UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 0-11331
PERFORMANCE INDUSTRIES, INC.
----------------------------
(Exact name of Registrant as Specified in its Charter)
Ohio 34-1334199
- ---------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2425 E. Camelback Road, Suite 620
Phoenix, Arizona 85016
(Address of principal executive offices and zip code)
(602) 912-0100
(Registrant's telephone number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each class Name of Each Exchange on Which Registered
--------------------- ------------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of Registrant's voting stock held by nonaffiliates as
of March 29, 1996 (based upon closing price) was $769,000.
At March 31, 1996, 9,958,115 shares of Registrant's Common Stock were
outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
--------
The Company currently operates in three primary business segments for which it
has formed the following subsidiaries; restaurants, factoring, and real estate
development.
Performance Restaurants Group, Inc. (Restaurants)
- -------------------------------------------------
Restaurants was formed in 1993 to acquire six operating restaurants in
California. Five of the restaurants operate under the trade name Bobby McGee's
and are full service restaurants/nightclubs. The sixth was converted to a sports
bar concept operating under the trade name McGee's Grill. In 1995, a seventh
restaurant was acquired in Scottsdale, Arizona. It is a full service restaurant
and bar operating under the trade name Buster's Restaurant Bar & Grill.
The Bobby McGee's concept is a full service restaurant using costumed servers
and a lounge offering music and dancing at the same location. The restaurant
appeals to a wide range of diners as a special event restaurant. Diners come to
the restaurant to celebrate birthdays, anniversaries, graduations, and other
special occasions.
The nightclub offers a dance floor with a disc jockey playing recorded music. It
appeals to younger patrons who are out for a night of dancing and socializing.
Buster's Restaurant Bar & Grill is a more upscale dining experience offering
choice meats, seafood, and specialty dishes. The beverage offerings include a
full line of liquors and wine, as well as ten micro brews and a wide assortment
of domestic and imported beers. Buster's Restaurant Bar & Grill's business is
more cyclical than the other restaurants with greater sales between November and
April coinciding with the winter visitor season in Arizona and slower sales
during the summer months.
McGee's Grill was opened in 1994. It features pool tables and television screens
for the viewing of sports events and a limited menu for dinner and lunch in the
sports bar. The sports bar is combined with the more traditional nightclub
offered at other Bobby McGee's restaurants.
Restaurants has developed a franchising package for its concept domestically and
internationally. The franchisees will pay a fee for each restaurant they
develop, plus a royalty based upon gross sales of each location. Area
Development Agreements will cover multi unit franchises in a specific geographic
area. Restaurants will offer assistance to the franchisee in training employees,
advertising, site selection, and operation of a franchised location.
Restaurants has not actively marketed any franchises.
Performance Funding Corp. (Funding)
- -----------------------------------
This subsidiary was formed in Arizona and is engaged in the factoring business.
Factoring is the purchase of accounts receivables at a discount from face value.
All purchases are full recourse against the seller. This means that, after a
predetermined period, the seller must either repurchase the invoice at full face
value or substitute an invoice for the face value, plus accrued fees.
At the time of purchase of the invoice, Funding purchases the invoice at a
discount of the face value of the invoice. The discount is set at the maximum
fees possible, plus a reserve for bad debt. Upon collection of the invoice, the
seller is paid the difference between the fee holdback and earned fees to the
date of payment. Funding receives a security interest in other receivables of
the seller to further secure payment of fees and to secure performance of the
recourse provision of the contract.
Funding looks for sellers with annual sales between $250,000 and $15,000,000.
The decision to purchase receivables is based upon the financial condition of
the client, the profitability of the seller, payment terms of the receivable,
and the credit worthiness of the account debtors.
2
<PAGE>
Performance Development Corp. (Development)
- -------------------------------------------
Camelback Plaza Development, L.C.
- ---------------------------------
Development was formed in Arizona in 1993 to act as managing member of Camelback
Plaza Development, L.C., which was developing and leasing Camelback Plaza, a
retail/restaurant development in Phoenix, Arizona. The retail phase of the
project opened in late 1994 with Just for Feet and Blockbuster Music as its
first tenants.
The restaurant phase, consisting of a free standing building for the Hard Rock
Cafe, was constructed in 1995. The Hard Rock Cafe opened for business in October
1995.
The remaining space in the retail phase is under lease with tenant improvements
having commenced in late 1995 with expected completion in the second quarter
1996. The lessee is a full service restaurant.
Fabricaciones Metalicas Mexicanas, S.A.(FMMSA)
- ----------------------------------------------
This is the Mexican subsidiary of the Company that previously operated as a
Maquiladora plant in Mexicali, Mexico. Since the Company discontinued
manufacturing, it has been the holder of the real property owned by the Company
and has been the lessor of the property to other manufacturing concerns. At the
present time, the enclosed property is 100% leased with lease terms of two to
five years in duration. The Company has a real estate broker seeking a buyer for
the property.
Ixtapa
- ------
The Company purchased land for development as a condominium complex. At the time
of purchase, the seller had committed to construction financing for the project.
As discussed further below, the Company has indefinitely delayed the project due
to the continuing financial situation in Mexico.
A. Implementation of Reorganization
--------------------------------
On April 21, 1991, Mr. Gasket Company (excluding subsidiaries), (now known as
Performance Industries, Inc., the "Company" herein) filed a petition for relief
under Chapter 11 of the United Bankruptcy Code with the United States Bankruptcy
Court for the Central District of California, Chapter 11 Case No.
LA-91-72714-AA. The bankruptcy was prompted, in part, by the following events:
1) the March 21, 1991 entry of a judgment against Mr. Gasket Company in favor of
Rally Manufacturing Company ("Rally"); 2) the inability of Mr. Gasket Company to
make a principal reduction payment on certain Subordinated Notes owed by Mr.
Gasket Company; 3) the refusal by Mr. Gasket Company's primary lender to extend
further credit to Mr. Gasket Company as a result of the threat of execution on
the Rally judgment; and 4) a decrease in sales of Mr. Gasket Company's products
of 30% or $17 million in the first six months of 1991.
On May 4, 1993, Mr. Gasket Company emerged from Chapter 11 proceedings and filed
a Certificate of Reorganization with the Ohio Secretary of State's Office, along
with Amended and Restated Articles of Incorporation which, among other things,
changed the name of the Company from Mr. Gasket Company to Performance
Industries, Inc. The Company now operates its business without Bankruptcy Court
supervision.
Under the Joint Plan, a cash reserve of approximately One Million Five Hundred
Thousand Dollars was established for the purpose of satisfying disputed and
unliquidated general unsecured claims which were expected to be liquidated
subsequent to the Implementation Date. If the reserve is insufficient to satisfy
all subsequently liquidated claims, the Company is required to deposit up to One
Million Dollars per year into the Option A Cash Reserve until such time as all
claims are paid pursuant to the Joint Plan. It is not anticipated that this
requirement will have any effect on the Company's ability to meet its
obligations.
3
<PAGE>
B. Prior Business
--------------
Wheel and Tire Division
- -----------------------
On December 31, 1992, during the Chapter 11 proceeding, the wheel and tire
business was sold. Under the terms of the sale agreement, Cragar Industries,
Inc. purchased all inventory, intangible property, certain accounts receivable,
and other assets of the wheel and tire business.
The net sales price of the wheel and tire business was $11,348,000 consisting of
$4,000,000 paid in January 1993, $4,000,000 paid by March 31, 1993 pursuant to
the terms of a secured promissory note, and the balance to be paid by December
31, 1993 pursuant to the terms of a non-interest bearing cognovit promissory
note. This note was renegotiated during the summer of 1993 and in December 1994.
(See note to financial statements 5 for further details). In connection with
this sale, the Company entered into a three year non-competition agreement.
Performance Division
- --------------------
On May 4, 1993, the Company sold the assets and certain liabilities of the
Performance Division to an affiliate of Echlin, Inc. The buyer operates as Mr.
Gasket, Inc. The assets sold included most of the assets of the Performance
business and related activities in Cleveland, Ohio, excluding land and building.
The sales price for the Performance business was $33,880,000 before adjustment
in working capital, as defined in the Purchase Agreement. Cash and other
consideration of $31,880,000 were paid at closing on May 4, 1993 and $175,000
was paid upon agreement on the working capital adjustment. An additional
$2,000,000 was maintained in escrow for twelve months to provide for the payment
of claims for indemnification under the initial Purchase Agreement. (See note 5
to financial statements for further information). The escrow was closed and all
proceeds paid to the Company on May 4, 1994.
In conjunction with the sale of Performance Division, the land and building used
for the Performance Division was leased by an affiliate of Echlin, Inc. with an
option to purchase. This option was exercised and the land and building sale
closed on April 14, 1994. The net proceeds were approximately $2,180,000 after
payment of the existing mortgage on the property.
Exhaust Division
- ----------------
The Company sold its Exhaust business to Walker Manufacturing, a division of
Tennessee Gas Pipeline Company on December 3, 1993 after approval of the sale by
shareholders on November 28, 1993. The sale included all machinery and equipment
used by the Company to manufacture exhaust products, the exhaust finished goods
inventory, selected raw material and work in process, patents and trademarks and
account receivables related to the exhaust business.
The sale price was $7,503,090, subject to later adjustment if the accounts
receivable collections did not exceed the sum of approximately $2,500,000.
$6,503,090 was paid on closing, $1,000,000 was paid upon the delivery of
machinery and equipment from Mexico to the Buyer's factory in Mississippi. In
connection with the sale, the Company and certain of its current and former
officers and directors entered into a five year non-competition agreements with
respect to the Exhaust business.
In addition, the Company entered into a transition agreement with Walker whereby
the Company agreed to provide warehousing for finished goods in Phoenix to
Walker through March 31, 1994 at a cost basis. The transition agreement ended on
March 31, 1994 when Walker closed its warehouse in Phoenix.
C. Competition
-----------
The factoring business is a niche market for financing. Funding competes with
several companies that have greater financial resources than Funding. Funding
competes on the basis of rates, service and market concentration.
4
<PAGE>
The restaurant business is highly competitive. Restaurants competes in the
restaurant business with a number of chains and restaurants owned by
substantially larger companies with greater financial resources than
Restaurants. Restaurants competes on the basis of name recognition, concept of
restaurants, location, quality of product and other intangible elements.
Restaurants believes that the costume concept, along with the adjoining
nightclub, offers a unique experience for the consumer that has a broad appeal.
Restaurants further believes its present locations offer a competitive advantage
over other areas.
The real estate development business is highly competitive. Development competes
with several other development companies in the Phoenix market that are more
experienced and have greater financial resources. However, Development feels the
location of the development is highly desirable to the high volume tenants who
have signed leases.
D. Trademarks and Patents
----------------------
The Company's registered trademark for restaurants is an important factor in
marketing for this group due to the high degree of name recognition in its
geographical area and general market. The name Bobby McGee's is federally
trademarked.
E. Environmental Matters
---------------------
An investigation of environmental matters related to facilities and property
owned and leased by the Company was performed to determine contingencies that
may have affected the Company's emergence from Chapter 11. Certain reports
received by the Company have identified areas of environmental contamination and
potential environmental contamination. Management believes that certain
predecessors-in-interest may bear either full or partial liability for
remediation of affected areas. Certain predecessors-in-interest and governmental
agencies have been notified by the Company of the related possible liabilities.
In addition, the Company notified its insurance carriers of potential claims
under its general liability and property insurance coverage from prior years.
a. Manufacturing Facility in California
------------------------------------
This facility housed the manufacturing plant of the Wheel business. All
assets at this facility have been sold and the buyer has vacated the
premises (See Notes 5 & 18 to the Consolidated Financial Statements). The
Company filed a closure plan with the State of California for this facility.
An environmental survey was conducted in the fall of 1991. Two areas for
further investigation were identified. Further investigation in the Spring
of 1992 disclosed ground contamination and possible seepage into
groundwater. Management believes the contamination to have existed prior to
its purchase of the business in 1982 and has notified its
predecessor-in-interest. The Company has accrued the estimated minimum
remediation cost.
At this time, all appropriate county, state and federal agencies have been
notified regarding contamination at this site. To management's knowledge, no
response has yet been made by any notified governmental agency nor has the
facility been inspected by any such agency. However, the Company may, at a
later date, be ordered to undertake further testing and/or remediation at
the location.
The Richter Family Trust, the owner of this facility, filed an action
against the Company and others in the U.S. District Court for the Central
District of California and served it on the Company in April 1995. The
Company responded to the complaint on its behalf and on behalf of Joe Hrudka
as an officer of the Company. The complaint seeks damages of an unspecified
amount for environmental contamination at the site under several theories.
Currently, the action is stayed by stipulation of the parties, so that
further testing to determine the extent of the contamination can be
completed.
The Company tendered defense of the action to several insurance carriers
under policies in force for the periods when it owned and operated its wheel
division at the site. Two insurers have agreed to pay some legal costs of
defending the action under their policies, although they have reserved the
right to ultimately deny coverage
5
<PAGE>
for any contamination or the costs of remediation.
b. Warehousing and Office Facility in Ohio
---------------------------------------
In 1990, potential contamination was discovered at this location.
Environmental studies performed to date have determined that the
contamination is confined to the site with no evidence of migration to
groundwater or surrounding properties. At the present time, analysis of the
potential remediation alternatives has not been completed, nor has a
proposed plan been submitted for approval by the Ohio EPA.
As part of the sale of the Performance Division to Echlin, Inc., the Company
entered into an indemnity agreement with a predecessor-in-interest at the
site. The predecessor-in-interest and the buyer of the Performance division
have agreed to pay for the remediation of the major known environmental
contamination at the site. However, the Company was required to guarantee
the obligations of the purchaser.
The Company had agreed to remove two above ground storage tanks, an
underground storage tank, and to submit a closure plan to the State for a
drum storage area. In March, 1995 the State of Ohio EPA accepted the
company's closure of the drum storage area as being in compliance with the
previously filed closure plan. This was the last requirement for the release
of the escrow funds held by Echlin, Inc. from the sale proceeds of the
Brookpark Road facility. The Company had also completed the removal of an
underground storage tank at the Brookpark Road facility in 1994. With this
closure, the Company believes it has no further expense for environmental
contamination related to the Brookpark Road facility.
ITEM 2. PROPERTIES
----------
As of December 31, 1995, the Company and its subsidiaries owned and leased a
total of approximately 363,308 square feet of manufacturing, warehousing,
office, and other space for its principal facilities. Management believes that
the Company's and its subsidiaries' facilities and equipment are modern and well
maintained.
The locations and general description of the principal properties owned and
leased by the Company and its subsidiaries are as follows:
<TABLE>
<CAPTION>
Approximate
Area in Lease
Location Primary Functions Square Feet Expiration
- -------- ----------------- ----------- ----------
<S> <C> <C> <C>
Phoenix, Office 6,314 Lease
Arizona 07/31/97
Scottsdale, Buster's Restaurant Bar & Grill 9,123 04/31/2000
Arizona
Brea, Restaurant/Nightclub 11,000 06/30/2005
California
Burbank, Restaurant/Nightclub 11,000 06/30/2010
California
Burlingame, Restaurant/Nightclub 9,000 12/31/1996
California
Citrus Heights, Restaurant/Nightclub 10,600 09/14/2005
California
San Bernardino, Restaurant/Nightclub 10,500 11/13/2002
California
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Approximate
Area in Lease
Location Primary Functions Square Feet Expiration
- -------- ----------------- ----------- ----------
<S> <C> <C> <C>
San Ramon, Restaurant/Nightclub 9,980 06/30/2002
California
Mexicali, Office, manufacturing, 277,000(1) Owned
Mexico and warehousing
Ixtapa Raw Land 8,748 sq. meters Owned
Phoenix, Development Project 5 Acres(2) Land Lease
Arizona 02/28/2052
Las Vegas, Restaurant/Nightclub 9,185 12/31/2005
Nevada
</TABLE>
- --------------------------------------------------------------------------------
(1) Due to a change in the Mexican laws, this
property has been transferred in fee to
Fabricaciones Metalicas Mexicanas, SA, a wholly
owned subsidiary of the Company. The Mexicali
facility is currently being leased by several
tenants. The lease commitments expire on various
dates between 1996 and 1998. The Company's
minimum annual rent for 1996 is approximately
$700,000 from the property.
(2) The real property of five (5) acres which is
under development by the subsidiary is subject
to a long term land lease. The subsidiary has
the option to purchase the real property after
the year 2015 at its fair market value without
consideration of value added for any
improvements on the property.
ITEM 3. LEGAL PROCEEDINGS
-----------------
A. On January 6th, 1994 the Company filed an action in the Superior
Court of Arizona for the County of Maricopa to determine the fair
cash value of its shares held by shareholders who dissented from
the sale of the Exhaust business. The dissenting shareholders are
as follows: Ecco Sales, Inc. Defined Benefit Plan and Mr. David E.
Miller, its trustee; Murray & Murray Co., L.P.A. Profit-Sharing
Plan and Trust and Dennis E. Murray, Sr., its trustee; and Murray
and Murray Co. L.P.A. - Dennis Murray Voluntary Account and Dennis
E. Murray, Sr., its trustee; Monumental Life Insurance Company, a
Maryland corporation; Ince & Co., a foreign corporation; The
Travelers Corporation, a foreign corporation; The Travelers
Insurance Company, a Connecticut corporation; Provident Mutual
Life Insurance Company of Philadelphia, a Pennsylvania
corporation; Provident Mutual Life Insurance Company, a foreign
corporation; New England Mutual Life Insurance Company, a
Massachusetts corporation; Angelo M. Alesci, an individual;
William R. Bagger, an individual:
All of the dissenting shareholders, except Ecco Sales and Murray &
Murray, LPA, agreed to accept and were paid $.75 per share, as the
fair market value, for their stock.
Two of the dissenting shareholders made a special appearance by
Motion to Dismiss for lack of personal jurisdiction, Murray &
Murray Co. L.P.A. Profit Sharing Plan, and Murray & Murray Co.
L.P.A. After the remand from the Arizona Court of Appeals, the
Maricopa County Superior Court held it had jurisdiction over the
defendants in February, 1995. The defendants appealed the trial
court decision to the Arizona Court of Appeals. The court again
upheld the trial court decision. The defendants then appealed to
the Arizona Supreme Court, which upheld the Court of Appeals'
decision.
The defendants sought review by the U.S. Supreme Court under a
Writ of Certiorari. The Writ was
7
<PAGE>
denied in February 1996. The matter will now proceed to establish
the fair market value of the defendants' shares as of the date of
their dissent. The Company expects the proceedings to take at least
90 days to be resolved.
B. On January 26, 1994 an action filed by Murray & Murray in the
Court of Common Pleas, County of Cuyahoga, State of Ohio, was
served on the Company and three former or present officers and/or
directors of the Company; Joe Hrudka, Tom Hrudka and Howard B.
Gardner. The action against the Company seeks declaratory judgment
holding that the fair cash value determination be heard in the
State of Ohio. The action against the directors and officers
alleges a breach of fiduciary duty involving the negotiation of
consulting and non-competition agreements in connection with the
Company's sale of its former businesses. The Company has filed a
motion to dismiss the action which motion has not yet been
decided.
C. In April 1995, the Company was served with an action filed by the
Richter Family Trust in the U.S. District Court for the Central
District of California against the Company and others for
unspecified damages for the remediation of the site of the
Company's former wheel manufacturing plant. The Company responded
to the suit on its own behalf and on behalf of Joe Hrudka, an
officer and director of the Company, who was sued personally.
