only at the rate of 12% with the full principal amount due
April 1, 2000. The Purchase Money Note bears interest at the rate of 9.67% per
annum and provides for 59 monthly interest-only payments with all principal due
and payable on March 1, 2000.
In April 1995 the Company entered into a sub-operating agreement for
its Camp Frasier in Yorba Linda, California, located in the Featherly Regional
Park in Orange County, California. The agreement is for a term of 30 years. The
Company pays rental under the agreement of $.50 per day for each camper for the
first five years of the agreement, $1.00 per day for each camper for the next
five years of the agreement, and the greater of $1.50 per day for each camper or
five percent of that Camp Frasier's gross receipts for the balance of the term
of the agreement. In addition, the Company pays as additional rent 7% of all
camper enrollment fees during the first 2 years of the agreement and 10% of all
camper enrollment fees thereafter and 5% of the gross receipts on all food and
beverage sales at the camp and 5% on all merchandise at the camp. In addition,
the Company agreed to make capital improvements to the Camp Frasier location of
not less than $150,000 by the end of the first 24 month term of the lease. See
"Description of Business -- Camp Frasier and Frasier's Frontier."
In March 1996 the Company entered into a lease with the County of
Orange with respect to its Camp Frasier location in Foothill Ranch, California
in the Irvine Regional Park. The term of the lease is for 15 years. The annual
rental paid by the Company under this lease is the greater of the "minimum
annual rental," which is $10,000 for the first year of the lease, $20,000 for
the second year of the lease and $30,000 for the third through
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<PAGE> 13
fifth year of the lease, or a percentage rental equal to 15% of the gross
receipts from the Camp Frasier at this location and from any Swim
Programs/Lessons conducted by the Company at this location. On the fifth
anniversary of the Lease, and every five years thereafter, the minimum annual
rental is to be adjusted to the greater of 75% of the average annual rent paid
by the Company for the preceding three years or to $30,000, adjusted in
proportion to changes to the consumer price index.
All of the Company's Planet Kids locations are leased. The Company
entered into the lease for its Planet Kids location in Orange, California in
August 1995 (the "Orange Lease"). The Orange Lease is for a term of ten years
and the Company has two five year options to extend the lease. The initial base
rental under the Orange Lease is $10,400 per month for the first year, $12,240
for the second through fifth year of the lease and $14,076 for the 6th through
10th year of the lease.
The lease for the Company's Fountain Valley Planet Kids location was
entered into in June 1995 and is for a term of ten years and the Company has 3
five years options to extend the lease term (the "Fountain Valley Lease"). The
initial base rent under the Fountain Valley Lease is $9,032 per month which base
rent increases to $10,835 per month for years six through ten of the lease.
The Company's lease for its Planet Kids location in Laguna Hills,
California was entered into in October 1994 (the "Laguna Hills Lease"). The
Laguna Hills Lease is for an initial term of ten years and the Company has 3
five year options to extend this lease. The initial base rental on this lease is
$11,590 per month which base rental will be increased to $14,030 during years
five through ten of the Laguna Hills Lease.
The principal executive offices of the Company are located on the
Irvine Property. If a result of the unlawful detainer action filed by Irvine
is that the Company must vacate its Irvine offices, the Company may have to
incur substantial additional expense in relocating to new offices. See "Legal
Proceedings." The Company rents additional corporate office space in Los
Angeles from certain affiliates of the Company. Monthly rental paid by the
Company with respect to its offices in Los Angeles is $2,587 per month. See
"Certain Relationships and Related Transactions."
UHC, a limited liability company in which the Company holds a 50%
membership interest, has entered into an agreement to acquire the Las Vegas
Shopping Center. If UHC is successful in acquiring the shopping center, the
Company has agreed to make an additional capital contribution to UHC of
$3,375,000 which funds would be used primarily to develop the Las Vegas Shopping
Center. The acquisition of the Las Vegas Shopping Center is dependent upon the
lender of the existing trust deed on the shopping center property approving the
assumption of the trust deed by UHC. See "Business-- Recent Developments,"
"Legal Proceedings" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources."
In the opinion of management, all of the property which the Company
owns or leases is adequately covered by insurance.
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<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS.
At March 31, 1997, except as set forth below, the Company was not
involved in any material pending legal proceedings to which the Company is a
party or of which any of its property is the subject, which were not covered by
insurance.
The Irvine Company Litigation
In June, 1986, The Splash, the sublessee of the Company on the
Company's leased premises which operates a Water Park on the subleased premises,
filed a Complaint against Irvine in Orange County Superior Court (Case No.
49-12-02). The case is styled The Splash v. The Irvine Company, et. al. The
lawsuit initially involved Irvine's imposition of an unreasonably high liability
insurance requirement on The Splash in an effort to keep the water park from
operating. In its Complaint, The Splash sued Irvine for declaratory relief,
interference with contract, intentional misrepresentation, negligent
misrepresentation, bad faith repudiation of contract, breach of the implied
covenant of good faith and fair dealing and breach of third-party beneficiary
contract.
In January, 1987, Irvine filed a Cross-Complaint against The Splash and
also against the Company, which Cross-Complaint was subsequently amended several
times. In its Third Amended Cross-Complaint, Irvine sued the Company for breach
of contract, intentional misrepresentation, negligent misrepresentation,
declaratory relief, indemnity and bad faith denial of contract, and the Company
for breach of lease, indemnity, declaratory relief, and bad faith denial of
contract. The Company answered Irvine's Cross-Complaint (also amended several
times) and filed a Cross-Complaint against Irvine for a range of wrongful
conduct against the Company over the past years. In general, the Company alleges
that Irvine has wrongfully attempted to frustrate the Company in its efforts
over the years to establish new uses on its leasehold and to derive profit from
its Ground Lease. The Company's Cross-Complaint includes causes of action for
breach of lease, interference with prospective economic advantage, declaratory
relief and restitution after rescission.
A trial of The Irvine Company Litigation was commenced in early October
1993, and in November 1993, the Company was awarded a jury verdict in the total
approximate amount of $42 million, and Irvine was denied any recovery against
the Company. The jury found that Irvine had breached the covenant of good faith
and fair dealing in the Ground Lease and awarded the Company approximately $37
million in compensatory damages for those breaches. The jury also found that
Irvine acted with "fraud and malice" in interfering with the Company's
relationship with the Water Park and therefore awarded an additional $5 million
to the Company in punitive damages. In the rent dispute between Irvine and the
Company, the jury found that the Company owed no rent whatsoever because of
Irvine's own unexcused material breaches of the lease. The jury also found that
Amendment No. 9 to the Ground lease had been entered into by the Company under
duress and without consideration.
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<PAGE> 15
In April 1994, after a hearing on post-verdict motions brought by
Irvine for a new trial and/or judgment notwithstanding the verdict, the court
granted a new trial on all issues and denied Irvine's motion for a judgment
notwithstanding the verdict on the basis that the evidence was not sufficient to
justify the verdict reached by the jury. The Company has appealed this Order and
intends to vigorously continue its prosecution of The Irvine Company Litigation.
The appeal has been fully briefed and is currently scheduled for argument in
August 1997. In The Irvine Company Litigation, the primary claim against the
Company is a claim for rent due in the approximate amount of $1,128,973. In
addition, Irvine raised certain other issues as to the calculation of rent and
claims legal costs. These claims are disputed by the Company and the Company
intends to continue to defend against these claims vigorously. There can be no
assurance as to the ultimate outcome of The Irvine Company Litigation. Should
the Court of Appeals uphold the trial judge's new trial order, the Company
intends to aggressively litigate its damage claims against Irvine. However,
given the inherent uncertainties of litigation, there can be no assurance of the
outcome of the appeal or any subsequent trial.
On March 3, 1995, the Company filed a Complaint in the Superior Court
of the State of California against The Irvine Company praying for declaratory
relief and damages and for unjust enrichment. The case is styled Lion Country
Safari, Inc.-California v. The Irvine Company, (Case No. 743669). The Irvine
Ground Lease contains a provision which gives the Company the right to remove
all improvements at the termination of the Lease on February 28, 1997, and
return the property to its original unimproved condition; however, Irvine has
unilaterally granted extensions to the Company's sublessees, Irvine Meadows
Amphitheater and Wild Rivers, without any participation or obtaining the consent
to such extensions by the Company. The Company had requested from the Court a
declaration that it had the right to remove all improvements on the premises at
the termination of the Ground Lease in accordance with its terms or, in the
alternative, that the Company be compensated for the value of these
improvements. The Company also contended that Irvine had been unjustly enriched
by its actions.
On October 31, 1995, the Court dismissed the Company's cause of action
for unjust enrichment on the grounds that the cause of action was premature. As
for the cause of action for declaratory relief, on March 5, 1996, the Court
ruled that the Company had the right to remove all improvements from the
leasehold at the termination of the Ground Lease if the Company was not in
default at that time. The Court stated that it would issue no further
declarations. The trial court also declared Irvine to be the prevailing party in
the case even though the Company had won the primary declaration it had sought.
Since the lease between the Company and Irvine entitles the prevailing party in
any lease litigation to attorney's fees and certain costs, the trial court
awarded Irvine $175,000 in attorney's fees and $10,738 in costs. The Company has
filed an appeal with the Fourth District Court of Appeal. The Company is
appealing only that part of the trial court's judgment awarding to Irvine
attorneys' fees and costs. On January 27, 1997, the Company filed its opening
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<PAGE> 16
brief in connection with the appeal. It is anticipated that Irvine will be
filing its opposition brief in the near future. The Company will then have an
opportunity to file a reply brief and the matter will ultimately be argued
before the court and determined by it. Management intends to vigorously pursue
the appeal but there can be no assurance of the outcome.
On November 12, 1996, Irvine Meadows, one of the Company's sublessees
and the operator of the Irvine Meadows Amphitheater, sued the Company and Harry
Shuster in a case styled Irvine Meadows v. Shuster. et al., (OCSC Case No.
771509). The suit sought an injunction against those parties preventing them
from removing the Amphitheater pursuant to a provision in the Ground Lease that
gives the Company the right to remove leasehold improvements at the expiration
of the lease. On January 3, 1997, Irvine Meadows filed a first amended complaint
in that action. As against the Company, the first amended complaint sought an
injunction and declaratory relief but no money damages. On February 19, 1997,
the trial judge granted Irvine Meadows' request for an injunction against the
Company barring it from removing the Amphitheater. The Company intends to appeal
from this ruling. Management intends to defend this case vigorously. In view of
the inherent uncertainties of litigation, the outcome of the litigation cannot
be predicted.
On or about November 18, 1996, Wild Rivers, one of the Company's
sublessees and the operator of Wild Rivers Water Park brought an action against
the Company and Harry Shuster titled "The Splash dba Wild Rivers v. Harry
Shuster, et. al. (OCSC No. 771810)." The suit sought a preliminary injunction
against those parties preventing them from removing the improvements to the
leased premises made by The Splash pursuant to a provision in the Ground Lease
that gives the Company the right to remove the improvements at the expiration
of the Ground Lease. The request for preliminary injunction was denied by the
court on February 6, 1997. The denial of Wild Rivers' request for preliminary
injunction has been appealed by Wild Rivers. The action by Wild Rivers also
seeks damages in an unspecified amount against the Company for, among other
things, intentional and negligent interference with contractual relations and
intentional and negligent interference with prospective economic advantage, as
well as punitive damages. The Company has filed a cross-complaint against Wild
Rivers seeking declaratory relief with respect to the Company's rights to
remove the improvements on the property. The Company intends to vigorously
defend this action. In view of the inherent uncertainties of litigation, the
outcome of the litigation cannot be predicted.
On February 27, 1997, the Company brought an action against Irvine for
declaratory relief in a case styled Lion Country Safari, Inc. - California v.
The Irvine Co., (OCSC Case No. 775923). In the lawsuit, the Company alleges
that, although the initial term of the Ground Lease expires on February 28,
1997, it has the right, and has exercised the right, to extend the tenancy for
an additional 26 years. The Company is asking the court for a declaration that
it has the right to such a lease extension. It is expected that Irvine will
vigorously defend this action. The outcome is a matter of uncertainty.
On or about March 5, 1997, in a case styled The Irvine Company v. Lion
Country Safari, Inc. - California (OCSC Case No. 776187), Irvine sued the
Company for unlawful detainer. Essentially, Irvine alleges that its lease with
the Company expired on February 28, 1997 and that Irvine is therefore entitled
to immediate possession of the leasehold premises. Management of the Company
intends to vigorously defend this lawsuit, arguing that it has the right, and
has exercised the right, to extend the initial term of the Ground Lease for
another 26 years. However, in view of the inherent uncertainties of litigation,
no prediction can be made as to the outcome of this lawsuit. The trial on this
unlawful detainer action is currently scheduled to commence on April 14, 1997.
OTHER LITIGATION
On February 14, 1997, UHC, a limited liability company in which the
Company has a 50% membership interest, and has the right to appoint one of three
members of the management committee, brought an action in the District Court in
Clark County, Nevada, against American Realty Trust ("ART") titled Silver City
Holdings, Inc,; United Hotel and Casino, LLC, et. al. v. American Realty Trust,
Inc. et. al. (Case No. A 369908). The action seeks a declaratory judgement
against ART with respect to causing ART to consent to the assignment and
assumption of the deed of trust encumbering the Las
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<PAGE> 17
Vegas Shopping Center to UHC. ART has responded with a cross-complaint for
declaratory relief, requesting a declaration that ART is under no obligation to
give its consent to the proposed sale and assumption of the deed of trust. UHC
intends to prosecute the claim of UHC vigorously. However, there can be no
certainly as to the outcome of this matter. The agreement pursuant to which UHC
is to purchase the Las Vegas Shopping Center provides that if the consent of ART
to the assignment and assumption of the existing deed of trust is not obtained
by July 31, 1997, that either the buyer or seller may terminate the agreement.
See "Description of Business-- Recent Developments."
BANKRUPTCY OF SUBSIDIARY
In August 1989 and June, 1990, respectively, Irvine obtained the right
to attach the Company's revenues in the total amount of $1,097,786, giving it
the legal ability to cut off virtually all sources of revenues available to the
Company so that it would be unable to continue its operations during its 1990
summer season. In response to this move by Irvine, the Company's Board of
Directors determined that it would be necessary for its subsidiary, Lion Country
Safari, Inc. -- California (the "Subsidiary") to seek protection under Chapter
11 of the United States Bankruptcy Code. On July 23, 1990, the Subsidiary filed
a Petition for Reorganization under Chapter 11 in the United States Bankruptcy
Court (Case No. SA 90-04968JB) in Santa Ana, California, in order to preserve
the assets of the Subsidiary for the benefit of the stockholders and creditors
of the Company, to enable the Company to continue its operations and to enable
the Company to proceed with the effective prosecution of The Irvine Company
Litigation. The Subsidiary operated under the aegis of the Bankruptcy Court for
almost four years. As a result of the jury verdict obtained by the Company in
the initial trial of The Irvine Company Litigation, the parties, by stipulation,
agreed that the Subsidiary's petition under Chapter 11 be dismissed on December
9, 1993.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1996, to a vote of security holders of United Leisure
Corporation, through the solicitation of proxies, or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock, par value $.01 per share, of the Company has been
traded on The Nasdaq Stock Market's Small Cap Market ("Nasdaq") under the symbol
UTDL since November 10, 1994. Prior to that date, the Company's Common Stock was
thinly traded in the over-the-counter market. In its 1994 public offering, the
Company sold a total of 4,945,000 Units, each Unit consisting of one share of
Common Stock and one Class A Warrant. Each of the Class A Warrants entitles the
holder thereof to purchase one share of the Company's Common Stock at an
exercise price of $4.00 per share. In addition to
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the market for the Company's Common Stock the Company's Class A Warrants are
also traded on Nasdaq.
The table below sets forth, for the periods indicated, the high and low
bid prices of the Common Stock, for the period January 1, 1996 through December
31, 1996, on Nasdaq, as reported to the Company in monthly reports from Nasdaq.
<TABLE>
<CAPTION>
1995 1996
------------------------- --------------------
High Low High Low
Bid Bid Bid Bid
--- --- --- ---
<S> <C> <C> <C> <C>
1st Quarter $ 5-7/8 $ 2-5/16 $ 4-1/2 $ 2-1/4
2nd Quarter 2-11/16 7/8 2-5/16 1
3rd Quarter 3-1/4 2 1-5/16 7/16
4th Quarter 3-7/8 2-1/16 15/16 1/4
</TABLE>
On April 9, 1997, the closing bid price of the Common Stock on Nasdaq was $.375
per share.
The above quotations represent prices between market makers, do not
include retail mark-up, mark-down or commission and do not necessarily represent
actual transactions.
There were approximately 2,458 record holders of the Common Stock, par
value $.01 per share, of United Leisure Corporation as of March 15, 1997.
The Company has never declared or paid any cash dividends and does not
intend to pay cash dividends in the foreseeable future on the shares of Common
Stock. Cash dividends, if any, that may be paid in the future to holders of
Common Stock will be payable when, as and if declared by the Board of Directors
of the Company, based upon the Board's assessment of the financial condition of
the Company, its earnings, need for funds, capital requirements, and prior
claims, if any, of Preferred Stock to the extent issued, and other factors,
including any applicable laws. The Company is not currently a party to any
agreement restricting the payment of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has not conducted any sales of its
securities that were not registered under the Securities Act of 1933, as
amended, except as follows:
In June 1994 the Company issued 571,430 shares of its Common Stock to
Plus One Finance, Ltd. at a purchase price of $.875 per share. Such sale was
made pursuant to the exemption from registration provided in Section 4(2) of the
Securities Act of 1933, as amended, for issuance of securities not involving any
public offering.
In June 1994 the Company issued a total of 3,200,000 shares of Common
Stock to Harry Shuster upon the conversion of the Series A Preferred Stock of
the Company held by
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Mr. Shuster. Such conversion was made pursuant to an exemption from registration
provided in Section 4(2) of the Securities Act of 1933, as amended, for issuance
of securities not involving any public offering.
In June 1994 Harry Shuster utilized $649,800 of debt owed by the
Company to Mr. Shuster to exercise stock options to purchase 755,550 shares of
Common Stock. Such conversion was made pursuant to an exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended,
for issuance of securities not involving any public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
To the extent any of the statements contained herein contain
forward-looking statements, such statements are based on current expectations
that involve a number of uncertainties and risks that could cause actual results
to differ materially from those projected in the forward-looking statements,
including risks and uncertainties associated with the costs of the Irvine
Company Litigation, the outcome of the Irvine Company Litigation, the
termination of the Ground Lease, the extension of the Ground Lease, and the
costs associated with the development of projects to be undertaken by the
Company in the future, including the acquisition and development of the Las
Vegas Shopping Center by UHC and other projects which may be undertaken by the
Company in the future.
OVERVIEW
The Company's Ground Lease operations, which historically provided the
Company with most of its income, terminated on February 28, 1997. Although the
Company has instituted an action for declaratory relief against Irvine in which
the Company alleges it has the right to extend the term of the Ground Lease,
whether the Ground Lease will in fact be extended is a matter of great
uncertainty. Irvine has recently instituted an action against the Company for
unlawful detainer with respect to the Ground Lease. See "Legal Proceedings." The
Company has been planning for the termination of the Ground Lease for the past
several years, and its income from its Ground Lease operations has been reduced
as a percentage of its total income from operations for the past several years;
however, in 1996 income from the Ground Lease still accounted for approximately
32% of the Company's operating revenues. While the Company will continue to
expand its operations unrelated to the Ground Lease, if the Ground Lease is not
extended, and if the Irvine Company Litigation is decided in a manner
unfavorable to the Company (e.g., if the $42 million judgment in favor of the
Company is not upheld and a new trial is ordered), the Company anticipates that
its income will be greatly reduced in future years until its new business lines
are further developed. Further, if a new trial is ordered in connection with the
Irvine Company Litigation, the Company anticipates that it may have to incur
substantial additional legal fees. See "Legal Proceedings."
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During 1996, in addition to its operations with respect to the Ground
Lease, the Company operated four Camp Frasier day camp locations (with two of
these locations having their first full summer season of operations in September
1996), three Planet Kids locations (one of which opened in September 1996) and
one Frasier's Frontier, an amusement park. The Company intends to continue to
operate each of those locations; however, the Company does not currently
anticipate that it will continue to expand its children's educational and
recreational activities in the future. In addition, there is uncertainty as to
whether the Company's Camp Frasier location on the Irvine Property will continue
to operate due to the termination of the Ground Lease. See "Description of
Business -- Planet Kids" and "Description of Business -- Camp Frasier and
Frasier's Frontier."
The Company has acquired a 50% membership interest in UHC, which
company is a party to an agreement to purchase the Las Vegas Shopping Center. In
the event UHC's action against the lender which is the holder of the trust deed
with respect to the shopping center is successful, the Company has agreed to
make an additional capital contribution of $3,375,000 to UHC primarily to fund
the development of the Las Vegas Shopping Center. See "Description of Business
- -- Recent Developments;" "Legal Proceedings."
From September 1996 through February 1997 the Company acquired a
significant amount of the common stock of GHEI, a public company, for
investment. In connection with providing financing to GHEI it acquired an
aggregate of 175,000 shares of the common stock of GHEI and warrants to purchase
an additional 100,000 shares of GHEI at an exercise price of $.75 per share. All
of these warrants were exercised in February 1997 for cash consideration of
$75,000. In addition, the Company may acquire an additional 25,000 shares of the
common stock of GHEI if GHEI does not repay a loan made by the Company to GHEI
by September 30, 1997. Further, the Company acquired an additional 333,333
shares of the common stock of GHEI and warrants to purchase an additional
333,333 shares of common stock of GHEI exercisable at $1.50 per share by
purchasing such securities in a private placement conducted by GHEI in October
1996 for an aggregate cash consideration paid by the Company of $250,000. The
Company exercised all of these warrants in February 1997 for cash consideration
of $500,000. All of the securities of GHEI owned by the Company are "restricted
securities." Harry Shuster, the Chairman of the Board, President and Chief
Executive Officer of the Company is the Chairman of the Board, President and
Chief Executive Officer of GHEI. See "Description of Business -- Recent
Developments;" and "Certain Relationships and Related Transactions."
Also during 1996 the Company made an investment of $1,500,000 in HEP
II, L.P., and is a 50% limited partner of this partnership which is engaged in
the motion picture production business. The general partner of HEP II, L.P. is
Hit Entertainment, Inc., a motion picture production Company of which Harry
Shuster is the Chairman of the Board and a significant shareholder. See
"Description of Business -- Recent Developments" and "Certain Relationships and
Related Transactions."
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SUBLEASE ACTIVITIES
Set forth below is a summary of the major projects which the Company
carried out on the Irvine Property during 1996.
The Company is a party to an Amphitheater Sublease, pursuant to which
the Company subleases approximately 20 acres of its 300-acre Irvine Property to
Irvine Meadows Amphitheater. In 1996 and 1995, the Company has received towards
its account rentals of $335,389 and $355,119, respectively, from this Sublease
Agreement.
Since 1990, the Company has had a sublease arrangement with James
Productions, Inc. ("James"), pursuant to which James has the right to conduct
picnics and other special events on the 27-acre picnic areas of the Irvine
Property. The Company received rentals under this arrangement of $214,364 in
1996 and $191,442 in 1995.
The Company is a party to a sublease entered into in 1984 with American
Sportsworld, Inc. covering The Splash, a water park on 15 acres of the Irvine
Property opened to the public in July 1986. The Water Park is known as Wild
Rivers, offering a tropical setting with an African theme. The Company has a
3.12% limited partnership interest in The Splash. Under the terms of the Water
Park Sublease, The Splash pays a minimum annual rent of $475,000, payable
$39,583 per month, against a percentage rent equal to 10% of annual Gross
Revenues (as defined). In addition, The Splash has agreed to pay additional rent
to cover various increased expenses with respect to the subleased property
during the term of the Water Park Sublease, as well as all taxes related to such
property. In 1996 and 1995, American Sportsworld, Inc. paid the Company $686,665
and $597,089, respectively, in rentals. In addition, in each of 1996 and 1995,
the Company received capital distributions in the amount of $45,000.
Due to the numerous uncertainties surrounding the Ground Lease arising
out of the Irvine Litigation, it is possible that the Company will have no
revenues from its sublease activities after February 28, 1997.
BUSINESS SEGMENT INFORMATION
During 1996 the Company's operations consisted of two business
segments, facility rentals, pursuant to which the Company subleased or otherwise
allows others to use the Irvine Property, and children's recreational
activities, which includes the operation of the Company's Camp Frasier
locations, Planet Kids locations and Frasier's Frontier. The Company had total
operating revenues from its Irvine Property of $1,444,284 in 1996 and $1,494,012
in 1995, and had total operating revenues from its children's recreational
activities of $3,051,216 in 1996 and $1,702,857 in 1995.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
The Company had total revenues during the year ended December 31, 1996,
in the amount of $4,495,500 as compared to $3,196,869 for 1995, an increase of
$1,298,631. The increase resulted primarily from increased revenues from the
children's recreational
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<PAGE> 22
activities segment of the Company's business due to the opening of new
facilities. The Company operated four Camp Frasier locations for the full summer
season in 1996 compared to only two locations operating for the full summer
season in 1995. In addition, revenues from the Company's Planet Kids play
learning centers increased as additional Planet Kids locations were opened. The
first Planet Kids opened in July 1995, the second in December 1995 and the third
in September 1996. Revenues from the Company's sublease activities remained
substantially unchanged from 1995 to 1996.
In view of the expanded operations of Camp Frasier and the new Planet
Kids locations, the Company's operating expenses increased significantly, from
$4,235,066 in 1995 to $6,055,281 in 1996, an increase of $1,820,215. This
increase is due primarily to an increase in occupancy expenses from $3,144,238
in 1995 to $4,486,098 in 1996, an increase in occupancy expense of $1,341,860.
Other increased operating expenses included an increase in selling, general and
administrative expenses of $182,843 from 1995 to 1996 and increased depreciation
and amortization expense of $295,512 from 1995 to 1996.
The Company's operating loss in 1996 was $1,559,781 compared to an
operating loss in 1995 of $1,038,197, or an increased operating loss of
$521,584. This increase in operating loss was due primarily to increased
expenses associated with the development and operation of the Company's new Camp
Frasier and Planet Kids locations.
Legal expenses incurred by the Company were $331,291 for 1996 as
compared to $365,207 for 1995. Interest income on the invested net proceeds of
the 1994 public offering produced interest income of $382,028 in 1996, as
compared to $699,204 in 1995 due primarily to the fact that the Company expended
a substantial portion of the proceeds of its 1994 public offering during 1996.
See "Description of Business -- Recent Developments," and "Liquidity and Capital
Resources," below.
In 1996 the Company wrote-off a previous provision for a disputed
contingency claim in the amount of $1,128,973 which it had previously
established with respect to the Irvine Company Litigation due to management's
belief that it was unlikely that any portion of this amount would ever have to
be paid. The above results of operations, other expenses and reversal of
provision for disputed contingent claim resulted in a net loss for 1996 of
$403,275 as compared to a net loss of $644,183 for 1995.
All of the Company's current operations are conducted in Southern
California. Most of the activities carried out on the Irvine Property are
seasonal in nature, thus likely to cause most of the Company's revenues to be
received during the period April through September. The Company's Camp Frasier
operations are also seasonal in nature, conducted during the summer session.
Inflation in recent years has not been an important factor in the Company's
operations.
22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily on cash flows from operations as well
as from proceeds of its public offering in 1994 to finance working capital,
acquisitions and improvements in the past two years. Pursuant to the Company's
1994 public offering, the Company sold 4,945,000 Units, each Unit consisting of
one share of Common Stock, par value $.01 per share, and one redeemable Class A
Common Stock Purchase Warrant ("Class A Warrant") to purchase one share of
Common Stock of the Company at an exercise price of $4.00 per share (subject to
adjustment in certain events). The Class A Warrants are exercisable during the
period November 10, 1996 through November 10, 1999, unless previously redeemed.
The Class A Warrants are subject to redemption by the Company in certain events.
After payment of the expenses of the offering, the Company received net proceeds
of approximately $14,855,187. As of December 31, 1996 and December 31, 1995 the
Company had cash and cash equivalents of $3,845,653 and $9,929,785,
respectively, a difference of $6,084,132. This decrease in cash balance was due
to, among other things, the Company spending $2,221,722 for the purchase of
property and equipment primarily in connection with its new Planet Kids and Camp
Frasier locations, an investment of $1,500,000 in HEP II, L.P., a pledge in the
amount of $875,000 to support a letter of credit required by its affiliate,
Grand Havana Enterprises, Inc. ("GHEI") and the acquisition of 333,333 shares of
the Common Stock of GHEI, as well as warrants to purchase an additional 333,3333
shares of Common Stock of GHEI for an aggregate purchase price of $250,000. See
"Certain Relationships and Related Transactions;" "Recent Developments." The
Company believes that its current cash and cash equivalents and income generated
from operations will be sufficient to fund the Company's operations for at least
the next twelve months.
The Company's future capital requirements will depend on numerous
factors. If the $42 million judgment in the Irvine Company Litigation is not
upheld and a new trial is ordered, the Company anticipates that it will continue
to expend significant funds on legal expenses. In addition, if the Company's
action to extend the term of the Ground Lease is not successful, the Company's
relatively stable income from its Ground Lease activities will not continue.
Although the Company has in recent years tried to prepare the Company for the
termination of the Ground Lease by branching out into other business areas, in
1996 revenues from the Company's Ground lease activities still accounted for
approximately 32% of the Company's operating revenues. There are numerous
uncertainties associated with the various aspects of the Irvine Company
Litigation and the outcome of these matters could have a material impact on the
Company's liquidity in ways in which the Company's management is unable to
predict. See "Legal Proceedings." In addition, if UHC is successful in acquiring
the Las Vegas Shopping Center, the Company has committed to make an additional
capital contribution to UHC of $3,375,000. See "Description of Business-- Recent
Developments."
Although the Company believes that its current cash and income from
operations as well as distributions received by the Company as a result of its
investments will provide the Company with sufficient funds to meet the Company's
anticipated need for working capital
23
<PAGE> 24
and capital expenditures for at least the next 12 months, there can be no
assurance that this will be the case, in particular with regard to the various
uncertainties surrounding the Irvine Company Litigation. If the Company is in
need of additional financing, there can be no assurance that the Company will be
able to acquire additional financing, or that if such financing is available,
that it will be available to the Company on acceptable terms.
24
<PAGE> 25
ITEM 7. FINANCIAL STATEMENTS.
25
<PAGE> 26
UNITED LEISURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors 27
Consolidated Balance Sheets at December 31, 1996 and 1995 28
For the years ended December 31, 1996 and 1995:
Consolidated Statements of Operations 29
Consolidated Statement of Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 33
</TABLE>
26
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
United Leisure Corporation
We have audited the accompanying consolidated balance sheets of United Leisure
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Leisure
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of operations, stockholders' equity and cash flows for the
years then ended in conformity with generally accepted accounting principles.
HOLLANDER, GILBERT & CO.
Los Angeles, California
March 20, 1997
27
<PAGE> 28
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,845,653 $ 9,929,785
Receivables 128,843 417,368
Inventory 30,308 80,301
Prepaid expenses 90,958 178,009
------------ ------------
TOTAL CURRENT ASSETS 4,095,762 10,605,463
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 2 and 6) 6,578,586 4,845,406
OTHER ASSETS
Due from related parties (Note 11) 331,117 110,000
Investment in limited partnerships (Note 5) 1,120,500 15,000
Investment in Grand Havana Enterprises, Inc.