Currently, the case has been stayed by stipulation of the parties,
so that further testing can be conducted on site to determine the
extent of the contamination.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business, including product
liability claims. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse
effect on the Company's consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
The following table sets forth the range of high and low closing bid prices for
the Company's common stock as reported by the NASDAQ National Market System for
the past two calendar years:
BID ASK
--- ---
1995
- ----
Quarter ended March 31, 1995 9/16 3/ 4
Quarter ended June 30, 1995 1/ 2 9/16
Quarter ended September 30, 1995 3/ 8 1/ 2
Quarter ended December 31, 1995 3/16 5/16
1994
- ----
Quarter ended March 31, 1994 $ 1/2 $ 11/16
Quarter ended June 30, 1994 $ 1/2 $ 11/16
Quarter ended September 30, 1994 $ 5/8 $ 11/16
Quarter ended December 31, 1994 $ 9/16 $ 3/4
(1) All quotations represent inter-dealer prices, without retail
mark-up, markdown or commission, and may not necessarily represent
actual trades.
As of March 26, 1996, there were 810 holders of record of the Company's common
stock. No dividends have been declared since December 1984, nor does the Company
anticipate that any dividends will be declared in the foreseeable future.
8
<PAGE>
The Company's shares are traded over the counter.
During 1994, the Company purchased approximately 2,234,000 shares of stock from
dissenters due to the sale of the Company's Exhaust division to Walker
Manufacturing. In addition, the Company purchased approximately 202,000 shares
on the open market in 1994.
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
-------------------------------------------------------------
The Company's selected consolidated financial data has been prepared in
accordance with generally accepted accounting principles applicable to a going
concern, which principles, except as otherwise disclosed, assume that assets
will be realized and liabilities will be discharged in the normal course of
business.
The following table sets forth selected consolidated financial data of the
Company for the five years ended December 31, 1991 through 1995. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto included elsewhere herein. The selected
consolidated financial data for the years ended December 31, 1991 through 1995
are derived from the audited financial statements of the Company.
Year Ended December 31
----------------------
OPERATING RESULTS: 1991 1992 1993 1994 1995
- ----------------- -------- -------- -------- -------- --------
Net revenues $ 71,200 $ 78,478 $ 360 $ 18,415 $ 20,253
Net income (loss) ($23,034) ($ 5,711) $ 27,623 $ 435 $ 294
Net income (loss) per
common share ($ 2.19) ($ .54) $ 2.34 $.04 $ 0.03
Weighted average
number of shares
of common stock
outstanding 10,525 10,525 11,789 10,407 9,958
Year Ended December 31
----------------------
FINANCIAL POSITION: 1991 1992 1993 1994 1995
- ------------------ -------- -------- -------- -------- --------
Working capital
(deficiency) ($37,743) ($35,609) $ 2,636 $ 574 $ 2,424
Total assets $ 85,214 $ 68,320 $ 23,126 $ 24,108 $ 24,878
Long-term debt,
excluding current
installments and
amount subject to
compromise $ 1,456 $ 955 $ 515 $ 5,962 $ 7,345
Shareholders' equity
(deficiency) $(10,397) $(16,108) $ 12,824 $ 11,494 $ 13,061
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
9
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Consolidated
- ------------
For the year ended December 31, 1995 the Company had a consolidated after tax
loss from continuing operations of ($144,000), compared to a loss of ($289,000)
for the same period in 1994.
Net after tax income for 1995 was $294,000 compared to income of $435,000 for
the year ending December 31, 1994. In 1995 the Company had income of $438,000
from discontinued operations primarily as a result of "changes in accounting
estimates". Throughout the year the Company was able to settle claims for less
than expected and to collect, or now expects to collect, more receivables than
anticipated at December 31, 1994.
The Company's selling, general, and administrative expenses were $659,000 less
than in 1994. This is a 19% decrease.
Interest expense was $533,000 in 1995 compared to $18,000 in 1994. This rise in
interest is a result of the mini- permanent loan on the retail center and the
Funding line of credit.
In December 1995 the Company was able to sell a portion of securities it
obtained in a private offering. The net proceeds from the sale was $387,000. The
original investment made in 1994 was $250,000. The remaining shares, which are
subject to restrictions on sale under Rule 144, have been written up to market
value as of December 31, 1995 (see Note 6 to the Notes to Consolidated Financial
Statements).
During the year ended December 31, 1994, the Company purchased 2,436,455 of
treasury stock at an average price of $.7244 per share. Most of these purchases
were a result of dissenting shareholders rights exercised in 1993. The Company's
book value per common share outstanding increased from $1.10 at December 31,
1994 to $1.31 at December 31, 1995.
At December 31, 1995 the Company had only eight employees, two of which are
devoted exclusively to management of the Funding subsidiary. Management has no
plans to increase employment from this level.
Performance Restaurants Group, Inc. (Restaurants)
- -------------------------------------------------
Revenues
- --------
Total revenues increased 11.6% to $19,357,000 for 1995 compared to $17,350,000
for 1994. The increase in revenue is a result of the acquisition of a new
restaurant operating under the trade name Buster's Restaurant Bar & Grill.
The year ended 1995 was a 53 week year as compared to 52 weeks in the year ended
1994. Excluding the extra week in 1995, same store sales were down approximately
2.3% as compared with 1994.
Cost and Expenses
- -----------------
Cost of sales, consisting of food and beverage cost, increased during 1995 to
27.6% of sales, as compared with 26.4% in 1994. The percentage increase is
primarily attributable to the food items offered at Buster's Restaurant Bar &
Grill. The restaurant sells primarily certified Black Angus beef and fresh
seafood of the highest quality available. The menu yields a higher food cost
percentage than a Bobby McGee's restaurant.
Restaurant operating expenses include all other unit-level operating costs, the
major components of which are labor cost, supplies, advertising and promotions,
utilities, outside services, repairs and maintenance, depreciation, and
occupancy cost. These costs as a percentage of sales increased slightly by .6%
to 66.6% during 1995 as compared with 66.0% in 1994. The percentage increase is
a result of increased advertising and an increase in depreciation expense. Same
store depreciation increased $245,000 to $423,000 in 1995 from $178,000 in 1994.
The increase is due to the extensive remodeling of the restaurants which was
completed in April of 1995. Advertising expenditures have increased due to
several aggressive advertising campaigns aimed at exposing customers to the
newly remodeled "Bobby McGee's".
10
<PAGE>
Administrative expenses as a percentage of sales declined by .4% in 1995 to
6.6%, compared with 7.0% in 1994. Substantially all of the decline is attributed
to higher sales volume.
Net Income
- ----------
The restaurant division recorded a net loss of $165,534 for 1995 as compared to
net income of $105,198 for 1994. The loss is attributable to higher depreciation
charges, increased advertising and the seasonality of Buster's Restaurant Bar &
Grill.
Earnings Outlook
- ----------------
In 1995, Restaurants signed a lease for a new Bobby McGee's restaurant in Las
Vegas, Nevada. Renovations of the premises is proceeding and a grand opening is
planned for May 1996. The new restaurant will operate under the familiar Bobby
McGee's concept with an updated decor and will serve as a model for future
expansion.
Restaurants is looking at several locations throughout the south-west for
expansion of all three of its restaurant concepts. Restaurants will concentrate
on Arizona, California, and Nevada for company operated stores and offer
franchises nationally.
Bobby McGee's Franchises
- ------------------------
Restaurants has developed a franchise package for domestic and international use
because of interest in a possible franchise by a foreign investor. The domestic
package was developed to meet certain regulatory policies before offering the
franchises internationally. Restaurants has not actively sought franchisees and
has no estimate of how many if any will be sold in the upcoming fiscal year.
Performance Funding Corp. (Funding)
- -----------------------------------
A customer representing approximately $360,000 of the 1994 fee revenue obtained
other financing and paid off the Company in February of 1995. Funding was able
to obtain additional business to offset some of this lost revenue. As a result,
gross revenues for the year ended December 31, 1995 was $896,000 compared to
$1,065,000 in 1994, a decrease of approximately 13%.
Net earnings before taxes decreased from $895,000 in 1994 to $676,000 in 1995.
Coupled with the gross revenue decrease, third party interest and financing
costs associated with obtaining the new line of credit are responsible for most
of the decrease in net earnings.
At December 31, 1995, Funding had approximately $1,550,000 invested in assets of
approximately $2,070,000 earning fees, compared to $3,500,000 and $4,400,000 at
December 31, 1994. This is a 53% reduction in assets earning fees from 1994 to
1995. Increased competition for quality customers is the primary cause for most
of the decline. As stated above, one of Funding's largest customers,
representing $1,400,000 of the assets earning fees at December 31, 1994, was
able to obtain alternative financing offering significantly lower interest
rates. Quality clients of this size are difficult to replace.
Most major banks, in the past year or two, have established divisions which are
allowed to finance somewhat higher risk companies. These are the companies
Funding seeks as clients. These are companies that almost qualify for
conventional financing but may not have enough history or are experiencing fast
paced growth. Funding cannot or will not compete with these divisions on
interest rates. But Funding can and does compete by offering a close personal
interest and understanding of the clients' business. The ability to quickly
respond to the clients' changing financing needs has also been a good selling
tool.
In July 1995, Funding obtained a line of credit from a financial institution in
the amount of $2,000,000. This has allowed the Company to lessen its cash
investment in Funding while providing capital for future growth. Under the
agreement, the Company must maintain an equity position in Funding of
$1,000,000. The line of credit expires in
11
<PAGE>
July 1997. Management believes, but there can be no assurance, that the line of
credit will be renewed in 1997, if needed.
Performance Development Corp. (Development)
- -------------------------------------------
Gross rent received for the year ended December 31, 1995 was approximately
$770,000 compared to approximately $50,000 for 1994. The development recorded a
net loss of approximately $30,000 for the year ended December 31, 1995 compared
to break even for 1994. This loss is attributed to unabsorbed common area
maintenance expenses related to unoccupied space. Based upon signed leases, all
space is to be occupied by the second quarter of 1996 and the minimum rents are
expected to be over $1,000,000 in 1996.
Development converted its construction loan of $4.9 million to a mini-permanent
loan on January 1, 1996. The loan is amortized over a twenty year period with a
balloon of the outstanding balance due in 40 months.
The Company has contracted with a broker to obtain a buyer of the project.
Ixtapa, Mexico
- --------------
Development purchased land in Marina Ixtapa Mexico for development as a sixty
unit condominium. Preliminary architectural work has been completed, including
cost estimates.
At the time of purchase, Development received a commitment for construction
financing from the seller of the property. The commitment was not honored as a
result of the financial crisis in Mexico.
The Company planned to begin development of the project in the first quarter of
1995. These plans have been indefinitely put on hold by the financial crisis in
Mexico.
Fabricaciones Metalicas Mexicanas, S.A. (FMMSA)
- -----------------------------------------------
FMMSA is a wholly owned foreign subsidiary of the Company. Its remaining assets,
after the December, 1993 sale of the Exhaust Division, consists of land and
buildings located in Mexicali, Mexico.
Gross rent revenue was approximately $535,000 for the year ended December 31,
1995 compared to approximately $488,000 in 1994. Net after tax income was
approximately $195,000 and $20,000 for these same years respectively. The 1994
net earnings were impacted by environmental cleanup expenses related to closing
the exhaust division of the Company. While 1995 net earnings improved, the
Company incurred some expenses related to making the property into an industrial
park, as well as repairs to make the facility more suitable for additional
tenants.
Liquidity and Capital Resources
- -------------------------------
Short Term
- ----------
The Company's short term liquidity and capital resources have improved
considerably during the year ended December 31, 1995. While cash and equivalents
have decreased, $731,000, working capital has increased by $1,850,000. In
addition, the Company, through its Funding subsidiary, obtained a two year,
$2,000,000 line of credit. At December 31, 1995, the Company had used
approximately $360,000 of the line of credit.
The Company has negotiated a six month line of credit for $1,000,000, which is
to be in effect by April 1, 1996. The line is secured by certain securities
available for sale. The contract provides for one six month option to extend.
12
<PAGE>
With the financing the Company has in place, and with most all of the business
segments generating positive cash flows, management believes, but there can be
no assurance, its short term cash requirements will be met.
Long Term
- ---------
During 1995, the Company invested approximately $3,250,000 to complete its real
estate development projects. The Company has made some progress in the marketing
for sale of these real estate assets. The Company has signed a six month
exclusive contract with Cushman & Wakefield to be the broker for a sale of the
Camelback Plaza retail center.
The Company has a purchase and sale agreement with one of its tenants in
Mexicali, Mexico to sell the Company's foreign subsidiary, FMMSA. The sale, if
completed, should take place in the 2nd or 3rd quarter of 1996.
Additionally in 1995, the Company invested $1,410,000 into its restaurant
subsidiary. The funds were used to add two new restaurants and finish remodeling
existing restaurant stores. One of the restaurants purchased was in operation
and its results for the approximate 9 1/2 months of the Company's ownership are
included in the results of operations. The other restaurant, which is in Las
Vegas, will not open until the 2nd quarter of 1996. With the opening of this
restaurant, the Company will have eight restaurants total. Management believes
it needs 10 - 12 restaurants to maximize absorption of its fixed operating
expenses.
The Company intends to use the proceeds from the sale of its real estate
holdings to expand its restaurant operations.
Inflation
- ---------
Management does not believe that inflation will have a material effect on the
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The independent auditors' report on the Consolidated Financial Statements and
Schedules listed in the accompanying index are filed as part of this report. See
Index to Audited Consolidated Financial Statements and Schedules on page .
------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
--------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Directors and Executive Officers of the Company as of December 31, 1995 were
as follows:
Name Age Position
- ---- --- --------
Joe Hrudka 57 Chief Executive Officer
Edmund L. Fochtman, 58 President/Director
Jr. (1)
Allen L. Haire (1) 53 Director
Jonathan Tratt 37 Director
James W. Brown 47 Chief Financial Officer/Director
13
<PAGE>
Robert A. Cassalia 43 Secretary
All Directors are elected annually by the Company's shareholders and hold office
until their successors are duly elected and qualified.
- --------------------------------------------------------------------------------
(1) Member of the Audit Committee.
Joe Hrudka is the founder and principal shareholder of the Company. Since 1981
he has served as the Chairman of the Board and a Director. Mr. Hrudka has served
as Chief Executive Officer of the Company since November, 1993. In 1964, Mr.
Hrudka founded the original Mr. Gasket Company and served as Chairman of the
Board and President until the Company was purchased by W. R. Grace in 1971. He
was then employed as a Vice President of the Automotive Division of W. R. Grace
from 1972 to 1974 and as a consultant to W. R. Grace during 1975 and 1976. From
1977 until the formation of the Company in 1981, Mr. Hrudka was a private
investor. Mr. Hrudka has served as a director of Action Products, Inc. from
1987, and served as Secretary of Action Products, Inc. from October 1990 to May
1992. In November 1991, a receiver was appointed by the Maricopa County Superior
Court, State of Arizona, to manage the assets of Action Products, Inc. at the
request of a secured party. Action's assets were sold in May 1992 by the
receiver. Mr. Hrudka has served as a Director of each of the subsidiaries since
they have been formed.
Edmund L. Fochtman, Jr. has been President of the Company since May, 1993. He
was an executive Vice President of the Company since January, 1992. He was
Chairman of the Board of Directors and Chief Executive Officer of Action
Products, Inc., a company engaged in the manufacture and sale of fiberglass
bodied mini-cars and sales of other promotional products from October 1986 until
January 1992. From 1984 to 1986, Mr. Fochtman was a private investor. From 1976
to 1984, he served as Vice President of F. W. & Associates, Inc. In November
1991, a receiver was appointed by the Maricopa County Superior Court, State of
Arizona, to manage the assets of Action Products, Inc. at the request of a
secured party. Action's assets were sold in May 1992 by the receiver. Mr.
Fochtman was elected a Director of the Company in June 1988 and as a director of
each of the subsidiaries since 1993.
Allen L. Haire has been chairman and Chief Executive Officer of Enerco Technical
Products, a manufacturer of gas-fired infra-red heating equipment, since July
1984. He was a manufacturer's representative from 1977 to 1984. Mr. Haire was
elected a Director in June 1988.
Jonathan Tratt has been President and Director of Industrial Brokerage, Inc., an
investment and commercial real estate brokerage company since 1992. Prior to
1992, Jonathan Tratt was a general investor and real estate agent in Phoenix,
Arizona. Jonathan Tratt is also a director of Gulp Investments, Inc., a real
estate and general investment company, and was elected a director of the Company
in May, 1993.
James W. Brown, a certified public accountant, has been Chief Financial Officer
and Director since December 1993. From 1989 until joining the Company in May,
1993, Mr. Brown was CFO of RACAM Amusement Group. From 1985 to 1988 he was the
Chief Operating Officer of American Educational Computers, Inc., a publicly
traded software and video publisher. Prior to 1985 he was Vice President of
Finance of National Zinc Company, a primary metals manufacturer. Mr. Brown has
served as a Director of the subsidiaries since 1993.
Robert A. Cassalia was hired by the Company as Assistant Secretary, In-House
Counsel in January of 1991. On May 4, 1993, he was elected Secretary. Before
joining the Company Mr. Cassalia was General Counsel of Action Products, Inc., a
manufacturer of fiberglass bodied mini-cars since October, 1986. Prior to 1986,
he was in private practice in Phoenix, Arizona and Syracuse, New York.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is incorporated herein from the Company's
proxy statement to be filed pursuant to Regulation 14(a) under the Securities
Exchange Act of 1934, within 120 days from December 31, 1994.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of the outstanding
shares of common stock beneficially owned as of March 29, 1995 by the only
persons known to the Company to own beneficially more than 5% of the outstanding
shares of common stock.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
- ------------------- ------------------ --------
Joe Hrudka
9716 N. 71st Street, Paradise Valley, AZ 85253 6,756,966(1) 69%
- --------------------------------------------------------------------------------
(1) Certificates representing 795,973 shares are in the possession of a
bank which claims a security interest in the same in connection
with loan arrangements. The net result of future actions taken in
connection therewith cannot be predicted by the Company at this
time.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Reference is made to the information contained in Note 19 to the Consolidated
Financial Statements herein, which Information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,...AND REPORTS ON FORM 10-K
-----------------------------------------------------------------------
(1) Index to Consolidated Financial Statements:
Independent Auditors' Reports
Consolidated Balance Sheets - December 31, 1995
and 1994
Consolidated Statements of Operations - Years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements - Years ended
December 31, 1995, 1994 and 1993
(2) Index to Consolidated Financial Statement Schedules:
All schedules have been omitted because the material is
not applicable or is not required as permitted by the
rules and regulations of the Commission, or the required
information is included in Notes to the Consolidated
Financial Statements.
(3) Exhibits:
15
<PAGE>
Exhibit No.
- -----------
2.1 Disclosure Statement and Plan of Reorganization filed on
July 21, 1992 by the Official Creditors' Committee.
Incorporated by reference to the Company's Report on Form
10-Q filed on August 12, 1992.
2.2 Amended Plan of Reorganization filed by the Company on
August 3, 1992. Incorporated by reference to the Company's
Report on Form 1O-Q filed on August 12, 1992.
2.3 Amended Disclosure Statement including a Joint Plan of
Reorganization approved by the Court to be distributed to
interested parties on October 27, 1992. Incorporated by
reference to the Company's Report on Form 10-Q filed on
November 10, 1992.
2.4 The Confirmed Joint Plan of Reorganization, approved by
the United States Bankruptcy Court, Central District of
California on April 21, 1993, as filed with the Company's
report on Form 10- Q for the period ended March 31, 1993.
2.5 Notice of satisfaction to all conditions precedent to
implementation of Option "A" of the Joint Plan of
Reorganization dated September 30, 1992, as filed with the
Company's report on Form 10-Q for the period ended March
31, 1993.
3.3 Amended and Restated Articles of Incorporation of the
Company. Incorporated by reference to Exhibit 3.3 of the
Company's Annual Report on Form 10-K, dated March 29,
1988.
3. 4 Revised Code of Regulations, as amended, of the Company.
Incorporated by reference to Exhibit 3.4 of the Company's
Annual Report on Form 10-K, dated March 29, 1988.
10.39 Month-To-Month Lease by and between F. W. Investments, an
Ohio General Partnership, and the company for the premises
known as 2401 W. First Street, Tempe, Arizona.
Incorporated by reference to the Company's Form 10-K filed
April 14, 1991.
10.44 Sale Escrow Instructions Promissory Note and Security
Agreement between Calico Light Weapon Systems and the
Company concerning the sale of the Company's gun division
dated December 10, 1990. Incorporated by reference to the
Company's Form 8 filed September 27, 1991.
10.45 Asset purchase agreements relating to the sale of the
Wheel and Tire business dated December 31, 1992 by and
between Cragar Industries, Inc. and the Company.
Incorporated by reference to the Company's report on Form
8-K filed on January 12, 1993.
10.46 The following exhibits relate to the sale of the
Performance business on May 4, 1993 as filed with the
Company's report on Form 10-Q for the period ended March
31, 1995 and incorporated herein by reference:
10.47 The following documents related to the sale of the
Company's Exhaust Division to Walker Manufacturing Company
as filed with Notice of Annual Meeting of shareholders
dated November 8, 1994 and incorporated herein by
reference.
10.48 1993 Stock Option Plan of Performance Industries, Inc.
filed with the Company's Notice of Annual Meeting of
shareholders dated November 8, 1993 and incorporated
herein by reference.
10.49 Documents relating to its purchase of operating assets
from Bobby McGee's USA, Inc. effective December 20, 1993,
which were filed with the Company's report on Form 10-K
for the period ended December 31, 1993, and are
incorporated herein by reference.
10.50 The following documents relating to the purchase of the
ground lease for 2671 E. Camelback
16
<PAGE>
Road, Phoenix, Arizona effective December 30, 1993 as
filed with the Company's report on Form 10-K for the year
ended December 31, 1993 and are incorporated herein by
reference:
10.51 Lease dated May 9, 1994 by and between Just for Feet, Inc.
(Lessee) and Camelback Development L.C. (Lessor) dated May
9, 1994.
10.52 Lease dated June 30, 1994 by and between Blockbuster Music
Retail, Inc. (Lessee) and Camelback Plaza Development L.C.
(Lessor).
10.53 Lease dated January 17, 1995 by and between Restaurants of
America, Inc. (Lessee) and Camelback Plaza Development,
L.C. (Lessor).
10.54 Design Build Lease Agreement dated December 18, 1992 by
and between Hard Rock Cafe Investors, Ltd. XIV (Lessee)
and Imprimis Partners II (Lessor) and amendment thereto
dated September 26, 1994.
10.55 Offer to purchase Buster's Restaurant Bar and Grill dated
February 25, 1995 including a first assignment and
Assumption of Lease and landlord's consent dated March 15,
1995 by and between Mercado Del Lago, L.L.C., Buster's &
Company, Inc. and Performance Restaurants Group, Inc., and
lease dated the 20th of November 1989 by and between
Mercado Project Limited (Lessor) and Buster's & Company,
Inc. (Lessee), and Bill of Sale dated March 15, 1995.
10.56 Documents from the Caliber Bank loan dated June 24, 1994
as amended September 21, 1994.
- Restaurant Phase Construction Agreement,
dated June 24, 1994.
- Restaurant Phase Promissory Note.
- Irrevocable Letter of Credit -
$1,900,000.
- Environmental Indemnification Agreement..
- Amendment to Restaurant Phase
Construction Loan Agreement, Restaurant
Phase Promissory Note, and Restaurant
Phase Deed of Trust, dated September 21,
1994.
- Restaurant Phase Leasehold Construction
Deed of Trust and Security Agreement with
Assignment of Rents and Fixture Filing.
- Assignment of Hard Rock Cafe Lease.
- Retail Phase Construction Loan Agreement,
dated June 24, 1994.
- Retail Phase Promissory Note.
- Amendment to Retail Phase Construction
Loan Agreement, Retail Phase Promissory
note, and Retail Phase Deed of Trust,
dated September 21, 1994.
- Retail Phase Leasehold Construction Deed
of Trust and Security Agreement with
Assignment of Rents and Fixture Filing.
- Assignment of Retail Leases.
10.57 Line of Credit Agreement dated July 19, 1995 by and
between Performance Funding Corp. and Capital Factors,
Inc. and Guarantee of Performance Industries, Inc.
10.58 Lease dated September 1, 1995 between Performance
Restaurants of Nevada, Inc. and 1030 East Flamingo, L.L.C.
17
<PAGE>
10.59 Second Amendment to Retail Phase Construction Loan
Agreement dated October 31, 1995 by and between Camelback
Plaza Development, L.C. and Norwest Bank.
10.60 Tenth Amendment to Restaurant Phase Construction Loan
Agreement dated October 31, 1995 by and between Camelback
Plaza Development, L.C. and Norwest Bank.
10.61. Cash Collateral Agreement by and between Performance
Industries, Inc. and Norwest Bank dated October 31, 1995.
22 Subsidiaries of the Registrant.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1996 Performance Industries, Inc.
By: /s/ Edmund L. Fochtman, Jr.
----------------------------
Edmund L. Fochtman, Jr.
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 29th day of March, 1996 by the following persons on
behalf of the Registrant in the capacities indicated:
/s/ Joe Hrudka Chairman of the Board and Director
- -------------------------- (Chief Executive Officer)
Joe Hrudka
/s/ Edmund L. Fochtman, Jr. President and Director
- --------------------------
Edmund L. Fochtman, Jr.
/s/ Allen L. Haire Director
- --------------------------
Allen L. Haire
/s/ Jonathan Tratt Director
- --------------------------
Jonathan Tratt
/s/ James W. Brown Chief Financial Officer and Director
- -------------------------- (principal Accounting Officer)
James W. Brown
/s/ Robert A. Cassalia Secretary
- --------------------------
Robert A. Cassalia
19
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
CONTENTS
Page
Independent auditor's report 21
Consolidated financial statements:
Balance sheets 22
Statements of operations 23
Statements of shareholders' equity 24
Statements of cash flows 25
Notes to financial statements 27
20
<PAGE>
Board of Directors and Shareholders
Performance Industries, Inc.
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of
Performance Industries, Inc. and subsidiaries as of December 31, 1995 and 1994
and the related consolidated statements of operations, shareholders' equity and
cash flows for the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Performance Industries, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
TOBACK CPAs, P.C.
Phoenix, Arizona
March 20, 1996
21
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 411 $ 1,142
Restricted cash (Note 11) 1,267 2,900
Securities available for sale (Note 6) 1,783 -
Accounts and other receivables, less allowance for
doubtful accounts of $25 and $143, respectively (Note 21) 416 584
Current portion of receivables from sale of businesses,
net of allowance (Notes 5, 7 and 21) 480 1,024
Factored accounts receivable, net of allowance for
doubtful accounts of $201 and $113, respectively (Note 21) 1,868 4,311
Inventories 293 276
Prepaid expenses and other current assets 322 201
Other assets held for sale 212 231
Deferred income taxes (Note 14) - 254
-------------- -------------
Total current assets 7,052 10,923
Receivables from sale of businesses, less current portion,
net of allowance (Notes 5, 7 and 21) 520 -
Investment in real estate (Note 8) 11,073 7,573
Deferred income taxes (Note 14) 1,734 1,829
Property and equipment, net (Note 9) 3,578 2,706
Other assets (Note 10) 921 1,077
-------------- -------------
Total assets $ 24,878 $ 24,108
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations (Note 11) $ 594 $ 4,394
Accounts payable 1,260 1,208
Accrued employment costs 288 401
Accrued product liability costs (Note 16) 350 902
Accrued expenses and other current liabilities (Note 12) 1,016 982
Factored receivables reserve 390 889
Liabilities subject to compromise (Note 3) 754 1,573
-------------- -------------
Total current liabilities 4,652 10,349
Long-term debt and capital lease obligations, less current portion (Note 11) 6,751 1,849
Commitments and contingencies (Notes 13, 16, 17 and 18)
Minority interest (Notes 8 and 13) 414 416
Shareholders' equity:
Preferred stock, par value $1.00 per share; authorized
100,000 shares; none issued - -
Common stock, no par value; authorized 20,000,000
shares; issued 12,629,326 shares 31,202 31,202
Accumulated deficit (16,416) (16,710)
Unrealized appreciation on securities available for sale,
net of income taxes (Note 6) 1,226 -
-------------- -------------
16,012 14,492
Treasury stock at cost (2,671,211 shares) (2,951) (2,998)
-------------- -------------
Total shareholders' equity 13,061 11,494
-------------- -------------
Total liabilities and shareholders' equity $ 24,878 $ 24,108
============== =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
21
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Revenues from continuing operations $ 20,253 $ 18,415 $ 360
Cost of revenues (18,279) (16,058) (82)
Selling, general and administrative expenses (2,841) (3,500) (3,029)
Interest expense (533) (18) (87)
Other income, net 1,233 711 480
------------ ------------ -----------
Loss from continuing operations
before reorganization items (167) (450) (2,358)
Reorganization items (Note 4) -- -- (1,878)
------------ ------------ -----------
Loss from continuing operations
before income taxes (167) (450) (4,236)
Income tax benefit (Note 14) 21 161 2,400
------------ ------------ -----------
Loss from continuing operations before minority interest (146) (289) (1,836)
Minority interest in loss from subsidiary 2 -- --
------------ ------------ -----------
Loss from continuing operations (144) (289) (1,836)
Income from discontinued operations (Notes 3 and 5) 438 724 13,443
------------ ------------ -----------
Income before extraordinary gain 294 435 11,607
Extraordinary gain on forgiveness of debt (Note 3) -- -- 16,016
------------ ------------ -----------
Net income $ 294 $ 435 $ 27,623
============ ============ ============
Income (loss) per common share:
Continuing operations $ (.02) $(.03) $ (.16)
Discontinued operations .05 .07 1.14
------------ ------------ -----------
Income before extraordinary gain .03 .04 .98
Gain on forgiveness of debt -- -- 1.36
------------ ------------ -----------
Net income per common share $ .03 $ .04 $ 2.34
============ ============ ===========
Average number of shares outstanding 9,958,115 10,406,958 11,789,453
============ ============ ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
22
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Common Treasury Unrealized
Stock Stock appreciation
---------------------- -------------------------- of securities
Number Number Accumulated available for
Amount of shares Amount of shares Deficit sale
------ --------- ------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 29,702 10,629,326 $ (1,042) 104,156 $ (44,768) $ -
Net income - - - - 27,623 -
Common stock issued 1,500 2,000,000 - - - -
Treasury stock purchased - - (191) 255,600 - -
---------- ------------ ---------- ----------- ------------- ------------
Balance, December 31, 1993 31,202 12,629,326 (1,233) 359,756 (17,145) -
Net income - - - - 435 -
Treasury stock purchased - - (1,765) 2,436,455 - -
---------- ------------ ---------- ----------- ------------ ------------
Balance, December 31, 1994 31,202 12,629,326 (2,998) 2,796,211 (16,710) -
Net income - - - - 294 -
Adjustment to treasury stock purchased
- - 47 (125,000) - -
Appreciation of securities available
for sale, net of income taxes
(Note 6) - - - - 1,226
---------- ------------ ---------- ----------- ------------ -----------
Balance, December 31, 1995 $ 31,202 12,629,326 $ (2,951) 2,671,211 $ (16,416) $ 1,226
========== ============ =========== =========== ============= ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
23
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 294 $ 435 $ 27,623
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 788 348 1,510
Gain on sale of securities available for sale (343) - -
Minority interest in earnings (2) - -
Net gain on disposals of divisions - - (7,559)
Gain on litigation settlement - - (8,639)
Provisions for doubtful receivables related to
previously discontinued businesses - - 2,233
Gain on debt forgiveness - - (16,016)
Adjustments and changes in estimates related
to previously discontinued businesses (480) (1,225) -
Amortization of intangibles and other assets - - 116
(Gain) loss on sale of property and equipment - (93) 671
Provision for allowance for doubtful accounts 133 113 270
(Increase) decrease in accounts receivable (62) 258 626
Decrease in refundable income taxes - 100 6
Increase in inventories (17) (35) (466)
(Increase) decrease in prepaid
and other current assets (121) 114 304
(Increase) decrease in other assets (94) 57 (184)
Decrease (increase) in other assets held for sale 19 - (180)
(Decrease) increase in accounts payable (214) 366 (409)
Decrease in other current liabilities, net (1,450) (1,408) (327)
Decrease in other noncurrent liabilities - - (500)
Deferred income taxes 3 317 (2,648)
--------------- -------------- ---------------
Net cash used in operating activities (1,546) (653) (3,569)
--------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
24
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from investing activities:
Decrease (increase) in restricted cash $ 1,633 $ (2,900) $ -
Payments received on other receivables and
receivables from sale of businesses 709 4,153 8,500
Proceeds from sale of securities available for sale 387 - -
Decrease (increase) in factored receivables, net 1,836 (3,310) (1,114)
Investment in real estate held for sale (3,250) (3,684) (1,050)
Purchase of property and equipment (960) (1,666) (1,379)
Proceeds from sale of:
Noncash assets of Exhaust division - - 6,503
Noncash assets of Performance division - - 31,880
Property and equipment, other - 2,206 223
Other assets held for sale - 34 250
Payment for purchase of restaurant assets (450) - (1,000)
Other, net (5) (250) -
--------------- -------------- ---------------
Net cash (used in) provided by
investing activities (100) (5,417) 42,813
--------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings 1,115 4,151 -
Repayments of debt (247) (185) (459)
Repayments of debt subject to compromise - - (46,894)
(Increase) decrease in treasury stock 47 (1,765) (191)
--------------- -------------- ---------------
Net cash provided by (used in)
financing activities 915 2,201 (47,544)
--------------- -------------- ---------------
Net decrease in cash and cash equivalents (731) (3,869) (8,300)
Cash and cash equivalents, beginning of period 1,142 5,011 13,311
--------------- -------------- ---------------
Cash and cash equivalents, end of period $ 411 $ 1,142 $ 5,011
=============== ============== ===============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities
See notes to financial statements for noncash investing and financing
activities.
The accompanying notes are an integral
part of these consolidated financial statements.
25
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies:
Business:
Performance Industries, Inc. has three primary subsidiaries:
o Performance Restaurants Group, Inc. (restaurant operations)
o Performance Funding Corp. (receivable factoring)
o Performance Camelback Development Corp. (real estate development)
These subsidiaries conduct business primarily in Arizona and California.
Prior to 1994, Performance Industries, Inc. operated in the general and
specialty automotive parts and accessory businesses as Mr. Gasket
Company. During 1993, the Company completed the disposition of those
operations and has accounted for those businesses as discontinued
operations (see Note 5).
The Company also owns and leases certain real estate formerly used by the
automotive businesses. One of the buildings being leased is owned by
the Company's Mexican subsidiary, Fabricaciones Metalicas Mexicanas,
S.A. (FMMSA).
Performance Camelback Development Corp. has a 72% ownership interest in
Camelback Plaza Development Corp. L.C., an Arizona limited liability
company.
Principles of consolidation:
The consolidated financial statements include the accounts of Performance
Industries, Inc., its wholly-owned subsidiaries and its majority owned
real estate limited liability company. All significant intercompany
balances and transactions are eliminated in consolidation.
Basis of presentation:
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the normal course of business. The Company (excluding its
subsidiaries) filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States
Bankruptcy Court for the Central District of California ("the
Bankruptcy Court") on April 21, 1991 (the "Filing Date"). On May 4,
1993, the Company's Plan of Reorganization was confirmed. See Note 2
for discussion of the bankruptcy proceedings.
26
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Cash equivalents:
The Company considers all highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents.
Fair value of financial instruments:
The carrying amount of cash values and cash equivalents approximates fair
value because of the short maturity of those instruments.
The carrying amount of other financial instruments including accounts
receivable, receivables from sale of business, factored receivables and
current liabilities approximate the fair value of these instruments
because of the short-term nature of the instruments.
The carrying amount of long-term debt approximates fair value because the
interest rates on the debt are comparable to current market rates on
debt with similar terms.
Advertising:
Advertising costs are charged to operations as incurred.
Accounting estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company's significant estimates relate to realizability of certain
receivables, valuation of net deferred tax assets, estimates of future
liabilities resulting from discontinued operations, estimates of
liabilities subject to compromise from the remaining bankruptcy claims,
and certain litigation contingencies.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory consists of food
and beverages at restaurant locations.
27
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Property and equipment:
Property and equipment are stated at cost and depreciated using the
straight-line method over the following estimated useful lives;
buildings, 35 years; machinery and equipment, furniture and fixtures
and vehicles, 5 to 10 years; land improvements, 10 years. Leasehold
improvements are depreciated over the term of the related lease.
Securities available for sale:
Securities available for sale are reported at fair value. Unrealized
appreciation, net of tax, on securities available for sale are reported
as a net amount in a separate component of shareholders' equity until
realized.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
Fair values for securities available for sale are determined using quoted
market prices.
Income taxes:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year end based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax benefit (expense) is the tax
receivable (payable) for the period and the change during the period in
deferred tax assets and liabilities.
Factoring operations:
The Company recognizes fees based upon a percentage of the gross factored
receivables. The Company makes advances of up to 80% of the face amount
of factored receivables. The remaining balance is held as a reserve for
fees and charge-backs for uncollected receivables. Management's policy
is to obtain a security interest in all borrower's receivables and
obtain personal guarantees, when deemed necessary.
Rental real estate:
Rental real estate cost represents principally land lease costs,
capitalized carrying costs, offsite improvements and building
construction costs. Rental real estate is being depreciated using the
straight-line method over the estimated useful life of the properties
of approximately 35 years.
28
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Rental real estate, continued:
Rental income is recognized on the straight-line basis over the life of
the related leases. Lease incentives are recognized as reductions of
rental income over the terms of the related leases.
Reorganization items:
Reorganization items include professional fees incurred as a result of
reorganization, losses on executory contracts, and interest income
earned as a result of suspending payments on liabilities subject to
compromise.
Income (loss) per common share:
Income (loss) per common share is based upon the weighted average number
of shares outstanding. The assumed exercise of employee stock options
does not result in material dilution.
2. Bankruptcy proceedings and Plan of Reorganization:
From April 21, 1991 through May 4, 1993, Performance Industries, Inc.
(formerly Mr. Gasket Company) operated as debtor-in-possession under
the supervision of the Bankruptcy Court. In Chapter 11, the
shareholders' interests and substantially all liabilities as of the
filing date were subject to compromise (see Note 3).