(Notes 5 and 17) 511,766
Restricted cash (Note 5) 875,000
Intangible assets, net of accumulated amortization
(Note 7) 33,320 68,440
Deposits and other 208,835 237,943
------------ ------------
$ 13,754,886 $ 15,882,252
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 8) $ 623,015 $ 509,259
Provision for disputed contingent claim (Note 9) 1,128,973
Due to related party (Note 11) 1,003,265
Deferred revenue 143,945 31,320
Deposits and other 124,275 124,275
------------ ------------
TOTAL CURRENT LIABILITIES 891,235 2,797,092
LONG-TERM DEBT (Note 10) 842,000 842,000
------------ ------------
TOTAL LIABILITIES 1,733,235 3,639,092
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 13 and 17)
STOCKHOLDERS' EQUITY (Note 15)
Preferred stock, $100 par value
Authorized 100,000 shares, none outstanding
Common stock, $.01 par value
Authorized 30,000,000 shares, Issued
and outstanding 12,368,849 shares 123,688 123,688
Unrealized gain on investment 181,766
Capital in excess of par value 24,326,458 24,326,458
Accumulated deficit (12,610,261) (12,206,986)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,021,651 12,243,160
------------ ------------
$ 13,754,886 $ 15,882,252
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 29
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES
Rentals $ 1,444,284 $ 1,494,012
Children's recreational activities 3,051,216 1,702,857
------------ ------------
TOTAL REVENUES 4,495,500 3,196,869
------------ ------------
OPERATING EXPENSES
Occupancy (Notes 4 and 9) 4,486,098 3,144,238
Selling, general and administrative 1,045,521 862,678
Depreciation and amortization 523,662 228,150
------------ ------------
TOTAL OPERATING EXPENSES 6,055,281 4,235,066
------------ ------------
OPERATING LOSS (1,559,781) (1,038,197)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 382,028 699,204
Interest expense (91,223) (84,237)
Legal costs (Notes 2 and 4) (331,291) (365,207)
Reversal of provision for disputed contingent claim
(Note 9) 1,128,973
Adjustment for over-provided liabilities -- 154,759
Other, net 68,019 8,495
------------ ------------
TOTAL OTHER INCOME (EXPENSE) 1,156,506 413,014
------------ ------------
LOSS BEFORE INCOME TAXES (403,275) (625,183)
INCOME TAXES (NOTE 12) 19,000
------------ ------------
NET LOSS $ (403,275) $ (644,183)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,368,849 12,224,708
============ ============
LOSS PER COMMON SHARE $ (.03) $ (.05)
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 30
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Capital in Unrealized
Number of Excess of Accumulated Gain on
Shares Par Value Par Value Deficit Investment Total
---------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE-- DECEMBER 31, 1994 12,203,428 $ 122,034 $24,242,297 $(11,562,803) $ 0 $12,801,528
Exercise of stock options 156,421 1,564 6,001 7,565
Options granted for services
(Note 14) 67,500 67,500
Exercise of warrants 9,000 90 15,660 15,750
Options redeemed (5,000) (5,000)
Net loss for the year (644,183) (644,183)
----------- --------- ----------- ------------ ----------- -----------
BALANCE-- DECEMBER 31, 1995 12,368,849 123,688 24,326,458 (12,206,986) 0 12,243,160
Unrealized gain on investment 181,766 181,766
Net loss for the year (403,275) (403,275)
----------- --------- ----------- ------------ ----------- -----------
BALANCE-- DECEMBER 31, 1996 12,368,849 $ 123,688 $24,326,458 $(12,610,261) $ 181,766 $12,021,651
=========== ========= =========== ============ =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 31
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (403,275) $ (644,183)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization of property and equipment 488,542 193,029
Amortization of intangibles 35,120 35,043
Reversal of provision for disputed contingent claim (1,128,973)
Options granted for services 67,500
Adjustment for over-provided liabilities (154,759)
Accrual of interest from related party (25,411)
Other (17)
Changes in operating assets and liabilities:
Receivables 288,525 (117,740)
Inventory 49,993 (80,301)
Prepaid expenses 87,051 (148,586)
Pre-opening costs 405 66,526
Deposits 28,703 12,188
Accounts payable and accrued expenses 113,756 164,637
Accrued expenses due to related party (948,971) (243,306)
Deferred revenue and other 32,625 7,510
----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (1,381,910) (842,459)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,221,722) (4,140,189)
Payment of organization costs (494)
Purchase of minority interest (500,000)
Payment of lease acquisition costs (5,528)
Placement of restricted cash (875,000)
Distributions from limited partnerships 394,500 45,000
Investment in limited partnership (1,500,000)
Advances to limited partnership (500,000)
Collection of advances to limited partnership 500,000
Investment in Grand Havana Enterprises, Inc. (250,000)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (4,452,222) (4,601,211)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to related parties (250,000) (100,000)
Exercise of stock options and warrants 23,315
Options redeemed (5,000)
Principal payments under short-term and long-term
obligations (500,000)
----------- ------------
NET CASH USED IN FINANCING ACTIVITIES (250,000) (581,685)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,084,132) (6,025,355)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,929,785 15,955,140
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,845,653 $ 9,929,785
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 32
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 91,223 $ 97,219
Income taxes paid $ 48,419
Interest received $ 356,617 $ 749,953
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired for long-term debt $ 842,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 33
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - The primary business of the Company had been to
develop its major asset, a ground lease and related improvements and
equipment, covered approximately 300 acres of real estate in Irvine,
California, through sublease, so as to convert the leased asset into a
revenue producing property. In carrying out its business, the Company
prefers to act primarily as a developer and manager at the property,
rather than as an operator. The Company's ground lease interest expired
February 28, 1997. On February 27, 1997, the Company sued the landlord of
this property for declaratory relief. In the lawsuit, the Company alleged
that although the initial term of its lease expired on February 28, 1997,
the Company has the right, and has exercised the right, to extend the
tenancy for an additional 26 years. The Company is asking the court for a
declaration that it has the right to such a lease extension. On March 5,
1997, the landlord sued the Company for unlawful detainer. The landlord
alleged that its lease with the Company expired on February 28, 1997 and
that the landlord is therefore entitled to immediate possession of the
property. There can be no assurance that the Company will prevail in these
lawsuits. (see Note 4) The Company also operates a summer day camp on its
leased property and in three locations in Southern California, an
amusement park in San Diego County, California and three state-of-the-art
children's play-learning centers in Southern California.
Principles of Consolidation - The consolidated financial statements
include the accounts of United Leisure Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Impairment of Long-Lived Assets - Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." This statement provides guidelines for recognition of
impairment losses related to long-term assets. A loss is recognized when
expected undiscounted future cash flows are less than the carrying amount
of the asset. The impairment loss is the difference by which the carrying
amount of the asset exceeds its fair value. The adoption of this standard
did not have a material effect on the Company's consolidated financial
statements.
Stock-Based Compensation - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"). This statement
encourages, but does not require, a fair value based method of accounting
for employee stock options. The Company elected to continue to measure
compensation costs under APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and to comply with the pro forma disclosure requirements of
Statement No. 123. The adoption of this statement had no impact on the
Company's consolidated financial statements.
Cash and cash equivalents - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents.
Concentration of Risk - The Company invests its excess cash in
certificates of deposit and money market funds, which, at times, may
exceed federally insured limits. The Company maintains its accounts with
financial institutions with high credit ratings.
Inventory - Inventory consists primarily of merchandise held for sale at
the Company's play- learning centers. Inventory is stated at the lower of
cost (first-in-, first-out) or market.
Property and Equipment - Property and equipment is recorded at cost and
depreciation is computed on the straight-line method based upon the
estimated useful life of the related asset as follows:
Buildings and improvements 3-27 years
33
<PAGE> 34
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Machinery, equipment and vehicles 4-10 years
Furniture, fixtures and office equipment 5-10 years
Computers 6 years
Signs 10 years
Investment in Limited Partnerships - Investment in 20 percent to 50
percent owned partnership is carried at equity. Investment in less than
20% owned partnership is carried at cost less distributions.
Pre-Opening Costs - Pre-opening costs represent direct costs of a
non-capital nature incurred prior to commencement of operations at a new
play-learning center. Such costs are deferred and expensed upon
commencement of operations at the center. If plans to open a new center
are abandoned, any deferred costs related to such location are expended
during the year.
Intangible Assets - Intangible assets are recorded at cost and are
amortized on a straight-line basis over their estimated useful lives as
follows:
Repurchased income stream Term of sublease
Organization costs 5 years
Lease acquisition costs Term of lease
Earnings (Loss) per Common Share - Earnings (loss) per common share is
based upon the weighted average number of common shares, including common
share equivalents, outstanding during the periods. Common share
equivalents, when anti-dilutive, are excluded from weighted average number
of shares outstanding for all periods presented.
Reclassifications - Certain 1995 balances have been reclassified to
conform with current years presentation.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Termination of Ground Lease - The ground lease relating to the Company's
major asset expired in February 1997. Additionally, the Company has been
engaged in protracted and expensive litigation with its landlord.
Accordingly, the Company must continue the development of its business
into new fields of endeavor (Note 4).
Uncertainty of Success of Play-Learning Centers - The Company opened its
first children's play-learning center in July 1995. This new business may
take some time to develop, and there can be no assurance that the new
business will be a success (Note 14).
Segment Information - During the year ended December 31, 1996, two
subleases, Wild Rivers Water Park and Irvine Meadows Amphitheater
accounted for 13% and 7%, respectively, of total operating revenue. During
the year ended December 31, 1995, Wild Rivers Water Park and Irvine
Meadows Amphitheater accounted for 18% and 11%, respectively, of total
operating revenue.
3. ACQUISITION
On April 5, 1995, the Company acquired real and personal property relating
to an amusement park in San Diego County, California for a total purchase
price of $1,650,000. The Company paid $800,000 in cash, assumed an
existing note payable secured by the property in the amount of $120,000
and executed a purchase money note in the amount of $730,000 (Note 10).
The amusement park was subsequently renovated and re-opened as Frasier's
Frontier later in 1995, and an additional Camp Frasier was opened on this
property.
4. LEGAL PROCEEDINGS
In June, 1986, The Splash, the sublessee of the Company on the Company's
leased premises which operates a Water Park on the subleased premises,
filed a Complaint against The Irvine Company ("Irvine") in Orange County
Superior Court. The lawsuit initially involved Irvine's imposition of an
unreasonably high liability insurance requirement on The Splash in an
effort to keep the water park from operating. In its Complaint, The Splash
sued Irvine for declaratory relief, interference with contract,
intentional misrepresentation, negligent misrepresentation, bad faith
repudiation of contract, breach of the implied covenant of good faith and
fair dealing and breach of third-party beneficiary contract.
34
<PAGE> 35
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In January, 1987, Irvine filed a Cross-Complaint against The Splash and
also against the Company, which Cross-Complaint was subsequently amended
several times. In its Third Amended Cross-Complaint, Irvine sued the
Company for breach of contract, intentional misrepresentation, negligent
misrepresentation, declaratory relief, indemnity and bad faith denial of
contract, and the Company for breach of lease, indemnity, declaratory
relief, and bad faith denial of contract. The Company answered Irvine's
Cross-Complaint (also amended several times) and filed a Cross-Complaint
against Irvine for a range of wrongful conduct against the Company over
the past years. In general, the Company alleges that Irvine has wrongfully
attempted to frustrate the Company in its efforts over the years to
establish new uses on its leasehold and to derive profit from its Ground
Lease. The Company's Cross-Complaint includes causes of action for breach
of lease, interference with prospective economic advantage, declaratory
relief and restitution after rescission.
A trial of The Irvine Company Litigation was commenced in early October
1993, and in November 1993, the Company was awarded a jury verdict in the
total approximate amount of $42 million, and Irvine was denied any
recovery against the Company. The jury found that Irvine had breached the
covenant of good faith and fair dealing in the Ground Lease and awarded
the Company approximately $37 million in compensatory damages for those
breaches. The jury also found that Irvine acted with "fraud and malice" in
interfering with the Company's relationship with the Water Park and
therefore awarded an additional $5 million to the Company in punitive
damages. In the rent dispute between Irvine and the Company, the jury
found that the Company owed no rent whatsoever because of Irvine's own
unexcused material breaches of the lease. The jury also found that
Amendment No. 9 to the Ground Lease had been entered into by the Company
under duress and without consideration.
In April 1994, after a hearing on post-verdict motions brought by Irvine
for a new trial and/or judgment notwithstanding the verdict, the court
granted a new trial on all issues and denied Irvine's motion for a
judgment notwithstanding the verdict on the basis that the evidence was
not sufficient to justify the verdict reached by the jury. The Company has
appealed this Order and intends to vigorously continue its prosecution of
The Irvine Company Litigation. The appeal has been fully briefed and is
currently scheduled for argument in August 1997. In The Irvine Company
Litigation, the primary claim against the Company is a claim for rent due
in the approximate amount of $1,128,973. In addition, Irvine raised
certain other issues as to the calculation of rent and claims legal costs.
These claims are disputed by the Company and the Company's management
believes that it is unlikely that any portion of this amount would ever
have to be paid. There can be no assurance as to the ultimate outcome of
The Irvine Company Litigation.
On March 3, 1995, the Company filed a Complaint in the Superior Court of
the State of California against The Irvine Company praying for declaratory
relief and damages and for unjust enrichment. The Irvine Ground Lease
contains a provision which gives the Company the right to remove all
improvements at the termination of the Lease on February 28, 1997, and
return the property to its original unimproved condition; however, Irvine
has unilaterally granted extensions to the Company's sublessees, Irvine
Meadows Amphitheater and Wild Rivers, without any participation or
obtaining the consent to such extensions by the Company. The Company had
requested from the Court a declaration that it had the right to remove all
improvements on the premises at the termination of the Ground Lease in
accordance with its terms or, in the alternative, that the Company be
compensated for the value of these improvements. The Company also
contended that Irvine had been unjustly enriched by its actions.
35
<PAGE> 36
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On October 31, 1996, the Court dismissed the Company's cause of action for
unjust enrichment on the grounds that the cause of action was premature.
As for the cause of action for declaratory relief, on March 5, 1996, the
Court ruled that the Company had the right to remove all improvements from
the leasehold at the termination of the Ground Lease if the Company was
not in default at that time. The Court stated that it would issue no
further declarations. The trial court also declared Irvine to be the
prevailing party in the case even though the Company had won the primary
declaration it had sought. Since the lease between the Company and Irvine
entitles the prevailing party in any lease litigation to attorney's fees
and certain costs, the trial court awarded Irvine $175,000 in attorney's
fees and $10,738 in costs. The Company has filed an appeal with the Fourth
District Court of Appeal. The Company is appealing only that part of the
trial court's judgment awarding to Irvine attorneys' fees and costs. On
January 27, 1997, the Company filed its opening brief in connection with
the appeal. It is anticipated that Irvine will be filing its opposition
brief in the near future. The Company will then have an opportunity to
file a reply brief and the matter will ultimately be argued before the
court and determined by it. Management intends to vigorously pursue the
appeal but there can be no assurance of the outcome.
On November 12, 1996, Irvine Meadows, one of the Company's sublessees and
the operator of the Irvine Meadows Amphitheater, sued the Company and
Harry Shuster. The suit sought an injunction against those parties
preventing them from removing the Amphitheater pursuant to a provision in
the Ground Lease that gives the Company the right to remove leasehold
improvements at the expiration of the lease. On January 3, 1997, Irvine
Meadows filed a first amended complaint in that action. As against the
Company, the first amended complaint sought an injunction and declaratory
relief but no money damages. On February 19, 1997, the trial judge granted
Irvine Meadows' request for an injunction against the Company barring it
from removing the Amphitheater. The Company intends to appeal from this
ruling. Management intends to defend this case vigorously. In view of the
inherent uncertainties of litigation, the outcome of the litigation cannot
be predicted.
On or about November 18, 1996, Wild Rivers, one of the Company's
sublessees and the operator of Wild Rivers Water Park brought an action
against the Company and Harry Shuster. The suit sought a preliminary
injunction against those parties preventing them from removing the
improvements to the leased premises made by The Splash pursuant to a
provision in the Ground Lease that gives the Company the right to remove
the improvements at the expiration of the Ground Lease. The request for
preliminary injunction was denied by the court on February 6, 1997. The
denial of Wild River's request for preliminary injunction has been
appealed by Wild Rivers. The action by Wild Rivers also seeks damages in
an unspecified amount against the Company for, among other things,
intentional and negligent interference with prospective economic
advantage, as well as punitive damages. The Company has filed a
cross-complaint against Wild Rivers seeking declaratory relief with
respect to the Company's rights to remove the improvements on the
property. The Company intends to vigorously defend this action. In view of
the inherent uncertainties of litigation, the outcome of the litigation
cannot be predicted.
On February 27, 1997, the Company brought an action against Irvine for
declaratory relief. In the lawsuit, the Company alleges that, although the
initial term of the Ground Lease expires on February 28, 1997, it has the
right, and has exercised the right, to extend the tenancy for an
additional 26 years. The Company is asking the court for a declaration
that it has the right to such a lease extension. It is expected that
Irvine will vigorously defend this action. The outcome is a matter of
uncertainty.
On or about March 5, 1997, Irvine sued the Company for unlawful detainer.
Essentially, Irvine alleges that its lease with the Company expired on
February 28, 1997 and that Irvine is therefore entitled to immediate
possession of the leasehold premises. Management of the Company intends to
vigorously defend this lawsuit, arguing that it has the right, and has
exercised the right, to extend the initial term of the Ground Lease for
another 26 years. However, in view of the inherent uncertainties of
litigation, no prediction can be made as to the outcome of this lawsuit.
The trial on this unlawful detainer action is currently scheduled to
commence on April 14, 1997.
36
<PAGE> 37
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS
Investment in limited partnerships consisted of the following at December
31, 1996 and 1995:
A 3.12% interest in the Splash, a California limited partnership organized
for the purpose of developing and operating a water park on a parcel of
property subleased from the Company. The Company acquired its interest in
The Splash in 1985 through a transaction wherein the Company conveyed to
the limited partnership leasehold improvements to a certain portion of the
Company's amusement area, comprising approximately one-third of the
Company's total amusement area, for $150,000 cash and the partnership
interest then valued at $200,000. In 1996 and 1995, the Company received
capital distributions of $45,000 and $45,000, respectively.
On April 23, 1996, the Company made an initial investment as a limited
partner of $1,500,000 in HEP II, L.P., a California limited partnership
engaged in the motion picture production business. The Company made
additional investment of $250,000 in HEP II, L.P. on July 9, 1996 which
was repaid on October 1996 to Mr. Harry Shuster on behalf of the Company.
This repayment was included in advances to Mr. Shuster (see Note 11). On
July 22, 1996, the Company advanced $500,000 to HEP II, L.P. which was
repaid by HEP II, L.P. on July 25, 1996. The Company received an initial
capital distribution of $379,500 from HEP II, L.P. in October 1996. The
general partner of HEP II, L.P. is Hit Entertainment, Inc., a California
corporation of which Harry Shuster, the Chairman of the Board, President
and Chief Executive Officer of the Company, is the Chairman of the Board
and a principal stockholder. Brian Shuster, a director of the Company, is
the President of Hit Entertainment, Inc.
The following is the unaudited financial summary of HEP II, L.P. as of
December 31, 1996:
Balance Sheet
<TABLE>
<S> <C>
Cash $ 10,839
Film costs, net of accumulated
amortization of $1,690,268 3,918,947
Due from general partner 532,316
-----------
Total assets $ 4,462,102
===========
Distributions payable:
General Partner $ 13,044
Limited Partner:
United Leisure Corporation 266,158
Other 266,158
-----------
Total liabilities 545,360
Partners' capital:
</TABLE>
37
<PAGE> 38
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C>
General partner 2,208,058
Limited partner:
United Leisure Corporation 854,342
Other 854,342
-----------
Total partners' capital 3,916,742
-----------
Total liabilities and partners' capital $ 4,462,102
===========
United Leisure Corporation's Share in
Partnership Capital and Distributions $ 1,120,500
===========
Income Statement
Film Revenue $ 1,818,000
Amortization of film costs 1,690,268
Distribution fees 363,600
Marketing expenses 150,000
-----------
Operating loss (385,868)
Other expense 776
-----------
Net loss $ (386,644)
===========
United Leisure Corporation's Share of
Partnership Loss $ -0-
===========
</TABLE>
The general partner will receive (i) 1% of the Available Cash Flow until
the Percentage Interest Change Date, (ii) 50 % upon and after Percentage
Interest Change Date and (iii) 100% upon and after the Final Percentage
Interest Change Date. Percentage Interest Change Date means the date the
cumulative amount of Available Cash Flow distributed to the limited
partners equals 110% of their total capital contributions. Final
Percentage Interest Date means the date the cumulative amount of Available
Cash Flow distributed to the limited partners equals 200% of their total
capital contributions.
Investment in Grand Havana Enterprises, Inc. (formerly known as United
Restaurants, Inc.) - In September 1996, the Company put up a certificate
of deposit in the amount of $875,000 as collateral for a letter of credit
for Grand Havana Enterprises, Inc. ("Grand Havana"). This certificate of
deposit is shown as Restricted Cash in the accompanying Balance Sheet.
Grand Havana was required to provide such letter of credit in connection
with a lease. Grand Havana has agreed to replace the collateral in full by
March 1, 1998. In consideration for providing such collateral, Grand
Havana has agreed to pay an amount to the Company equal to 10% per annum
on the amount of the pledged cash collateral as it exists from time to
time. As additional consideration, Grand Havana issued to the Company
100,000 shares of its restricted common stock and warrants to purchase
100,000 shares of common stock at an exercise price of $.75 per share. The
Company valued the shares in the aggregate amount of $80,000 based on the
discounted trading price of the stock at that time. The Chairman of the
Board, President and Chief executive Officer of the Company is the
Chairman of the Board, President and Chief Executive Officer of Grand
Havana.
In October 1996, the Company acquired 333,333 shares of common stock and
warrants to purchase 333,333 shares of common stock at an exercise price
of $1.50 per share of Grand Havana for $250,000.
At December 31, 1996, the Company recorded an unrealized gain on these
securities in the amount of $181,766, which was the difference in the fair
market value of the stock at year-end and its original acquisition cost.
The fair market value of the stock was determined using the trading price
of the stock at December 31, 1996 less a discount of 37% (the discount
rate at acquisition date).
38
<PAGE> 39
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 1,247,003 $ 1,247,003
Buildings and improvements 7,324,785 5,635,401
Machinery, equipment and vehicles 1,365,396 1,004,348
Furniture, fixtures and office equipment 389,019 324,034
Computers 408,046 288,104
Signs and other 97,039 60,220
Construction in progress 50,456
----------- -----------
10,831,288 8,609,566
Less accumulated depreciation and amortization (4,252,702) (3,764,160)
----------- -----------
$ 6,578,586 $ 4,845,406
=========== ===========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Repurchased income stream (Note 9) $ 294,802 $ 294,802
Organization costs 17,746 17,746
Lease acquisition costs 21,132 21,132
----------- -----------
333,680 333,680
Less accumulated amortization (300,360) (265,240)
----------- -----------
$ 33,320 $ 68,440
=========== ===========
</TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Trade accounts payable $ 95,149 $ 302,713
Accrued legal fees (Note 4) 452,999 120,418
Accrued interest 7,018 7,018
Income taxes payable (Note 12) 18,200 19,000
Other accrued liabilities 49,649 60,110
----------- -----------
$ 623,015 $ 509,259
=========== ===========
</TABLE>
9. LEASE AND SUBLEASE ARRANGEMENTS
Lease Arrangements - At December 31, 1996, minimum annual rentals under
noncancellable leases relating to the Company's Planet Kids play-learning
centers and summer camps, were as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 387,152
</TABLE>
39
<PAGE> 40
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C>
1998 397,152
1999 397,152
2000 417,249
2001 447,858
Thereafter 1,845,391
-----------
Total $ 3,891,954
===========
</TABLE>
The agreement relating to the Company's Irvine ground lease provides for
rent based on a percentage of gross receipts with a $292,500 minimum. Rent
paid directly to the Company's lessor by a sublessee pursuant to a
sublease for the amphitheater on the Company's leased property is such
that it covers the minimum rent called for in the master lease.
Consequently, the only rent required to be paid by the Company is computed
on a percentage of gross receipts or what the Company actually received
basis. This latter rent provision is in dispute (Note 4).The Company is
also responsible for all property taxes.
During the years ended December 31, 1996 and 1995, rent expense was
$507,786 and $170,807, respectively (Note 4). Included in rent expense for
the year ended December 31, 1996 and 1995 is $38,070 and $32,100,
respectively, paid to the Company's President and Chief Executive Officer,
Mr. Harry Shuster (Note 11).
The provision for disputed contingent claim at December 31, 1995 on the
accompanying financial statements is the subject of litigation between the
Company and its landlord (Note 4). In the initial trial related to such
litigation, the jury found that the Company did not owe such rent and, in
its order for a new trial, the court did not indicate that it disagreed
with that conclusion. During 1996, the Company reversed the provision for
disputed contingent claim due to management's belief that it was
unlikely that any portion of this amount would ever have to be paid.
In 1983, the Company entered in to an unconditional agreement with its
lessor whereby the Company sold $1,100,000 of the future revenues due it
from a sublease for the amphitheater located on its leased property for an
amount equal to certain accrued obligations due its lessor in the
approximate amount of $735,000. Pursuant to the agreement, sublease
proceeds were to revert to the Company when and if the lessor received
$1,100,000 plus any sums expended by the lessor to maintain its position
in the income stream. In 1987, the Company repurchased the balance then
still outstanding pursuant to the agreement for $294,802.
Sublease Arrangements - The Company is the sublessor of certain portions
of its above described ground lease under sublease arrangements which
expired in February 1997.
Minimum future rentals to be received in 1997 on non-cancelable subleases
is $155,595. Minimum future rentals do not include contingent rentals that
may be received because of percentage rentals in excess of minimum rental
amounts.
10. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Note payable secured by first deed of trust,
payable interest only at 12%, principal due
April 1, 2000, secured by real property located
in San Diego County, California
$ 120,000 $ 120,000
</TABLE>
40
<PAGE> 41
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C>
Purchase money loan, payable interest only at
9.67%, principal due March 1, 2000, secured by
a second deed of trust on real property located
in San Diego County, California
722,000 722,000
----------- -----------
$ 842,000 $ 842,000
=========== ===========
</TABLE>
11. RELATED PARTY TRANSACTIONS
Due From Related Parties - Due from related parties at December 31, 1995
consists of a note receivable of $10,000 (the "Note") from a Company
director plus a $100,000 advance made by the Company to the Company's
President and Chief Executive Officer, Mr. Harry Shuster. The Note, in the
amount of $10,000, is dated November 29, 1995 and bears interest at the
prime rate. The Note is secured by 10,000 shares of the Company's common
stock which the maker may purchase pursuant to stock option agreements
with the Company. The Note was due and payable on November 30, 1996 which
was extended to November 30, 1997; however, it requires reduction in the
amount outstanding should any of the shares referred to above be sold by
the maker.
Due from related parties at December 31, 1996 consists of the above
described $10,000 note, $295,706 net amount due from Mr. Shuster and
$25,411 accrued interest from Grand Havana (Note 5).
Due to (from) Related Party - In prior years, the Company's President and
Chief Executive Officer, Mr. Harry Shuster, advanced working capital to
the Company at the prime rate plus 3%. Such advances were secured by the
Company's rights under its sublease arrangements. In June 1995, advances,
excluding accrued interest, of $649,800 were converted into equity by the
exercise of options to purchase 755,550 shares of the Company's common
stock.
At December 31, 1996 and 1995, due to (from) Mr. Shuster consists of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Advances made by the Company to Mr. Shuster $(1,259,260) $ -0-
Accrued interest 789,649 789,649
Accrued consulting fee (Note 13) 173,905 213,616
----------- ------------
$ (295,706) $ 1,003,265
=========== ===========
</TABLE>
Leased Facilities - The Company leases certain of its office space from a
partnership of which the Company's President and Executive Officer, Mr.
Harry Shuster, is a partner on a month-to-month basis. The Company also
pays Mr. Shuster for the use of overnight accommodations on the East
Coast. The Company is advised that the rental and other terms of the
agreed-upon arrangements are no more favorable to Mr. Shuster than could
have been obtained in a similar location from an independent, unrelated
provider.
Brian Shuster, a director of the Company, provides consulting services to
the Company with respect to the development of the Company's interactive media
software through its subsidiary, United Leisure Interactive, Inc. Mr. Shuster
receives $5,000 per month consulting fees. The consulting arrangement is an
ongoing oral arrangement, which may be terminated by either party upon 30 days
notice. During the years ended December 31, 1996 and 1995, the Company paid Mr.
Shuster consulting fees of $60,000 and $35,000, respectively.
12. INCOME TAXES
The components of income tax expense for the year ended December 31, 1995
consisted of state income taxes of $19,000.
At December 31, 1996, the Company had net operating loss carryforwards for
federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
Year Expires Amount
------------ ------
<S> <C>
1997 $ 379,960
1998 135,776
1999 1,738,569
2000 1,434,703
</TABLE>
41
<PAGE> 42
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C>
2001 781,145
2002 140,196
2008 523,345
2009 898,771
2010 233,686
-----------
TOTAL $ 6,266,151
===========
</TABLE>
The components of deferred taxes were as follows at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,181,228 $ 2,989,764
Accrued expenses to a related party 417,219 434,414
Other accruals 63,240
State income taxes 2,176 6,460
Partnership interest 39,068 29,684
Valuation allowance (2,674,379) (3,431,770)
----------- -----------
Total deferred tax assets 28,552 28,552
Deferred tax liability:
Depreciation 28,552 28,552
----------- -----------
Net deferred taxes $ -0- $ -0-
=========== ===========
</TABLE>
Income tax expense amounted to $0 and $19,000 in 1996 and 1995,
respectively. The actual tax expense differs from the expected tax expense
(computed by applying the federal corporate tax rate of 34% to income
before income taxes) as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Expected statutory tax $ (137,114) $ (212,562)
State income tax, net of federal tax benefit 12,540
Loss producing no current tax benefit 137,114 219,022
----------- -----------
Actual tax $ -0- $ 19,000
=========== ============
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Contingent Financing Fees - The Company is obligated to the payment of a
contingent financing fee based on any recovery obtained from the
litigation described in Note 4 relating to notes payable in the amount of
$900,000 and $120,000 repaid in December 1993 and April 1994,
respectively. The contingent financing fee is determined as an amount
equal to 10% of the gross proceeds received by the Company, either as a
settlement of, or as damages from, The Irvine Company Litigation not to
exceed the amount of the loans made to the Company by such lenders. Such
amount is to be prorated among the lenders based on the amount of their
loans and thus the total liability of the Company for this contingent
financing fee is the total amount of the loans ($1,020,000) made to the
Company pursuant to these transactions. Such contingent financing fee is
only payable in the event that the Company receives payments in settlement
or, or damages from, The Irvine Company Litigation and is not payable
unless the Company is successful.
Consulting Agreement - As of June 1, 1994, the Company and Mr. Shuster
entered into an amended and restated consulting agreement updating an
arrangement originally effective as of September 1, 1984. The consulting
agreement provides that Mr. Shuster will act as the President and Chief
Executive Officer and a Director of the Company throughout the rolling
five-year term of the agreement for annual compensation set at $208,984
per
42
<PAGE> 43
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
annum for 1994, to be increased 10% during each successive year of the
agreement. Mr. Shuster is also to be provided with either the use of a
company car in carrying out his duties for the Company or $300 per month
car allowance. The consulting agreement provides for certain disability
benefits for a period of up to three years. The consulting agreement
provides that, so long as Mr. Shuster spends as much time as is necessary
to properly carry out his duties as President and Chief Executive Officer
of the Company, he will be otherwise permitted to spend a reasonable
amount of time pursuing his own outside interests. The consulting
agreement provides for automatic one year renewals for each contract year
that ends without termination of the consulting agreement by either party.
During 1996 and 1995, the Company incurred consulting fees pursuant to
this agreement in the amount of $248,482 and $221,171, respectively.
(Note 11).
14. JOINT VENTURE
In June, 1994, the Company entered into a joint venture with Master
Glazier's Karate International, Inc. ("MGK"), a publicly traded company
engaged in the operation of karate centers in New Jersey and Pennsylvania.
The parties formed a new company, Planet Kids Learning Centers, Inc.