The Plan of Reorganization (the "Plan"), which was implemented on May 4,
1993, called for the Company to raise cash from operations, new
financing, or asset sales sufficient to pay the senior lender and the
subordinated debt holders approximately $42,600,000 at the
implementation date and the general unsecured trade creditors
approximately 66% of their allowed claims over several years. The
existing shareholders retained their equity interest subject to
dilution by the issuance of approximately 16% of new equity to certain
creditors as specified in the Plan. In December, 1992, the Company sold
the assets of the Wheel and Tire business for approximately
$11,348,000. On May 4, 1993, the Company sold the assets of its
Performance business for approximately $34,000,000 (see Note 5). The
funds from both of these sales were used to meet the requirements of
the Plan.
29
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Liabilities subject to compromise:
During 1995, the Company negotiated settlement of a claim subject to
compromise at December 31, 1994. The remaining liability for this claim
of $173,000 is included in accrued expenses and other current
liabilities on the accompanying consolidated balance sheet at December
31, 1995. Other liabilities subject to compromise at December 31, 1995
are approximately $750,000.
Gain on forgiveness of debt on the statement of operations for 1993
includes $15,477,000 of liabilities subject to compromise and
approximately $539,000 of other liabilities forgiven. The debt
forgiveness was not subject to income tax.
As a result of the bankruptcy filing, the Company did not accrue interest
on unsecured debt from April 21, 1991 through May 4, 1993. Contractual
interest on unsecured obligations for the period of the bankruptcy
proceedings exceeded reported interest expense by $2,180,000 during
1993.
Additions or deletions to the claims (liabilities subject to compromise)
may arise from the determination by the Bankruptcy Court or agreement
by parties in interest of allowed claims for contingencies and disputed
collateral and amounts. The Company is in the process of negotiating
settlements of the final claims outstanding.
4. Reorganization items:
Reorganization items for 1993 consist of the following (in thousands):
Professional fees $ (1,662)
Rejection of executory contracts (350)
Interest income 134
---------------
$ (1,878)
===============
Cash flows from operating activities include the reorganization interest
income and cash payments of $1,662,000 for reorganization professional
fees for the year ended December 31, 1993.
30
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Discontinued operations:
In December, 1993, the Company sold its remaining operations in the
automotive aftermarket segment. Consequently, net sales, cost of sales,
income and expenses related to all businesses in that segment were
reclassified to discontinued operations in the accompanying statements
of operations for 1993. Income from discontinued operations for 1995
and 1994 consists of adjustments to estimates in prior years. Net sales
of the discontinued operations were approximately $28,000,000 for 1993.
The sales of the automotive aftermarket businesses are described below.
Wheel and Tire Business:
During 1992, the Company sold its Wheel and Tire business in connection
with its proposed plan of reorganization.
Thenet sales price of the Wheel and Tire business was $11,348,000,
consisting of $4,000,000 paid in January, 1993, $4,000,000 paid in
March, 1993 pursuant to the terms of a secured promissory note and the
balance was to be paid by December 31, 1993 pursuant to the terms of
the purchase agreement. In September, 1993 in consideration of the
immediate payment of $500,000, the Company renegotiated the remaining
balance of $3,348,000 to $2,000,000, evidenced by an unsecured
promissory note.
During 1994, the Company renegotiated the remaining balance of its
unsecured promissory note after receiving a principal payment of
$360,000. The Company accepted a new note for $1,340,000 (see Note 7).
Performance business:
In connection with its Plan of reorganization, on May 4, 1993, the Company
sold to Echlin Acquisitions, Inc. (Echlin), substantially all of the
net assets of its Performance business, including most of its accounts
receivable, inventory, manufacturing equipment and intangible assets
from its manufacturing operation in Cleveland, Ohio. The Performance
business manufactured a number of high performance automotive products,
including gaskets and transmissions.
As part of the sale agreement, the Company leased its Cleveland
manufacturing facility to the purchaser. The lease contained an option
to purchase the property for $3,500,000. During 1993, management
anticipated that the option would be exercised and reduced the carrying
value of the building by approximately $3,000,000 to its net realizable
value of $3,500,000. The adjustment is included in income from
discontinued operations for 1993. The option was exercised in 1994.
31
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Discontinued operations, continued:
Performance business, continued:
The net sales price of the Performance business was $31,880,000 in cash
and a holdback receivable of approximately $2,000,000 held in escrow
for any losses incurred subsequent to the acquisition date. The
holdback was paid in full during 1994.
The terms of the agreement for the sale of the Performance business
provide that the Company will not engage in any business of
manufacturing or selling high performance custom products in the
automotive aftermarket for a period of four years. In addition, Echlin
entered into non-compete agreements with certain Company executives
(see Note 19).
Exhaust business:
In July, 1993, the Company adopted a formal plan to sell its Exhaust
business. On December 3, 1993, the Company completed the sale of the
Exhaust business. The assets sold consisted primarily of accounts
receivable, inventories, and property, plant and equipment. The
aggregate selling price of the Exhaust business was approximately
$7,500,000.
The terms of the agreement for the sale of the Exhaust business provide
that the Company will not engage in any business of manufacturing or
selling exhaust systems products for five years. In addition, the buyer
entered into noncompetition agreements with certain Company executives
(see Note 19).
Litigation settlement:
On March 21, 1991, a jury verdict was rendered against the Company in the
U.S. District Court for the Southern District of Florida in the sum of
$10,013,500. The plaintiff, Rally Manufacturing, Inc., was awarded
damages for Trade Dress and Trademark infringement, and unfair
competition.
The Company accrued the entire award as a liability subject to compromise.
During 1993, the Company settled the lawsuit for $1,375,000. A gain on
the settlement of approximately $8,639,000 has been included in income
from discontinued operations in the accompanying statements of
operation for 1993.
32
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Discontinued operations, continued:
Thecaption "Income from discontinued operations" in the accompanying
consolidated statement of operations for the years ended December 31
consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ --------
<S> <C> <C> <C>
Loss from operations of general and specialty
automotive parts and accessory divisions $ - $ - $ (997)
Gain on the sale of general and specialty
automotive parts and accessory divisions
net of income taxes - - 8,034
Litigation settlement - - 8,639
Adjustments for estimated allowances and
reserves on receivables and liabilities of
discontinued operations, net of income taxes 438 724 (2,233)
------------- ------------ -------------
$ 438 $ 724 $ 13,443
============= ============ =============
</TABLE>
The gain on sale for 1993 includes a deferred tax benefit of approximately
$248,000 as a result of reversing deferred tax liabilities established
in previous years related to the assets and liabilities of the
divisions sold.
6. Securities available for sale:
During 1995, the Company implemented SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, related to the Company's
investment in certain equity securities. The securities did not have
readily determinable market value and were restricted from sale at
December 31, 1994 and, therefore, were recorded as "other assets" on
the 1994 balance sheet.
In 1995, a portion of the securities became marketable as a result of a
public stock offering, and were sold for a gain of approximately
$343,000. The remaining securities become available for sale in May,
1996 subject to certain SEC limitations. As a result, the Company
considers its investments in equity securities to be available for sale
as of December 31, 1995.
At December 31, 1995, the aggregate fair value of securities available for
sale was approximately $1,783,000 with unrealized gains of
approximately $1,572,000 and a cost basis of approximately $211,000.
33
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Receivables from sale of businesses:
Receivables from sale of businesses at December 31, 1995 and 1994 consist
of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Unsecured note receivable, interest at approximately 8%, principal and
interest payments due in 8 installments per year of approximately
$60,000 through May, 1998 $ 956 $1,340
Unsecured note receivable, interest at 8%, principal and interest payments
due in monthly installments of $5,000 through June, 1998 135 179
Note receivable, interest at 12.5%, principal and interest payments due in
monthly installments of approximately $6,600 through July, 1997,
secured by equipment 126 172
Other 63 93
---- ----
1,280 1,784
Less allowance for doubtful accounts (280) (760)
---- ----
$1,000 $1,024
====== ======
</TABLE>
Approximate future maturities on receivables from sale of businesses for
the next five years at December 31, 1995 are as follows (in thousands):
1996 $ 580
1997 582
1998 118
1999 -
2000 -
34
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Investment in real estate:
Investment in real estate consists of the following at December 31, 1995
and 1994:
1995 1994
--------------- --------------
Rental real estate $ 10,980 $ 2,421
Less accumulated depreciation (1,076) (862)
--------------- --------------
9,904 1,559
Real estate under development - 4,896
Undeveloped real estate 1,169 1,118
--------------- --------------
$ 11,073 $ 7,573
=============== ==============
The Company's development subsidiary owns a retail and restaurant project
in Phoenix, Arizona. The development company completed the project in
1995. The subsidiary has entered into lease agreements with the current
and future tenants of the project (see Note 13). During 1994, the
results of operations for the subsidiary were minimal and were
capitalized as incidental operations to the project cost.
Certain rental property was reclassified from "property and equipment" to
"investment in real estate" in the accompanying consolidated balance
sheet for 1994.
9. Property and equipment, net:
The components of property and equipment consist of the following (in
thousands):
1995 1994
-------------- ---------------
Machinery and equipment $ 1,222 $ 808
Furniture and fixtures 684 548
Transportation equipment 493 493
Leasehold improvements 1,958 1,295
Equipment held under capital leases 134 -
-------------- ---------------
4,491 3,144
Less accumulated depreciation (913) (438)
-------------- ---------------
$ 3,578 $ 2,706
============== ===============
35
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Other assets:
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Restaurant small wares $ 427 $ 412
Liquor licenses 183 181
Deposits and other 311 484
-------------- ---------------
$ 921 $ 1,077
============== ===============
11. Long-term debt and capital lease obligations:
Long-term debt and capital lease obligations consist of the following (in
thousands):
1995 1994
-------------- --------------
Notepayable, bank, with interest at 8.81%, principal and interest
due in 40 monthly installments of approximately $43,500 with the
remaining principal and interest balance due May 1, 1999,
secured by deed of trust on rental real estate.
$ 4,900 $ -
Notepayable, Mexico corporation, with interest at prime plus 3-7/8%,
with monthly principal payments of $6,000 plus interest
through December, 2006, secured by undeveloped real estate.
792 864
Revolving line of credit, finance company, with interest at prime
plus 4% (12.75% at December 31, 1995), payable monthly, maturing
July, 1997, secured by factored receivables and a personal
guarantee of the Company's principal shareholder.
367 -
Unsecured note payable, State of California, with interest at 6%,
with monthly principal payments of $25,000 plus interest through
June, 1999 1,050 1,200
Notepayable, unrelated corporation, non-interest bearing, paid in a
single payment in January, 1996, secured by restaurant equipment
and leasehold deed of trust.
100 -
Capital lease obligations, with interest at approximately 10%,
payable in aggregate monthly payments of approximately $2,900
through November, 2000. 130 -
</TABLE>
36
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Long-term debt and capital lease obligations, continued:
1995 1994
----------- -----------
Other $ 6 $ 28
Construction loans refinanced as long-term debt
during 1995
- 4,151
----------- -----------
7,345 6,243
Less current portion (594) (4,394)
-------- -----------
$ 6,751 $ 1,849
=========== ===========
Cash paid for interest was approximately $700,000, $70,000 and $77,000
during 1995, 1994 and 1993, respectively.
Approximately $273,000 and $48,000 of interest costs were capitalized as
construction period interest on the real estate project during 1995 and
1994, respectively.
Approximate future maturities of long-term debt, excluding capital lease
obligations, for the next five years as of December 31, 1995 are as
follows (in thousands):
1996 $ 573
1997 841
1998 484
1999 4,814
2000 72
Direct financing costs associated with obtaining a new line of credit are
included in other assets and is being amortized over the term of the
agreement. At December 31,1995, direct financing costs totalled
approximately $79,000, net of accumulated amortization of $27,000.
37
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Accrued expenses and other current liabilities:
At December 31, 1995 and 1994, the components of accrued expenses and
other current liabilities consist of the following (in thousands):
1995 1994
-------------- ---------------
Deferred rental income $ 150 $ -
Reserve for environmental remediation
and property restoration 261 358
Gift certificates 83 74
Legal matters 60 38
Accrued worker's compensation
insurance liability - 224
Sales taxes payable 156 110
Other accruals 306 178
-------------- ---------------
$ 1,016 $ 982
============== ===============
13. Leases:
As lessee:
----------
The Company's restaurant subsidiary leases eight restaurant locations
under operating leases including a restaurant currently under
construction. These leases expire at various dates through 2010 and
require aggregate annual payments of approximately $1,300,000. The
leases also contain provisions for contingent rental payments ranging
from 5% to 10% of sales. During 1995 and 1994, the restaurants paid
contingent rent of approximately $332,000 and $350,000, respectively.
The Company's restaurant subsidiary also leases certain equipment under
capital leases. The leases require aggregate monthly payments of
approximately $2,900 through November, 2000.
The Company's development subsidiary leases land under an operating lease.
The lease requires annual payments of approximately $200,000 through
2052. During 1995 and 1994, rent payments of approximately $48,000 and
$150,000, respectively, were capitalized as construction period costs
and are included with real estate held for sale.
The Company and its subsidiaries also lease their office space and two
warehouse facilities under operating leases. These leases require
aggregate monthly payments of approximately $15,000 and expire at
various dates through 1998.
38
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Leases, continued:
As lessee, continued:
Future minimum lease payments for capital and noncancellable operating
leases as of December 31, 1995 are as follows (in thousands):
Capital Operating
leases leases
------------- ---------------
1996 $ 37 $ 1,818
1997 34 1,622
1998 34 1,534
1999 34 1,440
2000 26 1,542
Thereafter - 16,065
-------------- ---------------
165 $ 24,021
===============
Less amount representing interest (35)
--------------
Present value of minimum lease
payments on capital leases $ 130
==============
Rent expense for operating leases was approximately $1,723,000, $1,398,000
and $689,000 for 1995, 1994 and 1993, respectively.
As lessor:
The Company leases to others certain land and buildings in Mexico owned by
the Company. The lease agreements are through January, 1997 and are
renewable at the option of the lessees through January, 2000. Rental
income related to these leases was approximately $536,000, $488,000 and
$278,000 for 1995, 1994 and 1993, respectively.
The Company's development subsidiary has entered into operating leases for
its development project with five primary tenants. The leases call for
aggregate monthly rental payments of approximately $94,000. The leases
are for periods of 5 to 25 years and include rent escalation clauses
every 3 to 5 years tied to the consumer price index. Certain leases
also include percentage rent charges based on gross revenues of the
tenants.
39
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Leases, continued:
Aggregate minimum future rentals under the lease agreements as of December
31, 1995 are as follows (in thousands):
1996 $ 1,677
1997 1,566
1998 1,239
1999 1,146
2000 1,223
Thereafter 15,219
$ 22,070
14. Income taxes:
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" as of January 1, 1994. There was no cumulative
effect on prior years from the change in accounting for income taxes.
Income tax benefit (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- ----------
<S> <C> <C> <C>
Federal:
Current $ - $ - $ -
Deferred (349) (317) 2,648
Foreign (16) (23) -
State and local (2) - -
--------------- -------------- ---------------
$ (367) $ (340) $ 2,648
=============== ============== ===============
Allocated to:
Continuing operations $ 21 $ 161 $ 2,400
Discontinued operations (42) (501) 248
Unrealized appreciation on
securities available for sale (346) - -
--------------- -------------- ---------------
$ (367) $ (340) $ 2,648
=============== ============== ===============
</TABLE>
40
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Income taxes, continued:
Thefollowing is a reconciliation between the income tax benefit from
continuing operations and income taxes calculated at the statutory
federal income tax rate for continuing operations, 35% for 1995 and
1994 and 34% for 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ---------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ 58 $ 158 $ 1,440
Foreign and state income taxes (18) (23) -
Tax effect of valuation allowance on
deferred tax assets (25) 26 960
Other 6 - -
------------- ------------- -------------
Income tax benefit from continuing operations $ 21 $ 161 $ 2,400
============= ============= =============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and
operating loss and tax credit carryforwards. Significant components of
the Company's net deferred tax assets as of December 31, 1995 and 1994
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------- ----------
<S> <C> <C>
Current deferred tax assets and liabilities:
Reserves not currently deductible $ 552 $ 1,200
Unrealized gain on investment (346) -
Valuation allowance (206) (946)
--------------- ---------------
Net current deferred tax asset $ - $ 254
=============== ===============
Non-current deferred tax assets and liabilities:
Difference between book and tax basis of assets $ (144) $ -
Capital loss and contribution carryforwards 9 -
Net operating loss carryforwards 8,662 7,861
General business credit carryforwards 444 385
--------------- ---------------
8,971 8,246
Valuation allowance (7,237) (6,417)
--------------- ---------------
Net non-current deferred tax asset $ 1,734 $ 1,829
=============== ===============
</TABLE>
41
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Income taxes, continued:
The Company has recorded a net deferred tax asset of $1,734,000 primarily
reflecting the benefit of net operating loss carryforwards. Realization
is dependent upon generating sufficient taxable income prior to the
expiration of the carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the net
deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term
if estimates of future taxable income during the carryforward period
are reduced.
The Company has available at December 31, 1995, federal net operating loss
carryforwards and unused general business credits, which may provide
future tax benefits as follows (in thousands):
Unused Unused federal
federal net general
Year of operating loss business
expiration carryforwards credits
---------- ------------- -------
1997 $ - $ 348
1998 1,151 -
2003 - 37
2005 2,585 -
2006 3,866 -
2007 7,015 -
2008 2,997 -
2009 3,257 29
2010 2,272 30
--------------------- --------------------
$ 23,143 $ 444
===================== ====================
The Company has net operating carryforwards for state income tax purposes
of approximately $11,000,000 which expire through 2000.
15. Stock option plans:
The Company has a stock option plan which provides for a maximum of
2,000,000 shares of common stock that may be issued to employees,
directors, or consultants of the Company and its subsidiaries.
The option price for options granted to eligible employees must be at
least 100% of the fair market value of the stock at the time the
options are granted. The option price for options granted to
non-employees is determined by the Board of Directors. Options granted
to employees are not exercisable after ten years. Restrictions on the
time to exercise options given to non-employees are set forth in the
options agreements.
42
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Stock option plans, continued:
At December 31, 1995, all outstanding options were exercisable and 245,000
shares were available for future grant. All outstanding options expire through
2005.
A summary of transactions with respect to the current stock option plans
follows:
Number Option price
of shares per share
--------- ---------
Balance at January 1, 1995 1,480,000 $.5625 to $.75
Issued in 1995 1,755,000 $.219 to $.241
Cancelled in 1995 (1,480,000) $.5625 to $.75
-------------
Balance at December 31, 1995 1,755,000 $.219 to $.241
=============
16. Litigation:
In November, 1993, certain shareholders dissented from the sale of the
Company's exhaust products business. As a result, the company filed an
action to obtain a determination of the "fair cash value" of shares
held by those shareholders as of November 28, 1993, as if the sale had
not occurred. The Company settled with the majority of the dissenting
shareholders during 1994 for $.75 a share. The remaining defendants,
who hold 461,500 shares, are entitled to payment of "fair cash value"
of the shares within 30 days of the determination of the value by the
court.
Two of the remaining dissenting shareholders have filed an action against
the Company and certain current and former directors, alleging that
certain actions taken by the Company and management have lowered the
value of the Company's stock. Management is aggressively defending this
action and does not currently expect to incur any material liability at
its conclusion.
In another matter, an insurance carrier has filed an action against the
Company alleging that Company representatives failed to notify the
insurance carrier of a product liability claim in a timely manner. The
carrier voluntarily paid out approximately $1,700,000 in benefits to
settle the claim. Management believes the action to be without merit
and intends to vigorously defend the suit.