("Planet Kids"), which was equally owned, to create and operate
state-of-the-art children's play-learning centers. Each of the parties
contributed $500,000 to the joint venture as equity and loaned Planet Kids
an additional $500,000. As of June 20, 1995, the Company bought out MGK's
interest in the joint venture, thus becoming the sole stockholder in
exchange for the return of MGK's initial equity investment of $500,000,
plus repaid MGK's loan in the amount of $500,000 with accrued interest of
$40,500. In addition, for the risk undertaken by MGK, the Board of
Directors granted to MGK an option to acquire up to 150,000 shares of the
Common Stock of United Leisure Corporation at an exercise price of $.01
per share. This option was exercised in 1995. The new Planet Kids centers
operate out of leased premises and service children ages 3 through 13.
Each center provides children with interactive multimedia educational
games, exercise playgrounds, educational computers, party facilities and
other activities.
15. STOCKHOLDERS' EQUITY
Stock Options - The following non-qualified stock options granted by the
Company were outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Exercise
Number of Price
Shares Per Share Date of Grant Date of Expiration
------ --------- ------------- ------------------
<S> <C> <C> <C>
35,000 $1.00 February 1, 1986 February 28, 1997
15,000 .68 January 20, 1987 December 31, 2002
356,950 1.00 July 24, 1987 December 31, 2002
90,000 .30 April 22, 1988 December 31, 2002
37,500 1.33 October 7, 1988 December 31, 2002
75,000 1.25 November 17, 1988 December 31, 2002
37,500 1.38 December 5, 1988 December 31, 2002
75,000 .75 February 22, 1989 February 28, 1997
70,000 .75 December 7, 1990 December 31, 2002
60,000 1.00 September 23, 1993 December 31, 2002
-----------
851,950
===========
</TABLE>
43
<PAGE> 44
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes the activity of common shares under stock
options for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance--beginning of year 851,950 864,950
Options granted 150,000
Options exercised (156,421)
Option redeemed (6,579)
----------- -----------
Balance--end of year 851,950 851,950
=========== ===========
</TABLE>
Warrants - At December 31, 1996, the following warrants were outstanding:
<TABLE>
<CAPTION>
Exercise
Number of Price
Shares Per Share Date of Grant Date of Expiration
------ --------- ------------- ------------------
<S> <C> <C> <C>
4,945,000 $4.00 November 10, 1994 November 10, 1999
430,000 6.60 November 10, 1994 November 10, 1999
-----------
5,375,000
===========
</TABLE>
16. SEGMENT INFORMATION
The Company's two business segments are facility rentals and children's
recreational activities. The following is a summary of selected
consolidated information for the industry segments for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operating revenues:
Facility rentals $ 1,444,284 $ 1,494,012
Children's recreational activities 3,051,216 1,702,857
----------- -----------
Total $ 4,495,500 $ 3,196,869
=========== ===========
Operating income (loss):
Facility rentals $ 1,169,288 $ 1,111,653
Children's recreational activities (1,609,114) (1,253,232)
Unallocated corporate overhead:
Compensation (506,607) (408,690)
General legal fees (159,906) (116,503)
Other (453,442) (371,425)
----------- -----------
Total operating income (loss) (1,559,781) (1,038,197)
Other income (expense):
Interest income 382,028 699,204
</TABLE>
44
<PAGE> 45
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C> <C>
Interest expense (91,223) (84,237)
Legal costs (Notes 3 and 4) (331,291) (365,207)
Adjustment for over-provided liabilities 1,128,973 154,759
Other, net 68,019 8,495
----------- -----------
Income (loss) before income taxes
and extraordinary item $ (403,275) $ (625,183)
=========== ===========
Depreciation and amortization:
Facility rentals $ 36,968 $ 53,847
Children's recreational activities 475,521 168,246
General corporate 11,173 6,057
----------- -----------
Total $ 523,662 $ 228,150
=========== ===========
Capital expenditures:
Children's recreational activities $ 2,164,351 $ 4,940,322
General corporate 57,371 41,867
----------- -----------
Total $ 2,221,722 $ 4,982,189
=========== ===========
Identifiable assets:
Facility rentals $ 70,478 $ 381,042
Children's recreational activities 6,753,121 5,330,440
General corporate 6,931,287 10,170,770
----------- -----------
Total $13,754,886 $15,882,252
=========== ===========
</TABLE>
17. SUBSEQUENT EVENTS
Exercise of Warrants - In February 1997, the Company exercised its
warrants to purchase 433,333 shares of common stock of Grand Havana
Enterprises, Inc. ("Grand Havana") for a total exercise price of $575,000
(see Note 5).
Financing Agreement - In February 1997, the Company entered into a
financing agreement with Grand Havana whereby the Company agrees to
provide a loan to Grand Havana, from time to time, during a period of six
months, of up to $1,250,000. The loan shall be advanced in such increments
as shall be requested by Grand Havana from time to time. Interest on the
amount of the loan that have been advanced shall bear interest at the rate
of 8% per annum from the date of the advance until paid. The full
principal amount advance and all accrued interest shall be payable on
September 30, 1997. In consideration for making the loan, Grand Havana
shall issue to the Company 75,000 shares of Grand Havana's common stock.
If the loan is not paid by the maturity date, then Grand Havana will issue
to the Company, as a late fee, an additional 25,000 shares of common
stock.
Las Vegas Plaza Shopping Center - In January 1997, the Company and two
unrelated California limited liability companies formed United Hotel &
Casino ("United Hotel"), a limited liability company organized under the
laws of the State of Delaware. United Hotel's purpose is to acquire a real
property commonly known as The Silver City/Las Vegas Plaza Shopping Center
in Las Vegas, Nevada. The Company initially contributed $125,000 in Escrow
and agreed to contribute an additional $3,375,000 for a 50% interest in
United Hotel in the event United Hotel is successful in its action to
cause the lender of the existing deed of trust of this real property to
consent to the assignment and assumption of this deed of trust to United
Hotel.
45
<PAGE> 46
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not changed accountants within the two fiscal years
ended December 31, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Directors and executive officers of the Company:
<TABLE>
<CAPTION>
ALL POSITIONS POSITION HELD
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- ------------
<S> <C> <C> <C>
Harry Shuster 62 Chairman of the Board, President 1969
and Chief Executive Officer
and a Director of the Company
Alvin Cassel 83 Director 1969
Alvin Alexander 69 Director 1975
David M. Kane 34 Chief Financial Officer 1997
J. Brooke Johnston 57 Director 1996
Brian Shuster 38 Director 1996
</TABLE>
Harry Shuster has been engaged in managing the affairs of the Company
since 1967, serving in the capacity of Chairman of the Board, President and
Chief Executive Officer since April, 1975. Mr. Shuster is also the Chairman of
the Board, President and Chief Executive Officer of Grand Havana Enterprises,
Inc., a publicly-traded company primarily engaged in the business of the
ownership and operation of private membership restaurants and cigar clubs whose
offices are located in Los Angeles, California. See "Certain Relationships and
Related Transactions." Under his agreement with that company, Mr. Shuster has
agreed to devote at least 30 hours per week carrying out his duties in
connection with that company's business. Mr. Shuster also devotes a portion of
his time pursuing various other personal matters unrelated to the Company's
business. Mr. Shuster devotes approximately 30 hours per week working on the
Company's business. Mr. Shuster
46
<PAGE> 47
is also the Chairman of the Board of Hit Entertainment, Inc., which is currently
a privately-held independent motion picture production company. Mr. Shuster is
a "control" person of the Company. Mr. Shuster is also the father of Brian
Shuster. See "Legal Proceedings," above, for a discussion of former bankruptcy
proceedings involving the Company's primary operating subsidiary, of which Mr.
Shuster is an officer and director.
Alvin Cassel is of counsel to the law firm of Broad and Cassel, Miami,
Florida. He has been engaged in a general civil law practice for more than 60
years. Mr. Cassel is also Managing Director of Koorn N.V. See "Security
Ownership of Certain Beneficial Owners and Management." See "Legal Proceedings,"
above, for a discussion of former bankruptcy proceedings involving the Company's
primary operating subsidiary, of which Mr. Cassel is an officer and director.
Mr. Alexander is and has been for more than five years President of
Skip Alexander Productions, a game show development company located in Los
Angeles, California, and has been a director of the Company since 1975.
David M. Kane has been the Chief Financial Officer of the Company since
March 1997. Mr. Kane has also been the Chief Financial Officer of GHEI and HIT
Entertainment, Inc. since March 1997. From July 1995 through March 1997 Mr. Kane
was Director of Finance at Virgin Records America, Inc. in Beverly Hills,
California. From May 1994 through June 1995 Mr. Kane was the Controller of
Hemdale Home Video, Inc., a video and foreign programming distributor in Los
Angeles, California. From October 1992 through May 1994 Mr. Kane was a Senior
Accountant in the Audit Division of Kenneth Leventhal & Company in Los Angeles,
California. From June 1991 to December 1991 Mr. Kane was a financial analyst for
the theme park engineering and design division of Walt Disney Imagineering, Inc.
in Glendale California. Mr. Kane received his BA degree in 1986 from University
of California at Los Angeles and is a certified public accountant.
Brian Shuster has been the President of Hit Entertainment, Inc., an
independent motion picture production company in Los Angeles, California since
1995. Harry Shuster is the Chairman of the Board and a principal stockholder of
HIT. From 1993 through 1995 Brian Shuster was President of Beverly Hills
Producers Group, an independent motion picture production company. From 1990
through 1993 Mr. Shuster was Vice President of Worldwide Entertainment Group, an
independent motion picture production company.
J. Brooke Johnston, Jr. has been Senior Vice President and General
Counsel for Med Partners, Birmingham, Alabama since April 1996. Prior to that
Mr. Johnston was a senior principal of the law firm of Haskell, Slaughter,
Young & Johnston, Professional Association, in Birmingham, Alabama where he
practiced securities law for over 17 years. Mr. Johnston is a member of the
Alabama State Bar and the New York and American Bar Associations.
The present term of each Director will expire at the time of the next
Annual Meeting of Stockholders of United Leisure Corporation. Executive officers
are elected at the Annual Meeting of the Board of Directors held immediately
following the Annual Meeting of Stockholders and hold office until the next
Annual Meeting of the Board of Directors or until their successors are duly
elected and qualified.
47
<PAGE> 48
There are no arrangements or understandings known to the Company
between any of the Directors or executive officers of the Company and any other
person, pursuant to which any of such persons was or is to be selected as a
Director or an executive officer, except (a) the Amended and Restated Consulting
Agreement between the Company and Harry Shuster, which agreement is described
below under "Executive Compensation -- Consulting and Employment Agreements,"
and (b) the Underwriting Agreement executed and delivered by the Company in
connection with the public offering of the Company's securities completed in
November 1994, which provides that the underwriter of such offering, Stratton
Oakmont, Inc., has the right to appoint one member of the Company's Board of
Directors for a three-year period. Stratton Oakmont, Inc. has not exercised its
right to elect a Director of the Company to date.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership of the Company's
Securities with the Securities and Exchange Commission. Officers, Directors and
beneficial owners of more than 10% of the Company's Common Stock are required by
the Commission's regulations to furnish the Company with copies of all Section
16(a) forms that they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no reports on Form 5
were required, the Company believes that for the period from January 1, 1996
through December 31, 1996, all officers, Directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them, except that each of Brian Shuster and J. Brooke Johnston, were late in
filing their initial statements of beneficial ownership on Form 3 due to
administrative oversight.
48
<PAGE> 49
ITEM 10. EXECUTIVE COMPENSATION.
CASH COMPENSATION
The following table sets forth compensation paid or awarded to the
Chief Executive Officer and the only other executive officer of the Company
whose compensation exceeded $100,000 for all services rendered to the Company in
1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- -------------------------
Securities Long-Term
Name and Underlying Incentive All Other
Principal Position Year Salary Bonus Options Payouts Compensation(2)
- ------------------ ---- ------ ----- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Harry Shuster 1996 $248,482(3) $ -- -- -- $3,600
Chairman of the Board, 1995 $196,790(1)(3) $ -- -- -- $3,600
President and Chief 1994 $202,446(1)(3) -- -- -- $3,600
Executive Officer
Renate Graf 1996 $ 60,865(4) $ -- -- -- --
Vice President 1995 $117,049 30,000 -- -- --
Controller 1994 107,207 -- -- -- --
</TABLE>
- ----------
(1) The consulting fee due Harry Shuster, Chairman of the Board, President
and Chief Executive Officer of the Company under the Amended and
Restated Consulting Agreement described below for 1995 and 1994 was not
paid in full. $24,521 for 1995 and $52,245 was 1994 of the amount was
accrued on the books of the Company for later payment.
(2) Includes $300 per month car allowance paid Mr. Shuster.
(3) See this Item, "Executive Compensation -- Consulting and Employment
Agreements".
(4) Ms. Graf ceased to be employed by the Company upon her death in June
1996.
-----------------------------
The Company also pays rental on an apartment used by Mr. Shuster while
he is in New York.
The Company has no employee bonus or benefit plans, profit sharing
plans, retirement plans or deferred compensation plans. No fees are paid
Directors for attendance at meetings of the Board of Directors, although
out-of-pocket expenses incurred in connection therewith are reimbursed.
STOCK OPTION GRANTS IN 1996
No stock option grants were made to the executive officers or directors
of the Company in 1996.
49
<PAGE> 50
STOCK OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options
Acquired at December 31, 1996 at December 31, 1996(1)
on Value ------------------------------ -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harry Shuster -- -- 506,950 -- $0 $ --
</TABLE>
- ----------
(1) Represents difference between market price of the Company's Common Stock
and the respective exercise prices of the options at December 31, 1996.
Since the market price of the Common Stock at December 31, 1996 was less
than the exercise prices of any of Mr. Shuster's outstanding options, the
options were not "in-the-money" at December 31, 1996. Actual values which
may be realized, if any, upon any exercise of such options will be based
on the market price of the Common Stock at the time of any such exercise
and thus are dependent upon future performance of the Common Stock.
CONSULTING AND EMPLOYMENT AGREEMENTS
As of June 1, 1994, the Company and Mr. Shuster entered into an Amended
and Restated Consulting Agreement (the "Consulting Agreement"), updating an
arrangement originally effective as of September 1, 1984. The Consulting
Agreement provides that Mr. Shuster will act as the President and Chief
Executive Officer and a Director of the Company throughout the rolling five-year
term of the Agreement for annual compensation set at $208,984 per annum for
1994, to be increased 10% during each successive year of the Agreement. Mr.
Shuster is also to be provided with either the use of a Company car in carrying
out his duties for the Company or $300 per month car allowance. During 1994, Mr.
Shuster received a consulting fee of $202,446 under the Consulting Agreement,
$52,245 of which was accrued on the books of the Company for later payment.
During 1995, Mr. Shuster received a consulting fee of $196,790 under the
Consulting Agreement, and an additional $24,521 was accrued on the books of the
Company for later payment. During 1996 Mr. Shuster received a consulting fee of
$248,482 under the Consulting Agreement all of which was paid to Mr. Shuster. In
addition, Mr. Shuster was paid in 1996 an additional $29,711 in consulting
compensation which had previously been deferred. The Consulting Agreement
provides for certain disability benefits for a period of up to three years. The
Consulting Agreement provides that, so long as Mr. Shuster spends as much time
as is necessary to properly carry out his duties as President and Chief
Executive Officer of the Company, he will be otherwise permitted to spend a
reasonable amount of time pursuing his own outside interests. It is estimated
that Mr. Shuster devoted approximately 30 hours per week to the affairs of the
Company during 1995 and 1996. The Consulting Agreement provides for automatic
one year renewals for each contract year that ends without termination of the
Consulting Agreement by either party. The Consulting Agreement terminates upon
Mr. Shuster's death or in the event of a breach of the Consulting Agreement by
Mr. Shuster.
50
<PAGE> 51
STOCK OPTIONS
At March 1, 1997, there were outstanding presently exercisable
non-qualified stock options to purchase an aggregate of 641,950 shares of the
Common Stock of the Company held by the Company's officers and Directors. Of
these, 506,950 were held by Harry Shuster, Chairman of the Board, President and
Chief Executive Officer of the Company, and the balance were held by the other
Directors of the Company, at option prices ranging from $.30 to $1.38 per share.
See "Security Ownership of Certain Beneficial Owners and Management".
All non-qualified stock options issued by the Company to its executive
officers and Directors are in substantially the same form. All options issued
have a term which expires on December 31, 2002, and are immediately exercisable
as to all of the shares of Common Stock covered thereby. The option price is the
fair market value of the Common Stock of the Company as of the date of grant.
Each option terminates at the end of 90 days following termination of
association with or employment by the Company for any reason other than death or
at the end of one year in the event such termination is caused by death.
In addition to the non-qualified stock options held by executive
officers and Directors of the Company, at March 1, 1997, there were outstanding
non-qualified options to purchase an aggregate of 100,000 shares of the Common
Stock of the Company held by third parties. All of these non-qualified options
are in substantially in the same form as those issued to executive officers and
Directors of the Company, except that generally they are not terminable until
they expire. These options have exercise prices ranging from $.30 to $1.38 and
expire at December 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
GENERAL
The following table sets forth certain information with respect to all
persons, or groups of persons, known by the Company to own beneficially more
than five percent of the Common Stock of the Company, and as to the beneficial
ownership thereof of the officers and Directors of the Company, individually and
as a group, all as at March 15, 1997:
51
<PAGE> 52
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENTAGE
OF BENEFICIAL OWNER(a) BENEFICIALLY OWNED OWNERSHIP
- ---------------------- ------------------ ----------
<S> <C> <C>
Harry Shuster 4,579,932(b) 35.6%
8800 Irvine Center Drive
Irvine, California 92718
Walton N.B. Imrie 654,430(c) 5.2%(c)
c/o Kestral S.A.
Pausilippe Ch.
Des Trois-Portes 11
2006 Neuchatel, Switzerland
Alvin Cassel 135,100(d) 1.1%
Alvin Alexander 8,021 *
Brian Shuster 300(e) *
J. Brooke Johnston, Jr. 5,000 *
All Officers and Directors
as a Group (4 persons) 4,728,353(b)(d)(e) 36.7%
</TABLE>
- ----------
(a) Addresses are shown only for the beneficial owners of at least five
percent of the class of security shown.
(b) Includes 110,100 shares owned by Koorn N.V., a Netherlands Antilles
corporation, all of whose capital shares are owned by Harry Shuster.
Mr. Shuster has sole investment power over the shares owned by Koorn
N.V., but shares voting power of these shares. Alvin Cassel, a director
of the Company, acts as Managing Director of Koorn N.V. Also includes
125,000 shares owned by the Harry and Nita Shuster Charitable
Foundation and 300 shares owned by Nita Shuster, the spouse of Harry
Shuster. Does not include 10,000 shares owned by Bardene Shuster, 300
shares owned by Nita CF Shuster and Bardene Anne Shuster, 300 Shares
owned by Nita CF Shuster and Brian Shuster, and 300 shares owned by
Nita CF Shuster and Stanley Shuster, of which shares Mr. Shuster
disclaims beneficial ownership. Also includes options to purchase
506,950 shares of common stock which are currently exercisable as well
as 3,837,582 shares of stock owned directly by Mr. Shuster.
(c) These shares are owned by Plus One Finance, Ltd., a British Virgin
Islands corporation, which is wholly-owned by Walton N.B. Imrie, a
resident of Switzerland. Includes warrants to purchase 83,000 shares of
common stock which are currently exercisable.
(d) Includes 110,100 shares held by Koorn N.V., as to which Mr. Cassel has
shared voting power and options to purchase 25,000 shares of common
stock which are currently exercisable.
(e) Includes 300 shares owned by Nita C.F. Shuster and Brian Shuster.
* Less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In prior years, the Company's President and Chief Executive Officer,
Harry Shuster, advanced working capital to the Company at the prime rate plus
3%. Such advances were secured by the Company's rights under its sublease
arrangements. In June 1995, advances, excluding accrued interest, of $649,800
were converted by Mr. Shuster into equity by the exercise of options to purchase
755,550 shares of the Company's common stock. Mr. Shuster has deferred payment
of certain of the interest due him under the loan arrangement
52
<PAGE> 53
and certain of the amounts due him under his Consulting Agreement with the
Company. On July 29, 1995, the Company made an advance in the amount of $100,000
to Harry Shuster, Chairman of the Board, President and Chief Executive Officer
of the Company, for personal expenses. The advance bears interest at 10% per
annum. During 1996 the Company made additional advances to Mr. Shuster in the
amount of $1,259,260. As of December 31, 1996, due from Mr. Shuster amounted to
$295,706. See "Financial Statements-- Note 11 to Notes to Consolidated Financial
Statements."
The Company leases certain of its office space, on a month-to-month
basis, at a current rental of $2,587 per month, from a partnership of which
Harry Shuster, the Company's President and Chief Executive Officer is a partner.
In addition, the Company also pays rent on an apartment used by Mr. Shuster for
his overnight accommodations while on the East Coast. The Company is advised
that the rental and other terms of the agreed-upon arrangements are no more
favorable to Mr. Shuster than could have been obtained in a similar location
from an independent, unrelated provider.
Brian Shuster, a director of the Company, provides consulting services
to the Company with respect to the development of the Company's interactive
media software through its subsidiary, United Leisure Interactive, Inc. Mr.
Shuster receives $5,000 per month for his consulting services rendered. The
consulting arrangement is an ongoing oral arrangement, which may be terminated
by either party upon 30 days notice. See "Description of Business -- United
Leisure Interactive."
In April 1996 the Company acquired fifty percent of the limited
partnership interests in HEP II L.P., a California limited partnership formed in
March 1996, for a capital contribution in the amount of $1,500,000. HEP II L.P.
is engaged in the motion picture production business. The general partner of HEP
II is HIT Entertainment, Inc., a California corporation. Harry Shuster, the
Chairman of the Board and Chief Executive Officer of the Company is the Chairman
of the Board of HIT as well as one of its principal stockholders. Brian Shuster,
a Director of the Company, is the President of HIT.
In September 1996 the Company entered into a financing agreement in
which it agreed to pledge the sum of $875,000 in order to support a letter of
credit required to be provided by Grand Havana Enterprises, Inc. in connection
with a lease that corporation had entered into ("GHEI"). In consideration for
providing this pledge of collateral for GHEI's letter of credit, GHEI agreed to
pay the Company an amount equal to 10% per annum on the amount of the pledged
cash collateral as it exists from time to time. The cash collateral is to be
replaced by GHEI in full by March 1998. As additional consideration the Company
received 100,000 shares of the stock of GHEI and a warrant to purchase an
additional 100,000 shares of common stock of GHEI at an exercise price of $.75
per share. Harry Shuster is the Chairman of the Board, President, Chief
Executive Officer and a principal stockholder of GHEI.
In February 1997 the Company entered into an additional financing
agreement with GHEI pursuant to which the Company agreed to lend GHEI up to an
aggregate of
53
<PAGE> 54
$1,250,000 in order to fund the development of two private membership restaurant
and cigar clubs being developed by GHEI. The loan may be advanced in increments
from time to time as requested by GHEI, bears interest at the rate of 8% per
annum on the outstanding principal amount and is due and payable in full on
September 30, 1997. As additional consideration for this loan, the Company
received 75,000 shares of the stock of GHEI. In addition, if the loan is not
repaid on September 30, 1997, it will become payable on demand and GHEI shall
deliver to the Company an additional 25,000 shares of the common stock of GHEI
as a late fee.
In addition to its providing financing to GHEI, the Company
participated in a private placement conducted by GHEI, and in October 1996
purchased, for an aggregate cash consideration of $250,000, 333,333 shares of
the common stock of GHEI and warrants to purchase an additional 333,333 shares
of the common stock of GHEI, which warrants are exercisable for a period of five
years at a price of $1.50 per share. In February 1997, United Leisure exercised
all of its outstanding warrants to purchase the common stock of GHEI for an
aggregate exercise price of $575,000. At April 1, 1996 the Company owned an
aggregate of 941,666 shares of common stock of GHEI.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) 1. Financial Statements.
The audited consolidated financial statements of United Leisure
Corporation and Subsidiaries filed as a part of this Annual Report on Form
10-KSB are listed in the "Index to Consolidated Financial Statements" preceding
the Company's Consolidated Financial Statements contained in Item 7 of this
Annual Report on Form 10-KSB, which "Index to Consolidated Financial Statements"
is hereby incorporated herein by reference.
2. Exhibits.
The Exhibit Index immediately following the signature page of this
Annual Report on Form 10-KSB is incorporated herein.
(b) Reports on Form 8-K. United Leisure Corporation filed no Current
Report on Form 8-K during or with respect to the last quarter of 1996.
54
<PAGE> 55
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.
UNITED LEISURE CORPORATION
By /s/ HARRY SHUSTER
-----------------------------
Harry Shuster,
Chairman of the Board,
President and
Chief Executive Officer
Date: April 10, 1997
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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ HARRY SHUSTER Chairman of the Board, April 10, 1997
----------------- President and Chief Executive Officer
Harry Shuster and Director
/s/ ALVIN CASSEL Director April 5, 1997
- -------------------
Alvin Cassel
/s/ ALVIN ALEXANDER Director April 5, 1997
- -------------------
Alvin Alexander
/s/ DAVID M. KANE Chief Financial Officer April 10, 1997
- ------------------- (Principal Financial Officer)
David M. Kane
/s/ BRIAN SHUSTER Director April 10, 1997
- -------------------
Brian Shuster
/s/ J. BROOKE JOHNSTON Director April 11, 1997
- ----------------------
J. Brooke Johnston
</TABLE>
55
<PAGE> 56
EXHIBIT INDEX
Page
3-1. Restated Certificate of Incorporation of the Company, as filed in the
office of the Secretary of State of the State of Delaware on June 27,
1988, filed as Exhibit 3-1 to the Company's Registration Statement on
Form SB-2 (Registration No. 33-81074), is hereby incorporated herein by
reference.
3-2. Bylaws of the Company, filed as Exhibit 3-2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), are
hereby incorporated herein by reference.
4-1. Warrant Agreement, dated November 18, 1994, between the Company and
OTR, Inc., filed as Exhibit 4-1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994, is hereby
incorporated herein by reference.
4-2. Form of Warrant to Purchase Common Stock used in connection with 12%
Promissory Note unit private placement and Bankruptcy Court deposit,
filed as Exhibit 4-3 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-81074), is hereby incorporated herein by
reference.
4-3. Underwriter's Unit Purchase Option, dated November 18, 1994, issued to
Stratton Oakmont, Inc., filed as Exhibit 4-3 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1994, is
hereby incorporated herein by reference.
10-1. Ground Lease, dated February 11, 1968, between The Irvine Company and
National Leisure, Inc., a Florida corporation (the "Ground Lease"),
Amendment No. 1 to the Ground Lease, dated July 13, 1970; Amendment No.
2 to the Ground Lease, dated March 8, 1971; Amendment No. 3 to Ground
Lease, dated May 8, 1972; Amendment No. 4 to Ground Lease, dated
January 12, 1976; Amendment No. 5 to Ground Lease, dated April 1, 1976;
Amendment No. 6 to Ground Lease, dated August 11, 1976; Amendment No. 7
to Ground Lease, dated March 7, 1977; Amendment No. 8 to Ground Lease,
dated April 22, 1977; Amendment No. 9 to Ground Lease, dated March 23,
1983; Letter, dated June 4, 1984, from The Irvine Company addressed to
Lion Country Safari, Inc.; Amendment to Ground Lease (unnumbered),
dated November 15, 1984; Amendment No. 10 to Ground Lease, dated
January 20, 1986; Consent to Sublease; Nondisturbance Agreement:
Amendment to Sublease, dated as of December 26, 1985; Consent to and
Agreement Concerning Encumbrance of Sublease, dated January 22, 1986
among The Irvine Company and Lion Country Safari, Inc.- California;
Assignment and Purchase Agreement, dated March
56
<PAGE> 57
23, 1983, between The Irvine Company and Lion Country Safari,
Inc.-California; Partial Assignment of Sublessor's Interest in
Sublease, dated March 23, 1983, by Lion Country Safari, Inc. to The
Irvine Company, filed as Exhibit 10-1 to the Company's Registration
Statement on Form SB-2 (Registration No.33-81074), is hereby
incorporated herein by reference.
10-2. Sublease Agreement, dated August 7, 1980, between Lion Country Safari,
Inc.-California and Feyline Presents, Inc.; Assignment of Sublease
Agreement, dated August 19, 1980, between Feyline Presents, Inc. and
Irvine Meadows Amphitheater; Amendment to Sublease, dated September 16,
1980, between Lion Country Safari, Inc.-California and Irvine Meadows
Amphitheater; Agreement, dated September 12, 1980, among The Irvine
Company, Lion Country Safari, Inc. and Lion Country Safari,
Inc.-California; Letter Agreement, between The Irvine Company and Lion
Country Safari, Inc.- California; Amendment to Sublease, dated January
1, 1981, between Lion Country Safari, Inc. and Irvine Meadows
Amphitheater; Letter, dated July 28, 1981, of Irvine Meadows
Amphitheater addressed to the Company, filed as Exhibit 10-2 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-3. Amended and Restated Consulting Agreement, dated as of June 1, 1994,
between the Company and Harry Shuster, filed as Exhibit 10-3 to the
Company's Registration Statement on Form SB-2 (Registration
No.33-81074), is hereby incorporated herein by reference.
10-5. Stock Option Agreement, dated December 7, 1990, between the Company and
Haskell Slaughter Young & Johnston, Professional Association, covering
50,000 shares of Common Stock, par value $.01 per share, of the
Company, filed as Exhibit 10-5 to the Company's Registration Statement
on Form SB-2 (Registration No. 33-81074), is hereby incorporated herein
by reference.
10-6. Stock Option Agreement, dated December 7, 1990, between the Company and
Alvin Cassel covering 10,000 shares of Common Stock, par value $.01 per
share, of the Company, filed as Exhibit 10-6 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference.
10-7. Stock Option Agreement, dated December 7, 1990, between the Company and
Renate Graf covering 10,000 shares of Common Stock, par value $.01 per
share, of the Company, filed as Exhibit 10-7 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference.
10-8. Stock Option Agreement, dated April 22, 1988, between the Company and
Renate Graf covering 25,000 shares of Common Stock, par value $.01 per
57
<PAGE> 58
share, of the Company; Extension of Option Agreement, dated April 20,
1993, between the Company and Renate Graf, filed as Exhibit 10-9 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-9. Stock Option Agreement, dated April 22, 1988, between the Company and
Alvin Cassel covering 10,000 shares of Common Stock, par value $.01 per
share, of United Leisure Corporation; Extension of Option Agreement,
dated April 20, 1993, between the Company and Alvin Cassel, filed as
Exhibit 10-10 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by
reference.
10-10. Stock Option Agreement, dated October 7, 1988, between the Company and
Harry Shuster covering 37,500 shares of Common Stock, par value $.01
per share, of the Company; Extension of Option Agreement, dated April
20, 1993, between the Company and Harry Shuster, filed as Exhibit 10-12
to the Company's Registration Statement on Form SB-2 (Registration
No.33-81074), is hereby incorporated herein by reference.
10-11. Stock Option Agreement, dated November 17, 1988, between the Company
and Harry Shuster covering 75,000 shares of Common Stock, par value
$.01 per share, of the Company; Extension of Option Agreement, dated
April 20,1993, between the Company and Harry Shuster, filed as Exhibit
10-13 to the Company's Registration Statement on Form SB-2
(Registration No.33-81074),is hereby incorporated herein by reference.
10-12. Stock Option Agreement, dated December 5, 1988, between the Company and
Harry Shuster covering 37,500 shares of Common Stock, par value $.01
per share, of the Company; Extension of Option Agreement, dated April
20, 1993,between the Company and Harry Shuster, filed as Exhibit 10-14
to the Company's Registration Statement on Form SB-2 (Registration
No.33-81074),is hereby incorporated herein by reference.
10-14. Stock Option Agreement, dated July 24, 1987, between the Company and
Harry Shuster; Extension of Option Agreement, dated April 20, 1993,
between the Company and Harry Shuster, covering 750,000 shares of
Common Stock,par value $.01 per share, of the Company, filed as Exhibit
10-16 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074),is hereby incorporated herein by reference.
10-15. Option Agreement dated as of April 22, 1988, between the Company and
Haskell Slaughter Young & Johnston, Professional Association, covering
50,000 shares of Common Stock, par value $.01 per share, of the
Company;Extension of Option Agreement, dated April 20, 1993, between
the Company and Haskell Slaughter Young & Johnston, Professional
58
<PAGE> 59
Association, filed as Exhibit 10-17 to the Company's Registration
Statement on Form SB-2(Registration No. 33-81074), is hereby
incorporated herein by reference.
10-16. Option to Sublease, dated as of September 25, 1984, between Lion
Country Safari, Inc.-California and American Sportsworld, Inc.,
including the proposed Lease and Agreement to be entered into upon
exercise thereof, filed as Exhibit 10-19 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference.
10-17. Letter, dated February 22, 1985, from Lion Country Safari,
Inc.-California addressed to American Sportsworld, Inc.; Lease, dated
as of May 14, 1985,between Lion Country Safari, Inc.-California and
American Sportsworld, Inc.;Amendment to Lease, dated December 2, 1985,
between Lion Country Safari,Inc. and American Sportsworld, Inc.; Letter
Contract, dated June 27, 1985,between the Company and The Splash;
Assignment of Sublease, dated as of December 26, 1985, between Lion
Country Safari, Inc.-California, American Sportsworld, Inc. and The
Splash; Bill of Sale, dated January 10, 1986, between Lion Country
Safari, Inc.-California and The Splash; Agreement of Limited
Partnership (undated) of The Splash; Letter Agreement, dated October
16, 1986, between Lion Country Safari, Inc.-California and The Splash;
Letter Agreement, dated November 21, 1986, between Lion Country Safari,
Inc.-California and The Splash; Letter Agreement, dated November 25,
1986, between Lion Country Safari, Inc.-California and The Splash,
filed as Exhibit 10-20 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-81074), is hereby incorporated herein by
reference.
10-18. Letter Agreement, dated January 31, 1986, between Africa Arts of
California, Inc. and the Company, filed as Exhibit 10-21 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-19. Option Agreement, dated as of February 1, 1986, between the Company and
Africa Arts of California, Inc. covering 35,000 shares of Common Stock,
par value $.01 per share, of the Company, filed as Exhibit 10-22 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-20. Promissory Note, dated June 1, 1985, of Lion Country Safari,
Inc.-California in the principal amount of $973,927 drawn to the order
of Harry Shuster, filed as Exhibit 10-23 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference.
59
<PAGE> 60
10-21. Deed of Trust, Assignment of Rents and Security Agreement, dated June
1, 1985, between Lion Country Safari, Inc.-California, Brian H. Kay,
Trustee, and Harry Shuster, filed as Exhibit 10-24 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference.
10-22. Collateral Assignment of Leases and Rents, dated June 1, 1985, between
Lion Country Safari, Inc.-California and Harry Shuster, filed as
Exhibit 10-25 to the Company's Registration Statement on Form SB-2
(Registration No.33-81074),is hereby incorporated herein by reference.
10-23. Commercial Lease (General Form), dated July 21, 1986, between Lion
Country Safari, Inc.-California and Orange County Transit
District;Amendment No. 3 to Lease Agreement, dated April 17, 1989,
between Lion Country Safari, Inc.-California and Orange County Transit
District filed as Exhibit 10-26 to the Company's Registration Statement
on Form SB-2(Registration No. 33-81074), is hereby incorporated herein
by reference.
10-24. Stock Option Agreement, dated as of February 22, 1989, covering 67,500
shares of the Common Stock, par value $.01 per share, of the Company in
favor of Tactron Liquidating Trust, filed as Exhibit 10-27 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-25. Stock Option Agreement, dated as of February 22, 1989, covering 7,500
shares of the Common Sock, par value $.01 per share, of the Company in
favor of Lindsey & Associates, Inc., filed as Exhibit 10-28 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference.
10-26. Memorandum of Agreement, dated March 7, 1990, between Lion Country
Safari, Inc., - California and James Productions, Inc., filed as
Exhibit 10-34 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by
reference.
10-27. Form of Indemnity Agreement entered into by the Company with each of
its Directors, filed as Exhibit 10-35 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference.
10-28. Stock Option Agreement, dated September 23, 1993, between the Company
and Renate Graf, covering 50,000 shares of Common Stock, par value $.01
per share, of the Company, filed as Exhibit 10-40 to the Company's
60
<PAGE> 61
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference.
10-29. Stock Option Agreement, dated September 23, 1993, between the Company
and Alvin Cassel, covering 5,000 shares of Common Stock, par value $.01
per share, of the Company, filed as Exhibit 10-41 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference.
10-30. Agreement for Purchase and Sale and Joint Escrow Instructions, dated
April 5, 1995, between PLC Properties, Inc. and United Leisure
Corporation, filed as Exhibit 10-30 to Amendment No. 1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, is hereby incorporated by reference.
10-31. Sub-Operating Agreement, dated April 11, 1995, between Canyon R.V. Park
and Camp Frasier, Inc., together with related Operating Agreements,
filed as Exhibit 10-31 to Amendment No. 1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995, is
hereby incorporated by reference.
10-32. Standard Retail/Office Complex Lease, dated October 12, 1994, between
PSA Properties and Planet Kids, Inc., filed as Exhibit 10-32 to
Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, is hereby incorporated by
reference.
10-33. Commercial Lease, between Eastrich Multiple Investor Fund L.P., Midland
Loan Services, L.P et al., and Planet Kids, Inc., effective August 9,
1995 and Rider thereto filed as Exhibit 10-33 to Amendment No. 1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, is hereby incorporated by reference.
10-34. Lease, dated June 29, 1995, between Magnolia Square and Planet Kids,
Inc. and Addendum thereto, filed as Exhibit 10-34 to Amendment No. 1 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, is hereby incorporated by reference.
10-35. Territory Rights Agreement, between Planet Kids, Inc. and PT Planet
Kidsindo, filed as Exhibit 10-35 to Amendment No. 1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, is hereby incorporated by reference.
10-36. Financing Agreement dated as of February 12, 1997 between the Company
and Grand Havana Restaurants, Inc.
61
<PAGE> 62
10-37. Financing Agreement dated as of September 10, 1996 between the Company
and Grand Havana Enterprises, Inc.
10-38. Operating Agreement for United Hotel & Casino, LLC.
10-39. Lease dated March 7, 1996 between County of Orange and Camp Frasier,
Inc.
21. Subsidiaries of the Company.
27. Financial Data Schedule.
62
<PAGE> 1
Exhibit 10-36
FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Agreement") is made and entered
into this 12th day of February, 1997, by and between UNITED LEISURE CORPORATION
("Leisure"), a Delaware corporation, and UNITED RESTAURANTS, INC.
("Restaurants"), a Delaware corporation.
WHEREAS, Restaurants is in need of up to $1,250,000 in
financing in connection with the furniture, fixtures, and improvements for the
Grand Havana Rooms in New York City and Washington, D.C.; and
WHEREAS, Leisure is interested in providing such funds upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
1. Leisure hereby agrees to loan to Restaurants, from
time to time, during a period of six months from the date hereof, the aggregate
sum of up to $1,250,000 (the "Loan"). The Loan shall be advanced in such
increments as shall be requested by Restaurants from time to time. Interest on
the amount of the Loan that have bee advanced shall bear interest at the rate
of 8% per annum from the date of advance until paid. The full principal amount
advanced, and all accrued but unpaid interest thereon, shall be payable in one
lump sum payment on September 30, 1997 (the "Maturity Date"); provided,
however, if the Loan shall not be repaid in full on the Maturity Date, then the
Loan shall thereafter be payable on demand of Leisure and shall incur a late
fee as set forth in Section 3 below. The Loan shall be evidenced by a
promissory note made by Restaurants in form satisfactory to Leisure.
2. In consideration for making the Loan as set forth
above, Restaurants shall issue to Leisure Seventy-Five Thousand (75,000) shares
of Restaurants' $.01 par value common stock (the "Common Stock").
3. If the Loan shall not be paid at the Maturity Date,
then Restaurants shall cause to be issued to Leisure, as a late fee, an
additional 25,000 shares of Common Stock.
4. As a condition to the issuance of the aforesaid
Common Stock ("Securities"), Leisure hereby represents and warrants to, and
covenants with, Restaurants as follows:
(a) Leisure has received and had the opportunity
to review Restaurants' Form 10-K and Form 10-Q filed with the Securities and
Exchange Commission for the periods ended December 29, 1995 and September 30,
1996, respectively ("Information") and has been given access to full and
complete information regarding
<PAGE> 2
Restaurants, and has utilized such access to Leisure's satisfaction for the
purpose of obtaining such information regarding Restaurants as Leisure has
requested; and, particularly, Leisure has been given reasonable opportunity to
ask questions of, and receive answers from, representatives of Restaurants
concerning the terms and conditions of the issuance of the Securities and to
obtain any additional information, to the extent available;
(b) Leisure was not offered or sold the
Securities, directly or indirectly, by means of any form of general advertising
or general solicitation, including but not limited to the following: (1) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar medium of or broadcast over television or
radio; or (2) any seminar or meeting whose attendees had been invited by any
general solicitation or general advertising;
(c) Stop transfer instructions will be placed
with the transfer agent for the Securities, and a legend may be placed on any
instrument or certificate representing the Securities substantially to the
following effect:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN THE ACT
AND REGULATION D UNDER THE ACT. AS SUCH, THE PURCHASE OF THIS
SECURITY WAS NECESSARILY WITH THE INTENT OF INVESTMENT AND NOT WITH A
VIEW FOR DISTRIBUTION. THEREFORE, ANY SUBSEQUENT TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN WILL BE UNLAWFUL UNLESS IT IS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. FURTHERMORE, IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, WITHOUT THE OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT THE PROPOSED TRANSFER OR
SALE DOES NOT AFFECT THE EXEMPTIONS RELIED UPON BY THE COMPANY IN
ORIGINALLY DISTRIBUTING THE SECURITY AND THAT REGISTRATION IS NOT
REQUIRED.
(d) Leisure has been advised and understands that
the Securities have not been registered under the Securities Act of 1933 or
applicable state securities laws and that the Securities are being offered and
sold pursuant to exemptions from such laws. Leisure represents and warrants
that the Securities are being acquired for Leisure's own account and for
investment purposes only, and without the intention of reselling or
redistributing the same; Leisure has made no agreement with others regarding
any of the Securities; and Leisure's financial condition is such that it is not
likely that it will be necessary to dispose of any of such Securities in the
foreseeable future. Leisure further represents and agrees that if, contrary to
the foregoing intentions, Leisure should later desire
2
<PAGE> 3
to dispose of or transfer any of the Securities in any manner, Leisure shall
not do so unless and until (i) said Securities shall have first been registered
under the Act and all applicable securities laws; or (ii) Leisure shall have
first delivered to Restaurants a written notice declaring such holder's
intention to effect such transfer and describe in sufficient detail the manner
and circumstances of the proposed transfer, which notice shall be accompanied
either by a written opinion of legal counsel who shall be reasonably
satisfactory to Restaurants which opinion shall be addressed to Restaurants and
reasonably satisfactory in form and substance to Restaurants' counsel, to the
effect that the proposed sale or transfer is exempt from the registration
provisions of the Act and all applicable state securities laws, or by a "no
action" letter from the Securities and Exchange Commission to the effect that
the transfer of the Securities without registration will not result in
recommendation by the staff of the Commission that action be taken with respect
thereto.
5. This Agreement and the Exhibit hereto contain the
entire understanding and agreement of the parties regarding the subject matter
hereof. This Agreement may not be amended or superseded except by a written
instrument executed by both parties hereto.
6. In the event that either party to this Agreement
institutes legal action against the other party as a result of a breach or
default under this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys fees and court costs.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
general conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
UNITED LEISURE CORPORATION
By:_____________________________________
Its: President
UNITED RESTAURANTS, INC.
By:_____________________________________
Its: President
3
<PAGE> 1
Exhibit 10-37
FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Agreement") is made and entered
into this 10th day of September, 1996, by and between UNITED LEISURE
CORPORATION ("Leisure"), a Delaware corporation, and UNITED RESTAURANTS, INC.
("Restaurants"), a Delaware corporation.
WHEREAS, Restaurants is in need of a letter of credit in
connection with a proposed lease for a Grand Havana Room in New York City;
WHEREAS, in order to obtain said letter of credit, Restaurants
must provide cash collateral of up to $850,000.00; and
WHEREAS, Leisure is interested in providing such collateral
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
1. Leisure hereby agrees to pledge the sum of up to
$850,000.00 in order for Restaurants to obtain a letter of credit for its
proposed lease for a Grand Havana Room in New York City.
2. Restaurants shall use one-half (1/2) of all initial
membership fees received from members of its Grand Havana Rooms in New York
City and Washington, D.C. in order to replace the cash collateral pledged by
Leisure until all of such cash collateral is returned to Leisure. At the end
of eighteen (18) months after Leisure's pledge of the cash collateral,
Restaurants shall cause all of Leisure's remaining cash collateral to be
released and returned to Leisure. It is understood and agreed by and between
the parties hereto that the cash collateral pledged by Leisure hereunder is not
an asset of Restaurants and such cash collateral shall always be deemed an
asset of Leisure.
3. Until such time as all of Leisure's cash collateral
is returned to Leisure, Restaurants shall pay to Leisure an amount equal to ten
percent (10%) per annum on the pledged cash collateral, as it exists from time
to time. Such interest shall be paid on a quarterly basis.
4. Within thirty (30) days after the pledge of the cash
collateral by Leisure, Restaurants shall issue to Leisure the following:
<PAGE> 2
(a) One Hundred Thousand (100,000) shares of
Restaurants $.01 par value common stock.
(b) Warrant to purchase one hundred thousand
(100,000) shares of Restaurants $.01 par value common stock in the form
attached hereto as Exhibit "A".
5. As a condition to the issuance of the aforesaid
common stock and warrant ("Securities"), Leisure hereby represents and warrants
to, and covenants with, Restaurants as follows:
(a) Leisure has received and had the opportunity
to review Restaurants' Form 10-K and Form 10-Q filed with the Securities and
Exchange Commission for the periods ended December 29, 1995 and June 30, 1996,
respectively ("Information") and has been given access to full and complete
information regarding Restaurants, and has utilized such access to Leisure's
satisfaction for the purpose of obtaining such information regarding
Restaurants as Leisure has requested; and, particularly, Leisure has been given
reasonable opportunity to ask questions of, and receive answers from,
representatives of Restaurants concerning the terms and conditions of the
issuance of the Securities offering and to obtain any additional information,
to the extent available;
(b) Leisure was not offered or sold the
Securities, directly or indirectly, by means of any form of general advertising
or general solicitation, including but not limited to the following: (1) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar medium of or broadcast over television or
radio; or (2) any seminar or meeting whose attendees had been invited by any
general solicitation or general advertising;
(c) Stop transfer instructions will be placed
with the transfer agent for the Securities, and a legend may be placed on any
instrument or certificate representing the Securities substantially to the
following effect:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN THE ACT
AND REGULATION D UNDER THE ACT. AS SUCH, THE PURCHASE OF THIS
SECURITY WAS NECESSARILY WITH THE INTENT OF INVESTMENT AND NOT WITH A
VIEW FOR DISTRIBUTION. THEREFORE, ANY SUBSEQUENT TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN WILL BE UNLAWFUL UNLESS IT IS
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. FURTHERMORE, IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, WITHOUT THE OPINION
OF COUNSEL
2
<PAGE> 3
ACCEPTABLE TO THE COMPANY THAT THE PROPOSED TRANSFER OR SALE DOES NOT
AFFECT THE EXEMPTIONS RELIED UPON BY THE COMPANY IN ORIGINALLY
DISTRIBUTING THE SECURITY AND THAT REGISTRATION IS NOT REQUIRED.
(d) Leisure has been advised and understands that
the Securities have not been registered under the Securities Act of 1933 or
applicable state securities laws and that the Securities are being offered and
sold pursuant to exemptions from such laws. Leisure represents and warrants
that the Securities are being acquired for Leisure's own account and for
investment purposes only, and without the intention of reselling or
redistributing the same; Leisure has made no agreement with others regarding
any of the Securities; and Leisure's financial condition is such that it is not
likely that it will be necessary to dispose of any of such Securities in the
foreseeable future. Leisure further represents and agrees that if, contrary to
the foregoing intentions, Leisure should later desire to dispose of or transfer
any of the Securities in any manner, Leisure shall not do so unless and until
(i) said Securities shall have first been registered under the Act and all
applicable securities laws; or (ii) Leisure shall have first delivered to
Restaurants a written notice declaring such holder's intention to effect such
transfer and describe in sufficient detail the manner and circumstances of the
proposed transfer, which notice shall be accompanied either by a written
opinion of legal counsel who shall be reasonably satisfactory to Restaurants
which opinion shall be addressed to Restaurants and reasonably satisfactory in
form and substance to Restaurants' counsel, to the effect that the proposed
sale or transfer is exempt from the registration provisions of the Act and all
applicable state securities laws, or by a "no action" letter from the
Securities and Exchange Commission to the effect that the transfer of the
Securities without registration will not result in recommendation by the staff
of the Commission that action be taken with respect thereto.
6. This Agreement and the Exhibit hereto contain the
entire understanding and agreement of the parties regarding the subject matter
hereof. This Agreement may not be amended or superseded except by a written
instrument executed by both parties hereto.
7. In the event that either party to this Agreement
institutes legal action against the other party as a result of a breach or
default under this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys fees and court costs.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
UNITED LEISURE CORPORATION
By: /s/
Its: President
By: /s/
Its: Secretary
UNITED RESTAURANTS, INC.
By: /s/
Its: President
By: /s/
Its: Secretary
4
<PAGE> 1
Exhibit 10-38
OPERATING AGREEMENT
FOR
UNITED HOTEL & CASINO, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH
HEREIN.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 "Aba" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 "Acquisition Opportunity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 "Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 "Assignee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Ata" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "Breaching Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 "Brokerage Contributions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 "Capital Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 "Capital Contribution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 "Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 "Committee Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 "Company Minimum Gain" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 "Distributable Cash" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 "Economic Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 "Fiscal Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20 "Majority Interest of the Members" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 "Majority Interest of the Management Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 "Management Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23 "Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.24 "Member Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.25 "Member Nonrecourse Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.26 "Member Nonrecourse Deductions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.27 "Membership Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.28 "Net Profits" and "Net Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.29 "Nonrecourse Liability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 "Pashaie" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31 "Percentage Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 "Proceeds From Sale" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34 "Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35 "Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.36 "Showghy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.37 "Shuster" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.38 "Tax Matters Partner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.39 "United Leisure" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II ORGANIZATIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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2.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Addresses of the Members and the Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Purpose and Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Initial Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Additional Capital Contributions For Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Additional Capital Contributions To Close Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Additional Capital Contributions For Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Additional Capital Contributions For Capital Improvements . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 No Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Admission of Additional Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 No Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Termination of Membership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Competing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Transactions With The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Remuneration To Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Meetings of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V MANAGEMENT AND CONTROL OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Management of the Company by the Management Committee . . . . . . . . . . . . . . . . . . . . . . . . 12
A. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
B. Agency Authority of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. Meetings of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
D. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Election of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. Number, Term, and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Powers of the Management Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. Powers of the Management Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Limitations on Power of the Management Committee . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Liability of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Devotion of Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Payments to Committee Members or Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
A. Appointment of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
B. Removal, Resignation and Filling of Vacancy of Officers . . . . . . . . . . . . . . . . . . . 17
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C. Duties and Powers of the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Duties and Powers of Vice-President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
E. Duties and Powers of Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
F. Duties and Powers of Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Allocations of Net Profit and Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
B. Net Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Special Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
A. Minimum Gain Chargeback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
B. Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt . . . . . . . . . . . . . . 20
C. Nonrecourse Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
D. Member Nonrecourse Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
E. Qualified Income Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Code Section 704(c) Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Allocation of Net Profits and Losses and Distributions in Respect of a Transferred Interest . . . . . 21
6.5 Distributions of Distributable Cash by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. Distributable Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
B. Proceeds From the Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
C. Holders of Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Form of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Obligations of Members to Report Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII TRANSFER AND ASSIGNMENT OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Transfer and Assignment of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Substitution of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.4 Effective Date of Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Rights of Legal Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.6 No Effect to Transfers in Violation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.7 Right of First Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.8 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII ACCOUNTING, RECORDS, REPORTING BY MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Delivery to Members and Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Annual Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Financial and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.5 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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8.6 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Accounting Decisions and Reliance on Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Tax Matters for the Company Handled by the Management Committee and Tax Matters Partner . . . . . . . 28
ARTICLE IX DISSOLUTION AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Order of Payment Upon Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.5 Limitations on Payments Made in Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Indemnification of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Breach of Purchase Agreement or Escrow . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Preexisting Relationship or Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 No Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.4 Consultation with Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.5 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 No Assurance of Tax Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.2 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.3 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.4 Pronouns; Statutory References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.7 References to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.8 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.9 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.11 Additional Documents and Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.14 Reliance on Authority of Person Signing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.15 No Interest in Company Property; Waiver of Action for Partition . . . . . . . . . . . . . . . . . . . 34
12.16 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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12.17 Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.18 Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.19 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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OPERATING AGREEMENT
FOR
UNITED HOTEL & CASINO, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Operating Agreement, is made as of January 22, 1997, by and among
the parties listed on the signature pages hereof, with reference to the
following facts:
A. Michael Pashaie ("Pashaie") and James Showghy ("Showghy")
entered into an Agreement of Purchase and Sale dated July 24, 1996, as amended,
("Purchase Agreement") for the acquisition of that certain real property (the
"Property") commonly known as The Silver City Casino/Las Vegas Plaza Shopping
Center, 3025 Las Vegas Blvd., Las Vegas, Nevada, the legal description of which
is set forth on Exhibit B.
B. On July 29, 1996, Pashaie and Showghy entered into an escrow
(the "Escrow") for the acquisition of the Property with Commerce Escrow, Los
Angeles, California, Escrow No. 96-24701.
C. Pashaie and Showghy assigned their rights in the Purchase
Agreement, the Escrow and all funds deposited therein to Aba Enterprises, LLC,
a California limited liability company ("Aba"), and Ata Enterprises, LLC, a
California limited liability company ("Ata"), free and clear of all liens,
claims or encumbrances.
D. Aba, Ata and United Leisure Corporation, a Delaware
corporation ("United Leisure") desire to form a limited liability company in
which all rights of Aba and Ata in the Purchase Agreement, the Escrow and all
funds deposited therein will be contributed together with cash contributions to
be made by all parties as described herein.
E. On January 21, 1997, a Certificate of Formation for United
Hotel & Casino, LLC (the "Company"), a limited liability company organized
under the laws of the State of Delaware, was filed with the Delaware Secretary
of State.
F. The parties desire to adopt and approve a limited liability
company operating agreement for the Company.
NOW, THEREFORE, the parties by this Agreement set forth the operating
agreement for the Company under the laws of the State of Delaware upon the
terms and subject to the conditions of this Agreement.
1
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ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings set forth below (all terms used in this Agreement that are not defined
in this Article I shall have the meanings set forth elsewhere in this
Agreement):
1.1 "Aba" shall mean Aba Enterprises, LLC, a California limited
liability company.
1.2 "Acquisition Opportunity" shall mean an opportunity to acquire
real property within one-quarter ( 1/4) mile of the Property which opportunity
is presented or made available to: (a) Aba or its officers, directors,
shareholders, partners, members, managers and Affiliates; (b) Ata or its
officers, directors, shareholders, partners, members, managers and Affiliates;
or (c) United Leisure or its officers, directors or Affiliates other than real
property which will be used in the operation of its business by United
Restaurants, Inc. or any subsidiary thereof.
1.3 "Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
1.4 "Affiliate" of a Member or Committee Member shall mean any
Person, directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with a Member or Committee
Member, as applicable. The term "control," as used in the immediately
preceding sentence, shall mean with respect to a corporation or limited
liability company the right to exercise, directly or indirectly, more than
fifty percent (50%) of the voting rights attributable to the controlled
corporation or limited liability company, and, with respect to any individual,
partnership, trust, other entity or association, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled entity.
1.5 "Agreement" shall mean this Operating Agreement, as originally
executed and as amended from time to time.
1.6 "Assignee" shall mean the owner of an Economic Interest who
has not been admitted as a substitute Member in accordance with Article VII.
1.7 "Ata" mean Ata Enterprises, LLC, a California limited
liability company.
1.8 "Breaching Member" shall have the meaning assigned to it in
Section 10.2.
1.9 "Brokerage Contributions" shall have the meaning assigned to
it in Section 3.9.
1.10 "Capital Account" shall mean with respect to any Member the
capital account which the Company establishes and maintains for such Member
pursuant to Section 3.6.
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1.11 "Capital Contribution" shall mean the total amount of cash and
fair market value of property contributed to the capital of the Company by the
Members.
1.12 "Certificate" shall mean the Certificate of Formation for the
Company originally filed with the Delaware Secretary of State and as amended
from time to time.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, the provisions of succeeding law, and to the extent
applicable, the Regulations.
1.14 "Committee Member" shall mean any member of the Management
Committee, each of whom shall be deemed a "manager" for purposes of the Act.
1.15 "Company" shall mean United Hotel & Casino, LLC, a Delaware
limited liability company.
1.16 "Company Minimum Gain" shall have the meaning ascribed to the
term "Partnership Minimum Gain" in the Regulations Section 1.704-2(d).
1.17 "Distributable Cash" shall mean the amount of cash which a
Majority Interest of the Management Committee deems available for distribution
to the Members (other than cash received by the Company with respect to the
sale or other disposition of the Property or any of the Company's other assets
not in the ordinary course of business), taking into account all debts,
liabilities, and obligations of the Company then due, and working capital and
other amounts which are necessary for the Company's business or to place into
reserves for customary and usual claims with respect to such business.
1.18 "Economic Interest" shall mean the right to receive
distributions of the Company's assets and allocations of income, gain, loss,
deduction, credit and similar items from the Company pursuant to this Agreement
and the Act, but shall not include any other rights of a Member, including,
without limitation, the right to vote or participate in the management of the
Company.
1.19 "Fiscal Year" shall mean the Company's fiscal year, which
shall be the calendar year.
1.20 "Majority Interest of the Members" shall mean those Members
who, at the time of a consent, vote or approval, hold more than fifty percent
(50%) of the Percentage Interests entitled to vote which all Members hold.
1.21 "Majority Interest of the Management Committee" shall mean
those Committee Members who were appointed by Members who, at the time of a
consent, vote or approval, hold more than fifty percent (50%) of the Percentage
Interests entitled to vote which all Members hold.
1.22 "Management Committee" shall mean a committee of three (3)
individuals who are selected in accordance with Section 5.2.
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<PAGE> 10
1.23 "Member" shall mean each Person who is an initial signatory to
this Agreement, has been admitted to the Company as a Member in accordance with
the Certificate or this Agreement or is an Assignee who has become a Member in
accordance with Article VII.
1.24 "Member Group" shall have the meaning set forth in Section
4.5.
1.25 "Member Nonrecourse Debt" shall have the meaning ascribed to
the term "Partner Nonrecourse Debt" in Regulations Section 1.704- 2(b)(4).
1.26 "Member Nonrecourse Deductions" shall mean items of Company
loss, deduction, or Code Section 705(a)(2)(B) expenditures which are
attributable to Member Nonrecourse Debt.
1.27 "Membership Interest" shall mean a Member's entire interest in
the Company including the Member's Economic Interest, the right to vote on or
participate in the management, and the right to receive information concerning
the business and affairs, of the Company.
1.28 "Net Profits" and "Net Losses" shall mean the income, gain,
loss and deductions of the Company in the aggregate or separately stated, as
appropriate, determined in accordance with the method of accounting at the
close of each Fiscal Year on the Company's information tax return filed for
federal income tax purposes.
1.29 "Nonrecourse Liability" shall have the meaning set forth in
Regulations Section 1.752-1(a)(2).
1.30 "Pashaie" shall mean Michael Pashaie.
1.31 "Percentage Interest" shall mean the percentage of a Member
set forth opposite the name of such Member under the column "Member's
Percentage Interest" in Exhibit A hereto, as such percentage may be adjusted
from time to time pursuant to the terms of this Agreement.
1.32 "Person" shall mean an individual, partnership, limited
partnership, limited liability company, corporation, trust, estate, association
or any other entity.
1.33 "Proceeds From Sale" shall all cash proceeds realized by the
Company from the sale or other disposition of the Property or any of the
Company's other assets not in the ordinary course of business.
1.34 "Property" shall mean that certain real property commonly
known as The Silver City Casino/Las Vegas Plaza Shopping Center, 3025 Las Vegas
Blvd., Las Vegas, Nevada, the legal description of which is set forth on
Exhibit B.
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1.35 "Regulations" shall, unless the context clearly indicates
otherwise, mean the regulations in force as final or temporary that have been
issued by the U.S. Department of Treasury pursuant to its authority under the
Code, and any successor regulations.
1.36 "Showghy" shall mean James Showghy.
1.37 "Shuster" shall mean Harry Shuster.
1.38 "Tax Matters Partner" (as defined in Code Section 6231) shall
be United Leisure or its successor as designated pursuant to Section 8.8.
1.39 "United Leisure" shall mean United Leisure Corporation, a
Delaware corporation.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 Formation. The Members have formed a Delaware limited
liability company under the laws of the State of Delaware by filing the
Certificate with the Delaware Secretary of State and entering into this
Agreement, which Agreement shall be deemed effective as of the date the
Certificate were so filed. The rights and liabilities of the Members shall be
determined pursuant to the Act and this Agreement. To the extent that the
rights or obligations of any Member are different by reason of any provision of
this Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Act, control.
2.2 Name. The name of the Company shall be "United Hotel &
Casino, LLC." The business of the Company may be conducted under that name or,
upon compliance with applicable laws, any other name that the Management
Committee deems appropriate or advisable. The Management Committee, any officer
or Committee Member shall file any fictitious name certificates and similar
filings, and any amendments thereto, that the Management Committee considers
appropriate or advisable.
2.3 Term. The term of this Agreement commenced on the filing of
the Certificate and shall continue until December 31, 2036, unless extended or
sooner terminated as hereinafter provided.
2.4 Office and Agent. The Company shall continuously maintain a
registered office and agent in the State of Delaware. The principal office of
the Company shall be determined by the Management Committee. The Company may
also have such offices, anywhere within and without the State of Delaware, as
the Management Committee may determine from time to time, or the business of
the Company may require. The registered office and agent shall be as stated in
the Certificate or as otherwise determined by the Management Committee.
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2.5 Addresses of the Members and the Committee Members. The
respective mailing addresses of the Members and the Committee Members are set
forth on Exhibit A. A Member or Committee Member may change its mailing
address upon notice thereof to the Management Committee.
2.6 Purpose and Business of the Company. The purpose of the
Company is to engage in any lawful activity for which a limited liability
company may be organized under the Act. Notwithstanding the foregoing, without
the consent of a Majority Interest, the Company shall not engage in any
business other than the following:
A. Subject to Section 5.3B, the acquisition of the
Property, the potential acquisition of adjacent properties and the potential
development and construction of such properties as a hotel, casino and related
property; the management, operation and sale of such Property; and
B. Such other activities directly related to and in
furtherance of the foregoing business as may be necessary, advisable, or
appropriate, in the reasonable opinion of the Management Committee.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions. On the date hereof, United
Leisure shall make a Capital Contribution of One Hundred Twenty-Five Thousand
Dollars ($125,000) in cash, which amount shall be paid by the Company to Aba
and Ata as a return of one-half (1/2) of their current deposit in Escrow and
such amount shall not be deemed to be a distribution to them by the Company.