43
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Litigation, continued:
The Company is involved in various other claims and legal actions arising
in the ordinary course of business, including product liability and
environmental remediation claims from discontinued operations. During
1995, the Company settled certain product liability claims for
approximately $550,000. Accrued reserves remaining for potential losses
as a result of product liability claims are approximately $350,000 at
December 31, 1995. Included in other current liabilities (Note 12) are
accrued reserves for environmental remediation claims. In the opinion
of management, any additional liabilities related to legal actions will
not have a material adverse effect on the Company's consolidated
financial condition.
17. Commitments:
During 1993, Performance Restaurant Group, Inc. (PRG) entered into a
consulting agreement with the previous owner of the six restaurants in
California whereby PRG pays $90,000 annually through December, 1999.
The agreement restricts disclosure of information and also includes
restrictive competition clauses.
18. Contingencies:
An investigation of environmental matters related to facilities and
property owned and leased by the Company was performed during 1992 to
determine contingencies that would affect the Company's emergence from
Chapter 11. Certain reports received by the Company identified areas of
environmental contamination and potential environmental contamination.
Management believes that certain predecessors-in-interest may bear
either full or partial liability for remediation of affected areas.
Certain predecessors-in-interest and governmental agencies were
notified by the Company of the related possible liabilities. In
addition, the Company notified its insurance carriers of potential
claims under its general liability and property insurance coverage from
prior years.
Locations reviewed for potential environmental liability included the
following:
Manufacturing facility in California:
This facility housed the manufacturing plant of the Wheel business. All
assets at this facility were sold and the buyer vacated the premises
(Note 5).
44
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. Contingencies, continued:
An environmental survey was conducted in the fall of 1991. Two areas
for further investigation were identified. Further investigation in the
spring of 1992 disclosed ground contamination and possible seepage into
groundwater. Management believed the contamination to have existed
prior to its purchase of the business in 1982 and has notified its
predecessor-in-interest. The Company has accrued the estimated minimum
remediation costs. These costs are included as liabilities subject to
compromise in the accompanying consolidated balance sheets.
All appropriate county, state and federal agencies were notified
regarding contamination at this site. To management's knowledge, no
response was made by any notified governmental agency nor was the
facility inspected by any such agency. However, the Company may, at a
later date, be ordered to undertake further testing and/or remediation
at the location.
Warehousing and office facility in Ohio:
In 1990, potential contamination was discovered at this location.
Consultants were retained to perform testing and investigation of the
site to determine the extent of the contamination. In compliance with
bankruptcy statutes, rules and regulations regarding the
dischargeability of claims, in January, 1993, the Company notified the
Ohio Environmental Protection Agency (EPA) of contamination at the
site.
Environmental studies performed determined that the contamination is
confined to the site with no evidence of migration to groundwater or
surrounding properties. Management estimated the costs of remediation
to be as much as $5,600,000. The Company believed that a former
owner/operator of the site, which is a Fortune 500 company, caused the
contamination. The Company negotiated an agreement with the former
owner/operator regarding indemnification for the costs of remediation.
The agreement required that remediation costs be shared by the Company,
the Fortune 500 company and Echlin. The Company's responsibility with
respect to the agreement was to pay remediation costs and to guarantee
payment of costs by Echlin related to specific clean-up areas pursuant
to a "Final Closure Plan" approved by the Ohio EPA. The "Closure Plan"
was approved by Ohio EPA in February, 1995. The Company incurred
approximately $170,000 of costs related to this clean-up in 1994.
45
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Related party transactions:
The Company leased two buildings in Cleveland, Ohio, used predominately
for manufacturing, from Joe Hrudka, the Company's principal shareholder
and Chairman of the Board, as successor in interest to Hrudka Realty
Company. The buildings were vacated as of May, 1992. Under the lease,
the Company was required to return the building in essentially the same
state of repair as the building was in upon the signing of the lease.
The Company expended approximately $137,000 and $40,000 for repairs in
1994 and 1993, respectively.
During 1993, the Company had a month-to-month lease with F.W. Investments
for 35,000 square feet of warehouse and office space in Tempe, Arizona.
Edmund L. Fochtman, Jr., a Director and Officer of the Company, is a
general partner in F.W. Investments. The rental agreement required
monthly payments of $11,500. This lease expired in January, 1994.
Rockside Consultants received $50,000 in 1993 from the Company for
consulting services on financial and general business matters. Howard
B. Gardner, formerly an officer and director, is the principal of
Rockside Consultants.
The agreement for the sale of the Company's Performance business included
several Consulting Services and Non-competition agreements with
directors and officers of the Company who are also shareholders. The
agreements have terms of four years with initial cash payments and
monthly installments over either a 12 or a 48-month term. The total
amount to be paid to the directors and officers under the three
agreements is $2,800,000, including $500,000 which was paid upon
closing of the sale.
The agreement for the sale of the Company's Exhaust business also included
consulting and noncompetition agreements with three individuals who are
directors, former directors or officers of the Company and who are also
shareholders. The agreements have terms of five years for consulting
services and fifteen years for noncompetition. The total amount paid to
the directors and officers under the three agreements was $2,000,000,
which was paid upon closing of the sale.
During 1993, the Company financed the sale of certain assets for
approximately $238,000 to the former plant manager of the Exhaust
facility in Mexico. The agreement calls for monthly payments of
approximately $6,600 through February, 1997.
In December, 1993, the Company signed an exclusive broker agreement with
Industrial Brokerage, Inc., which is owned by Jonathan Tratt, a
director of the Company, to sell its facility in Mexicali, Mexico.
46
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. Principal business segments:
The Company has three primary business segments, its restaurant,
factoring, and real estate operations.
Operating income by segment represents revenues less costs of revenues,
selling, general and administrative expenses, interest expense, plus
other income, net before allocation of corporate general and
administrative expense, interest and other corporate income, net.
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- ----------
<S> <C> <C> <C>
Revenues and other income:
Restaurants $ 19,357 $ 17,350 $ 274
Factoring 896 1,065 86
Real estate 1,345 589 506
--------------- -------------- ---------------
$ 21,598 $ 19,004 $ 866
=============== ============== ===============
Operating income (loss):
Restaurants $ (166) $ 105 $ (41)
Factoring 676 895 43
Real estate 221 291 349
--------------- -------------- ---------------
Total principal business segments 731 1,291 351
Unallocated corporate general and
administrative expenses and other
income, net (898) (1,741) (2,709)
--------------- -------------- ---------------
$ (167) $ (450) $ (2,358)
=============== ============== ===============
Depreciation:
Restaurants $ 506 $ 194 $ 5
Factoring - - -
Real estate 214 67 255
Corporate and other 68 87 1,250
--------------- -------------- ---------------
$ 788 $ 348 $ 1,510
=============== ============== ===============
</TABLE>
47
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. Principal business segments, continued:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- ---------------
<S> <C> <C> <C>
Capital expenditures:
Restaurants $ 1,441 $ 1,652 $ 811
Factoring - - -
Real estate 3,448 4,548 -
Corporate and other 5 14 1,379
--------------- -------------- ---------------
$ 4,894 $ 6,214 $ 2,190
=============== ============== ===============
Identifiable assets:
Restaurants $ 4,932 $ 3,890
Factoring 1,978 4,571
Real estate 12,418 7,662
Corporate and other 5,550 7,985
--------------- --------------
$ 24,878 $ 24,108
=============== ==============
</TABLE>
The Company's restaurant subsidiary incurred approximately $425,000,
$334,000 and $14,000 of advertising expense in 1995, 1994 and 1993,
respectively.
21. Allowances for doubtful accounts:
The changes in allowances for doubtful accounts are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,016 $ 4,186 $ 2,603
Additions charged to cost and expenses 133 113 3,373
Reduction of estimated allowances from
discontinued operations (480) (1,225) -
Accounts written off (163) (2,058) (1,790)
------------ ------------ ------------
Balance at end of year $ 506 $ 1,016 $ 4,186
============ ============ ============
</TABLE>
48
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of July 19, 1995, is
entered into between CAPITAL FACTORS, INC., a Florida corporation ("Capital"),
and PERFORMANCE FUNDING CORP., an Arizona corporation ("Borrower").
The parties agree as follows:
1. DEFINITIONS
In addition to the defined terms contained in the
first paragraph above, as used herein, the following terms shall have the
following definitions:
1.1 The term "Accounts" means all presently existing and
hereafter arising accounts, instruments, notes, drafts, chattel paper and all
other forms of obligations owing to Borrower arising out of the sale or lease of
goods or the rendition of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower.
1.2 The term "this Agreement" means this Loan and Security
Agreement, any concurrent or subsequent riders or exhibits to this Loan and
Security Agreement, and any extensions, supplements, amendments or modifications
to or in connection with this Loan and Security Agreement and/or to any such
riders or exhibits.
1.3 The term "Borrower's Books" means all of Borrower's books and
records including, but not limited to: minute books; ledgers; records
indicating, summarizing or evidencing Borrower's assets and liabilities; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disc or tape files, printouts, runs, and other
computer prepared information and the equipment containing such information.
1.4 The term "Borrowing Base Certificate" means the certificate,
substantially in the form of Exhibit 1.4, with appropriate insertions, to be
submitted to Capital by Borrower pursuant to this Agreement and certified as
true and correct by the Chief Executive Officer or the Chief Financial Officer
of Borrower or such other employee or agent of Borrower who may have specific
knowledge of the matters set forth therein.
1.5 The term "Business Day" means any day other than a Saturday,
Sunday or holiday on which banks in the State of California are authorized by
law to close.
<PAGE>
1.6 The term "Capital Expenses" means all of the following: (i)
costs or expenses (including, without limitation, taxes and insurance premiums)
required to be paid by Borrower under this Agreement or any of the other Loan
Documents which are paid or advanced by Capital; (ii) filing, recording,
publication and search fees paid or incurred by Capital; and (iii) costs, fees
(including reasonable attorneys' and paralegals' fees) and expenses incurred by
or charged to Capital: (a) to audit the Collateral; (b) to correct any default
or enforce any provision of this Agreement or any of the other Loan Documents
whether or not litigation is commenced; (c) in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale and/or advertising to sell the Collateral, whether or not a sale is
consummated; (d) in the event that the Security Documents are being foreclosed,
in collecting the Contracts, with or without suit, or gaining possession of,
maintaining, storing, selling, or preparing for sale and advertising to sell the
Property; and (e) in structuring, drafting, reviewing, amending, defending or
concerning this Agreement or any of the other Loan Documents.
1.7 The term "the Code" means the California Uniform Commercial
Code, and any and all terms used in this Agreement which are not defined herein
but which are defined in the Code shall be construed under this Agreement in
accordance with the definition ascribed to such terms under the Code.
1.8 The term "Collateral" means all of the following:
A. The Accounts;
B. The Contracts and all of Borrower's rights and benefits
under the Contracts, including, but not limited to, Borrower's right to receive
payment in full of the indebtedness owing to Borrower thereunder, whether now or
hereafter existing, together with any and all guarantees and/or security
therefor, as well as all of Borrower's Books relating thereto;
C. The Security Documents, together with any and all of
Borrower's rights in and to the Property covered thereby and in and to any
policies of insurance relative to such Property;
D. The Equipment;
E. The General Intangibles;
F. Any money, deposit accounts or other assets of Borrower
in which Capital receives a security interest or which hereafter come into the
possession, custody or control of Capital; and
G. The proceeds of any of the foregoing, including, but not
limited to, proceeds of insurance covering the Collateral, or any portion
thereof, and any and all accounts,
2
<PAGE>
equipment, General Intangibles, inventory, money, deposit accounts or other
tangible and intangible property resulting from the sale or other disposition of
the Collateral, or any portion thereof or interest therein, and the proceeds
thereof.
1.9 The term "Contract Debtor" means each person or entity which
is obligated to Borrower to perform any duty under or to make any payment
pursuant to the terms of a Contract.
1.10 The term "Contract(s)" means all of Borrower's right, title
and interest in and to each presently existing and hereafter arising agreement
to purchase accounts, factoring agreement, loan agreement, contract right,
instrument, note, chattel paper, and any other agreement creating or evidencing
obligations owing to Borrower, all rights of Borrower to receive payment
pursuant to the terms of each of the foregoing, together with all guarantees and
other rights of Borrower obtained in connection therewith, and any collateral
therefor.
1.11 The term "Daily Balance" means the amount determined by
taking the amount of the Obligations owed at the beginning of a given day,
adding any new Obligations advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid on that date under the
provisions of this Agreement.
1.12 The term "Eligible Contract(s)" means each of those
Contracts which satisfy all of the following conditions: (i) pursuant to which
Borrower has loaned or advanced monies to a Contract Debtor, (ii) which, along
with all loans, advances and collateral therefor, have been validly assigned to
Capital, (iii) which strictly comply with all of Borrower's warranties and
representations to Capital contained herein; (iv) with respect to which the
Contract Debtor is not more than sixty (60) days delinquent in the making of any
scheduled payment thereunder; (v) are not subject to any defense, counterclaim,
offset, discount or allowance; (vi) the outstanding advances made by Borrower
under such Contract do not exceed more than thirty five percent (35%) of
Borrower's Tangible Effective Net Worth; and (vii) not more than twenty five
percent (25%) of the outstanding accounts assigned to Borrower under such
Contract are subject to a dispute by the account debtors thereunder.
1.13 The term "Eligible Underlying Collateral" means, with
respect to each Eligible Contract, those accounts owing to a Contract Debtor
which have been validly assigned to Borrower pursuant to the Contract, contain
payment terms of net sixty (60) days, or less, from the date of the invoice, are
not past due more than ninety (90) days from the date of the invoice, and
strictly comply with all of the Contract Debtor's warranties and representations
to Borrower contained in the Contracts and Security Documents; but excluding the
following: (i) accounts which remain unpaid in whole or in part more than ninety
(90) days following the date of the invoice corresponding to such account; (ii)
accounts
3
<PAGE>
with respect to which the goods are placed on consignment, guaranteed sale or
other terms by reason of which the payment by the customer may be conditional;
(iii) accounts with respect to which the customer is not a resident of the
United States; (iv) accounts as to which the account debtor has disputed its
obligation to make payment thereof; (v) accounts with respect to which the
customer is the United States or any department, agency or instrumentality of
the United States; (vi) accounts with respect to which the customer is a
subsidiary of, related to, affiliated with, or has common shareholders, officers
or directors with the Contract Debtor; (vii) accounts with respect to which the
Contract Debtor is or may become liable to the customer for goods sold or
services rendered by the customer to the Contract Debtor; (viii) with respect to
any given Contract Debtor, that portion of the accounts owed by a customer which
exceed forty percent (40%) of all Eligible Underlying Collateral owing to that
Contract Debtor; (ix) all of the accounts owed by a customer of a Contract
Debtor where twenty-five percent (25%) or more of all of the accounts owed by
that customer are past due more than sixty (60) days from the date of the
invoice; and (x) all accounts owed to a Contract Debtor by a customer that is
the subject of an Insolvency Proceeding.
1.14 The term "Equipment" means all of Borrower's present and
hereafter acquired machinery, computers, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, goods and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions and improvements thereto, wherever located.
1.15 The term "Event of Default" means the occurrence of any one
of the events set forth in Section 9.
1.16 The term "Facility Fee" shall have the meaning set forth in
Section 2.9B.
1.17 The term "General Intangibles" means all of Borrower's
present and future general intangibles and all other presently owned or
hereafter acquired intangible personal property of Borrower (including, without
limitation, any and all choses or things in action, goodwill, patents, trade
names, trademarks, blueprints, drawings, purchase orders, customer lists, monies
due or recoverable from pension funds, route lists, infringement claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, tax refunds and tax refund claims) other than goods
and accounts, as well as Borrower's Books relating to any of the foregoing.
1.18 The term "Guaranties" means the following general continuing
guaranties:
A. That certain General Continuing Guaranty, of even date
herewith, executed by Joseph Hrudka in favor of Capital with respect to the
present and future Obligations.
4
<PAGE>
B. That certain General Continuing Guaranty, of even date
herewith, executed by PII in favor of Capital with respect to the present and
future Obligations.
1.19 The term "Initial Term" shall have the meaning set forth in
Section 3.1A.
1.20 The term "Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including, but not limited to, assignments for the benefit of creditors, formal
or informal moratoriums, compositions or extensions generally with its
creditors.
1.21 The term "Judicial Officer or Assignee" means any trustee,
receiver, controller, custodian, assignee for the benefit of creditors or any
other person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian or assignee for the benefit
of creditors.
1.22 The term "Loan Documents" means collectively this Agreement
and any other agreements entered into between Borrower and Capital in connection
with this Agreement.
1.23 The term "Maximum Credit Line" means Two Million and 00/100
Dollars ($2,000,000.00).
1.24 The term "Obligations" means any and all loans, advances,
debts, liabilities (including, without limitation, any and all amounts charged
to Borrower's account pursuant to any agreement authorizing Capital to charge
Borrower's account), obligations, lease payments, guaranties, covenants and
duties owing by Borrower to Capital of any kind and description (whether
advanced pursuant to or evidenced by this Agreement, any of the other Loan
Documents, or any other instrument, or by any other agreement between Capital
and Borrower and whether or not for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Capital may have obtained by
assignment or otherwise, and further including, without limitation, all interest
not paid when due and all Capital Expenses which Borrower is required to pay or
reimburse by this Agreement, by law, or otherwise.
1.25 The term "Over Advance" shall have the meaning set forth in
Section 2.2.
1.26 The term "PII" means Performance Industries, Inc., an
Arizona corporation.
5
<PAGE>
1.27 The term "Potential Event of Default" means an event which
with the passage of time or the giving of notice or both would constitute an
Event of Default under this Agreement.
1.28 The term "Prime Rate" means the variable rate of interest,
per annum, most recently announced by the Reference Bank as its "prime rate,"
with the understanding that the Reference Bank's "prime rate" is one of its
index rates and merely serves as a basis upon which effective rates of interest
are calculated for loans making reference thereto and may not be the lowest or
best rate at which the Reference Bank calculates interest or extends credit.
1.29 The term "Property" means all of the personal and real
property collateral described in the Security Documents.
1.30 The term "Reference Bank" means Citibank, N.A., and if at
any time during the term of this Agreement such bank shall no longer publish a
prime rate of interest or shall otherwise cease to exist, Capital shall be
entitled to designate as the "Reference Bank" any bank whose prime rate of
interest is published from time to time in the Wall Street Journal.
1.31 The term "Renewal Term" shall have the meaning set forth in
Section 3.1.
1.32 The term "Security Document(s)" means all security
agreements, chattel mortgages, leases, deeds of trust, mortgages, or other
security instruments or agreements of every type and nature securing the
obligations of a Contract Debtor under a Contract.
1.33 The term "Tangible Effective Net Worth" means net worth as
determined in accordance with generally accepted accounting principles
consistently applied, increased by debt subordinated to Capital and decreased by
the following: patents, licenses, leasehold improvements, goodwill, subscription
lists, organization expenses, monies due from affiliates (including officers,
directors and shareholders), security deposits, and prepaid costs and expenses.
1.34 "Unused Line Fee" shall have the meaning set forth in
Section 2.9A.
1.35 Other Definitional Provisions. References to "Sections",
"subsections", and "Exhibits" shall be to Sections, subsections, and Exhibits,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in Section 1 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to
6
<PAGE>
include subsequent amendments, assignments, and other modifications thereto, but
only to the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement; references to any person includes
their respective permitted successors and assigns or people succeeding to the
relevant functions of such persons; and all references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.
2. LOANS AND TERMS OF PAYMENT
2.1 Credit Facility. Subject to the provisions contained in
Section 2.4, upon the request of Borrower, made at any time and from time to
time during the term of this Agreement, and so long as no Event of Default or
Potential Event of Default has occurred, Capital shall lend to Borrower with
respect to each Eligible Contract the lesser of: (i) eighty percent (80%) of the
aggregate amount of all advances made by Borrower pursuant to such Eligible
Contract; or (ii) sixty five percent (65%) of the amount of the Eligible
Underlying Collateral assigned by the Contract Debtor to Borrower pursuant to
such Eligible Contract; provided, however, that in no event shall Capital be
obligated to make advances to Borrower under this Section 2.1 whenever the
aggregate amount of the outstanding advances made pursuant to this Section 2.1,
or the amount that would be outstanding if Capital made a requested advance,
exceeds, at any one time, the Maximum Credit Limit.
2.2 Over Advances. All of the advances made pursuant to Section
2.1 shall be added to and deemed part of the Obligations when made. If, at any
time and for any reason, the aggregate amount of advances made pursuant to
Section 2.1 exceeds the above percentage or dollar limitations, or if all of
Borrower's Obligations, at any time and for any reason, exceed the Maximum
Credit Limit (an "Over Advance"), then Borrower, upon Capital's election and
demand, shall immediately pay to Capital, in cash, the amount of such excess.
2.3 Authorizations. Capital is hereby authorized to make the loan
and the extensions of credit provided for in this Agreement based upon
telephonic or other instructions received from any one of the authorized
personnel of Borrower identified on Exhibit 2.3, or, at the discretion of
Capital, if such extensions of credit are necessary to satisfy any Obligations
of Borrower to Capital. Although Capital shall make a reasonable effort to
determine the person's identity, Capital shall not be responsible for
determining the exact identity of the person calling and Capital may act on the
instructions of anyone it perceives to be one of the authorized personnel.
2.4 Borrowing Base Certificate and Required Documentation.
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A. Concurrent with the execution of this Agreement by
Borrower and with the request for each advance pursuant to Section 2.1, and, in
any event on the fifteenth (15th) day of each month during the term of this
Agreement, Borrower shall deliver to Capital a fully completed Borrowing Base
Certificate certified by Chief Executive Officer of Borrower, the Chief
Financial Officer of Borrower or such other employee or agent of Borrower who
may have specific knowledge of the matters set forth therein as being true and
correct as of the date thereof and certifying that to the best of such
officer's, employee's or agent's knowledge, after reasonable inquiry, Borrower
is in full compliance with all of the terms and conditions of this Agreement and
that no Event of Default or Potential Event of Default currently exists under
this Agreement. If Borrower fails to deliver to Capital the Borrowing Base
Certificate on the date when due, then notwithstanding any of the provisions
contained in Section 2.1, Capital shall have no obligation to make any advances
to Borrower until such item is delivered to Capital.
B. Prior to the Borrower's request pursuant to Section 2.1
for the first advance to be made in connection with a Contract Debtor, Borrower
shall deliver to and/or insure that Capital has each of the following documents,
in form and content satisfactory to Capital and its counsel:
(1) A true and correct copy of any credit application,
financial statements, and other documents and information normally obtained by
Borrower and supplied by each of the Contract Debtors;
(2) A true and correct copy of the Contract executed by
the Contract Debtor;
(3) A true and correct copy of the financing
statement(s) (Form UCC-1) executed by the Contract Debtor, together with a UCC-2
assignment thereof executed by Borrower as secured party and reflecting Capital
as the assignee of secured party;
(4) A copy of the UCC and tax lien search conducted by
Borrower with respect to the Contract Debtor, and all other documents that
Capital may reasonably request, in form satisfactory to Capital, to perfect and
maintain perfected Capital's security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this Agreement.
C. As a condition for each subsequent advance requested by
Borrower pursuant to Section 2.1 in connection with a Contract Debtor, Borrower
shall deliver to and/or insure that Capital has a true and correct copy of each
schedule of Eligible Underlying Collateral assigned by the Contract Debtor to
Borrower, along with a copy of each invoice assigned to Borrower, a copy of
proofs of delivery or signed acknowledgments of service executed by
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the customer of such Contract Debtor and any other information which Capital may
require, each in form and content satisfactory to Capital. In addition, Borrower
shall immediately deliver to Capital any documentation or information which is
supplemental or an update of the items listed in Section 2.4B.
D. Immediately after each advance has been made by Borrower
to a Contract Debtor, and in any event not more that one (1) Business Day after
such advance has been made, Borrower shall provide evidence satisfactory to
Capital, in Capital's sole discretion, of the advance, including evidence of the
amount of the advance and the Contract Debtor to whom the advance was made.
2.5 Interest Rates. The Obligations owed by Borrower to Capital
shall bear interest, on the average Daily Balance owing, at a rate four (4)
percentage points above the Prime Rate. Notwithstanding the foregoing, at no
time during the term of this Agreement shall the rate of interest be less than
nine percent (9%), per annum. All Obligations owed by Borrower to Capital shall
bear interest, from and after the occurrence of an Event of Default, and without
constituting a waiver of any such Event of Default, on the average Daily Balance
owing, at a rate nine (9) percentage points above the Prime Rate. All interest
chargeable under this Agreement shall be computed on the basis of a three
hundred sixty (360) day year for actual days elapsed.
2.6 Payment of Interest.
A. The Prime Rate as of the date of this Agreement is eight
and three quarters percent (8.75%) per annum. In the event that the Prime Rate
announced is, from time to time hereafter, changed, adjustment in the rate of
interest payable by Borrower shall be made as of 12:01 a.m. on the first day of
the calendar month following such change and shall be based on the Prime Rate
prevailing on the last day of the month in which such change occurred. All
interest on the Obligations shall be due and payable on the first (1st) day of
each calendar month during the term of this Agreement and Capital shall, at its
option, charge such interest and any and all Capital Expenses to Borrower's loan
account with Capital, which amounts shall thereupon constitute Obligations
hereunder and shall thereafter accrue interest at the rate then provided under
Section 2.5.
B. Notwithstanding any provision to the contrary contained
in this Agreement or the other Loan Documents, Borrower shall not be required to
pay, and Capital shall not be permitted to collect, any amount of interest in
excess of the maximum amount of interest permitted by law which parties may
agree to in a written contract ("Excess Interest"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any of the other Loan Documents, then in
such event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower
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nor any guarantor shall be obligated to pay any Excess Interest; (3) any Excess
Interest that Capital may have received hereunder shall be, at Capital's option,
(a) applied as a credit against the outstanding principal balance of the
Obligations of Borrower or accrued and unpaid interest (not to exceed the
maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any
combination of the foregoing; (4) the interest rate(s) provided for herein shall
be automatically reduced to the maximum lawful rate allowed from time to time
under applicable law (the "Maximum Rate"), and this Agreement and the other Loan
Documents shall be deemed to have been and shall be, reformed and modified to
reflect such reduction; and (5) neither Borrower nor any guarantor shall have
any action against Capital for any damages arising out of the payment or
collection of any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Obligations of Borrower is calculated at the
Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Obligations of Borrower shall remain at the Maximum
Rate until Capital shall have received the amount of interest which Capital
would have received during such period on such Obligations of Borrower had the
rate of interest not been limited to the Maximum Rate during such period.
2.7 Collections. Unless and until Capital shall instruct
Borrower to the contrary, Borrower shall direct all of the Contract Debtors and
their customers to make payments to a post office box established in the name of
Capital at a post office box in Phoenix, Arizona. The terms of the post office
box rental arrangement shall include a provision that will allow Borrower to
have access to the post office box, but Capital shall have the right at any time
to restrict access to the post office to only personnel and agents of Capital.
Borrower shall remove all payments made to the post office box on a daily basis.
Upon the occurrence of an Event of Default, Capital or Capital's designee may,
at any time, notify Contract Debtors and their customers or account debtors that
the Accounts and the Property have been assigned to Capital and that Capital has
a security interest therein, collect them directly, and charge the collection
costs and expenses to Borrower's loan account, but, unless and until Capital
does so or gives Borrower other written instructions, Borrower shall be entitled
to collect the Accounts and Property, and upon receipt, Borrower shall
immediately deliver to Capital the proceeds of such Accounts and Property,
together with a fully completed Collection Report in the form of Exhibit 2.7.
Borrower agrees that all payments received by Borrower in connection with the
Accounts, Property and any other Collateral shall be held in trust for Capital
as Capital's trustee. The receipt of any wire transfer of funds, check, or other
item of payment by Capital shall be applied to conditionally reduce Borrower's
Obligations, but shall not be considered a payment on account unless such wire
transfer is of immediately available federal funds and is made to the
appropriate deposit account of Capital or unless and until such check or other
item of payment is honored when presented for payment. The receipt
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of any wire transfer, check or other item of payment by Capital shall be deemed
to have been paid to Capital one (1) business day after the date Capital
actually receives possession of such wire transfer of funds, check or other item
of payment.
2.8 Monthly Statements. Capital shall render monthly
statements of the Obligations owing by Borrower to Capital, including statements
of all principal, interest, and Capital Expenses owing, and such statements
shall be conclusively presumed to be correct and accurate and constitute an
account stated between Borrower and Capital unless, within thirty (30) days
after receipt thereof by Borrower, Borrower shall deliver to Capital, by
registered or certified mail, at Capital's address indicated in Section 13,
written objection thereto specifying the error or errors, if any, contained in
any such statement.
2.9 Fees.
A. Unused Line Fee. As of the last day of each month
during the term of this Agreement, Borrower shall pay to Capital a monthly
unused line fee (the "Unused Line Fee") equal to one fifteenth of one percent
(.15%) of the average daily unused portion of the Maximum Credit Line during
that month. Payment of the Unused Line Fee shall be made as of the due date by
charging Borrower's account with the amount of the Unused Line Fee. The Unused
Line Fee shall represent an unconditional payment to Capital in consideration of
Capital's agreement to extend financial accommodations to Borrower pursuant to
this Agreement and shall not reduce or be a deposit on account of the
Obligations.
B. Facility Fee. On the effective date of this
Agreement, Borrower shall pay to Capital a facility fee (the "Facility Fee") in
an amount equal to one percent (1%) of the Maximum Credit Line. In the event
Borrower requests Capital to increase the Maximum Credit Line and if Capital, in
its sole and absolute discretion, agrees to such request, then on the effective
date of such increase, Borrower shall pay to Capital an amount equal to one
percent (1%) of the amount of such increase. Payment of the Facility Fee shall
be made as of the due date by charging Borrower's account with the amount of the
Facility Fee. The Facility Fee shall represent an unconditional payment to
Capital in consideration of Capital's agreement to extend financial
accommodations to Borrower pursuant to this Agreement and shall not reduce or be
a deposit on account of the Obligations.
2.10 Payment on Non-Business Days. Whenever any payment to
be made hereunder shall be stated to be due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day. Interest
shall continue to accrue on such payments until the date such payments are
deemed received by Capital.
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3. TERM AND PREPAYMENT
3.1 Term.
A. This Agreement shall have an initial term (the
"Initial Term") of two (2) years commencing on the date hereof and shall
thereafter be automatically renewed (a "Renewal Term") for successive periods of
one (1) year unless terminated by either party as set forth below. Notice of
such termination shall be effectuated by the mailing of a certified letter,
return receipt requested, not less than sixty (60) days immediately prior to the
effective date of such termination, which date shall be an anniversary date of
this Agreement, addressed to the other party in the manner and the address set
forth in Section 13.
B. Notwithstanding such term, upon the occurrence of an
Event of Default and during the continuation thereof, Capital may terminate this
Agreement without notice. In addition, should either Capital or Borrower become
insolvent or is unable to meet its debts as they mature, then the other party
shall have the right to terminate this Agreement at any time without notice. On
the date of a termination by Borrower or Capital, all Obligations shall become
immediately due and payable without notice or demand and shall be paid to
Capital in cash or by a wire transfer of immediately available funds.
C. When Capital has received payment and performance in
full of all Obligations (whether pursuant to this Section 3.1 or Section 3.2)
and an acknowledgment from Borrower that it is no longer entitled to request any
advances from Capital under this Agreement, Capital shall execute a termination
of all security interests given by Borrower to Capital, upon the execution and
delivery of mutual general releases by Borrower, any guarantor or surety of
Borrower's Obligations, and Capital.
3.2 Prepayment. Borrower may at any time on thirty (30) days
prior written notice, prepay the Obligations and terminate this Agreement by
paying to Capital in cash or by a wire transfer of immediately available federal
funds, the Obligations together with an amount equal to the following: (a) if
prepayment occurs during the first year of the Initial Term, an amount equal to
three percent (3%) of the then Maximum Credit Limit; and (b) if prepayment
occurs at any time after the first year of the Initial Term, an amount equal to
one and one-half percent (1 1/2%) of the then Maximum Credit Limit. When
prepaying the Obligations, Borrower shall also pay the interest accrued on the
principal amount being prepaid to the date of such prepayment.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants to
Capital a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations owed by Borrower
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to Capital and in order to secure prompt performance by Borrower of each and all
of its covenants and obligations under this Agreement and otherwise created.
Capital's security interest in the Collateral shall attach to all Collateral
without further act on the part of Capital or Borrower.
4.2 Right to Audit and Inspect. In order to verify the
validity of any Borrowing Base Certificate, Borrower shall, upon the request of
Capital, promptly furnish Capital with copies of Borrower's financial and
business records, as well as any information which has been provided by Contract
Debtors to Borrower, and Borrower shall warrant the genuineness thereof. For
each twelve (12) month period commencing on the date of this Agreement, Capital
shall have the right to conduct four (4) periodic audits of the Collateral and
Borrower's financial condition at Borrower's expense; provided, however, that
Capital may conduct additional audits, at Capital's own expense so long as no
Event of Default shall have occurred, during each such twelve (12) month period.
Borrower shall pay to Capital as an audit fee Six Hundred Dollars ($600) per
auditor, per day for each audit in connection with the first four (4) audits
during each twelve (12) month period, up to a maximum of twelve (12) days for
all of such four (4) audits, as well as in connection with any audits conducted
following an Event of Default and the amount charged shall be deemed included in
the "Obligations" when incurred. Capital will invoice Borrower for such audit
charges and Borrower shall pay to Capital the full amount of such costs and
expenses within fifteen (15) calendar days from the date of invoice.
4.3 Continuation of Security Interest. Until all
Obligations, contingent or otherwise, have been fully repaid and performed,
Capital shall retain its security interest in all existing Collateral and
Collateral arising thereafter.
4.4 Perfection of Security Interest. Borrower shall execute
and deliver to Capital, concurrent with Borrower's execution of this Agreement,
and at any time or times hereafter at the request of Capital, all financing
statements, continuation financing statements, fixture filings, security
agreements, chattel mortgages, assignments, endorsements of certificates of
title, applications for titles, affidavits, reports, notices, schedules of
accounts, letters of authority and all other documents that Capital may
reasonably request, in form satisfactory to Capital, to perfect and maintain
perfected Capital's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement. In
connection with the foregoing, Borrower agrees to cause to be delivered to
Capital the consent on any computer software licensor to the assignment by
Borrower to Capital of those rights of Borrower in such software in order to
enable Capital to obtain any computer information which Capital requires which
is accessible utilizing such software.
4.5 Access to Borrower's Books. Capital (through any of its
officers, employees or agents) shall have the right, at
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any time or times hereafter, during Borrower's usual business hours, or during
the usual business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the amount
or condition of, or any other matter relating to, the Collateral and Borrower's
financial condition. Capital (through any of its officers, employees or agents)
shall also have the right, at any time or times hereafter, to confirm with the
Contract Debtors the amount of their indebtedness owing to Borrower, the
assignment of all or any of the Property to Borrower, the value and amount of
the Property (including contacting any customers or account debtors thereunder),
and any other information relating to the Collateral. Capital agrees that in
connection with any communications with any Contract Debtors and their customers
and account debtors, Capital shall comply with any requests of Borrower which
Capital, in its sole discretion, determines to be reasonable.
4.6 Additional Documentation. With each assignment of
Collateral hereunder Borrower shall deliver to and/or insure that Capital has,
in form satisfactory to Capital and its counsel, such other instruments,
financing statements, continuation financing statements, fixture filings,
security agreements, mortgages, assignments, certificates of title, affidavits,
reports, documents, notices, schedules of Contracts, letters of authority and
all other documents that Capital may reasonably request, in form satisfactory to
Capital, to perfect and maintain perfected Capital's security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement.
4.7 Retention of Security Interest. Capital shall retain its
security interest in all Collateral until all of Borrower's Obligations have
been fully repaid as required hereunder and this Agreement has been terminated.
Capital may, after the occurrence of an Event of Default, settle or adjust
disputes and claims directly with Contract Debtors and customers of Contract
Debtors for such amounts and upon such terms as Capital considers advisable, and
in such cases, Capital will credit Borrower's account with only the net amounts
received by Capital in payment of such disputed Contracts or Property, after
deducting all Capital Expenses incurred or expended in connection therewith.
4.8 Power of Attorney. Borrower hereby irrevocably makes,
constitutes and appoints Capital (and any of Capital's officers, employees or
agents designated by Capital) as Borrower's true and lawful attorney with power:
A. Upon Borrower's failure or refusal to comply with
its undertakings contained in Section 4.4, to sign the name of Borrower on any
of the documents described in that section or on any other similar documents
which need to be executed, recorded and/or filed in order to perfect or continue
perfected Capital's security interest in the Collateral;
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B. To endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Capital's possession;
C. After the occurrence of an Event of Default, to
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Capital, to receive and open all
mail addressed to Borrower, and to retain all mail relating to the Collateral
and forward, within two (2) business days of Capital's receipt thereof, all
other mail to Borrower;
D. To do all things necessary to carry out this
Agreement.
The appointment of Capital as Borrower's attorney, and each
and every one of Capital's rights and powers, being coupled with an interest,
are irrevocable until all of the Obligations have been fully paid and performed
and payments received by Capital are no longer subject to avoidance. Borrower
ratifies and approves all acts of Capital as Borrower's attorney taken in
connection with the transactions contemplated by this Agreement and neither
Capital nor its employees, officers or agents shall be liable for any acts or
omissions or for any error in judgment or mistake of fact or law made in good
faith except for gross negligence or willful misconduct.
5. CONDITIONS PRECEDENT
As conditions precedent to Capital's obligation to make the
advances and extend the financial accommodations hereunder, Borrower shall
execute and deliver, or cause to be executed and delivered, to Capital, in form
and substance satisfactory to Capital and its counsel, the following:
A. Financing statements (form UCC-1) and fixture
filings in form satisfactory for filing and recording with the appropriate
governmental authorities;
B. Certified extracts from the minutes of the meetings
of Borrower's board of directors authorizing the borrowings and the granting of
the security interest provided for herein and authorizing specific officers to
execute and deliver the agreements provided for herein;
C. A certified copy of Borrower's Articles of
Incorporation and any amendments thereto, a certificate of good standing showing
that Borrower is in good standing under the laws of the State of Arizona and
certificates indicating that Borrower has qualified to transact business and is
in good standing in any other state in which the conduct of its business or its
ownership of property requires that it be so qualified;
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D. UCC searches, tax lien and litigation searches,
fictitious business statement filings, insurance certificates, notices or other
similar documents which Capital may require and in such form as Capital may
require, in order to reflect, perfect or protect the priority of Capital's
security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
E. Evidence satisfactory to Capital that Borrower has
obtained insurance policies or binders, with such insurers and in such amounts
as may be acceptable to Capital, respecting the Equipment and any other tangible
personal property comprising the Collateral and naming Capital as a loss payee
on a 438-BFU endorsement;
F. The Annual Fee;
G. The Loan Documents;
H. A fully completed Borrowing Base Certificate, dated
as of the effective date of this Agreement;
I. The original Contracts properly endorsed in favor of
and assigned to Capital;
J. The Guaranties prepared on Capital's standard form
and duly executed;
K. Certified extracts from the minutes of the meetings
of PII's board of directors authorizing the execution of its General Continuing
Guaranty of the Obligations and authorizing specific officers to execute and
deliver such agreements;
L. A disbursement letter from Borrower authorizing and
directing Capital to make the initial advances hereunder.
6. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties
which shall be deemed to be continuing representations and warranties so long as
any credit hereunder shall be available and until the Obligations have been
repaid in full:
6.1 Existence and Rights.
A. The chief executive office of Borrower is located at
2425 E. Camelback Road, Suite 620, Phoenix, Arizona 85016;
B. Borrower is duly organized and existing under the
laws of the State of Arizona and is qualified and licensed to do business and is
in good standing in any state in
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which the conduct of its business or its ownership of property requires that it
be so qualified;
C. Borrower has the right and power to enter into this
Agreement and each of the other Loan Documents;
D. Borrower has the power, authority, rights and
franchises to own its property and to carry on its business as now conducted;
E. Borrower has no investment in any business entity
except as previously disclosed to Capital in writing.
6.2 Agreement Authorized. The execution, delivery and
performance by Borrower of this Agreement and each of the other Loan Documents:
(a) have been duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; and (b) shall not constitute a
breach of any provision contained in Borrower's Articles of Incorporation or
Bylaws.
6.3 Binding Agreement. This Agreement is the valid, binding
and legally enforceable obligation of Borrower in accordance with its terms.
6.4 No Conflict. The execution, delivery and performance by
Borrower of this Agreement and each of the other Loan Documents: (a) shall not
constitute an event of default under any agreement, indenture or undertakings to
which Borrower is a party or by which it or any of its property may be bound or
affected; (b) are not in contravention of or in conflict with any law or
regulation; and (c) do not cause any lien, charge or other encumbrance to be
created or imposed upon any such property by reason thereof.
6.5 Litigation. Except as set forth on Exhibit 6.5, to
Borrower's knowledge there are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative agency,
and Borrower has no knowledge or belief of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except for ongoing
collection matters in which Borrower is the plaintiff and except as heretofore
disclosed, in writing, to Capital. Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or any governmental
or regulatory authority.
6.6 Financial Condition. All financial statements and
information relating to Borrower which have been delivered by Borrower to
Capital have been prepared in accordance with generally accepted accounting
principles consistently applied, unless otherwise stated therein, and fairly and
reasonably present Borrower's financial condition. There has been no material
adverse
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change in the financial condition of Borrower since the date of the most recent
of such financial statements submitted to Capital. Borrower has no knowledge of
any liabilities, contingent or otherwise, which are not reflected in such
financial statements and information, and Borrower has not entered into any
special commitments or contracts which are not reflected in such financial
statements or information which may have a materially adverse effect upon
Borrower's financial condition, operations or business as now conducted.
6.7 Tax Status. Borrower has no liability nor have any
claims been asserted against Borrower for any delinquent state, local or federal
taxes.
6.8 Title to Assets. Borrower has good title to its assets
and the same are not subject to any liens or encumbrances other than those
permitted by Sections 6.11B.
6.9 Trademarks and Patents. Borrower, as of the date hereof,
possesses all necessary trademarks, trade names, copyrights, patents, patent
rights and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and license
rights of others.
6.10 Environmental Quality. Borrower has in the past and is
currently in compliance with any and all federal, state and local statutes, laws
and regulations concerning the preservation of the environment and the use and
disposal of hazardous and toxic materials and substances. Borrower is not aware
that it is under investigation by any state or federal agency designed to
enforce any of such laws or regulations.
6.11 Equipment.
A. All of the Equipment is currently located at
Borrower's address set forth in Section 6.1A;
B. The Equipment is and shall remain free from all
liens, claims, encumbrances, and security interests (except as held by Capital,
except for the lease to Borrower, and except as may be specifically consented
to, in advance and in writing, by Capital).
6.12 Contracts and Security Documents.
A. Each Contract is a bona fide, good, valid,
enforceable and subsisting obligation of the Contract Debtor thereunder, and
Borrower does not know of any fact which impairs or will impair the validity of
any such Contract.
B. Each Contract and the Security Documents are free of
any claim for credit, deduction, discount, allowance,
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defense (including the defense of usury), dispute, counter-claim or setoff.
C. Each Contract is wholly free of any prior
assignment, superior security interest, lien, claim or encumbrance in favor of
any person other than Capital.
D. The Security Documents properly and reasonably
describe the subject personal property collateral.
E. Each Contract correctly sets forth the terms between
Borrower and the Contract Debtor, including, without limitation, the interest
rate and/or fees applicable thereto.
F. All state and federal laws have been complied with
in conjunction with the Contracts and Security Documents, the non-compliance
with which would have an adverse impact on the value, enforceability or
collectability of the Contracts or Security Documents.
G. Borrower has good and valid title to, and full right
and authority to pledge and assign the Contracts and Security Documents to
Capital and no payment is past due under any Contract.
H. The signatures of officers of the Contract Debtor on
each Contract and Security Documents related thereto are genuine, and, to the
best knowledge of Borrower, such officers were authorized and had the legal
capacity to enter into and execute such documents on the date thereof.
7. BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any
credit hereunder shall be available and until the Obligations have been repaid
in full, unless Capital shall otherwise consent in writing, Borrower shall do
all of the following:
7.1 Rights and Facilities. Borrower shall maintain and
preserve all rights, franchises and other authority adequate for the conduct of
its business. Borrower shall also maintain its properties, equipment and
facilities in good order and repair and conduct its business in an orderly
manner without voluntary interruption and maintain and preserve its existence.
7.2 Records and Servicing of Contracts.
A. Borrower shall keep or will cause to be kept in a
safe place, at its chief executive office, copies (or the originals if Capital
determines in its sole discretion to allow Borrower to retain such originals) of
the Contracts and Security Documents, all necessary, proper and accurate books,
records, ledgers, correspondence and other documents or instruments related to
or concerning the Contracts and the Security Documents. Capital
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shall, at all reasonable times, have the right to inspect, verify, check, make
abstracts from and photocopies of Borrower's Books, and any correspondence and
other papers pertaining to the Contracts and Security Documents.
B. In consideration of the advances to be made by
Capital pursuant hereto, and at no expense to Capital, Borrower covenants and
agrees to diligently and faithfully perform the following services relating to
the Contracts and Security Documents, unless and until notified by Capital that
it does not desire Borrower to continue to perform any or all such services:
(1) Borrower will use commercially reasonable efforts
to collect all payments due under the Contracts. Borrower shall immediately
provide Capital with written notification of any Contract under which scheduled
payments are thirty (30) days or more past due and shall inform Capital, in
writing, of all decisions regarding collection efforts concerning any Contract
and concerning repossession of Property.
(2) Borrower will perform customary insurance follow-up
with respect to each policy of insurance covering the Property, if any. If
required or prudent insurance on any Property is canceled, terminated or lapses,
Borrower shall immediately, and at its sole cost and expense, obtain replacement
insurance coverage.
(3) Borrower will promptly notify Capital if and when
any of the following shall come to its attention: (a) if any material default
arises under the terms of a Contract and/or Security Document, which default
shall not be waived by Borrower without the prior written consent of Capital;
(b) if any material item of Property should be damaged, lost, destroyed or
stolen, and such item or items of Property shall not have been repaired,
replaced or cured by the Contract Debtor within a reasonable time; or (c) if any
Property is moved from the location or locations where it is required to be kept
under the terms of the Security Document.
(4) Borrower acknowledges that it is not authorized or
empowered to waive or vary the terms of any Contract or Security Document in a
way that would be adverse to Capital's interests, and Borrower agrees that it
will not, at any time, waive or consent to a postponement of strict compliance
on the part of a Contract Debtor with respect to any material term, provision or
covenant contained in any Contract or Security Document, nor forbear or grant
any material indulgence to a Contract Debtor, without the prior written consent
of Capital.
7.3 Location of Equipment. The Equipment shall be located
only at Borrower's chief executive office or such other locations as shall have
been approved by Capital, which approval shall not be unreasonably withheld.
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7.4 Insurance.
A. Borrower, at its expense, shall insure the Equipment
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall deliver to Capital certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. Borrower shall also keep and
maintain business interruption, public liability, and property damage insurance
relating to Borrower's ownership and use of the Equipment and its other assets.
All such policies of insurance shall be in such form, with such companies, and
in such amounts as may be satisfactory to Capital. All such policies of
insurance (except those of public liability and property damage) shall contain
an endorsement in a form satisfactory to Capital showing Capital as a loss payee
thereof, with a waiver of warranties on a 438-BFU endorsement, and all proceeds
payable thereunder shall be payable to Capital and, upon receipt by Capital,
shall be applied on account of the Obligations owing to Capital. To secure the
payment of the Obligations, Borrower grants Capital a security interest in and
to all such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to Capital.
B. Prior to an Event of Default under this Agreement,
Borrower shall have the exclusive right to make, settle and adjust any and all
claims under such policies of insurance; provided, however, that Borrower shall
not legally conclude the settlement or adjustment of any claim in excess of Ten
Thousand and 00/100 Dollars ($10,000.00) without first obtaining the written
consent of Capital.
C. Borrower hereby irrevocably appoints Capital (and
any of Capital's officers, employees or agents designated by Capital) as
Borrower's attorney following the occurrence of an Event of Default for the
purpose of making, settling and adjusting all claims under such policies of
insurance, endorsing the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance, and for
making all determinations and decisions with respect to such policies of
insurance.
D. Borrower will not cancel any of such policies
without Capital's prior written consent. Each such insurer shall agree by
endorsement upon the policy or policies of insurance issued by it to Borrower as
required above, or by independent instruments furnished to Capital, that it will
give Capital at least ten (10) days written notice before any such policy or
policies of insurance will be altered or canceled, and that no act or default of
Borrower, or any other person, shall affect the right of Capital to recover
under such policy or policies of insurance or
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to pay any premium in whole or in part relating thereto. If Borrower fails to
comply with its covenants contained in this Section 7.4, Capital may, but shall
have no obligation to, obtain and maintain such policies of insurance and pay
such premiums and take such other action with respect to such policies which
Capital deems prudent.
7.5 Notice of Litigation. If at any time during the term of
this Agreement any litigation, governmental investigations or claims,
complaints, actions or prosecutions involving Borrower or any guarantor of
Borrower shall be commenced or threatened, Borrower shall immediately notify
Capital in writing of such event.
7.6 Submission of Records and Reports.
A. Borrower agrees to use its best efforts to deliver
to Capital, on a daily basis, a collateral and loan status report summarizing
the status of each Contract by indicating, with respect to each Contract, the
amount of outstanding advances made by Borrower under such Contract, the amount
of rebates payable to the Contract Debtor thereunder, the amount of all
outstanding accounts and other Property assigned to Borrower thereunder, the
amount of loan availability under the Contract, the amount of collections
received since the last report, the date of the last accounts receivable aging
with respect to such Contract Debtor, a copy of each invoice assigned to
Borrower (together with a copy of proofs of delivery or signed acknowledgments
of service executed by the customer of such Contract Debtor), and any other
information required by Capital.
B. Borrower shall execute and deliver to Capital by the
fifteenth (15th) day of each month during the term of this Agreement, a report
containing the following information regarding each Contract: (i) a statement
reflecting all of the advances, repayments, other loan activity, and the status
of the Property securing the obligations of the Contract Debtor under that
Contract; (ii) an accounts receivable status report setting forth, among other
information, an aging of the accounts receivable, the amount of the Eligible
Underlying Collateral, the amount of the ineligible accounts receivable, and the
percentage determined by dividing the total amount of all obligations of a
Contract Debtor arising under the Contract by the aggregate amount of all
obligations owing to Borrower from all of its Contract Debtors; and (iii) a
summary of the Contracts which shall set forth, among other things, the
delinquency rate of the obligations arising under the Contracts and indicating
under which Contracts, if any, Property is in foreclosure;
C. Borrower shall promptly supply Capital with such
other information concerning its affairs as Capital may request from time to
time hereafter, and shall promptly notify Capital of any material adverse change
in Borrower's financial condition and of any condition or event which
constitutes a breach
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of, or an event which constitutes an Event of Default or Potential Event of
Default under, this Agreement.
7.7 Acquisition of Assets. Borrower shall promptly notify
Capital in writing of its acquisition by purchase, lease or otherwise of any
after-acquired tangible property having a value greater than Ten Thousand and
00/100 Dollars ($10,000.00) and of the type included in the Collateral.
7.8 Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property shall be paid in full, before delinquency or before the
expiration of any extension period. Borrower shall make due and timely payment
or deposit of all federal, state and local taxes, assessments or contributions
required of it by law, and will execute and deliver to Capital, on demand,
appropriate certificates attesting to the payment or deposit thereof. Borrower
will make timely payment or deposit of all F.I.C.A. payments and withholding
taxes required of it by applicable laws, and will, upon request, furnish Capital
with proof satisfactory to Capital indicating that Borrower has made such
payments or deposits.
7.9 Financial Statements.
A. Borrower shall maintain a standard and modern system
of accounting in accordance with generally accepted accounting principles
consistently applied with ledger and account cards and/or computer tapes, discs,
printouts, and records pertaining to the Collateral which contain information as
may from time to time be requested by Capital. Borrower shall not modify or
change its method of accounting or enter into, modify or terminate any agreement
presently existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or storage of
Borrower's accounting records without said accounting firm and/or service bureau
agreeing to provide to Capital information regarding the Collateral and
Borrower's financial condition. Borrower agrees to permit Capital and any of its
employees, officers or agents, upon twenty four (24) hours prior notice or
without any notice following the occurrence of an Event of Default or Potential
Event of Default, during Borrower's usual business hours, or the usual business
hours of third persons having control thereof, to have access to and examine all
of Borrower's Books relating to the Collateral, the Obligations, Borrower's
financial condition and the results of Borrower's operations, and, in connection
therewith, permit Capital or any of its agents, employees or officers to copy
and make extracts therefrom.
B. Borrower shall deliver to Capital:
(1) within thirty (30) days after the end of each
month, a company prepared consolidated and consolidating statement of the
financial condition of Borrower and its affiliates
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for such monthly period, including, but not limited to, a balance sheet, a
profit and loss statement, and a cash flow statement, and any other report
requested by Capital relating to the Collateral and the financial condition of
Borrower, and a certificate signed by the Chief Executive Officer or Chief
Operating Officer of Borrower, to the effect that all statements and reports
delivered or caused to be delivered to Capital under this subsection, fairly and
thoroughly present the financial condition of Borrower and its affiliates and
that there exists on the date of delivery to Capital no condition or event which
constitutes an Event of Default or Potential Event of Default;
(2) within sixty (60) days after the end of the
first three (3) fiscal quarters of Borrower's fiscal years, a company prepared
consolidated and consolidating statement of the financial condition of Borrower
and its affiliates for each such quarterly period, including, but not limited
to, a balance sheet, a profit and loss statement, and a cash flow statement, and
any other report requested by Capital relating to the Collateral and the
financial condition of Borrower and its affiliates, together with a copy of the
quarterly 10Q filed with the Securities and Exchange Commission regarding
Borrower and its affiliates, and a certificate signed by the Chief Executive
Officer or Chief Operating Officer of Borrower, to the effect that all reports,
statements, computer disc or tape files, printouts, runs, or other computer
prepared information of any kind or nature relating to the foregoing or
documents delivered or caused to be delivered to Capital under this subsection,
fairly and thoroughly present the financial condition of Borrower and its
affiliates and that there exists on the date of delivery to Capital no condition
or event which constitutes an Event of Default or Potential Event of Default;
(3) within ninety (90) days after the end of each
of Borrower's fiscal years, an audited consolidated and consolidating statement
of the financial condition of Borrower and its affiliates for such fiscal year,
prepared by independent certified public accountants acceptable to Capital,
including, but not limited to, a balance sheet, a profit and loss statement, and
a cash flow statement, and any other report requested by Capital relating to the
Collateral and the financial condition of Borrower, together with a copy of the
annual 10K filed with the Securities and Exchange Commission regarding Borrower
and its affiliates, and a certificate signed by the Chief Executive Officer or
Chief Operating Officer of Borrower, to the effect that all reports, statements,
computer disc or tape files, printouts, runs, or other computer prepared
information of any kind or nature relating to the foregoing or documents
delivered or caused to be delivered to Capital under this subsection, fairly and
thoroughly present the financial condition of Borrower and its affiliates and
that there exists on the date of delivery to Capital no condition or event which
constitutes an Event of Default or Potential Event of Default.
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7.10 Tax Returns. Borrower shall deliver to Capital copies
of each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) calendar days following the filing thereof. Borrower
further agrees to promptly deliver to Capital copies of all receipts issued to
Borrower for the payment of federal withholding taxes required of it.
7.11 Payment of Debts. Borrower shall be at all times
hereafter solvent and able to pay its debts (including trade debts) as they
mature.
7.12 Financial Covenant. Borrower shall maintain at all
times during the term of this Agreement a ratio of Obligations to Tangible
Effective Net Worth Ratio of not more than 2.0 to 1.0.
7.13 Compliance with Environmental Laws. Borrower shall
comply with any and all federal, state and local statutes, laws and regulations
concerning the preservation of the environment and the use and disposal of
hazardous and toxic materials and substances.
7.14 Notice of Reportable Event. Borrower shall furnish to
Capital: (a) as soon as possible, but in no event later than thirty (30) days
after Borrower knows or has reason to know that any reportable event with
respect to any deferred compensation plan has occurred, a statement of the Chief
Financial Officer or Managing Partner of Borrower setting forth the details
concerning such reportable event and the action which Borrower proposes to take
with respect thereto, together with a copy of the notice of such reportable
event given to the Pension Benefit Guaranty Corporation, if a copy of such
notice is available to Borrower; (b) promptly after the filing thereof with the
Internal Revenue Service, the United States Secretary of Labor or the Pension
Benefit Guaranty Corporation, copies of each annual report with respect to each
deferred compensation plan together with certified financial statements and
actuarial statements for such plan; (c) promptly after receipt thereof, a copy
of any notice Borrower may receive from the Pension Benefit Guaranty Corporation
or the Internal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; (d) at least ten (10) days prior to the filing by the Borrower
or the administrator of any deferred compensation plan of a notice of intent to
terminate such plan, a copy of such notice; (e) when the same is made available
to participants in the deferred compensation plan, all notices and other forms
of information from time to time disseminated to the participants by the
administrator of the deferred compensation plan; and (f) promptly and in no
event more than ten (10) days after receipt thereof by Borrower, each notice
received by Borrower concerning the imposition of any withdrawal liability under
Section 4202 of the Employee Retirement Income Security Act ("ERISA") of 1974,
as amended.
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7.15 Reimbursement for Capital Expenses. Upon the demand of
Capital, Borrower shall immediately reimburse Capital for all sums expended by
Capital which constitute Capital Expenses, and Borrower hereby authorizes and
approves all advances and payments by Capital for items constituting Capital
Expenses.