On the date hereof, Aba and Ata shall contribute to the Company, in form
acceptable to United Leisure, all of their right in the Purchase Agreement,
Escrow and all funds deposited therein free and clear of any lien, claim or
encumbrance. The Members agree that such rights have a net fair market value
of, after deduction for the payment to them of the foregoing Capital
Contributions made by United Leisure, Sixty-Two Thousand Five Hundred Dollars
($62,500) for each of Aba and Ata. Aba and Ata shall each receive a credit to
their Capital Account equal to such value.
3.2 Additional Capital Contributions For Litigation. Pursuant to
the Purchase Agreement, Pashaie and Showghy, and by way of assignment, the
Company, agreed to pay one-half of all costs incurred by the seller and buyer
of the Property with respect to an action (the "ART Action") to be filed
against American Realty Trust ("ART") in connection with its refusal to consent
to the assumption of a loan secured by a first deed of trust against the
Property. The Members shall contribute additional capital to the Company in
proportion to their respective Percentage Interests at such times as any
Committee Member determines that additional capital is required to fund the
Company's share of the ART Action. Upon a determination that such additional
capital is necessary, the Committee Member shall give written notice to each
Member of the amount of capital required to be contributed by each Member.
Each Member shall have ten (10) days from the date such
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notice is given to contribute its share of the additional capital to the
Company; provided, however, that no notice may be given requesting Members to
make additional contributions pursuant to this Section 3.2 after July 30, 1997
without the consent of a Majority Interest of the Members. Each Member shall
execute such documents or take such action as may be necessary for the Company
to assume the loan made by ART, or to reapply for consent to assume such loan,
or with the approval of a Majority Interest of the Members, to refinance such
loan; provided, that, no Member shall be obligated to be personally liable for
any such loan to a greater extent than is provided for the borrower in the
existing loan made by ART.
3.3 Additional Capital Contributions To Close Escrow. Provided
that the ART Action has been adjudicated or settled, or new financing has been
obtained, to the satisfaction of a Majority Interest of the Members, at least
five (5) days prior to the scheduled close of the Escrow, the Members shall
contribute additional capital to the Company by depositing the following
amounts in cash in the Escrow: (a) Ata shall deposit Nine Hundred Eighty-Seven
Thousand and Five Hundred Dollars ($987,500) in Escrow, (b) Aba shall deposit
Two Hundred Eighty-Seven Thousand and Five Hundred Dollars ($287,500) in
Escrow, (c) United Leisure shall deposit Three Million Three Hundred
Seventy-Five Thousand Dollars ($3,375,000) in Escrow, and (d) each Member shall
also deposit in Escrow such additional amounts as may be necessary to pay the
Company's share of all closing costs and any additional loan amortization
arising between the date of the Purchase Agreement and the date of the Escrow
closing with such contributions to be made in proportion to each Member's
Percentage Interest. If the purchase price for the Property is reduced for any
reasons, the obligation of the Members to make contributions pursuant to
clauses (a)-(c) of this Section 3.3 shall be reduced by the amount of such
reductions in proportion to each Member's Percentage Interest.
3.4 Additional Capital Contributions For Operations. In the event
that additional capital is required to fund the Company's operations as a
result of losses or negative cash flow incurred by the Company, the Management
Committee shall, or any Committee Member may, give written notice to each
Member of the amount of capital required. Each Member shall have ten (10) days
from the date such notice is given to contribute its share of the additional
capital to the Company in proportion to their respective Percentage Interests;
provided, however, that no Member shall be required to make any contribution
pursuant to this Section 3.4 once a Majority Interest of the Members has
determined that no further contributions are to be made pursuant to this
Section 3.4.
3.5 Additional Capital Contributions For Capital Improvements. If
a Majority Interest of the Members has approved the Company undertaking
acquisitions, developments, expansion or capital improvements (other than those
capital improvements which are made in the ordinary course of the Company's
operations), the Members shall contribute additional capital to the Company in
such amounts and at such times as a Majority Interest of the Members determines
that additional capital is required to fund the cost of such approved
undertakings. Upon the determination that such additional capital is
necessary, the Management Committee shall, or any Committee Member may, give
written notice to each Member and shall include documentation satisfactory to
each Member in its discretion
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supporting the need for, and the amount of, the capital required. Each Member
shall have thirty (30) days from the date such notice is given to contribute
its share of the additional capital to the Company in proportion to their
respective Percentage Interests. No Member shall be required to make any other
additional Capital Contributions under this Section 3.5 unless a Majority
Interest of the Members has approved the matter for which such additional
Capital Contributions is to be spent.
3.6 Capital Accounts. The Company shall establish and maintain an
individual Capital Account for each Member in accordance with Regulations
Section 1.704-1(b)(2)(iv). If a Member transfers all or a part of its
Membership Interest in accordance with this Agreement, such Member's Capital
Account attributable to the transferred Membership Interest shall carry over to
the new owner of such Membership Interest pursuant to Regulations Section
1.704-1(b)(2)(iv)(1).
3.7 No Interest. Except as provided in Section 3.8, no Member
shall be entitled to receive any interest on its Capital Contributions.
3.8 Failure to Make Contributions. If a Member does not timely
contribute capital when required, that Member shall be in default under this
Agreement. In such event, the Management Committee shall send the defaulting
Member written notice of such default, giving such Member seven (7) days from
the date such notice is given to contribute the entire amount of its required
Capital Contribution. If a defaulting Member does not contribute its required
capital to the Company within such seven (7)-day period, then, in addition to
the rights and remedies described in Section 10.1 and 10.2, all of the
following shall result:
A. The non-defaulting Members may elect to advance funds
to the Company to cover any or all of those amounts which the defaulting Member
fails to contribute and which the non-defaulting Members do not contribute
pursuant to Section 3.8B. Each non-defaulting Member may make such advances in
the same proportion that the Percentage Interest of such Member bears to the
Percentage Interest of all Members making such advances. If the event any
non-Defaulting Members elects to advance none or less than all of its pro rata
share of such additional advances, then the other Member can elect to advance
more than its pro rata share under this Section 3.8A. Amounts which a non-
defaulting Member so advances shall become a loan due and owing from the
Company to such non-defaulting Member and bear interest at the rate of ten
percent (10%) per annum, payable monthly. No distributions shall be made by
the Company to its Members until such advances and all interest accrued thereon
is paid in full and all Distributable Cash which would otherwise be distributed
to the Members shall instead be paid to the non-defaulting Members making such
advances until such advances and interest thereon are paid in full. In any
event, any such advances shall be evidenced by a promissory note in a form
reasonably acceptable to the non-defaulting Members and be due and payable by
the Company one (1) year from the date that such advance was made. Any amounts
repaid shall first be applied to interest and thereafter to principal.
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B. The non-defaulting Members may elect to make
additional Capital Contributions to cover any or all of those amounts which the
defaulting Member fails to contribute. Each non-defaulting Member may make
such additional contributions in the same proportion that the Percentage
Interest of such Member bears to the Percentage Interest of all Members making
such contributions. If the event any non- Defaulting Members elects to
contribute none or less than all of its pro rata share of such additional
contribution, then the other Member can elect to contribute more than its pro
rata share under this Section 3.8B.
C. The Percentage Interest of the Members shall be
adjusted as follows:
The Percentage Interest of each Member who makes the required Capital
Contribution shall be increased by an amount equal to the additional
capital contributed divided by the sum of the additional capital
contributed by such Member and the aggregate Capital Contributions made
by all Members to the Company (including all additional Capital
Contributions), and the Percentage Interest of the defaulting Members
shall be reduced by the same amount in proportion to their Percentage
Interest. By way of example, if additional capital is required
pursuant to any or all of Sections 3.2, 3.3, 3.4 or 3.5 herein, United
Leisure is the only Member that makes its required additional capital
contribution, such additional capital contribution is $100,000 and the
aggregate capital contributions made to the Company prior to the such
additional capital contribution is $5,300,000, United Leisure's
Percentage Interest would increase by an amount equal to $100,000
divided by the sum of $100,000 and $5,300,000 (or $5,400,000) or 1.85%,
thereby resulting in United Leisure's Percentage Interest being
increased from 50% to 51.85% and the aggregate Percentage Interest of
Aba and Ata being reduced from 30% and 20% to 28.90% and 19.25%,
respectively.
D. The non-defaulting Members who hold a majority of the
Percentage Interests held by all non-defaulting Members may dissolve the
Company, in which event the Company shall be wound-up, liquidated and
terminated pursuant to Article IX.
Each Member acknowledges and agrees that (i) a default by any Member in
making a required capital contribution will result in the Company and the
non-defaulting Members incurring certain costs and other damages in an amount
that would be extremely difficult or impractical to ascertain and (ii) the
remedies described in this Section 3.8 and Sections 10.1 and 10.2 bear a
reasonable relationship to the damages which the Members estimate may be
suffered by the Company and the non-defaulting Members by reason of the failure
of a defaulting Member to make any required Capital Contribution and the
election of any or all of the above described remedies is not unreasonable
under the circumstances existing as of the date hereof.
3.9 Brokerage Commissions. Notwithstanding anything to the
contrary contained herein, the Company is not assuming any obligation of Ata,
Aba, Pashaie or Showghy for the payment of a brokerage fee or commission or a
finder's or similar fee with respect to the acquisition of the Property by the
Company and such obligation shall remain the
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obligation of Ata, Aba, Pashaie or Showghy as the case may be. Ata and Aba
hereby jointly and severally agree to defend, indemnify and hold harmless the
Company and United Leisure from and against any and all claims, actions,
damages or liabilities (including attorneys' fees and expenses) relating to
such obligation. The payment of such commissions by Ata, Aba, Pashaie, Showghy
or any of their Affiliates shall constitute a Capital Contribution of the
actual amount paid to independent third parties who are unaffiliated with Ata,
Aba, Pashaie or Showghy, up to a maximum of $400,000 in the aggregate (the
commissions so paid which constitute a Capital Contribution pursuant to this
Section 3.9 are referred to as the "Brokerage Contributions").
ARTICLE IV
MEMBERS
4.1 Limited Liability. Except as expressly set forth in this
Agreement or required by law, no Member shall be personally liable for any
debt, obligation, or liability of the Company, whether that liability or
obligation arises in contract, tort, or otherwise.
4.2 Admission of Additional Members. Additional Members may be
admitted to the Company with the approval of a Majority Interest of the
Members. Any additional Members shall obtain Membership Interests and will
participate in the management, Net Profits, Net Losses, and distributions of
the Company on such terms as are determined by a Majority Interest of the
Members. Notwithstanding the foregoing, Assignees may only be admitted as
substitute Members in accordance with Article VII.
4.3 No Withdrawals or Resignations. No Member may withdraw or
resign from the Company. If a Member wrongfully withdraws or resigns as a
Member, that Member shall have no right to receive any distribution or any
payment for the fair value of its Membership Interest other than such
distributions or payments as are made to all Members pursuant to this
Agreement.
4.4 Termination of Membership Interest. Upon the transfer of a
Member's Membership Interest in violation of Article VII, the Membership
Interest of a Member shall be terminated and thereafter that Member shall be an
Assignee only unless such Membership Interest shall be purchased by the Company
and/or remaining Members as provided in Article VIII. Each Member acknowledges
and agrees that such termination or purchase of a Membership Interest upon the
occurrence of any of the foregoing events is not unreasonable under the
circumstances existing as of the date hereof.
4.5 Competing Activities. Except as limited by this Section 4.5,
each Member and its officers, directors, shareholders, partners, members,
managers, agents, employees and Affiliates (collectively, a "Member Group") may
engage or invest in, independently or with others, any business activity of any
type or description, including without limitation those that might be the same
as or similar to the Company's business and that might be in direct or indirect
competition with the Company, and neither the Company nor any Member shall have
any right in or to such other ventures or activities or to the income or
proceeds
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derived therefrom. Except as limited by this Section 4.5, no Person in a
Member Group shall be obligated to present any investment opportunity or
prospective economic advantage to the Company, even if the opportunity is of
the character that, if presented to the Company, could be taken by the Company,
and each Person in a Member Group shall have the right to hold any investment
opportunity or prospective economic advantage for its own account or to
recommend such opportunity to Persons other than the Company. In the case of
an Acquisition Opportunity, the Acquisition Opportunity shall be presented to
the Company by the Person in the Member Group who has such Acquisition
Opportunity prior to such Person accepting such Acquisition Opportunity. If a
Majority Interest of the Management Committee does not elect to accept such
Acquisition Opportunity within ten (10) days of such presentation, neither the
Company nor any Member (other than such Person) shall have any right in or to
such Acquisition Opportunity or to the income or proceeds derived therefrom,
and such Person shall have the right to hold the Acquisition Opportunity for
its own account or to recommend such Acquisition Opportunity to Persons other
than the Company. Each Member acknowledges that the other Members and their
Affiliates own and/or manage other businesses, including businesses that may
compete with the Company and for the Members' time. Except as limited by this
Section 4.5, each Member hereby waives any and all rights and claims which they
may otherwise have against the other Members and their officers, directors,
shareholders, partners, members, managers, agents, employees, and Affiliates as
a result of any of such activities. Notwithstanding the foregoing, this
Section 4.5 does not permit a Member to begin pursuing an opportunity which the
Company had first started pursuing until such time as the Company is no longer
actively pursuing such opportunity.
4.6 Transactions With The Company. Subject to any limitations set
forth in this Agreement and with the prior approval of a Majority Interest of
the Members, a Member may lend money to and transact other business with the
Company and take such actions as it deems appropriate in its sole discretion
with respect to such transactions with the Company. A Member or Committee
Member does not violate a duty or obligation under this Agreement based on the
fact that such Member's or Committee Member's conduct furthers the Member's or
Committee Member's own interest. By way of example but not limitation of the
foregoing provision, any Member or Committee Member may vote or make an
election, or decide whether to approve or disapprove an act or transaction of
the Company based on the effect that such act or transaction would have upon
the interests of such Member or Committee Member outside the Company.
4.7 Remuneration To Members. Except as otherwise specifically
provided in this Agreement, no Member is entitled to remuneration for acting in
the Company business.
4.8 Voting Rights. Except as expressly provided in this Agreement
or the Certificate, Members shall have no voting, approval or consent rights.
Except as set forth in Sections 5.3B (viii) and (ix), in all matters in which a
vote, approval or consent of the Members is required, a vote, consent or
approval of a Majority Interest of the Members (or, in instances in which there
are defaulting, transferring or remaining Members, non-defaulting,
non-transferring or remaining Members who hold a majority of the Percentage
Interests held by all non- defaulting, non-transferring or remaining Members)
shall be
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sufficient to authorize or approve such act. All votes, approvals or consents
of the Members or the Committee Members, as the case may be, may be given or
withheld, conditioned or delayed as the Members or the Committee Members, as
the case may be, may determine in their or its sole and absolute discretion.
4.9 Meetings of Members. Meetings of Members may be held at such
date, time and place as the Member calling the meeting may fix from time to
time. No annual or regular meetings of Members are required. Meetings of the
Members may be called by any Member holding at least fifteen percent (15%) of
the Percentage Interests for the purpose of addressing any matters on which the
Members may vote. Written notice of a meeting of Members shall be sent or
otherwise given to each Member in accordance with not less than seven (7) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and the general nature of the
business to be transacted.
The actions taken at any meeting of Members however called and noticed,
and wherever held, have the same validity as if taken at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the Members entitled
to vote, who was not present in person or by proxy, signs a written waiver of
notice or consents to the holding of the meeting or approves the minutes of the
meeting. All such waivers, consents or approvals shall be filed with the
Company records or made a part of the minutes of the meeting.
Any action that may be taken at a meeting of Members may be taken
without a meeting, provided the consents of all Members entitled to vote have
been solicited in writing and if a consent in writing setting forth the action
so taken, is signed and delivered to the Company within sixty (60) days of the
record date for that action by Members having not less than the minimum number
of votes that would be necessary to authorize or take that action at a meeting
at which all Members entitled to vote on that action at a meeting were present
and voted. All such consents shall be filed with the Management Committee or
the secretary, if any, of the Company and shall be maintained in the Company
records. Any Member giving a written consent, or the Member's proxy holders,
may revoke the consent by a writing received by the Management Committee or
secretary, if any, of the Company before written consents of the number of
votes required to authorize the proposed action have been filed.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 Management of the Company by the Management Committee.
A. Management. The business, property and affairs of the
Company shall be managed exclusively by the Management Committee. Except for
situations in which the approval of the Members is required by this Agreement,
the Management Committee shall have full, complete and exclusive authority,
power, and discretion to manage and control
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the business, property and affairs of the Company, to make all decisions
regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the Company's business, property and
affairs.
B. Agency Authority of Committee Members. Any Committee
Member may endorse checks, drafts, and other evidence of indebtedness made
payable to the order of the Company, but only for the purpose of deposit into
the Company's accounts. The Management Committee shall authorize such Persons
as it deems appropriate to sign all checks, drafts, and other instruments
obligating the Company to pay money.
C. Meetings of Committee Members. Meetings of the
Committee Members may be called by any Committee Member or by any officer. All
meetings shall be held upon four (4) days notice by mail or forty-eight (48)
hours notice (or upon such shorter notice period if necessary under the
circumstances) delivered personally or by telephone, telegraph or facsimile. A
notice need not specify the purpose of any meeting. Notice of a meeting need
not be given to any Committee Member who signs a waiver of notice or a consent
to holding the meeting (which waiver or consent need not specify the purpose of
the meeting) or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior to its
commencement, the lack of notice to such Committee Member. All such waivers,
consents and approvals shall be filed with the Company records or made a part
of the minutes of the meeting. Meetings of the Committee Members may be held
at any place designated in the notice of the meeting or at such place as may be
approved by the Committee Members. Committee Members may participate in a
meeting through use of conference telephone or similar communications
equipment, so long as all Committee Members participating in such meeting can
hear one another. Participation in a meeting in such manner constitutes a
presence in person at such meeting. The participation of a Majority Interest
of the Management Committee constitutes a quorum of the Committee Members for
the transaction of business. Every act or decision done or made by a Majority
Interest of the Management Committee present at a meeting duly held at which a
quorum is present is the act of the Committee Members. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of Committee Members, if any action taken is approved by at
least a majority of the required quorum for such meeting.
Any action required or permitted to be taken by the Management
Committee may be taken by the Committee Members without a meeting, if a
Majority Interest of the Management Committee individually or collectively
consent in writing to such action. Such action by written consent shall have
the same force and effect as a vote at a meeting of a Majority Interest of the
Management Committee.
The provisions of this Section 5.1C govern meetings of the
Committee Members if the Committee Members elect, in their discretion, to hold
meetings. However, nothing in this Section 5.1C or in this Agreement is
intended to require that meetings of Committee Members be held, it being the
intent of the Members that meetings of the Management Committee are not
required.
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D. Voting Rights. In all matters in which a vote,
approval or consent of the Management Committee or Committee Members is
required, a vote, consent or approval of a Majority Interest of the Management
Committee shall be required to authorize or approve such act.
5.2 Election of Committee Members.
A. Number, Term, and Qualifications. The Management
Committee shall have three (3) Committee Members, one (1) of whom shall be
appointed by each of United Leisure, Aba and Ata. The Committee Members
initially appointed by United Leisure, Aba and Ata, are Shuster, Pashaie, and
Showghy, respectively. In the event that a Committee Member resigns or is
removed, any successor shall be elected by the Member who appointed such
Committee Member. A Committee Member must be an individual, but need not be a
Member, a resident of the State of Delaware, or a citizen of the United States.
B. Resignation or Removal. A Committee Member may resign
at any time by giving written notice to the Management Committee. The
resignation of a Committee Member shall take effect upon receipt of that notice
or at such later time as shall be specified in the notice. Unless otherwise
specified in the notice, the acceptance of the resignation shall not be
necessary to make it effective. Such resignation shall not affect any
management, voting or approval rights that the Committee Member has as a Member
of the Company under the Act, the Certificate or this Agreement. A Committee
Member may be removed at any time by the Member who appointed such Committee
Member. Any such removal shall be effective upon notice to the Management
Committee.
5.3 Powers of the Management Committee.
A. Powers of the Management Committee. Without limiting
the generality of Section 5.1, but subject to Section 5.3B and to the
limitations set forth elsewhere in this Agreement, the Management Committee
shall have all necessary powers to manage and carry out the purposes, business,
property, and affairs of the Company, including, without limitation, the power
to exercise on behalf and in the name of the Company all of the powers of a
natural person, including, without limitation, the power to:
(i) Execute and deliver all documents or
instruments deemed necessary or advisable by a Majority Interest of the Members
with respect to the Purchase Agreement or the Escrow;
(ii) Acquire, purchase, lease, renovate, improve,
alter, rebuild, demolish, replace, and own the Property and any other real
property and any other personal property or assets that a Majority Interest of
the Members determines is necessary or appropriate or in the interest of the
business of the Company, and to acquire options for the purchase of any such
property;
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(iii) Sell, exchange, lease, or otherwise dispose of
the real property and other property and assets owned by the Company, or any
part thereof, or any interest therein;
(iv) Sue on, defend, or compromise any and all
claims or liabilities in favor of or against the Company; submit any or all
such claims or liabilities to arbitration; and confess a judgment against the
Company in connection with any litigation in which the Company is involved
(other than relating to the Members or its Affiliates); and
(v) Retain legal counsel, auditors, and other
professionals in connection with the Company business and to pay therefor such
remuneration as a Majority Interest of the Members may determine.
B. Limitations on Power of the Management Committee. The
Management Committee shall not have authority hereunder to cause the Company to
engage in the following without first obtaining the affirmative vote or written
consent of a Majority Interest (or such greater Percentage Interests set forth
below) of the Members:
(i) A decision not to continue to proceed with the
ART Action prior to July 30, 1997 or a dismissal or settlement of the ART
Action;
(ii) The waiver of any conditions precedent
described in the Purchase Agreement or in the Escrow;
(iii) The selection of a third party who shall act
as the on-site property manager for the Property;
(iv) A capital expenditure for any purpose
described in Section 3.5;
(v) The execution, amendment or renewal (other
than a renewal on existing lease terms) of any lease, option or purchase
agreement for the Property;
(vi) The sale, exchange or other disposition of
all, or substantially all, of the Company's assets occurring as part of a
single transaction or plan, or in multiple transactions over a six (6) month
period, except in the orderly liquidation and winding up of the business of the
Company upon its duly authorized dissolution;
(vii) Except pursuant to Section 3.8, borrow money
from any party, issue evidences of indebtedness in connection therewith,
refinance, increase the amount of, modify, amend, or change the terms of, or
extend the time for the payment of any indebtedness or obligation of the
Company, and secure such indebtedness by mortgage, deed of trust, pledge,
security interest, or other lien on Company assets;
(viii) The merger of the Company with another limited
liability company or limited partnership; provided in no event shall a Member
be required to
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become a general partner in a merger with a limited partnership without its
express written consent;
(ix) The merger of the Company with a corporation
or a general partnership or other Person shall require the affirmative vote or
written consent of all Members;
(x) The establishment of different classes of
Members;
(xi) An alteration of the primary purpose or
business of the Company as set forth in Section 2.6;
(xii) Any act which would make it impossible to
carry on the ordinary business of the Company.
(xiii) The confession of a judgment against the
Company;
(xiv) To file a bankruptcy petition on behalf of the
Company; and
(xv) Any other transaction described in this
Agreement as requiring the vote, consent, or approval of the Members.
5.4 Liability of Committee Members. Committee Members shall not
be liable to the Company or to any Member for any loss or damage sustained by
the Company or any Member, unless the loss or damage shall have been the result
of gross negligence or intentional misconduct.
5.5 Devotion of Time. Committee Members are not obligated to
devote all of their time or business efforts to the affairs of the Company.
Committee Members shall devote whatever time, effort, and skill as they deem
appropriate for the operation of the Company. The Members acknowledge that a
third party property manager will be engaged by the Company with respect to the
day-to-day management of the Property.
5.6 Payments to Committee Members or Members. Except as specified
in this Section 5.6, Committee Members are not entitled to remuneration for
services rendered or goods provided to the Company in any capacity. To the
extent approved by a Majority Interest of the Members, (a) the Company shall
pay the Committee Members or Members for goods provided to the Company, (b) the
Company shall reimburse the Committee Members or Members for the actual cost of
materials used for or by the Company, and (c) the Company shall also pay or
reimburse the Committee Members or Members for expenses relating to the
management or development of the Property (including, without limitation, legal
and accounting fees and costs).
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5.7 Officers.
A. Appointment of Officers. The Management Committee may
appoint officers at any time. The officers of the Company, if deemed necessary
by the Management Committee, may include a president, vice president,
secretary, and chief financial officer. The officers shall serve at the
pleasure of the Management Committee, which may determine a reasonable
compensation to be paid to each officer so appointed; provided, however, that
Shuster, Showghy and Pashaie shall not receive any compensation in the event
that any of them are appointed or act as an officer. Any individual may hold
any number of offices. The officers shall exercise such powers and perform
such duties as specified in this Agreement and as shall be determined from time
to time by the Management Committee.
B. Removal, Resignation and Filling of Vacancy of
Officers. Subject to the rights, if any, of an officer under a contract of
employment, any officer may be removed, either with or without cause, by the
Management Committee at any time. Any officer may resign at any time by giving
written notice to the Management Committee. Any resignation shall take effect
at the date of the receipt of that notice or at any later time specified in
that notice; and, unless otherwise specified in that notice, the acceptance of
the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Company under any contract
to which the officer is a party. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in this Agreement for regular appointments to that
office.
C. Duties and Powers of the President. The president
shall be the chief executive officer of the Company, and shall, subject to
Section 5.3B and the control of the Management Committee, have general and
active management of the business of the Company and shall see that all orders
and resolutions of the Members and Management Committee are carried into
effect. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the Management Committee or
this Agreement. The initial president of the Company shall be Shuster.
D. Duties and Powers of Vice-President. The
vice-president, or if there shall be more than one, the vice-presidents in the
order determined by the Management Committee, shall, in the absence or
disability of the president, perform the duties and exercise the powers of the
president and shall perform such other duties and have such other powers as the
Management Committee may from time to time prescribe.
E. Duties and Powers of Secretary. If there is such an
officer, the secretary shall attend all meetings of the Members, and shall
record all the proceedings of the meetings in a book to be kept for that
purpose, and shall perform like duties for the standing committees when
required. The secretary shall give, or cause to be given, notice of all
meetings of the Members and shall perform such other duties as may be
prescribed by the Management Committee. The initial secretary of the Company
shall be Pashaie.
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The secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the Company's transfer agent or
registrar, as determined by the Management Committee, a register, or a
duplicate register, showing the names of all Members and their addresses, and
their Percentage Interests. The secretary shall also keep all documents
described in Section 8.1 and such other documents as may be required under the
Act. The secretary shall perform such other duties and have such other
authority as may be prescribed elsewhere in this Agreement or from time to time
by the Management Committee. The secretary shall have the general duties,
powers and responsibilities of a secretary of a corporation.
If the Management Committee chooses to appoint an assistant
secretary or assistant secretaries, the assistant secretaries, in the order of
their seniority, in the absence, disability or inability to act of the
secretary, shall perform the duties and exercise the powers of the secretary,
and shall perform such other duties as the Management Committee may from time
to time prescribe.
F. Duties and Powers of Chief Financial Officer. If
there is such an officer, the chief financial officer shall keep and maintain,
or cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Company, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, Membership Interests and Economic Interests. The initial chief
financial officer of the Company shall be Showghy.
The chief financial officer shall have the custody of the
funds and securities of the Company, and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Company, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Company in such depositories as may be designated by the Management
Committee.
The chief financial officer shall disburse the funds of the
Company as may be ordered by the Management Committee, taking proper vouchers
for such disbursements, and shall render to the president and the Management
Committee an account of all his or her transactions as treasurer and of the
financial condition of the Company.
The chief financial officer shall perform such other duties
and shall have such other responsibility and authority as may be prescribed
elsewhere in this Agreement or from time to time by the Management Committee.
The chief financial officer shall have the general duties, powers and
responsibility of a chief financial officer of a corporation, and shall be the
chief financial and accounting officer of the Company.
If the Management Committee chooses to elect an assistant
treasurer or assistant treasurers, the assistant treasurers in the order of
their seniority shall, in the absence, disability or inability to act of the
chief financial officer, perform the duties and exercise the powers of the
chief financial officer, and shall perform such other duties as the Management
Committee shall from time to time prescribe.
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ARTICLE VI
ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS
6.1 Allocations of Net Profit and Net Loss.
A. Net Loss. Net Loss (other than Net Loss with respect
to a sale or other disposition of the Property or any of the Company's other
assets not in the ordinary course of business) shall be allocated to the
Members in proportion to their Percentage Interests. Net Loss with respect to
a sale or other disposition of the Property or any of the Company's other
assets not in the ordinary course of business shall be allocated to the Members
as follows:
(i) the first $2,100,000 less the Brokerage
Contributions, if any, of such Net Loss shall be allocated to United Leisure;
and then
(ii) any such remaining Net Loss shall be allocated to the Members in
proportion to their Percentage Interests.
Notwithstanding the previous sentence, loss allocations to a Member
shall be made only to the extent that such loss allocations will not create a
deficit Capital Account balance for that Member in excess of an amount, if any,
equal to such Member's share of Company Minimum Gain. Any loss not allocated
to a Member because of the foregoing provision shall be reallocated to the
other Members (to the extent the other Members are not limited in respect of
the allocation of losses under this Section 6.1A) in proportion to the positive
Capital Account balances of the other Members prior to such reallocation. Any
loss reallocated under this Section 6.1A shall be taken into account in
computing subsequent allocations of income and losses pursuant to this Article
VI, so that the net amount of any item so allocated and the income and losses
allocated to each Member pursuant to this Article VI, to the extent possible,
shall be equal to the net amount that would have been allocated to each such
Member pursuant to this Article VI if no reallocation of losses had occurred
under this Section 6.1A.
B. Net Profit. Net Profit (other than Net Profit with
respect to a sale or other disposition of the Property or any of the Company's
other assets not in the ordinary course of business) shall be allocated to the
Members in proportion to their Percentage Interests. Net Profit with respect
to a sale or other disposition of the Property or any of the Company's other
assets not in the ordinary course of business shall be allocated to the Members
as follows:
(i) the first $2,100,000 less the Brokerage Contributions,
if any, of such Net Profits shall be allocated to the Members in proportion to
the following percentages: (a) United Leisure - 0%; (b) Ata - 60%; and
(c) Aba - 40%; and then
(ii) any such remaining Net Profits shall be allocated to
the Members in proportion to their Percentage Interests.
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Notwithstanding anything to the contrary contained herein, the percentage
interests set forth in clause (i) shall be increased or decreased by the
increases or decreases, if any, in a Member's Percentage Interest made pursuant
to Section 3.8.
6.2 Special Allocations. Notwithstanding Section 6.1:
A. Minimum Gain Chargeback. If there is a net decrease
in Company Minimum Gain during any Fiscal Year, each Member shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, in subsequent fiscal years) in an amount equal to the portion of
such Member's share of the net decrease in Company Minimum Gain that is
allocable to the disposition of Company property subject to a Nonrecourse
Liability, which share of such net decrease shall be determined in accordance
with Regulations Section 1.704-2(g)(2). Allocations pursuant to this Section
6.2A shall be made in proportion to the amounts required to be allocated to
each Member under this Section 6.2A. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(f). This Section
6.2A is intended to comply with the minimum gain chargeback requirement
contained in Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
B. Chargeback of Minimum Gain Attributable to Member
Nonrecourse Debt. If there is a net decrease in Company Minimum Gain
attributable to a Member Nonrecourse Debt, during any Fiscal Year, each member
who has a share of the Company Minimum Gain attributable to such Member
Nonrecourse Debt (which share shall be determined in accordance with
Regulations Section 1.704-2(i)(5)) shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, in subsequent
Fiscal Years) in an amount equal to that portion of such Member's share of the
net decrease in Company Minimum Gain attributable to such Member Nonrecourse
Debt that is allocable to the disposition of Company property subject to such
Member Nonrecourse Debt (which share of such net decrease shall be determined
in accordance with Regulations Section 1.704-2(i)(5)). Allocations pursuant to
this Section 6.2B shall be made in proportion to the amounts required to be
allocated to each Member under this Section 6.2B. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 6.2B is intended to comply with the minimum gain chargeback requirement
contained in Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
C. Nonrecourse Deductions. Any nonrecourse deductions
(as defined in Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other
period shall be specially allocated to the Members in proportion to their
Percentage Interests.
D. Member Nonrecourse Deductions. Those items of Company
loss, deduction, or Code Section 705(a)(2)(B) expenditures which are
attributable to Member Nonrecourse Debt for any Fiscal Year or other period
shall be specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such items are
attributable in accordance with Regulations Section 1.704-2(i).
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E. Qualified Income Offset. If a Member unexpectedly
receives any adjustments, allocations, or distributions described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), or any other event
creates a deficit balance in such Member's Capital Account in excess of such
Member's share of Company Minimum Gain, items of Company income and gain shall
be specially allocated to such Member in an amount and manner sufficient to
eliminate such excess deficit balance as quickly as possible. Any special
allocations of items of income and gain pursuant to this Section 6.2E shall be
taken into account in computing subsequent allocations of income and gain
pursuant to this Article VI so that the net amount of any item so allocated and
the income, gain, and losses allocated to each Member pursuant to this Article
VI to the extent possible, shall be equal to the net amount that would have
been allocated to each such Member pursuant to the provisions of this Article
VI if such unexpected adjustments, allocations, or distributions had not
occurred.
6.3 Code Section 704(c) Allocations. Notwithstanding any other
provision in this Article VI, in accordance with Code Section 704(c) and the
Regulations promulgated thereunder, income, gain, loss, and deduction with
respect to any property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for
federal income tax purposes and its fair market value on the date of
contribution. Allocations pursuant to this Section 6.3 are solely for purposes
of federal, state and local taxes. As such, they shall not affect or in any
way be taken into account in computing a Member's Capital Account or share of
profits, losses, or other items of distributions pursuant to any provision of
this Agreement.
6.4 Allocation of Net Profits and Losses and Distributions in
Respect of a Transferred Interest. If any Economic Interest is transferred, or
is increased or decreased by reason of the admission of a new Member or
otherwise, during any Fiscal Year of the Company, Net Profit or Net Loss for
such Fiscal Year shall be assigned pro rata to each day in the particular
period of such Fiscal Year to which such item is attributable (i.e., the day on
or during which it is accrued or otherwise incurred) and the amount of each
such item so assigned to any such day shall be allocated to the Member or
Assignee based upon its respective Economic Interest at the close of such day.
However, for the purpose of accounting convenience and simplicity, the
Company shall treat a transfer of, or an increase or decrease in, an Economic
Interest which occurs at any time during a semi-monthly period (commencing with
the semi-monthly period including the date hereof) as having been consummated
on the last day of such semi-monthly period, regardless of when during such
semi-monthly period such transfer, increase, of decrease actually occurs (i.e.,
sales and dispositions made during the first fifteen (15) days of any month
will be deemed to have been made on the 15th day of the month).
Notwithstanding any provision above to the contrary, gain or loss of
the Company realized in connection with a sale or other disposition of any of
the assets of the Company shall be allocated solely to the parties owning
Economic Interests as of the date such sale or other disposition occurs.
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6.5 Distributions of Distributable Cash by the Company.
A. Distributable Cash. Subject to applicable law and any
limitations contained elsewhere in this Agreement, the Management Committee
shall distribute Distributable Cash to the Members in proportion to their
Percentage Interests.
B. Proceeds From the Sale of Property. Subject to
applicable law and any limitations contained elsewhere in this Agreement, the
Management Committee shall distribute the Proceeds From Sale to the Members as
follows:
(i) the first $5,833,334 of Proceeds From Sale shall be
distributed to the Members in proportion to the following percentages: (a)
United Leisure - 60%; (b) Ata - 24%; and (c) Aba - 16%; and then
(ii) the next $1,166,666 of Proceeds From Sale shall be
distributed to the Members in proportion to the following percentages: (a)
United Leisure - 0%; (b) Ata - 60%; and (c) Aba - 40%; and then
(iii) any remaining Proceeds From Sale shall be distributed
to the Members in proportion to their Percentage Interests.
Notwithstanding anything to the contrary contained herein, the percentage
interests set forth in clause (i) and (ii) shall be increased or decreased by
the increases or decreases, if any, in a Member's Percentage Interest made
pursuant to Section 3.8.
C. Holders of Record. Notwithstanding anything to the
contrary in Section 6.5A or 6.5B, all such distributions shall be made only to
the Persons who, according to the books and records of the Company, are the
holders of record of the Economic Interests in respect of which such
distributions are made on the actual date of distribution. Neither the Company
nor the Committee Members shall incur any liability for making distributions in
accordance with this Section 6.5C.
6.6 Form of Distribution. A Member, regardless of the nature of
the Member's Capital Contribution, has no right to demand and receive any
distribution from the Company in any form other than money. Except as provided
in Section 9.3, no Member may be compelled to accept from the Company a
distribution of any asset in kind in lieu of a proportionate distribution of
money being made to other Members and no Member may be compelled to accept a
distribution of any asset in kind.
6.7 Obligations of Members to Report Allocations. The Members are
aware of the income tax consequences of the allocations made by this Article VI
and hereby agree to be bound by the provisions of this Article VI in reporting
their shares of Company income and loss for income tax purposes.
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ARTICLE VII
TRANSFER AND ASSIGNMENT OF INTERESTS
7.1 Transfer and Assignment of Interests. Except as provided in
this Article VII, a Member shall not be entitled to transfer, assign, convey,
sell, encumber or in any way alienate all or any part of its Membership
Interest (collectively, "transfer") except with the prior written consent of
Members holding a majority of the Percentage Interests held by the
non-transferring Members, which consent may be given or withheld, conditioned
or delayed, as such Members may determine in their sole and absolute
discretion. Transfers in violation of this Article VII shall only be effective
to the extent set forth in Section 7.6. After the consummation of any transfer
of any part of a Membership Interest, the Membership Interest so transferred
shall continue to be subject to the terms and provisions of this Agreement and
any further transfers shall be required to comply with all the terms and
provisions of this Agreement.
With respect to Ata and Aba only, but not with respect to United
Leisure, the transfer of an interest or interests of more than fifty percent
(50%) in the capital or profits of either of such Members (whether accomplished
by the sale or exchange of interests or by the admission of new partners or
members), or the cumulative transfer of such interests in either of such
Members which effectively equal the foregoing (including transfer of interests
followed by the incorporation of a Member and subsequent stock transfers, or
transfers of stock followed by the liquidation of a Member and subsequent
transfers of interests) will be deemed to constitute an assignment of a
Membership Interest subject to this Article VII.
7.2 Substitution of Members. An Assignee shall have the right to
become a substitute Member only if (i) the requirements of Section 7.1 relating
to consent of Members are met, (ii) the Assignee executes an instrument
satisfactory to the Management Committee accepting and adopting the terms and
provisions of this Agreement, and (iii) the Assignee pays any reasonable
expenses in connection with its admission as a new Member. The admission of an
Assignee as a substitute Member shall not result in the release of the Member
who assigned the Membership Interest from any liability that such Member may
have to the Company.
7.3 Permitted Transfers. A Membership Interest may be transferred
to any other Member and without the prior written consent of the other Members.
A Membership Interest also may be transferred, and without the prior written
consent of the Members as required by Section 7.1, by: (a) a Member to any
Affiliate of Pashaie, Showghy, Shuster or United Leisure, or (b) by inter vivos
gift or by testamentary transfer to any spouse, parent, sibling, in-law, child
or grandchild of the Member or to a trust for the benefit of the Member or such
spouse, parent, sibling, in-law, child or grandchild of the Member; it being
agreed that, in executing this Agreement, each Member has consented to such
transfers.
7.4 Effective Date of Permitted Transfers. Any permitted transfer
of all or any portion of a Membership Interest or an Economic Interest shall be
effective as of the date provided in Section 6.4 following the date upon which
the requirements of Sections 7.1 and
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7.2 have been met. Any transferee of a Membership Interest shall take subject
to the restrictions on transfer imposed by this Agreement.
7.5 Rights of Legal Representatives. If a Member is a limited
liability company, corporation, trust, or other entity and is dissolved or
terminated, the powers of that Member may be exercised by its legal
representative or successor.
7.6 No Effect to Transfers in Violation of Agreement. Upon any
transfer of a Membership Interest in violation of this Article VII, the
transferee shall have no right to vote or participate in the management of the
business, property and affairs of the Company or to exercise any rights of a
Member. Such transferee shall only be entitled to become an Assignee and
thereafter shall only receive the share of one or more of the Company's Net
Profits, Net Losses and distributions of the Company's assets to which the
transferor of such Economic Interest would otherwise be entitled.
Notwithstanding the immediately preceding sentences, if, in the determination
of Members holding a majority of the Percentage Interests held by the
non-transferring Members, a transfer in violation of this Article VII would
cause the tax termination of the Company under Code Section 708(b)(1)(B), the
transfer shall be null and void and the purported transferee shall not become
either a Member or an Assignee.
Upon and contemporaneously with any transfer (whether arising out of an
attempted charge upon that Member's Economic Interest by judicial process, a
foreclosure by a creditor of the Member or otherwise) of a Member's Economic
Interest pertaining to a Membership Interest (other than in accordance with
Section 7.3) which does not at the same time transfer the balance of the rights
associated with the Membership Interest transferred by the Member (including,
without limitation, the rights of the Member to vote or participate in the
management of the business, property and affairs of the Company), the Company
shall purchase from the Member, and the Member shall sell to Company for a
purchase price of $100, all remaining rights and interests retained by the
Member that immediately before the transfer were associated with the
transferred Economic Interest. Such purchase and sale shall not, however,
result in the release of the Member from any liability to the Company as a
Member.
Each Member acknowledges and agrees that the right of the Company to
purchase such remaining rights and interests from a Member who transfers a
Membership Interest in violation of this Article VII is not unreasonable under
the circumstances existing as of the date hereof.
7.7 Right of First Negotiation. If any Member desires to transfer
all or any part of its Membership Interest other than pursuant to Section 7.3,
such Member shall notify the Company and the other Members in writing of such
desire and, for a period of thirty (30) days thereafter, the Members and the
Company shall negotiate with respect to the purchase of such Member's
Membership Interest. During such period, the Member desiring to transfer such
Membership Interest may not solicit a transferee for such Membership Interest.
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7.8 Right of First Refusal. If the period described in Section
7.7 expires without an agreement being reached as to the purchase of the
Membership Interest referred to therein, the Member desiring to transfer its
Membership Interest may solicit transferees. In such event, each time a Member
proposes to transfer all or any part of its Membership Interest (or as required
by operation of law or other involuntary transfer to do so) other than pursuant
to Section 7.3, such Member shall first offer such Membership Interest to the
Company and the non-transferring Members in accordance with the following
provisions:
A. Such Member shall deliver a written notice ("Option
Notice") to the Company and the other Members stating (i) such Member's bona
fide intention to transfer such Membership Interest, (ii) the Membership
Interest to be transferred, (iii) the purchase price and terms of payment for
which the Member proposes to transfer such Membership Interest and (iv) the
name and address of the proposed transferee.
B. Within thirty (30) days after receipt of the Option
Notice, the Company shall have the right, but not the obligation, to elect to
purchase all or any part of the Membership Interest upon the price and terms of
payment designated in the Option Notice. If the Option Notice provides for the
payment of non-cash consideration, the Company may elect to pay the
consideration in cash equal to the good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the
Management Committee. If the Company, with the approval of Members holding a
majority of the non-transferring Membership Interests, exercises such right
within such thirty (30) day period, the Management Committee shall give written
notice of that fact to the transferring and non-transferring Members.
C. If the Company fails to elect to purchase the entire
Membership Interest proposed to be transferred within the thirty (30) day
period described in Section 7.8B, the non-transferring Members shall have the
right, but not the obligation, to elect to purchase any remaining share of such
Membership Interest upon the price and terms of payment designated in the
Option Notice. If the Option Notice provides for the payment of non-cash
consideration, such purchasing Members each may elect to pay the consideration
in cash equal to the good faith estimate of the present fair market value of
the non-cash consideration offered as determined by the Management Committee.
Within sixty (60) days after receipt of the Option Notice, each
non-transferring Member shall notify the Management Committee in writing of its
desire to purchase a portion of the Membership Interest proposed to be so
transferred. The failure of any Member to submit a notice within the
applicable period shall constitute an election on the part of that Member not
to purchase any of the Membership Interest which may be so transferred. Each
Member so electing to purchase shall be entitled to purchase a portion of such
Membership Interest in the same proportion that the Percentage Interest of such
Member bears to the aggregate of the Percentage Interests of all of the Members
electing to so purchase the Membership Interest being transferred. In the
event any Member elects to purchase none or less than all of its pro rata share
of such Membership Interest, then the other Members can elect to purchase more
than their pro rata share.
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D. If the Company and the other Members elect to purchase
or obtain any or all of the Membership Interest designated in the Option
Notice, then the closing of such purchase shall occur within ninety (90) days
after receipt of such notice and the transferring Member, the Company and/or
the other Members shall execute such documents and instruments and make such
deliveries as may be reasonably required to consummate such purchase.
E. If the Company and the other Members elect not to
purchase or obtain, or default in their obligation to purchase or obtain, all
of the Membership Interest designated in the Option Notice, then the
transferring Member may transfer the portion of the Membership Interest
described in the Option Notice not so purchased, to the proposed transferee,
providing such transfer (i) is completed within thirty (30) days after the
expiration of the Company's and the other Members' right to purchase such
Membership Interest, (ii) is made on terms no less favorable to the
transferring Member than as designated in the Option Notice, and (iii) complies
with Sections 7.1 and 7.2 relating to consent of Members; it being acknowledged
by the Members that compliance with Sections 7.7 and 7.8A-D does not modify any
of the transfer restrictions in Article VII or otherwise entitle a Member to
transfer its Membership Interest other than in the manner prescribed by Article
VII. If such Membership Interest is not so transferred, the transferring
Member must give notice in accordance with this Section prior to any other or
subsequent transfer of such Membership Interest.
ARTICLE VIII
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
8.1 Books and Records. The books and records of the Company shall
be kept, and the financial position and the results of its operations recorded,
in accordance with the accounting methods followed for federal income tax
purposes. The books and records of the Company shall reflect all the Company
transactions and shall be appropriate and adequate for the Company's business.
The Company shall maintain at its principal office all of the following:
A. A current list of the full name and last known
business or residence address of each Member and Assignee set forth in
alphabetical order, together with the Capital Contributions, Capital Account
and Percentage Interest of each Member and Assignee;
B. A current list of the full name and business or
residence address of each Committee Member;
C. A copy of the Certificate and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which the Certificate or any amendments thereto have been executed;
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D. Copies of the Company's federal, state, and local
income tax or information returns and reports, if any, for the six (6) most
recent taxable years;
E. A copy of this Agreement and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
F. Copies of the financial statements of the Company, if
any, for the six (6) most recent Fiscal Years; and
G. The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four (4)
Fiscal Years.
8.2 Delivery to Members and Inspection.
A. Upon the request of any Member or Assignee, the
Management Committee shall promptly deliver to the requesting Member or
Assignee, at the expense of the Company, a copy of the information required to
be maintained under Section 8.1.
B. Each Member, Committee Member and Assignee has the
right, upon reasonable request for purposes reasonably related to the interest
of the Person as Member, Committee Member or Assignee, to:
(i) inspect and copy during normal business hours
any of the Company records described in Section 8.1; and
(ii) obtain from the Management Committee, promptly
after their becoming available, a copy of the Company's federal, state, and
local income tax or information returns for each Fiscal Year.
(iii) A monthly income statement of the Company and
a balance sheet of the Company as of the end of that period. Such statement
shall be accompanied by the report thereon, if any, of the independent
accountants engaged by the Company or, if there is no report, the certificate
of the chief financial officer that the statement was prepared without audit
from the books and records of the Company. The statement and balance sheet
shall be delivered or mailed to the Members within twenty (20) days after the
end of each such period.
C. Any request, inspection or copying by a Member or
Assignee under this Section 8.2 may be made by that Person or that Person's
agent or attorney.
8.3 Annual Statements.
A. The Management Committee shall cause an annual report
to be sent to each of the Members not later than one hundred twenty (120) days
after the close of the Fiscal Year. The report shall contain a balance sheet
as of the end of the Fiscal Year and
27
<PAGE> 34
an income statement and statement of changes in financial position for the
Fiscal Year. Such financial statements shall be accompanied by the report
thereon, if any, of the independent accountants engaged by the Company or, if
there is no report, the certificate of the chief financial officer that the
financial statements were prepared without audit from the books and records of
the Company.
B. The Management Committee shall cause to be prepared at
least annually, at Company expense, information necessary for the preparation
of the Members' and Assignees' federal and state income tax returns. The
Management Committee shall send or cause to be sent to each Member or Assignee
within ninety (90) days after the end of each taxable year such information as
is necessary to complete federal and state income tax or information returns,
and a copy of the Company's federal, state, and local income tax or information
returns for that year.
8.4 Financial and Other Information. The Management Committee
shall provide such financial and other information relating to the Company or
any other Person in which the Company owns, directly or indirectly, an equity
interest, as a Member may request.
8.5 Filings. The Management Committee, at Company expense, shall
cause the income tax returns for the Company to be prepared by a certified
public accountant and timely filed with the appropriate authorities. The
Management Committee, at Company expense, shall also cause to be prepared and
timely filed, with appropriate federal and state regulatory and administrative
bodies, amendments to, or restatements of, the Certificate and all reports
required to be filed by the Company with those entities under the Act or other
then current applicable laws, rules, and regulations. If the Management
Committee is required by the Act or other applicable law to execute or file any
document and fails, after demand, to do so within a reasonable period of time
or refuses to do so, any Committee Member or Member may prepare, execute and
file that document.
8.6 Bank Accounts. The Management Committee shall maintain the
funds of the Company in one or more separate bank accounts in the name of the
Company.
8.7 Accounting Decisions and Reliance on Others. All decisions as
to accounting matters, except as otherwise specifically set forth herein, shall
be made by the Management Committee. The Management Committee may rely upon
the advice of its accountants as to whether such decisions are in accordance
with accounting methods followed for federal income tax purposes.
8.8 Tax Matters for the Company Handled by the Management
Committee and Tax Matters Partner. The Members hereby elect that the Company
shall be taxed as an association taxable as a partnership. The Management
Committee shall from time to time cause the Company to make such other tax
elections as they deem to be in the best interests of the Company and the
Members. The Tax Matters Partner shall represent the Company (at the Company's
expense) in connection with all examinations of the Company's affairs by tax
authorities, including resulting judicial and administrative proceedings, and
shall expend the Company funds for professional services and costs associated
therewith. The
28
<PAGE> 35
Tax Matters Partner shall oversee the Company tax affairs in the overall best
interests of the Company but shall not have the right to agree to extend any
statute of limitations without the approval of a Majority Interest of the
Members. If for any reason the Tax Matters Partner can no longer serve in that
capacity or ceases to be a Member, a Majority Interest of the Members may
designate another to be Tax Matters Partner.
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1 Dissolution. The Company shall be dissolved, its assets shall
be disposed of, and its affairs wound up on the first to occur of the
following:
A. The happening of any event of dissolution specified in
the Certificate;
B. The entry of a decree of judicial dissolution;
C. The vote of a Majority Interest of the Members;
D. The vote of non-defaulting Members holding a majority
of the Percentage Interests held by all non-defaulting Members pursuant to
Section 3.8C; or
E. The purchase of the Property by the Company pursuant
to the Purchase Agreement and the Escrow has not been consummated by the
closing date set forth therein;
F. The Escrow is terminated unless a Majority Interest of
the Members elects to continue the business of the Company within ninety (90)
days of such termination; or
G. The sale of all or substantially all of the assets of
Company.
9.2 Winding Up. Upon the occurrence of any event specified in
Section 9.1, the Company shall continue solely for the purpose of winding up
its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Management Committee shall be responsible for
overseeing the winding up and liquidation of Company, shall take full account
of the liabilities of Company and assets, shall either cause its assets to be
sold or distributed, and if sold as promptly as is consistent with obtaining
the fair market value thereof, shall cause the proceeds therefrom, to the
extent sufficient therefor, to be applied and distributed as provided in
Section 9.4. The Persons winding up the affairs of the Company shall give
written notice of the commencement of winding up by mail to all known creditors
and claimants whose addresses appear on the records of the Company.
9.3 Distributions in Kind. Any non-cash asset distributed to one
or more Members shall first be valued at its fair market value to determine the
Net Profit or Net Loss that would have resulted if such asset were sold for
such value, such Net Profit or Net Loss shall then be allocated pursuant to
Article VI, and the Members' Capital Accounts shall be
29
<PAGE> 36
adjusted to reflect such allocations. The amount distributed and charged to
the Capital Account of each Member receiving an interest in such distributed
asset shall be the fair market value of such interest (net of any liability
secured by such asset that such Member assumes or takes subject to). The fair
market value of such asset shall be determined by the Management Committee or
by the Members or if any Member objects by an independent appraiser (any such
appraiser must be recognized as an expert in valuing the type of asset
involved) selected by the Management Committee or liquidating trustee and
approved by the Members.
9.4 Order of Payment Upon Dissolution. After determining that all
known debts and liabilities of the Company, including, without limitation,
debts and liabilities to Members who are creditors of the Company, have been
paid or adequately provided for, the remaining assets shall be distributed to
the Members in accordance with, and in proportion to, their positive Capital
Account balances, after taking into account income and loss allocations for the
Company's taxable year during which liquidation occurs. Such liquidating
distributions shall be made by the end of the Company's taxable year in which
the Company is liquidated, or, if later, within ninety (90) days after the date
of such liquidation.
9.5 Limitations on Payments Made in Dissolution. Except as
provided in Section 3.8 or Section 10.2, upon dissolution each Member shall
only be entitled to look solely at the assets of the Company for the return of
its positive Capital Account balance and shall have no recourse for its Capital
Contribution and/or share of Net Profits against the Committee Members or any
other Member.
ARTICLE X
INDEMNIFICATION AND INSURANCE
10.1 Indemnification of Agents. The Company shall defend and
indemnify any Member or Committee Member and may indemnify any other Person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that it
is or was a Member, Committee Member, officer, employee or other agent of the
Company or that, being or having been such a Member, Committee Member, officer,
employee or agent, it is or was serving at the request of the Company as a
manager, director, officer, employee or other agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereinafter as an "agent"), to
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may hereafter from time to time
permit. The Management Committee shall be authorized, on behalf of the
Company, to enter into indemnity agreements from time to time with any Person
entitled to be indemnified by the Company hereunder, upon such terms and
conditions as the Management Committee deems appropriate in its business
judgment.
10.2 Breach of Purchase Agreement or Escrow. If any Member (a
"Breaching Member") fails to perform its obligations hereunder and such failure
results directly or
30
<PAGE> 37
indirectly in a termination or breach of the Purchase Agreement or Escrow, such
Breaching Member shall pay for or reimburse the non-Breaching Members for
payments made by them with respect to: (a) all costs and expenses incurred in
investigating the Property; (b) the expenses relating to the ART Action; (c)
the Capital Contributions made by such non-Breaching Members pursuant to
Section 3.1; and (d) any other damages the non-Breaching Members may suffer as
a direct or indirect result of the failure of performance by the Breaching
Member.
10.3 Insurance. The Company shall have the power to purchase and
maintain insurance on behalf of any Person who is or was an agent of the
Company against any liability asserted against such Person and incurred by such
Person in any such capacity, or arising out of such Person's status as an
agent, whether or not the Company would have the power to indemnify such Person
against such liability under the provisions of Section 10.1 or under applicable
law.
ARTICLE XI
INVESTMENT REPRESENTATIONS
Each Member hereby represents and warrants to, and agrees with, the
Committee Members, the other Members, and the Company as follows:
11.1 Preexisting Relationship or Experience. (i) It has a
preexisting personal or business relationship with the Company or the Committee
Members or control persons or (ii) by reason of its business or financial
experience, or by reason of the business or financial experience of its
financial advisor who is unaffiliated with and who is not compensated, directly
or indirectly, by the Company or any affiliate or selling agent of the Company,
it is capable of evaluating the risks and merits of an investment in the
Membership Interest and of protecting its own interests in connection with this
investment.
11.2 No Advertising. It has not seen, received, been presented
with, or been solicited by any leaflet, public promotional meeting, newspaper
or magazine article or advertisement, radio or television advertisement, or any
other form of advertising or general solicitation with respect to the sale of
the Membership Interest.
11.3 Investment Intent. It is acquiring the Membership Interest
for investment purposes for its own account only and not with a view to or for
sale in connection with any distribution of all or any part of the Membership
Interest. No other person will have any direct or indirect beneficial interest
in or right to the Membership Interest.
11.4 Consultation with Attorney. It has been advised to consult
with its own attorney regarding all legal matters concerning an investment in
the Company and the tax consequences of participating in the Company, and has
done so, to the extent it considers necessary.
31
<PAGE> 38
11.5 Tax Consequences. It acknowledges that the tax consequences
to its of investing in the Company will depend on its particular circumstances,
and neither the Company, the Committee Members, the Members, nor the partners,
shareholders, members, managers, agents, officers, directors, employees,
Affiliates, or consultants of any of them will be responsible or liable for the
tax consequences to it of an investment in the Company. It will look solely
to, and rely upon, its own advisers with respect to the tax consequences of
this investment.
11.6 No Assurance of Tax Benefits. It acknowledges that there can
be no assurance that the Code or the Regulations will not be amended or
interpreted in the future in such a manner so as to deprive the Company and the
Members of some or all of the tax benefits they might now receive, nor that
some of the deductions claimed by the Company or the allocations of items of
income, gain, loss, deduction, or credit among the Members may not be
challenged by the Internal Revenue Service.
ARTICLE XII
MISCELLANEOUS
12.1 Complete Agreement. This Agreement and the Certificate
constitute the complete and exclusive statement of agreement among the Members
with respect to the subject matter herein and therein and, other than the
Guarantee provided by Harry Shuster, replace and supersede all prior written
and oral agreements or statements by and among the Members or any of them,
including without limitation, that certain Memorandum of Understanding dated as
of December 3, 1996 among United Leisure, Pashaie and Showghy. No
representation, statement, condition or warranty not contained in this
Agreement or the Certificate will be binding on the Members or the Management
Committee or have any force or effect whatsoever. To the extent that any
provision of the Certificate conflict with any provision of this Agreement, the
Certificate shall control.
12.2 Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and inure to
the benefit of the Members, and their respective successors and assigns.
12.3 Parties in Interest. Except as expressly provided in the Act,
nothing in this Agreement shall confer any rights or remedies under or by
reason of this Agreement on any Persons other than the Members and Committee
Members and their respective successors and assigns nor shall anything in this
Agreement relieve or discharge the obligation or liability of any third person
to any party to this Agreement, nor shall any provision give any third person
any right of subrogation or action over or against any party to this Agreement.
12.4 Pronouns; Statutory References. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine, or
neuter, singular or plural, as the context in which they are used may require.
Any reference to the Code, the Regulations, the Act or other statutes or laws
will include all amendments, modifications, or replacements of the specific
sections and provisions concerned.
32
<PAGE> 39
12.5 Headings. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
12.6 Interpretation. In the event any claim is made by any Member
relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Member or its counsel.
12.7 References to this Agreement. Numbered or lettered articles,
sections and subsections herein contained refer to articles, sections and
subsections of this Agreement unless otherwise expressly stated.
12.8 Jurisdiction. Each Member hereby consents to the exclusive
jurisdiction of the state and federal courts sitting in Los Angeles County,
California in any action on a claim arising out of, under or in connection with
this Agreement or the transactions contemplated by this Agreement. Each Member
further agrees that personal jurisdiction over it may be effected by service of
process by registered or certified mail addressed as provided in Section 12.12
of this Agreement, and that when so made shall be as if served upon it
personally within the State of California.
12.9 Exhibits. All Exhibits attached to this Agreement are
incorporated and shall be treated as if set forth herein.
12.10 Severability. If any provision of this Agreement or the
application of such provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision
to persons or circumstances other than those to which it is held invalid shall
not be affected thereby.
12.11 Additional Documents and Acts. Each Member agrees to execute
and deliver such additional documents and instruments and to perform such
additional acts as may be necessary or appropriate to effectuate, carry out and
perform all of the terms, provisions, and conditions of this Agreement and the
transactions contemplated hereby.
12.12 Notices. Any notice to be given or to be served upon the
Company or any party hereto in connection with this Agreement must be in
writing (which may include facsimile) and will be deemed to have been given and
received when delivered to the address specified by the party to receive the
notice. Such notices will be given to a Member or Committee Members at the
address specified in Exhibit A hereto. Any party may, at any time by giving
five (5) days' prior written notice to the other parties, designate any other
address in substitution of the foregoing address to which such notice will be
given.
12.13 Amendments. All amendments to this Agreement will be in
writing and signed by a Majority Interest of the Members.
33
<PAGE> 40
12.14 Reliance on Authority of Person Signing Agreement. If a
Member is not a natural person, neither the Company nor any Member will (a) be
required to determine the authority of the individual signing this Agreement to
make any commitment or undertaking on behalf of such entity or to determine any
fact or circumstance bearing upon the existence of the authority of such
individual or (b) be responsible for the application or distribution of
proceeds paid or credited to individuals signing this Agreement on behalf of
such entity.
12.15 No Interest in Company Property; Waiver of Action for
Partition. No Member or Assignee has any interest in specific property of the
Company. Without limiting the foregoing, each Member and Assignee irrevocably
waives during the term of the Company any right that it may have to maintain
any action for partition with respect to the property of the Company.
12.16 Multiple Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
12.17 Attorney Fees. In the event that any dispute between the
Company and the Members or among the Members should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including without limitation, reasonable
attorneys' fees and expenses, all of which shall be deemed to have accrued upon
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney fees and
costs incurred in enforcing such judgment and an award of prejudgment interest
from the date of the breach at the maximum rate of interest allowed by law.
For the purposes of this Section: (a) attorney fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions; (2)
contempt proceedings; (3) garnishment, levy, and debtor and third party
examinations; (4) discovery; and (5) bankruptcy litigation and (b) prevailing
party shall mean the party who is determined in the proceeding to have
prevailed or who prevails by dismissal, default or otherwise.
12.18 Time is of the Essence. All dates and times in this Agreement
are of the essence.
12.19 Remedies Cumulative. The remedies under this Agreement are
cumulative and shall not exclude any other remedies to which any person may be
lawfully entitled.
34
<PAGE> 41
All of the Members of United Hotel & Casino, LLC, a Delaware limited
liability company, have executed this Agreement, effective as of the date
written above.
UNITED LEISURE CORPORATION
By: /s/ Harry Shuster
-------------------------------------
Its: President
------------------------------------
ATA ENTERPRISES, LLC
By: /s/
-------------------------------------
Its: President
------------------------------------
ABA ENTERPRISES, LLC
By: /s/ Michael Pashaie
-------------------------------------
Its: Manager
------------------------------------
35
<PAGE> 42
EXHIBIT A
INITIAL PERCENTAGE INTERESTS AND ADDRESSES
OF MEMBERS AND COMMITTEE MEMBERS
<TABLE>
<CAPTION>
Member's
Members' Name Member's Address Percentage Interest
- ------------- ---------------- -------------------
Prior to Upon and
Closing of Following
Acquisition Acquisition
of Property of Property
----------- -----------
<S> <C> <C> <C>
United Leisure Corporation 1990 Westwood Blvd. 50% 50%
Penthouse
Los Angeles, CA 90025
Attn: Harry Shuster
Facsimile
No.: (310) 474-7475
Ata Enterprises, LLC c/o James Showghy 25% 30%
505 S. Beverly Drive
Suite 805
Beverly Hills, CA 90212
Facsimile
No.: (310) 277-1773
Aba Enterprises, LLC c/o Michael Pashaie 25% 20%
9301 Wilshire Blvd.
Suite 312
Beverly Hills, CA 90210
Facsimile
No.: (310) 274-2152
--- ---
100% 100%
=== ===
</TABLE>
36
<PAGE> 43
<TABLE>
<CAPTION>
Committee Member's Name Committee Member's Address
- ----------------------- --------------------------
<S> <C>
Harry Shuster 1990 Westwood Blvd.
Penthouse
Los Angeles, CA 90025
Harry Shuster
Facsimile
No.: (310) 474-7475
Michael Pashaie 9301 Wilshire Blvd.
Suite 312
Beverly Hills, CA 90210
Facsimile
No.: (310) 274-2152
James Showghy 505 S. Beverly Drive
Suite 805
Beverly Hills, CA 90212
Facsimile
No.: (310) 277-1773
</TABLE>
37
<PAGE> 44
EXHIBIT B
LEGAL DESCRIPTION OF THE PROPERTY
THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF SECTION 9, TOWNSHIP 21 SOUTH,
RANGE 61 EAST, M.D.M., FURTHER DESCRIBED AS FOLLOWS:
LOTS ONE (1), TWO (2), AND THREE (3) OF PARCEL MAP IN FILE 25, PAGE 68,
RECORDED APRIL 24, 1979 AS DOCUMENT NO. 1003812, OFFICIAL RECORDS, CLARK
COUNTY, NEVADA.
38
<PAGE> 1
PR23A-150 Exhibit 10-39
Irvine Regional Park
(Camp Frasier)
LEASE
THIS LEASE is made __________, 1996 by and between COUNTY OF ORANGE,
hereinafter referred to as "LESSOR," and Camp Frasier, Inc., a California
corporation, hereinafter referred to as "TENANT," without regard to number and
gender.
1. DEFINITIONS
The following words in this Lease have the significance attached to
them in this clause unless otherwise apparent from content:
"Auditor-Controller" means the Auditor-Controller County of Orange or
designee, or upon written notice to TENANT, such other person or entity as
shall be designated by Board of Supervisors.
"Board of Supervisors" means the Board of Supervisors of the County of
Orange, a political subdivision of the State of California.
"Director of HBP" means the Director of Harbors, Beaches and Parks,
Environmental Management Agency, County of Orange, or designee, or upon written
notice to TENANT, such other person or entity, as shall be designated by the
Board of Supervisors.
"Real Estate Director" means the Director, Real Estate, General
Services Agency, County of Orange, or his designee, or upon written notice to
TENANT, such other person or entity as shall be designated by the Board of
Supervisors.
2. PREMISES (PMA3.1 S)
LESSOR leases to TENANT that certain real property depicted on Exhibit
"A," as "Pool Area." attached hereto and made a part hereof, and additionally
LESSOR grants to TENANT an exclusive right to use a certain portion of Irvine
Regional Park for a summer day camp operation depicted on Exhibit A as "Camp
Area." Collectively, the Pool Area and Camp Area, with all improvements
thereon, shall be hereinafter referred to as the "Premises." Any change in the
Camp Area from that outlined on Exhibit A shall be made upon written notice
from the Director of HBP.
3. LIMITATION OF THE LEASEHOLD (PMA5.1 S)
This Lease and the rights and privileges granted TENANT in and to the
Premises are subject to all covenants, conditions, restrictions, and exceptions
of record or apparent. Nothing contained in this Lease or in any document
related hereto shall be
<PAGE> 2
construed to imply the conveyance to TENANT of rights in the Premises which
exceed those owned by LESSOR, or any representation or warranty, either express
or implied, relating to the nature or condition or the Premises or LESSOR's
interest therein. TENANT acknowledges that TENANT has conducted a complete and
adequate investigation of the Premises and that TENANT has accepted the
Premises in its "as is" condition. Furthermore, TENANT acknowledges that other
day camps may operate from time to time in Irvine Regional Park.
4. REQUIRED AND OPTIONAL SERVICES AND USES (PMB1.3 S)
A. Required Services and Uses. LESSOR's primary purpose for
entering into this Lease is to promote the development of a children's summer
day camp, TENANT shall have the right to operate a children's summer day camp
on the Premises from approximately June 1 through the Friday before Labor Day
of each year during the Lease term (the "Summer Months"). LESSOR shall have
the right to occupy and use the Premises (other than the Pool Area, or any
enclosed buildings or structures placed or constructed upon the Premises by
TENANT) at all other times as well as during Memorial Day, July, 4, Labor Day
and from 6:30 P.M, on Friday, evenings through closing time on Sunday evenings
of each week during the Summer Months, provided that in connection with any
such occupancy and use by LESSOR, LESSOR shall clean, repair, upkeep and
maintain the Premises, and all other improvements thereon, in the same
condition as when delivered to LESSOR in each instance, reasonable wear and
tear excepted. Additionally TENANT shall have the right to use the Premises
from 6:30 P.M, on Friday evenings through 12:00 P.M, on Saturdays during the
Summer Months on three (3) occasions selected by TENANT and approved by the
Director of HBP, which approval will not be unreasonably withheld, during each
year of the term.
The parties acknowledge that the exact term of the Summer Months may
vary from year to year depending on the differences in the calendar, school
schedules and other similar factors which may affect the operations of a
children's summer camp and that the camp activities may vary from year to year.
Not later than the first (1st) day of March during the term of each year,
TENANT shall submit to the Director of HBP for approval, which will not be
unreasonably withheld, an annual operations schedule outlining the proposed
camp program and activities schedule for that year. The schedule shall also
include the time period which TENANT proposes to be the Summer Months for that
year.
B. Optional Services and Uses. Subject to the prior written
approval of the Director of HBP, TENANT is granted the option to provide those
additional recreational services and uses which are ancillary to and compatible
with the required services and uses herein. Said optional services and uses
may include but are not limited to the following:
2
<PAGE> 3
1. Off-Season Camps. TENANT may occupy and use the
Premises as a day camp during periods other than the Summer Months.
2. Swim Program/Lessons. TENANT may occupy and use the
Pool Area for a swim program and lessons during periods other than the
Summer Months. Subject to the prior written consent of the Director
of HBP, TENANT may, enter into short-term (nine (9) months or less)
subleases, licenses, or similar use or occupancy agreements for the
Pool Area, such as subleases or licenses of the Pool Area for swim
programs and lessons.
C. Restricted Use. The above-listed services and uses, both
required and optional, shall be the only services and uses permitted TENANT
agrees not to use the Premises for any other purpose or engage in or permit any
other business activity within or from the Premises.
5. TERM (PMB2.1 S)
The term of this Lease shall be fifteen (15) years, commencing the
first day of the first full calendar month following the date of execution of
this Lease by LESSOR.
6. RENT (PMC1.2 N)
A. Minimum Annual Rent. For the first five (5) accounting years
of the Lease term the minimum annual rent for the Premises shall be in
accordance with the following schedule:
Year 1 $10,000
Year 2 $20,000
Year 3-5 $30,000
The minimum annual rent shall be adjusted in accordance with the
provisions of the Clause entitled REVISION OF RENTS. Should this Lease be
terminated during an accounting year, the applicable minimum annual rent shall
be prorated.
B. Percentage Rent. Percentage rent for the Premises shall be
calculated using the following percentage of gross receipts from business
operations conducted on or from the Premises:
<TABLE>
<CAPTION>
Business Percentage of Gross Receipts
-------- ----------------------------
<S> <C>
Summer Day Camp 15%
Swim Program/Lessons 15%
</TABLE>
C. Annual Rent. TENANT shall pay to LESSOR for each accounting
year either the minimum annual rent or the percentage rent, whichever is
greater.
3
<PAGE> 4
D. Payment of Rent. Rent payments shall be made in accordance
with the provisions of the Clause entitled RENT PAYMENT PROCEDURE.
7. REVISION OF RENTS (PMC4.5 S)
On the fifth anniversary of the effective date of this Lease, and
every five years thereafter, the minimum annual rent shall be automatically
adjusted to the greater of the following:
(1) Seventy-five percent (75%) of the average (mean)
annual rent paid by TENANT to LESSOR for the preceding three (3)
years, or
(2) The base minimum annual rent of Thirty Thousand
Dollars ($30,000) adjusted in proportion to changes in the Consumer
Price Index for Los Angeles - Anaheim - Riverside (All Urban Consumers
-- All Items) promulgated by the Bureau of Labor Statistics of the
U.S. Department of Labor. This automatic adjustment shall be
calculated by means of the following formula:
A = $30,000 x B/C
A = Annual Rent
B = Monthly index for the fourth month prior to the month
in which each rental rate adjustment is to becomes
effective
C = Monthly index for the month in which the lease
becomes effective
Notwithstanding the foregoing, in no event shall the minimum annual
rent be reduced by reason of any such adjustment. In the event that the
Consumer Price Index is not issued or published for the period for which such
minimum annual rent is to be adjusted and computed hereunder, or in the event
that the Bureau of Labor Statistics or the U.S. Department of Labor should
cease to publish said index figures, then any similar index published by any
other branch or department of the U.S. Government shall be used and if none is
so published, then another index generally recognized and authoritative shall
be substituted by LESSOR.
8. DEFINITION OF GROSS RECEIPTS (PMC5.2 S)
As used in this Clause, the term "TENANT" shall include TENANT,
TENANT's agents, sublessee concessionaires, or licensees, or any person acting
under contract with TENANT, The term "gross receipts" upon which percentage
rents for this Lease shall include:
A. The sale price of all goods, wares, merchandise, and products
sold on or from the Premises by TENANT, whether for cash or credit and whether
payment is actually made or not, whether delivery of the items sold is made
from the Premises and whether title to such items is transferred;
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B. The charges made by TENANT for the sale or rendition on or
from the Premises of services of any nature or kind whatsoever, whether for
cash or credit, whether payment is actually made or not and whether the
services are actually performed or not;
C. All admission, entry, rental, and other fees of any nature or
kind charged by TENANT (including but not limited to deposits accepted by
TENANT);
D. All sums deposited into any coin-operated vending machine or
other device maintained on the Premises regardless of the ownership of the
machine or device, or whether such sums are removed and counted by TENANT or
others, and regardless of what percentage thereof TENANT is entitled to
receive.
The term "gross receipts" also includes the fair rental value of
facilities used by TENANT or its employees for purposes other than the business
purposes for which the Premises are leased and the value of all consideration,
including consideration other than cash, received by TENANT or its employees in
exchange for the items sold or services rendered.
Gross receipts shall exclude all sales and excise taxes payable by
TENANT to federal, state, county, or municipal governments as a direct result
of operations under this Lease. Refunds for goods returned and deposits shall
be deducted from current gross receipts upon return, Bad debt losses shall not
be deducted from gross receipts.
9. RENT PAYMENT PROCEDURE (PMC6.1 N)
A. Payment of Rent. On or before the twentieth day of each month
in which TENANT collects gross receipts, TENANT shall deliver to
Auditor-Controller a correct statement of all applicable gross receipts for
that portion of the accounting year which ends with and includes the last day
of the preceding calendar month. The statement shall be signed by TENANT or
TENANT's responsible agent under penalty of perjury, and shall be in the form
prescribed by Auditor-Controller. Each statement shall indicate:
(1) The total gross receipts for said portion of the accounting
year, itemized as to each of the business categories for which a separate
percentage rental is established. A breakdown of the gross receipts of each
business conducted on the Premises must be attached to each statement where a
reported business category is comprised of more than one business operation:
(2) The related itemized amounts of percentage rent computed as
herein provided and the total thereof:
(3) The total rent previously paid by TENANT for the accounting
year within which the preceding month falls; and
(4) The rent due for the preceding month.
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Concurrently with the rendering of each monthly statement, TENANT
shall pay to LESSOR the total percentage rent computed for that portion of the
accounting year ending with and including the last day of the preceding month
[Item (2), above] less total rents previously paid for the accounting year
[Item (3), above].
On or before the twentieth day of September of each year, TENANT shall
pay to LESSOR the greater of the following two amounts:
(a) The total percentage rent computed for that portion of the
accounting year ending with and including the last day of the preceding month
[Item (2), above] less total rents previously paid for the accounting year
[Item (3), above], or
(b) The annual minimum rent less total rents previously paid for
the accounting year [ITEM (3),ABOVE]
B. Place of Payment and Filing. Rental payments shall be
delivered to, and statements required by this Clause and the Clause entitled
RECORDS AND ACCOUNTS shall be filed with the County of Orange Office of the
Auditor-Controller, P.O. Box 567 (630 North Broadway), Santa Ana California
92702. The designated place of payment and filing may be changed at any time
by LESSOR upon ten days written notice to TENANT. Rent pavements may be made
by check made payable to the County of Orange, TENANT assumes all risk of loss
if pavements are made by mail.
C. All rent shall be paid in lawful money of the United States of
America, without offset or deduction or prior notice or demand. No pavement by
TENANT or receipt by LESSOR of a lesser amount than the rent due shall be
deemed to be other than on account of the rent due, nor shall any endorsement
or statement on any check or any letter accompanying any check or pavement as
rent be deemed an accord and satisfaction, and LESSOR shall accept such check
or payment without prejudice to LESSOR's right to recover the balance of said
rent or pursue any other remedy in this Lease.
10. CHARGE FOR LATE PAYMENT (PMC7.1 S)
TENANT hereby acknowledges that the late payment of rent or any other
sums due hereunder will cause LESSOR to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include but are not limited to costs such as administrative
processing of delinquent notices, increased accounting costs, etc.
Accordingly, if any payment of rent as specified in the Clause entitled
RENT or of any other sum due LESSOR is not received by, LESSOR by the due date,
a late charge of one and one-half percent (1.5%) of the payment due and unpaid
plus $100 shall be added to the pavement, and the total sum shall become
immediately due and payable to LESSOR, An additional charge of one and one-half
percent
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(1.5%) of said payment, excluding late charges, shall be added for each
additional month that said payment remains unpaid.
TENANT and LESSOR hereby agree that such late charges represent a fair
and reasonable estimate of the costs that LESSOR will incur by reason of
TENANT's late payment. Acceptance of such late charges (and/or any portion of
the overdue payment) by LESSOR shall in no event constitute a waiver of
TENANT's default with respect to such overdue payment, or prevent LESSOR from
exercising any of the other rights and remedies granted hereunder.
11. RECORDS AND ACCOUNTS (PMC8.3 S)
A. Records. TENANT shall, at all times during the term of this
Lease, keep true and complete books, records, and accounts of all financial
transactions in the operation of all business activities, of whatever nature,
conducted in pursuance of the rights granted herein. The records must be
supported by source documents such as sales slips, cash register tapes,
purchase invoices, or other pertinent documents.
Except as otherwise provided herein, all retail sales and charges
shall be recorded by means of cash registers or other comparable devices which
display to the customer the amount of the transaction and automatically issue a
receipt. The registers shall be equipped with devices which lock in sales
totals and other transaction records with counters which are not resettable and
which record transaction numbers and sales details. Totals registered shall be
read and recorded by TENANT at the beginning and end of each business day.
In the event TENANT fails to establish an accounting year of its
choice, regardless of the cause, the accounting year shall be synonymous with
the twelve-month period contained in the first one-year term of the Lease. Any
portion of a year that is not reconciled, should the accounting year and the
anniversary year of the lease commencement not be the same, shall be accounted
for as if it were a complete accounting year.
In the event of admission charges or rentals TENANT shall issue
serially numbered tickets for each such admission or rental and shall keep an
adequate record of said tickets, both issued and unissued.
All retail sales and charges may be recorded by a system other than
cash registers or other comparable devices provided said system is approved by
Auditor-Controller.
B. The Accounting Year. The accounting year shall be twelve full
calendar months. The accounting year may be established by TENANT, provided
TENANT notifies Auditor-Controller in writing of the accounting year to be
used. Said accounting year shall be deemed to be approved by
Auditor-Controller unless
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Auditor-Controller has objected to TENANT's selection in writing within sixty
days of TENANT's written notification.
Once an accounting year is established, it shall be continued through
the term of the lease unless Auditor-Controller specifically approves in
writing a different accounting year, Auditor-Controller shall only approve a
change in accounting years in the event of undue hardship being placed on
either the TENANT or LESSOR, and not because of mere convenience or
inconvenience.
C. Financial Statements. Within ninety days after the end of
each accounting year, TENANT shall at his own expense submit to
Auditor-Controller a balance sheet and income statement prepared in accordance
with generally accepted accounting principles reflecting business transacted on
or from the Premises during the preceding accounting year. Consolidated
corporate statements are not acceptable.
The TENANT must attest under penalty of perjury that the balance sheet
and income statement submitted are an accurate representation of TENANT's
records as reported to the United States of America for income tax purposes.
At the same time, TENANT shall submit to Auditor-Controller a statement made
under penalty of perjury wherein the total gross receipts for the accounting
year are classified according to the categories of business established for
percentage rent.
TENANT shall provide LESSOR with copies of any Certified Public
Accountant's (CPA) management letters prepared in conjunction with their audits
of TENANT's operations from the Premises. Copies of management letters shall
be provided directly to LESSOR by the CPA at the same time TENANT's copy is
provided to TENANT.
TENANT acknowledges its understanding that any and all of the
Financial Statements submitted to the LESSOR pursuant to this Lease become
Public Records and are subject to public inspection pursuant to Section Section
6250 et. seq. of the California Government Code.
All TENANT's books, account and records and supporting source
documents related to this Lease or to business operations conducted within or
from the Premises shall be kept and made available at one location within the
limits or the County of Orange. LESSOR shall, through its duly authorized
agents or representatives have the right to examine and audit said books of
account and records and supporting source documents at any and all reasonable
times for the purpose of determining the accuracy thereof, and of the monthly
statements of sales made and monies received.
Auditor-Controller, upon request of TENANT and at said
Auditor-Controller's sole discretion may authorize the above-referenced books
and records and supporting source documents to be kept in a single location
outside the limits of Orange County provided TENANT shall agree to pay all
expenses including but not
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limited to transportation, food, and lodging necessary for Auditor-Controller
to send a representative to audit said books and record. Said right shall not
be exercised by Auditor-Controller more than once each accounting year.
The full cost of said audit, as determined by Auditor-Controller,
shall be borne by TENANT if either or both of the following conditions exist:
(1) The audit reveals an underpayment of more than two
percent (2%) between the rent due as reported and paid by TENANT in
accordance with this Lease and the rent due as determined by said
audit:
(2) TENANT has failed to maintain true and complete
books, records, accounts and supporting source documents in accordance
with Section A "Records" above. The adequacy of records shall be
determined at the sole discretion of Auditor-Controller.
Otherwise, LESSOR shall bear the cost of said audit excluding the
aforementioned expenses related to audit of documents kept outside the limits
of Orange County.
Upon the request of Auditor-Controller, TENANT shall promptly provide,
at TENANT's expense, necessary data to enable LESSOR to fully comply with any
and every requirement of the State of California or the United States of
America for information or reports relating to this Lease and to TENANT's use
of the Premises. Such data shall include, if required a detailed breakdown of
TENANT's receipts and expenses.
In addition to any other remedies available to LESSOR at law or in
equity or under this Lease, in the event the TENANT fails to maintain and keep
books, records, and accounts from the Premises and/or source documents relating
thereto, or to make the same available to LESSOR for examination and audit, or
to record sales and/or to maintain registers to record sales, or to provide
financial statements and other information to LESSOR regarding gross sales as
required by this Lease, LESSOR, at LESSOR's option, may:
(I) Perform such examinations, audits, and/or investigations
itself or through agents or employees as LESSOR and/or its auditors may deem
appropriate to confirm the amount of percentage rents payable by TENANT under
this Lease and any and all costs and/or expenses incurred by LESSOR in
connection therewith shall be promptly reimbursed to LESSOR by TENANT upon
demand:
(II) Provide accounting services and/or a system for recording
retail sales and charges, including, without limitation, cash registers, for
use by TENANT in business transactions upon or from the Premises, and, at
LESSOR's option, maintain personnel on the Premises to observe and/or record
such sales during TENANT's
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business hours, or from time to time, all at TENANT's sole cost and expense
and, in such event, TENANT shall promptly reimburse LESSOR for any and all
costs incurred by LESSOR in connection therewith: and/or
(III) Require that TENANT pay percentage rents based on LESSOR's
best good faith estimate or TENANT's gross receipts from business operations
conducted on or from the Premises and any such determination made by LESSOR
shall be conclusive and binding upon TENANT.
The above costs payable by TENANT shall include reimbursement to
LESSOR of LESSOR-provided services at such rates as LESSOR many from time to
time, in good faith, establish for such services. In the case of services
provided by LESSOR's employees, such rates shall be sufficient to reimburse
LESSOR for employees' salaries, including employee taxes and benefits and
LESSOR's overhead or, at LESSOR's option, may be the rate for such services
that would be charged by a qualified third party or parties, approved by
LESSOR, if engaged by LESSOR to perform such services.
12. SECURITY DEPOSIT (PMC9.2 S)
During the term of this Lease and subject to the provisions for
adjustment as provided hereinafter, TENANT shall provide LESSOR with a security
deposit in the sum of Ten Thousand Dollars ($10,000). The security deposit
shall take one of the forms set out below and shall guarantee TENANT's full and
faithful performance of all the terms, covenants, and conditions of this Lease:
A. Cash
B. The assignment to County of Orange, GSA/Real Estate, of a
savings deposit held in a financial institution in Orange
County acceptable to the Real Estate Director. At the
minimum, such assignment shall be evidenced by the delivery to
the Real Estate Director of the original passbook reflecting
said savings deposit and a written assignment of said deposit
to County of Orange, GSA/Real Estate, in a form approved by
the Real Estate Director.
C. A Time Certificate of Deposit from a financial institution in
Orange County wherein the principal sum is made payable to
County of Orange, GSA/Real Estate, or order. Both the
financial institution and the form of the certificate must be
approved by the Real Estate Director.
D. An instrument or instruments of credit from one or more
financial institutions, subject to regulation by the state or
federal government, pledging that funds necessary to secure
performance of the lease terms, covenants, and conditions are
on deposit and guaranteed
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for pavement, and agreeing that said funds shall be trust
funds securing TENANT's performance and that all or any part
shall be paid to County, of Orange, GSA/Real Estate, or order
upon demand by County of Orange, GSA/Real Estate. Both the
financial institution(s) and the form of the instrument(s)
must be approved by the Real Estate Director.
Regardless of the form in which TENANT elects to make said security
deposit, all or any portion of the principal sum shall be available
unconditionally to the Real Estate Director for correcting any default or
breach of this Lease by TENANT, his successors or assigns, or for pavement of
expenses incurred by LESSOR as a result of the failure of TENANT, his
successors or assigns, to faithfully perform all terms, covenants, and
conditions of this Lease, At any time that Real Estate Director deems
appropriate to ensure the availability of the security deposit, Real Estate
Director shall the right to convert any savings deposit, time certificate of
deposit, or instrument of credit to cash without recourse to TENANT.
Should TENANT elect to assign a savings deposit, provide a Time
Certificate of Deposit or provide all instrument of credit to fulfill the
security deposit requirements of this Lease, said assignment, certificate, or
instrument shall have the effect of releasing depositor, or creditor therein
from liability on account of the payment of any or all of the principal sum to
County of Orange, GSA/Real Estate, or order upon demand by the Real Estate
Director, The agreement entered into by TENANT with a financial institution to
establish the deposit necessary to permit assignment or issuance of a
certificate as provided above may allow the payment to TENANT or order of
interest accruing on account of said deposit.
In the event the Real Estate Director withdraws any or all of the
security deposit as provided herein, TENANT shall, within ten (10) days of any
withdrawal by the Real Estate Director, replenish the security deposit to
maintain it at amounts herein required. Failure to do so shall be deemed a
default and shall be grounds for immediate termination of this Lease.
The security deposit shall be rebated, reassigned, released, or
endorsed by the Real Estate Director to TENANT or order, as applicable, at the
end of the lease term, provided TENANT has fully and faithfully performed each
and every term, covenant, and condition of this Lease.
13. CONSTRUCTION AND/OR ALTERATION BY TENANT (PMD2.1 S)
A. Lessor's Consent. No structures, improvements, or facilities
shall be constructed, erected, altered, or made within the Premises without
prior written consent of director of HBP. Any conditions relating to the
manner, method, design, and construction of said structure, improvements, or
facilities fixed by the
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Director of HBP as a condition to granting such consent, shall be conditions
hereof as though originally stated herein. TENANT may, at any time and at its
sole expense, install and place business fixtures and equipment within any
building constructed by TENANT.
B. Strict Compliance with Plans and Specifications. All
improvements constructed by TENANT within the Premises shall be constructed in
strict compliance with detailed plans and specifications approved by Director
of HBP.
14. TENANT'S ASSURANCE OF CONSTRUCTION COMPLETION (PMD3.2 S)
Prior to commencement of construction of approved facilities, or any
phase thereof, within the Premises by TENANT, TENANT shall furnish to LESSOR
evidence that assures LESSOR that sufficient monies will be available to
complete the proposed construction, The amount of money available shall be at
least the total estimated construction cost, Such evidence may take one of the
following forms:
A. Performance bond issued to LESSOR as obligee.
B. Irrevocable letter of credit issued to LESSOR from a financial
institution to be in effect until LESSOR acknowledges
satisfactory completion of construction.
C. Cash.
D. Any combination of the above.
All bonds must be issued by a company qualified to do business in the
State of California and acceptable to the Real Estate Director, All bonds shall
be in a form acceptable to the Real Estate Director and shall insure faithful
and full observance and performance by TENANT of all terms conditions,
covenants, and agreements relating to the construction of improvements within
the Premises.
15. MECHANICS LIENS OR STOP NOTICES (PMD4.1 S)
TENANT shall at all times indemnify and save LESSOR harmless from all
claims losses, demands, damages, cost expenses, or liability costs for labor or
materials in connection with construction, repair, alteration, or installation
of structures improvements equipment or facilities within the Premises, and
from the cost of defending against such claims including attorney fees and
costs.
In the event a lien or stop-notice is imposed upon the Premises as a
result of such construction, repair, alteration or installation TENANT shall
either:
1. Record a valid Release of Lien, or
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2. Procure and record a bond in accordance with Section 3143 of
the Civil Code, which frees the Premises from the claim of the lien or
stop-notice and from any action brought to foreclose the lien.
Should TENANT fail to accomplish either of the two optional actions
above within 15 days after the filing of such a lien or stop-notice, the Lease
shall be in default and shall be subject to immediate termination.
16. "AS-BUILT" PLANS AND CONSTRUCTION COSTS (PMDS.1 S)
Within Sixty (60) days following completion of any substantial
improvement within the Premises, TENANT shall furnish Director of HBP a
complete set of reproducibles and two sets of prints of "As-Built" plans. In
addition, TENANT shall furnish Director of HBP an itemized statement of the
actual construction cost of such improvement. The statement of cost shall be
sworn to and signed by TENANT or his responsible agent under penalty of
perjury. TENANT must obtain Director of HBP approval of "As-Built" plans, and
the form and content of the itemized statement.
17. OWNERSHIP OF IMPROVEMENTS (PMDS.2 S)
All improvements and facilities, exclusive of trade fixtures,
constructed or placed within the Premises by TENANT must, upon completion, be
free and clear of all liens, claims, or liability for labor or material and at
LESSOR's option shall become the property of LESSOR at the expiration of this
Lease or upon earlier termination hereof, LESSOR retains the right to require
TENANT, at TENANT's cost to remove any or all TENANT improvements located
within the Premises at the expiration or termination hereof.
18. UTILITIES (PME2.1 S)
TENANT shall construct, or cause to be constructed all utility
facilities to the Premises, TENANT shall be responsible for and pay, prior to
the delinquency date, all charges for utilities supplied to the Premises.
19. MAINTENANCE OBLIGATIONS (PME2.1 S)
TENANT shall, to the satisfaction of Director of HBP keep and maintain
the Premises and all improvements of any kind which may be erected, installed,
or made thereon in good condition and in substantial repair, It shall be
TENANT's responsibility to take any steps necessary or appropriate to maintain
such a standard of condition and repair. TENANT expressly agrees to maintain
the Premises in a safe, clean, wholesome, sanitary condition, to the complete
satisfaction of Director of HBP and in compliance with all applicable laws.
TENANT further agrees to provide approved containers for trash and garbage and
to keep the Premises free and clear of rubbish and litter. Director of HBP
shall have the right
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to enter upon and inspect the Premises at anytime for cleanliness and safety.
TENANT shall designate in writing to Director of HBP an on-site
representative who shall be responsible for the day-to-day operation and level
of maintenance, cleanliness, and general order.
If TENANT fails to maintain or make repairs or replacements as
required herein Director of HBP shall notify TENANT in writing of said failure.
Should TENANT fail to correct the situation within three days after receipt of
written notice, Director of HBP may make the necessary correction or cause it
to be made and the cost thereof, including but not limited to the cost of
labor, materials, equipment, and an administrative fee equal to fifteen percent
(15%) of the sum of such items, shall be paid by TENANT within 10 days of
receipt of a statement of said cost from Director of HBP. Director of HBP may,
at his option, choose other remedies available herein, or by law.
20. OPERATING OBLIGATIONS OF TENANT (N)
Prior to the commencement date of this Lease, TENANT shall have
prepared an operations plan ("Operations Plan"), attached hereto as Exhibit "B"
and made a part hereof: approved by the Director of HBP specifying in detail
TENANT's proposed plan and procedures for operating a summer day camp program.
The Operations Plan shall also detail the time and manner in which maintenance
of the Camp Area and Pool Area shall be accomplished.
The Operations Plan and the operating procedures contained therein are
hereby incorporated into and included as part of this Lease, TENANT hereby
agrees to operate the Premises in strict compliance with the provisions of the
Operations Plan. Any change or revision to the Operations Plan shall require
the prior written approval from the Director of HBP.
21. DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS (PME4.1 S)
In the event of damage to or destruction of TENANT-constructed
buildings, facilities, or improvements located within the Premises or in the
event TENANT-constructed buildings, facilities, or improvement located within
the Premises are declared unsafe or unfit for use or occupancy by a public
entity with the authority to make and enforce such declaration, TENANT shall,
within thirty (30) days, commence and diligently pursue to complete the repair,
replacement, or reconstruction of improvements to the same size and floor area
as they existed immediately prior to the event causing the damage or
destruction, as necessary to permit full use and occupancy of the Premises for
the purposes required by the Lease. Repair, replacement, or reconstruction of
improvements within the Premises shall be accomplished in a manner and
according to plans approved by Director of HBP, Except as otherwise provided
herein, termination of this Lease shall not reduce or nullify TENANT's
obligation under this paragraph. With respect to damage or
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destruction to be repaired by LESSOR or which LESSOR elects to repair, TENANT
waives and release its rights under California Civil Code Sections 1932 (2) and
1933 (4).
22. INSURANCE (PME5.1.1 S)
TENANT shall maintain insurance acceptable to the Real Estate Director
in full force and effect throughout the term of this Lease. The policy or
policies of insurance maintained by TENANT shall provide the following limits
and coverages.
A. Liability Insurance
<TABLE>
<CAPTION>
Coverage Minimum Limits
-------- --------------
<S> <C>
Comprehensive General $1,000,000 combined single limit
Liability Insurance coverage including products liability
</TABLE>
B. Fire and Extended Coverage: TENANT shall insure all TENANT-constructed
buildings, facilities and improvements to at
least 90% of their replacement cost, using a
standard form fire insurance policy
containing the "extended coverage"
endorsement.
C. Workers' Compensation and Employer's Liability Statutory
Insurance shall be in force the first day of the term of this Lease.
Each liability insurance policy required by this Lease shall contain the
following three clauses:
A. "This insurance shall not be cancelled limited in scope of
coverage or non-renewed until after (30) days written notice has been given to
the County of Orange, EMA/Harbors, Beaches and Parks-Real Estate, 300 North
Flower Street, 4th Floor, P.O. Box 4048, Santa Ana, California 92702-4048.
This notice shall be sent by certified mail or registered mail and shall be
deemed effective the delivered to LESSOR, as evidenced by properly validated
return receipt.
B. "County of Orange is added as an additional insured as
respects operations of the named insured at or from Premises leased from the
County of Orange."
C. "It is agreed that any insurance maintained by the County of
Orange will apply in excess of, and not contribute with, insurance provided by
this policy."
Each property insurance policy required by this Lease shall contain
Clause A above and the following two clauses:
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D. "All rights of subrogation are hereby waived against the
County of Orange and the members of the Board of Supervisors and elective or
appointive officers or employees, when acting within the scope of their
employment or appointment."
E. "County of Orange is named as loss payee on this property insurance
policy."
TENANT agrees to deposit with the Real Estate Director, at or before
the effective date of this Lease, three copies of each liability policy and
certificates of insurance for other coverages necessary to satisfy the Real
Estate Director that the insurance provisions of this Lease have been complied
with, and to keep such insurance in effect and the policies and certificates
therefor on deposit with the Real Estate Director during the entire term of
this Lease. This Lease shall automatically terminate at the same time TENANT's
insurance coverage is terminated. If within ten (10) days after termination
under this Clause, TENANT obtains and provides evidence of the required
insurance coverage acceptable to the Real Estate Director this Lease may be
reinstated at the sole discretion of the Real Estate Director, TENANT shall pay
COUNTY $200 for processing the reinstatement of this Lease.
TENANT agrees that time is of the essence in this Lease and it is
essential that the Real Estate Director have adequate evidence of insurance at
all times.
TENANT agrees that TENANT shall not operate on the Premises at any
time the required insurance is not in full force and effect as evidenced by a
policy for liability coverage and a certificate of insurance or official binder
for other coverages being in the possession of the Real Estate Director. In no
cases shall assurances by TENANT, its employees, agents, including any
insurance agent, be construed as adequate evidence of insurance. The Real
Estate Director will only accept valid policies of liability insurance or
certificate of insurance, or insurance binder for other coverages as adequate
evidence of insurance, TENANT also agrees that upon cancellation, termination
or expiration of TENANT's insurance, LESSOR may take whatever steps are
necessary to interrupt any operation from or on the Premises until such time as
the Lease is reinstated by the Real Estate Director.
If at any time during the term of the Lease, TENANT has failed to
provide the Real Estate Director with an insurance policy for liability
coverage and certificate of insurance, or binder for other coverages, the
parties agree this shall constitute a material breach permitting LESSOR,
whether or not notice of default has or has not been sent to TENANT to take
whatever steps necessary to interrupt any operation from or on the Premises,
and to prevent any persons including but not limited to members of the general
public, TENANT's employees and agents from entering said Premises until such
time as the Real Estate Director is provided with adequate evidence of
insurance.
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TENANT further agrees to hold LESSOR harmless for any damages
resulting from such interruption of business and possession including but not
limited to damages resulting from any loss or income, or business resulting
from the LESSOR's action.
The Real Estate Director shall retain the right at any time to review
the coverage, form, and amount of the insurance required hereby. If, in the
opinion of the Real Estate Director, insurance provisions in this Lease do not
provide adequate protection for LESSOR and members of the public using the
Premises, the Real Estate Director may require TENANT to obtain insurance
sufficient in coverage, form, and amount to provide adequate protection. The
Real Estate Director's requirements shall be reasonable but shall be designed
to assure protection from and against the kind and extent of the risks which
exist at the time a change in insurance IS required.
The Real Estate Director shall notify TENANT in writing of changes in
the insurance requirements: and if TENANT does not deposit copies of acceptable
insurance policies with the Real Estate Director incorporating such changes
within thirty (30) days of receipt of notice, this Lease shall be in default
without further notice to TENANT, and LESSOR shall be entitled to all legal
remedies.
The procuring of such required policy or policies of insurance shall
not be construed to limit TENANT's liability hereunder nor to fulfill the hold
harmless provisions and requirements of this Lease. Notwithstanding said
policy or polices of insurance, TENANT shall be obligated for the full amount
of any damage, injury, or loss caused by negligence or neglect connected with
this Lease or with use in occupancy of the Premises.
23. ASSIGNING, SUBLETTING, AND ENCUMBERING (PME7.1 S)
Except as provided in Clause 4 (REQUIRED AND OPTIONAL SERVICES AND
USES) hereof, any mortgage, pledge, hypothecation, encumbrance, transfer,
sublease, sublease amendment, or assignment (hereinafter in this clause
referred to collectively as "Encumbrance") of TENANT's interest in the
Premises, or any part or portion thereof, shall first be approved in writing by
LESSOR, unless otherwise provided herein. Failure to obtain LESSOR's required
written approval of an Encumbrance will render such Encumbrance void.
Occupancy of the Premises by a prospective transferee, sublessee, or assignee
before approval of the transfer sublease, or assignment by LESSOR shall
constitute a breach of this Lease. All subleases shall be between TENANT and
sublessee: the entry into sub-subleases is prohibited and shall constitute a
breach of this Lease.
If the TENANT hereunder is a corporation or an unincorporated
association or partnership, the sale or transfer of any stock or interest in
said corporation association, partnership in the aggregate exceeding 15% shall
be deemed an assignment within the meaning of this Lease.
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Should LESSOR consent to any Encumbrance, such consent shall not
constitute a waiver of any of the terms, covenants or conditions of this Lease
or be construed as LESSOR's consent to any further Encumbrance. Such terms,
covenant or conditions shall apply to each and every Encumbrance hereunder and
shall be severally binding upon each and every party thereto. Any document to
mortgage, pledge, hypothecate, encumber, transfer, sublet, or assign the
Premises or any part thereof shall not be inconsistent with the provisions of
this Lease and in the event of any such inconsistency, the provisions of this
Lease shall control.
LESSOR agrees that it will not arbitrarily withhold consent of any
Encumbrance, but LESSOR may withhold consent at its sole discretion if any of
the following conditions exist:
1. TENANT or any of his successors or assigns are in default in
any term, covenant, or condition of this Lease, whether notice of default has
or has not been given by LESSOR.
2. The prospective Encumbrancer has not agreed in writing to
keep, perform, and be bound by all the terms, covenants, and conditions of this
Lease.
3. All the terms, covenants, and conditions of Encumbrance,
including the consideration therefor of any and every kind, have not been
revealed in writing to LESSOR.
4. The construction required of TENANT as a condition of this
Lease has not been completed to the satisfaction of LESSOR.
5. The processing fee required by LESSOR and set out below has
not been paid to LESSOR by delivery of said fee to LESSOR.
(a) A fee of 52,500 shall be paid to LESSOR for processing each
consent to mortgage, pledge, hypothecation, consent to assignment, transfer, or
Encumbrance submitted to LESSOR as required by this Lease. This processing fee
shall be deemed earned by LESSOR when paid and shall not be refundable.
(b) A fee of $1,000 shall be paid to LESSOR for processing each
consent to sublease submitted to LESSOR required by this Lease. This
processing fee shall be deemed earned by LESSOR when paid and shall not be
refundable.
If a processing fee has been paid by TENANT for another phase of same
transaction, a second fee will not be charged.
The amounts specified above for processing fees shall be automatically
adjusted for all consents required or requested subsequent to the second year
of this Lease, Said adjustment shall be in proportion to the change in the
Consumer Price Index for Los Angeles - Anaheim - Riverside, CA (All Urban
Consumers -- All Items) as promulgated by the Bureau of Labor Statistics of the
U.S. Department of Labor, or any replacement index thereto.
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Said automatic adjustment shall be calculated by means of the
following formula, then rounded to the nearest ten dollar figure:
A = B x C/D
Where A = adjusted processing fee
B = $ ________[the amount inserted in item 5a or 5b
above]
C = Monthly index for the fourth month prior to
the effective date of the Consent
D = Monthly, index for the date this Lease was
signed by LESSOR
24. HAZARDOUS MATERIALS (PMF9.1 S)
TENANT shall not cause or permit any "Hazardous Materials" as
hereinafter defined, to be brought upon, kept, or used in or about the
Premises. If TENANT breaches the obligations stated herein, or if
contamination of the Premises by Hazardous Materials otherwise occurs for which
TENANT is legally liable to LESSOR for damage resulting therefrom, then TENANT
shall indemnify, defend, and hold LESSOR harmless from any and all claims
judgments, damages, penalties, fines, costs liabilities, or losses (including
without limitation, diminution in value of the Premises damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises damages arising from any adverse impact on marketing of space in the
Premises or portion of any building of which the Premises is a part, and sums
paid in settlement of claims, attorneys fees, consultant fees, and expert
witness fees) which arise during or after the lease term as a result of such
contamination. This indemnification includes without limitation, costs
incurred by LESSOR in connection with any investigation of site conditions or
any cleanup, remedial, removal, or restoration required by any federal, state,
or local governmental entity because of Hazardous Material being present in the
soil or ground water or under the Premises. TENANT shall promptly take all
actions at its sole cost and expense as are necessary to clean, remove, and
restore the Premises to its condition prior to the introduction of such
Hazardous material by TENANT, provided TENANT shall first have obtained
LESSOR's approval and the approval of any necessary governmental entities.
As used herein the term "Hazardous Material" means any hazardous or
toxic substance, material, or waste which is or shall become regulated by any
governmental entity, including without limitation LESSOR acting in its
governmental capacity, the State of California or the United States government.
25. POOL SAFETY REQUIREMENTS (N)
TENANT shall comply with all pool safety requirements ordered or
directed by the Orange County Health Care Agency or other agency that may have
jurisdiction, TENANT shall develop and post at the
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pool rules, regulations, and procedures for proper and safe use of the pool.
26. NOTICES (PMF10.1 S)
All notices pursuant to this Lease shall be addressed is set forth
below or as either party may hereafter designate by written notice and shall be
sent through the United States mail in the State of California, duly registered
or certified, return receipt requested, with postage prepaid, If any notice is
sent by registered or certified mail, as aforesaid, the same shall be deemed to
have been served or delivered twenty-four (24) hours after mailing thereof as
above provided, Notwithstanding the above, LESSOR may also provide notices to
TENANT by personal delivery or by regular mail and any such notice so given
shall be deemed to have been given upon receipt.
<TABLE>
<CAPTION>
TO: LESSOR TO: TENANT
<S> <C>
County of Orange Camp Frasier, Inc.
EMA/Harbors, Beaches 8800 Irvine Center Drive
and Parks Irvine, CA 92718
P.O. Box 4048
Santa Ana, CA 92702-4048
</TABLE>
27. CONSENT (N)
Whenever the consent or approval of a party is required to be given
under this Lease, such consent or approval will not be unreasonably withheld or
delayed.
28. ATTACHMENT TO LEASE (PMF11.1 S)
This Lease includes the following, which are attached hereto and made
a part hereof:
I. GENERAL CONDITIONS
II. EXHIBIT A - SITE PLAN
III. EXHIBIT B - OPERATIONS PLAN
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Lease the day and
year first above written.
APPROVED AS TO FORM: TENANT
Lauren M. Watson
Chief Assistant County Counsel Camp Frasier, Inc., a
Calfiornia corporation
By /s/ By: /s/ Harry Shuster
------------------------------ -------------------------------
President
Dated 3/7/96
----------------------
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<PAGE> 22
PR23A-1 50
Irvine Regional Park
I. GENERAL CONDITIONS (PMGE1.2-26.2 S)
1. TIME (PMGEl.2 S)
Time is of the essence of this Lease, Failure to comply with any time
requirement of this Lease shall constitute a material breach of this Lease.
2. SIGNS (PMGE2.2 S)
TENANT agrees not to construct, maintain, or allow any signs, banners,
flags, etc., upon the Premises except as approved by Director of HBP,
Unapproved signs, banners, flags, etc., may be removed by Director of HBP
without prior notice to TENANT.
3. PERMITS AND LICENSES (PMGE3.2 S)
TENANT shall be required to obtain any and all approvals, permits
and/or licenses which may be required in connection with the operation of the
Premises as set out herein. No permit, approval, or consent given hereunder by
LESSOR, in its governmental capacity, shall affect or limit TENANT's
obligations hereunder nor shall any approvals or consents given by LESSOR, as a
party to this Lease, be deemed approval as to compliance or conformance with
applicable governmental codes, laws, rules, or regulations.
4. CONTROL OF HOURS PROCEDURES AND PRICES (PMGE4.2 S)
TENANT shall at all times maintain a written schedule delineating the
operating hours and operating procedures for each business operation on or from
the Premises, A schedule of prices charged for all goods and/or services
supplied to the public on or from the Premises shall also be maintained.
Upon written request, TENANT shall furnish the Director of HBP a copy
of said schedules and procedures. Should Director of HBP, upon review and
conference with TENANT, decide any part of said schedules or procedures is not
justified with regard to fairly satisfying the needs of the public, TENANT,
upon written notice from Director of HBP, shall modify said schedules or
procedures to the satisfaction of said Director. Primary consideration shall
be given to the public's benefit in implementing this clause. All prices
charged for goods and/or services supplied to the public on or from the
Premises shall be fair and reasonable, based upon the market prices charged by
other competing and/or comparable businesses.
TENANT agrees that he will operate and manage the services and
facilities offered in a competent and efficient manner at least comparable to
other well managed operations of similar type.
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<PAGE> 23
TENANT shall at all times retain active, qualified, competent, and
experienced personnel to supervise TENANT's operation and to represent and act
for TENANT.
TENANT shall require its attendants and employees to be properly
dressed, clean, courteous, efficient, and neat in appearance at all times.
TENANT shall not employ any person(s) in or about the Premises who shall use
offensive language or act in a loud, boisterous, or otherwise improper manner.
TENANT shall maintain a close check over attendants and employees to
insure the maintenance of a high standard of service to the public, TENANT
shall replace any employee whose conduct is detrimental to the best interests
of the public.
5. LEASE ORGANIZATION (PMGE5.2 S)
The various headings and numbers herein, the grouping of provisions of
this Lease into separate clauses and paragraphs, and the organization hereof,
are for the purpose of convenience only and shall not be considered otherwise.
6. AMENDMENTS (PMGE6.2 S)
This Lease is the sole and only agreement between the parties
regarding the subject matter hereof; other agreements, either oral or written,
are void. Any changes to this Lease shall be in writing and shall be properly
executed by both parties.
7. UNLAWFUL USE (PMGE7.2 S)
TENANT agrees no improvements shall be erected, placed upon, operated,
nor maintained within the Premises, nor any business conducted or carried on
therein or therefrom, in violation of the terms of this Lease, or of any
regulation, order of law, statute, bylaw, or ordinance of a governmental agency
having jurisdiction.
8. NONDISCRIMINATION (PMGE8.2 S)
TENANT agrees not to discriminate against any person or class of
persons by reason of sex, age, race, color, creed, physical handicap, or
national origin in employment practices and in the activities conducted
pursuant to this Lease. TENANT shall make its accommodations and services
available to the public on fair and reasonable terms.
9. INSPECTION (PMGE9.2 S)
LESSOR or its authorized representative shall have the right at all
reasonable times to inspect the Premises to determine if the provisions of this
Lease are being complied with.
10. HOLD HARMLESS (PMGE10.2 S)
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<PAGE> 24
TENANT hereby waives all claims and recourse against LESSOR including
the right of contribution for loss or damage of persons or property arising
from, growing out of or in any way connected with or related to this agreement
except claims arising from the negligence of LESSOR, its officers, agents, and
employees. TENANT hereby agrees to indemnify, hold harmless, and defend
LESSOR, its officers, agents, and employees against any and all claims, loss,
demands, damages, cost, expenses or liability costs arising out of the
operation or maintenance of the property described herein, and/or TENANT's
exercise of the rights under this Lease, except for liability arising out of
the negligence of LESSOR, its officers, agents, or employees, including the
cost of defense of any lawsuit arising therefrom. In the event LESSOR is named
as co-defendant, TENANT shall notify LESSOR of such fact and shall represent
LESSOR in such legal action unless LESSOR undertakes to represent itself as
co-defendant in such legal action, in which event TENANT shall pay to LESSOR
its litigation costs, expenses and attorney's fees. In the event judgment is
entered against LESSOR and TENANT because of the concurrent active negligence
of LESSOR and TENANT, their officers, agents, or employees, an apportionment of
liability to pay such judgment shall be made by a court of competent
jurisdiction, either party shall request a jury apportionment.
11. TAXES AND ASSESSMENTS (PMG11.2 S)
This Lease may create a possessory interest which is subject to the
payment of taxes levied on such interest. It is understood and agreed that all
taxes and assessments (including, but not limited to said possessory interest
tax) which become due and payable upon the Premises or upon fixtures,
equipment, or other property installed or constructed thereon, shall be the
full responsibility of TENANT, and TENANT shall cause said taxes and
assessments to be paid promptly.
12. SUCCESSORS IN INTEREST (PMGE12.2 S)
Unless otherwise provided in this Lease, the terrns, covenants, and
conditions contained herein shall apply to and bind the heirs, successors,
executors, administrators, and assigns of all the parties hereto, all of whom
shall be jointly, and severally liable hereunder.
13. CIRCUMSTANCES WHICH EXCUSE PERFORMANCE (PMGE13.2 S)
If LESSOR or TENANT shall be delayed or prevented from the performance
of any act required hereunder by reason of Acts of God, restrictive
governmental laws or regulations, or other cause without fault and beyond the
control of the party obligated (financial inability excepted), performance of
such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay.
14. PARTIAL INVALIDITY (PMGE14.2 S)
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<PAGE> 25
If any term, covenant, condition or provision of this Lease is held by
a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall remain in full force and effect and
shall in no way be affected, impaired, or invalidated thereby.
15. WAIVER OF RIGHTS (PMGE15.2 S)
The failure of LESSOR or TENANT to insist upon strict performance of
any of the terms, covenants, or conditions of this Lease shall not be deemed a
waiver of any right or remedy that LESSOR or TENANT may have, and shall not be
deemed a waiver of the right to require strict performance of all the terms,
covenants, and conditions of the Lease thereafter, nor a waiver of any remedy
for the subsequent breach or default of any term, covenant, or condition of the
Lease. Any waiver in order to be effective, must be signed by the party whose
right or remedy is being waived.
16. DEFAULT ON TERMS OF THE LEASE BY TENANT (PMGE16.2 S)
The occurrence of any one or more of the following events shall
constitute a default hereunder by TENANT:
(a) The abandonment or vacation of the Premises by
TENANT.
(b) The failure by TENANT to make any payment of rent or
any other sum payable hereunder by TENANT, as and when due, where such
failure shall continue for a period of ten (10) days after written
notice thereof from LESSOR to TENANT: provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Section 1161 et seq.
(c) The failure or inability by TENANT to observe or
perform any of the provisions of this Lease to be observed or
performed by TENANT, other than specified in (a) or (b) above, where
such failure shall continue for a period of thirty (30) day s after
written notice thereof from LESSOR to TENANT; provided, however, that
any, such notice shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure Section 1161
et seq.: provided, further, that if the nature of such failure is such
that it can be cured by TENANT but that more than thirty (30) days are
reasonably required for its cure (for any reason other than financial
inability), then TENANT shall not be deemed to be in default if TENANT
shall commence such cure within said thirty (30) days, and thereafter
diligently prosecutes such cure to completion.
(d) (i) The making by TENANT of any general assignment
for the benefit of creditors; (ii) a case is commenced by or against
TENANT under Chapters 7, 11 or 13 of the Bankruptcy Code, Title 11 of
the United States Code as now in force or
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<PAGE> 26
hereafter amended and if so commenced against TENANT, the same is not
dismissed within sixty (60) days; (iii) the appointment of a trustee
or receiver to take possession of substantially all of TENANT's assets
located at the Premises or of TENANT's interest in this Lease, where
such seizure is not discharged within thirty (30) days; or (iv)
TENANT's convening of a meeting of its creditors or any class thereof
for the purpose of effecting a moratorium upon or composition of its
debts. In the event of any such default, neither this Lease nor any
interests of TENANT in and to the Premises shall become an asset in
any of such proceedings and, in any such event and in addition to any
and all rights or remedies of the LESSOR hereunder or by law,
provided, it shall be lawful for the LESSOR to declare the term hereof
ended and to re-enter the Premises and take possession thereof and
remove all persons therefrom, and TENANT and its creditors (other than
LESSOR) shall have no further claim thereon or hereunder.
In the event of any default by TENANT, then, in addition to any other
remedies available to LESSOR at law or in equity, LESSOR may exercise the
following remedies:
(A) LESSOR may terminate this Lease and all rights of TENANT
hereunder by giving written notice of such termination to TENANT, In the event
that LESSOR shall so elect to terminate this Lease, then LESSOR may recover
from TENANT:
(i) The worth at the time of award of the unpaid rent and
other charges, which had been earned as of the date of the termination
hereof;
(ii) The worth at the time of award of the amount by which
the unpaid rent and other charges which would have been earned after
the date of the termination hereof until the time of award exceeds the
amount of such rental loss that TENANT proves could have been
reasonably avoided:
(iii) The worth at the time of award of the amount by which
the unpaid rent and other charges for the balance of the term hereof
after the time of award exceeds the amount of such rental loss that
TENANT proves could be reasonably avoided:
(iv) Any other amount necessary to compensate LESSOR for
all the detriment caused by TENANT's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to,
the cost of recovering possession of the Premises, expenses of
reletting, including necessary repair, renovation and alteration of
the Premises, reasonable attorneys' fees, expert witness costs, and
any other reasonable costs; and
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<PAGE> 27
(v) Any other amount which LESSOR may by law hereafter be
permitted to recover from TENANT to compensate LESSOR for the
detriment caused by TENANT's default.
The term "rent" as used herein shall be deemed to be and to mean the
annual rent and all other sums required to be paid by TENANT pursuant to the
terms of this Lease. All such sums, other than the annual rent, shall be
computed on the basis of the average monthly amount thereof accruing during the
24-month period immediately prior to default, except that if it becomes
necessary to compute such rental before such 24-month period has occurred, then
such sums shall be computed on the basis of the average monthly amount during
such shorter period. As used in subparagraphs (i) and (ii) above, the "worth
at the time of award" shall be computed by allowing interest at the maximum
rate permitted by law. As used in subparagraph (iii) above, the "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%), but not in excess of ten percent (10%) per annum.
(B) Continue this Lease in effect without terminating TENANT's
right to possession even though TENANT has breached this Lease and abandoned
the Premises and to enforce all of LESSOR's rights and remedies under this
Lease, at law or in equity, including the right to recover the rent as it
becomes due under this Lease; provided, however, that LESSOR may at any time
thereafter elect to terminate this Lease for such previous breach by notifying
TENANT in writing that TENANT's right to possession of the Premises has been
terminated.
(C) Nothing in this Section shall be deemed to affect TENANT's
indemnity of LESSOR liability or liabilities based upon occurrences prior to
the termination of this Lease for personal injuries or property damage under
the indemnification clause or clauses contained in this Lease.
No delay or omission of LESSOR to exercise any right or remedy shall
be construed as a waiver of such right or remedy or any default by TENANT
hereunder, The acceptance of LESSOR of rent or any other sums hereunder shall
not be (i) a waiver of any preceding breach or default by TENANT of any
provision thereof, other than the failure of TENANT to pay the particular rent
or sum accepted, regardless of LESSOR's knowledge of such preceding breach or
default at the time of acceptance of such rent or sum, or (ii) waiver of
LESSOR's right to exercise any remedy available to LESSOR by virtue of such
breach or default. No act or thing done by LESSOR or LESSOR's agents during
the term of this Lease shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender shall be valid unless in
writing and signed by LESSOR.
Any installment or rent due under this Lease or any other sums not
paid to LESSOR when due (other than interest) shall bear
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<PAGE> 28
interest at the maximum rate allowed by law from the date such payment is due
until paid, provided, however, that the pavement of such interest shall not
excuse or cure the default.
All covenants and agreements to be performed by TENANT under any of
the terms of this Lease shall be performed by TENANT at TENANT's sole cost and
expenses and without any abatement of rent. If TENANT shall fail to pay any
sum of money, other than rent required to be paid by it hereunder or shall fail
to perform any other act on its part to be performed hereunder, or to provide
any insurance or evidence of insurance to be provided by TENANT, then in
addition to any other remedies provided herein, LESSOR may, but shall not be
obligated to do so, and without waiving or releasing TENANT from any
obligations of TENANT, make any such payment or perform any such act on
TENANT's part to be made or performed as provided in this Lease or to provide
such insurance. Any payment or performance of any act or the provision of any
such insurance by LESSOR on TENANT's behalf shall not give rise to any
responsibility of LESSOR to continue making the same or similar pavements or
performing the same or similar acts. All costs, expenses, and other sums
incurred or paid by LESSOR in connection therewith, together with interest at
the maximum rate permitted by law from the date incurred or paid by LESSOR
shall be deemed to be additional rent hereunder and shall be paid by TENANT
with and at the same time as the next monthly installment of rent hereunder,
and any default therein shall constitute a breach of the covenants and
conditions of this Lease.
17. RESERVATIONS TO LESSOR (PMGE18.2 S)
The Premises are accepted as is and where is by TENANT subject to any
and all existing easements and Encumbrances. LESSOR reserves the right to
install, lay, construct, maintain, repair, and operate such sanitary servers,
drains, storm water sewers, pipelines, manholes, and connections; water oil,
and gas pipelines; telephone and telegraph power lines; and the appliances and
appurtenances necessary or convenient in connection therewith, in, over, upon,
through, across, and along the Premises or any part thereof; and to enter the
Premises for any and all such purposes. LESSOR also reserves the right to
grant franchises, easements rights of way, and permits in, over, upon, though,
across, and along any and all portions of the Premises. No right reserved by
LESSOR in this clause shall be so exercised as to interfere unreasonably with
TENANT's operations hereunder or to impair the security of any secured creditor
of TENANT.
LESSOR agrees that rights granted to third parties by reason of this
clause shall contain provisions that the surface of the land shall be restored
as nearly as practicable to its original condition upon the completion of any
construction. LESSOR further agrees that should the exercise of these rights
temporarily interfere with the use of any or all of the Premises by TENANT, the
rental shall be reduced in proportion to the interference with TENANT's use of
the Premises.
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<PAGE> 29
18. HOLDING OVER (PMGE19.2 S)
In the event TENANT shall continue in possession of the Premises after
the term of this Lease, such possession shall not be considered a renewal of
this Lease but a tenancy from month to month and shall be governed by the
conditions and covenants contained in this Lease.
19. CONDITION OF DEMISED PREMISES UPON TERMINATION (PMGE20.2 S)
Except as otherwise agreed to herein, upon termination of this Lease,
TENANT shall re-deliver possession of said Premises to LESSOR in substantially
the same condition that existed immediately prior to TENANT's entry thereon,
reasonable wear and tear, flood, earthquakes, war, and any act of war,
excepted, References to the "Termination of the Lease" in this Lease shall
include termination by reason of the expiration of the Lease term.
20. DISPOSITION OF ABANDONED PERSONAL PROPERTY (PMGE21.2 S)
If TENANT abandons or quits the Premises or is dispossessed thereof by
process of law or otherwise, title to any personal property belonging to and
left on the Premises fifteen (15) days after such event shall, at LESSOR's
option, be deemed to have been transferred to LESSOR, LESSOR shall have the
right to remove and to dispose of such property without liability therefor to
TENANT or to any person claiming under TENANT, and shall have no need to
account therefor.
21. QUITCLAIM OF TENANT'S INTEREST UPON TERMINATION (PMGE22.2 S)
Upon termination of this Lease for any reason, including but not
limited to termination because of default by TENANT, TENANT shall execute,
acknowledge, and deliver to LESSOR, within thirty (30) days after receipt of
written demand therefor, a good and sufficient deed whereby all right, title,
and interest of TENANT in the Premises is quitclaimed to LESSOR. Should TENANT
fail or refuse to deliver the required deed to LESSOR, LESSOR may prepare and
record a notice reciting the failure of TENANT to execute, acknowledge, and
deliver such deed and said notice shall be conclusive evidence of the
termination of this Lease and of all rights of TENANT or those claiming under
TENANT in and to the Premises.
22. LESSOR'S RIGHT TO RE-ENTER (PMGE23.2 S)
TENANT agrees to yield and peaceably deliver possession of the
Premises to LESSOR on the date of termination of this Lease whatsoever the
reason for such termination.
Upon giving written notice of termination to TENANT, LESSOR shall have
the right to re-enter and take possession of the Premises on the date such
termination becomes effective without further notice of any kind and without
institution of summary or
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regular local proceedings. Termination of the Lease and re-entry of the
Premises by LESSOR shall in no way alter or diminish any obligation of TENANT
under the lease terms and shall not constitute an acceptance or surrender.
TENANT waives any and all right of redemption under any existing or
future law or statute in the event of eviction from or dispossession of the
Premises for any lawful reason or in the event LESSOR re-enters and takes
possession of the Premises in a lawful manner.
23. AUTHORITY OF TENANT (PMGE24.2 S)
If TENANT is a corporation, eacH individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with the by-laws of said corporation, and that this Lease is binding upon said
corporation.
24. PUBLIC RECORDS (PMGE25.2 S)
Any and all written information submitted to and/or obtained by LESSOR
from TENANT or any other person or entity having to do with or related to this
Lease and/or the Premises, either pursuant to this Lease or otherwise, at the
option of LESSOR, may be treated as a public record open to inspection by the
public pursuant to the California Records Act (Government Code Section 6250, et
seq.) as now in force or hereafter amended, or any Act in substitution thereof,
or otherwise made available to the public and TENANT hereby waives, for itself,
its agents, employees, subtenants, and any person claiming by, through or under
TENANT, any right or claim that any such information is not a public record or
at the same is a trade secret or confidential information and hereby agrees to
indemnify and hold LESSOR harmless from any and all claims, demands,
liabilities, and/or obligations arising out of or resulting from a claim by
TENANT or any third party that such information is a trade secret, or
confidential, or not subject to inspection by the public, including without
limitation reasonable attorneys' fees and costs.
25. RELATIONSHIP OF PARTIES (PMGE26.2 S)
The relationship of the parties hereto is that of LESSOR and TENANT,
and it is expressly understood and agreed that LESSOR does not in any way or
for any purpose become a partner of TENANT in the conduct of TENANT's business
or otherwise, or a joint venturer with TENANT, and the provisions of this Lease
and the agreements relating to rent payable hereunder are included solely for
the purpose of providing a method by which rental payments are to be measured
and ascertained.
30
<PAGE> 31
PLACEHOLDER
EXHIBIT A
SITE PLAN
(To be prepared by Tenant during the option period preceding this
Lease and attached hereto prior to execution of this Lease by Lessor)
31
<PAGE> 32
PLACEHOLDER
EXHIBIT B
OPERATIONS PLAN
(To be prepared by Tenant during the option period preceding this
Lease and attached hereto prior to execution of this Lease by Lessor)
32
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF UNITED LEISURE CORPORATION
Set forth below is a list of all subsidiaries of United
Leisure Corporation, indicating their jurisdictions of incorporation.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Lion Country Safari, Inc.-- California Florida
Planet Kids, Inc. California
LCS Tours, Inc. Delaware
Frasiers Frontier, Inc. California
Camp Frasier, Inc. California
United Leisure Interactive, Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED LEISURE CORPORATION AND SUBSIDIARIES
AS OF DECEMBER 31, 1995 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. IN REPORT ON FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,845,653
<SECURITIES> 511,766
<RECEIVABLES> 128,843
<ALLOWANCES> 0
<INVENTORY> 30,308
<CURRENT-ASSETS> 4,095,762
<PP&E> 10,831,288
<DEPRECIATION> 4,252,702
<TOTAL-ASSETS> 13,754,886
<CURRENT-LIABILITIES> 891,235
<BONDS> 842,000
0
0
<COMMON> 123,688
<OTHER-SE> 11,897,963
<TOTAL-LIABILITY-AND-EQUITY> 13,754,886
<SALES> 0
<TOTAL-REVENUES> 4,495,500
<CGS> 0
<TOTAL-COSTS> 6,055,281
<OTHER-EXPENSES> 422,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,223
<INCOME-PRETAX> 1,156,506
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,156,506
<DISCONTINUED> 0
<EXTRAORDINARY> 1,128,973
<CHANGES> 0
<NET-INCOME> (403,275)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