8. BORROWER'S NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any
credit hereunder shall be available and until the Obligations have been repaid
in full, unless Capital shall otherwise consent in writing, Borrower shall not
do any of the following:
8.1 Relocate of Chief Executive Office. Borrower will not,
without thirty (30) days prior written notification to Capital, relocate its
chief executive office.
8.2 Business Structure and Operations. Borrower shall not,
without Capital's prior written consent:
A. Sell, lease, or otherwise dispose of, move, relocate
(except in connection with a relocation of Borrower's business facility) or
transfer, whether by sale or otherwise, any of Borrower's assets;
B. Change Borrower's name or form of entity, or add any
new fictitious name;
C. Acquire, merge or consolidate with or into any other
business organization;
D. Enter into any transaction not in the ordinary and
usual course of Borrower's business;
E. Guarantee or otherwise become in any way liable with
respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the general account of Borrower
or which are transmitted or turned over to Capital;
F. Make any change in the Borrower's financial
structure or in any of its business objectives, purposes or operations which
could adversely affect the ability of Borrower to repay the Obligations;
G. Incur any debts outside the ordinary and usual
course of Borrower's business, except for renewals or extensions of existing
debts;
H. Make any advance or loan except in the ordinary
course of business;
I. Prepay any existing indebtedness owing to any third
party;
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J. Cause, permit or suffer any change, direct or
indirect, in Borrower's capital ownership;
K. Make any advance to any Contract Debtor where the
making of such advance would cause the total amount of the outstanding
indebtedness of such Contract Debtor to exceed thirty five percent (35%) of the
Borrower's Tangible Effective Net Worth; provided, however, that in order to
avoid violating this subsection, Borrower may participate with PII in connection
with such a Contract Debtor whereby PII would advance all amounts which Borrower
would otherwise be prohibited from advancing so long as the rights of PII to be
repaid, together with any rights of PII in the related Contract and Security
Documents, are subordinated to the rights of Capital on terms and conditions
acceptable to Capital, in its sole discretion;
L. Borrower will not, without Capital's prior written
consent, make any distribution or declare or pay any dividends (in cash or in
stock) on, or purchase, acquire, redeem or retire any of its capital stock or
partnership interests, of any class, whether now or hereafter outstanding; or
M. Suspend or go out of business.
8.3 ERISA.
A. Borrower shall not withdraw from partici- pation in,
permit the termination or partial termination of, or permit the occurrence of
any other event with respect to any deferred compensation plan maintained for
the benefit of Borrower's employees under circumstances that could result in
liability to the Pension Benefit Guaranty Corporation, or any of its successors
or assigns, or to any entity which provides funds for such deferred compensation
plan.
B. Borrower shall not withdraw from any multi-employer
plan described in Section 4001(a)(3) of ERISA which covers Borrower's employees.
9. EVENTS OF DEFAULT
Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
9.1 Failure to Pay Obligations. If Borrower fails to
pay when due and payable or when declared due and payable all or any portion of
the Obligations owing to Capital (whether of principal, interest, taxes,
reimbursement of Capital Expenses, or otherwise);
9.2 Failure to Perform. If Borrower fails or neglects
to perform, keep or observe any term, provision, condition, covenant, agreement,
warranty or representation contained in this Agreement, in any of the other Loan
Documents, or
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in any other present or future agreement between Borrower and Capital and such
failure continues for ten (10) calendar days after written notice thereof from
Capital to Borrower;
9.3 Inaccurate Information. If any material
representation, statement, report, or certificate made or delivered by Borrower,
or any of its officers, employees or agents, to Capital is not true and correct;
9.4 Third Party Claim. If any or a material portion of
Borrower's assets are attached, seized, subjected to a writ or distress warrant,
or are levied upon, or come into the possession of any Judicial Officer or
Assignee;
9.5 Impairment. If there is a material impairment of
the prospect of repayment of all or any portion of the Obligations owing to
Capital or a material impairment of the value or priority of Capital's security
interests in the Collateral;
9.6 Voluntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced by Borrower;
9.7 Involuntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced against Borrower;
9.8 Interruption of Business. If Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct all
or any material part of its business affairs;
9.9 Governmental Lien. If a notice of lien, levy or
assessment is filed of record with respect to any or all of Borrower's assets by
the United States Government, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other governmental agency, or if
any tax or debt owing at any time hereafter to any one or more of such entities
becomes a lien, whether choate or otherwise, upon any or all of the Borrower's
assets and the same is not paid on the payment date thereof;
9.10 Liens. If a judgment or other claim becomes a lien
or encumbrance upon all or a material portion of Borrower's assets;
9.11 Default in Agreement with Third Party. If there is
a default in any loan agreement, mortgage, indenture or other agreement to which
Borrower is a party with third parties;
9.12 Payment on Subordinated Debt. If Borrower makes
any payment to any third party which would violate the terms of any agreement
pursuant to which such third party has subordinated indebtedness owed to him,
her or it to Borrower's Obligations to Capital;
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9.13 Misrepresentation. If any misrepresentation exists
now or hereafter in any warranty or representation made to Capital by Borrower
or any officer or director of Borrower, or if any such warranty or
representation is withdrawn by Borrower or by any officer or director of
Borrower;
9.14 Impairment of Guaranty. If any guarantor of
Borrower's indebtedness to Capital dies, terminates its guaranty, defaults in
the payment or performance of any obligations of guarantor owing to Capital, or
becomes the subject of an Insolvency Proceeding;
9.15 Reportable Event Under ERISA. If any reportable
event, which Capital determines will have a material adverse effect on the
financial condition of Borrower or which Capital determines constitutes grounds
for the termination of any deferred compensation plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any such plan, shall have occurred and
be continuing thirty (30) days after written notice of such determination shall
have been given to Borrower by Capital, or any such Plan shall be terminated
within the meaning of Title IV of ERISA, or a trustee shall be appointed by the
appropriate United States District Court to administer any such plan, or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate
any plan and in case of any event described in this Section 9.15, the aggregate
amount of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's tangible net worth.
9.16 Withdrawal from Multi-Employer Plan. Borrower
shall have withdrawn from a multi-employer plan described in Section 4001(a)(3)
of ERISA and Capital determines that such withdrawal would have a material
adverse effect on the financial condition of Borrower; or
9.17 Cure Periods. Notwithstanding anything contained
in this Section 9 to the contrary, Capital shall refrain from exercising its
rights and remedies and an Event of Default shall not be deemed to have occurred
by reason of the occurrence of: (i) an event set forth in Section 9.7 if, within
thirty (30) calendar days from the date thereof, the same is discharged or
dismissed, or (ii) any of the events set forth in Sections 9.4 or 9.10 if,
within ten (10) calendar days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided, however, if the
event is the institution of Insolvency Proceedings against Borrower, Capital
shall not be obligated to make advances to Borrower during such cure period.
10. CAPITAL'S RIGHTS AND REMEDIES
10.1 Remedies. Upon the occurrence of an Event of
Default by Borrower under this Agreement, Capital may, at its
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election, without notice of its election and without demand, do any one or more
of the following, all of which are authorized by Borrower:
A. Declare all Obligations, whether evidenced by
this Agreement or otherwise, immediately due and payable;
B. Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Capital;
C. Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of Capital, but without
affecting Capital's rights and security interest in the Collateral and without
affecting the Obligations owing by Borrower to Capital;
D. Capital or Capital's designee may notify each
Contract Debtor that its Contract, Security Documents and all rights thereunder
have been assigned to Capital and that Capital has a security interest therein,
collect the indebtedness of such Contract Debtor owing to Borrower directly if
Capital has not already been authorized to do so, and charge the collection
costs and expenses to Borrower's loan account.
E. Without notice to or demand upon Borrower or
any guarantor, make such payments and do such acts as Capital considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Capital so requires, and to make
the Collateral available to Capital as Capital may designate. Borrower
authorizes Capital to enter the premises where the Collateral is located, take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien which in the
opinion of Capital appears to be prior or superior to its security interest and
to pay all expenses incurred in connection therewith;
F. Capital is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale and selling any Collateral and
Borrower's rights under all licenses, and all franchise agreements shall insure
to Capital's benefit;
G. Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale and sell (in the manner
provided for herein) the Collateral;
H. Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such
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places (including Borrower's premises) as is commercially reasonable in the
opinion of Capital. It is not necessary that the Collateral be present at any
such sale;
I. Capital shall give notice of the disposition of
the Collateral as follows:
(1) Capital shall give Borrower and each
holder of a security interest in the Collateral who has filed with Capital a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section 13, at least ten
(10) calendar days before the date fixed for the sale, or at least ten (10)
calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to Capital;
(3) If the sale is to be a public sale,
Capital shall also give notice of the time and place by publishing a notice one
time at least ten (10) calendar days before the date of the sale in a newspaper
of general circulation in the county in which the sale is to be held;
J. Capital may credit bid and purchase at any
public sale;
K. Borrower shall pay all Capital Expenses
incurred in connection with Capital's enforcement and exercise of any of its
rights and remedies as herein provided, whether or not suit is commenced by
Capital;
L. Any deficiency which exists after disposition
of the Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
parties, to Borrower by Capital.
10.2 Cumulative Rights. Capital's rights and remedies
under this Agreement and all other agreements shall be cumulative. Capital shall
have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Capital of one right or remedy
shall be deemed an election, and no waiver by Capital of any default on
Borrower's part shall be deemed a continuing waiver. No delay by Capital shall
constitute a waiver, election or acquiescence by it.
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11. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then Capital may, to
the extent that it determines that such failure by Borrower could have a
material adverse change on Capital's interests in the Collateral, in its
discretion and without prior notice to Borrower, (i) make payment of the same or
any part thereof; (ii) set up such reserves in Borrower's loan account as
Capital deems necessary to protect Capital from the exposure created by such
failure; or (iii) both. Any amounts paid or deposited by Capital shall
constitute Capital Expenses, shall be immediately charged to Borrower's loan
account and become additional Obligations owing to Capital, shall bear interest
at the applicable rate set forth in Section 2.5, and shall be secured by the
Collateral. Any payments made by Capital shall not constitute: (i) an agreement
by Capital to make similar payments in the future, or (ii) a waiver by Capital
of any Event of Default under this Agreement. Capital need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance
or lien, and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing.
12. WAIVERS
12.1 Application of Payments. Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Capital on account of any Obligations owed by Borrower to Capital,
and Borrower agrees that Capital shall have the continuing exclusive right to
apply and reapply such payments in any manner as Capital may deem advisable,
notwithstanding any entry by Capital upon its books.
12.2 Demand, Protest, Default, Etc. Except as otherwise
provided herein, Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Capital on which Borrower may in any way be
liable.
12.3 Confidential Relationship. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm and/or service bureau in connection with any information
requested by Capital pursuant to or in accordance with this Agreement, and
agrees that Capital may contact directly any such accounting firm and/or service
bureau in order to obtain such information.
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13. NOTICES
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement shall be in writing
and either personally served or sent by regular United States mail, postage
prepaid, to Borrower or to Capital, as the case may be, at their address set
forth below:
If to Borrower: PERFORMANCE FUNDING CORP.
2425 E. Camelback Road
Suite 620
Phoenix, Arizona 85016
Attn: James Brown, Chief Financial Officer
Telecopier Number (602) 912-0480
If to Capital: CAPITAL FACTORS, INC.
3435 Wilshire Boulevard
Suite 2800
Los Angeles, California 90010
Attn: Frank A. Williams
Telecopier Number (213) 480-0810
With a Copy to: KATZ, HOYT, SEIGEL & KAPOR
11111 Santa Monica Boulevard
Suite 820
Los Angeles, California 90025-3342
Attn: William Schoenholz, Esq.
Telecopier Number (310) 473-7138
The parties hereto may change the address at which they
are to receive notices and the telecopier number at which they are to receive
telecopies hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 13 shall be
deemed received on the earlier of the date of actual receipt or five (5) days
after the deposit thereof in the mail.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
Any documents, schedules, invoices or other papers
delivered to Capital, other than the original Contracts and Security Documents,
may be destroyed or otherwise disposed of by Capital four (4) months after they
are delivered to or received by Capital, unless Borrower requests, in writing,
the return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW
The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder shall be
determined under, governed by, and construed in accordance with the laws of the
State of California. The parties agree that all arbitration proceedings shall be
conducted in County
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of Los Angeles, State of California, and all other actions or proceedings
arising in connection with this Agreement shall be tried and litigated only in
the state and federal courts located in the County of Los Angeles, State of
California. Borrower waives any right it may have to assert the doctrine of
forum non conveniens or to object to such venue and hereby consents to any court
ordered relief.
16. GENERAL PROVISIONS
16.1 Representations and Warranties. Each
representation, warranty and agreement contained in this Agreement shall be
conclusively presumed to have been relied on by Capital regardless of any
investigation made or information possessed by Capital. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Capital, either now or hereafter.
16.2 Binding Agreement. This Agreement shall be binding
and deemed effective when executed by Borrower and accepted and executed by
Capital.
16.3 Right to Grant Participations. This Agreement
shall bind and inure to the benefit of the respective successors and assigns of
each of the parties; provided, however , that Borrower may not assign this
Agreement or any rights hereunder without Capital's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an assignment
by Capital shall release Borrower from its Obligations to Capital. Capital may
assign this Agreement and its rights and duties hereunder. Capital reserves the
right to sell, assign, transfer, negotiate or grant participations in all or any
part of, or any interest in, Capital's rights and benefits hereunder. In
connection therewith, Capital may disclose all documents and information which
Capital now or hereafter may have relating to Borrower or Borrower's business.
16.4 Section Headings. Section headings and section
numbers have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section applies equally
to this entire Agreement.
16.5 Interpretation. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Capital
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
16.6 Severability. Each provision of this Agreement
shall be severable from every other provision of this Agreement for
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the purpose of determining the legal enforceability of any specific provision.
16.7 Modification and Merger. This Agreement cannot be
changed or terminated orally. All prior agreements, understandings,
representations, warranties and negotiations, if any, are merged into this
Agreement.
16.8 Good Faith Requirement. The parties intend and
agree that their respective rights, duties, powers, liabilities, obligations and
discretions shall be performed, carried out, discharged and exercised reasonably
and in good faith.
16.9 No Solicitations. Capital agrees that during the
term of this Agreement and for a period of six (6) months following the
termination of this Agreement, Capital will not solicit any of the Contract
Debtors without the prior written consent of Borrower, which consent shall not
be unreasonably withheld.
16.10 WAIVER OF JURY TRIAL. BORROWER AND CAPITAL EACH
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OF THE LOAN DOCUMENTS.
IN WITNESS WHEREOF, Capital and Borrower have executed this
Agreement as of the date first set forth above.
PERFORMANCE FUNDING CORP.,
an Arizona corporation
By /s/ Joe Hrudka
-------------------------
Name Joe Hrudka
Title: Chairman of the Board
By /s/ James Brown
-------------------------
Name James Brown
Title: Assistant Secretary
CAPITAL FACTORS, INC.,
a Florida corporation
By /s/ Frank Williams
-------------------------
Name Frank Williams
Title: Senior Vice President
35
GUARANTY BY CORPORATION
DATE July 7, 1995
Gentlemen::
Performance Funding Corp., A corporation organized under the laws of the state
of Arizona (herein called "Debtor") is (a) engaged in business as a corporate
affiliate of the undersigned, or (b) engaged in selling, marketing, using, or
otherwise dealing in merchandise, supplies, products, equipment or other
articles supplied to it by the undersigned, or (c) because of our
inter-corporate or business relations, it will be our direct interest and
advantage to assist the Debtor to procure funds, credit or other financial
assistance from you in order to further its business and sales.
Accordingly, in order to induce you to purchase or otherwise acquire from the
Debtor accounts receivable, conditional sales or lease agreements, chattel
mortgages, drafts, notes, bills, acceptances, trust receipts, contracts or other
obligations or choses-in-action (herein collectively called "receivables"), or
to advance moneys or extend credit to the Debtor thereon, or to factor the sales
or finance the accounts of the Debtor (either according to any present or future
agreements or according to any changes in any such agreements or on any other
terms and arrangements from time to time agreed upon with the Debtor, the
undersigned hereby consenting to and waiving notice of any and all such
agreements, terms and arrangements and changes thereof) or to otherwise directly
or indirectly advance money to or give or extend faith and credit to the Debtor,
or otherwise assist the Debtor in financing its business or sales (without
obligating you to do any of the foregoing), we, the undersigned, for value
received, do hereby unconditionally guarantee to you and your assigns the prompt
payment in full at maturity and all times thereafter (waiving notice of
non-payment) of any and all indebtedness, obligations and liabilities of every
kind or nature (both principal and interest) now, or at any time hereafter owing
to you by the Debtor, and of any and all receivables heretofore or hereafter
acquired by you from said Debtor in respect of which the Debtor has or may
become in any way liable, and the prompt, full and faithful performance and
discharge by the Debtor of all the terms, conditions, agreements,
representations, warranties, guaranties and provisions on the part of the Debtor
contained in any such agreement or arrangement or in any modification or addenda
thereto or substitution thereof, or contained in any schedule or other
instrument heretofore or hereafter given by or on behalf of said Debtor in
connection with the sale or assignment of any such receivables to you, or
contained in any other agreements, undertakings or obligations of the Debtor
with or to you, of any kind or nature, and we also hereby agree on demand to
reimburse you and your assigns for all expenses, collection charges, court costs
and attorney's fees incurred in endeavoring to collect or enforce any of the
foregoing against the Debtor and/or undersigned or any other person or concern
liable thereon; for all of which, with interest at the highest lawful contract
rate after due until paid, we hereby agree to be directly, unconditionally and
primarily liable jointly and severally with the Debtor and agree that the same
may be recovered in the same or separate actions brought to recover the
principal indebtedness.
Notice of acceptance of this guaranty, the giving or extension of credit to the
Debtor, the purchase or acquisition of receivables, or the ad vancement of money
or credit thereon, and presentment, demand, notices of default, non-payment or
partial payments and protest, notice of protest and all other notices or
formalities to which the Debtor might otherwise be entitled, prosecution of
collection or remedies against the Debtor or against the makers, endorsers, or
other person liable on any such receivables or against any security or
collateral thereto appertaining, are hereby waived. The undersigned also waives
notice of any consents to the granting of indulgences or extensions of time
payment, the taking and releasing of security in respect of any said receivable
agreements, obligations, indebtedness or liabilities so guaranteed hereunder, or
your accepting partial payments thereon or your settling, compromising or
compounding any of the same in such manner and at such times as you may deem
advisable, without in any way impairing or affecting our liability for the full
amount thereof; and you shall not be required to prosecute collection,
enforcement or other remedies against the Debtor or against any person liable on
any said receivables, agreements, obligations, indebtedness or liabilities so
guaranteed, or to enforce or resort to any security, liens, collateral or other
rights or remedies thereto appertaining, before calling on us for payment; nor
shall our liability in any way be released or affected by reason of any failure
or delay on your part so to do.
This guaranty is absolute, unconditional and continuing and payment of the sums
for which the undersigned become liable shall be made to you at your office from
time to time on demand as the same become or are declared due, notwithstanding
that you hold reserves, credits, collateral or security against which you may be
entitled to resort for payment, and one or more and successive or concurrent
actions may be brought hereon against the undersigned, either in the same action
in which the Debtor is sued or in separate actions, as often as deemed
advisable. We expressly waive and bar ourselves from any right to set-off,
recoup or counterclaim any claim or demand against said Debtor, or against any
other person or concern liable on said receivables, and, as further security to
you, any and all debts or liabilities now or hereafter owing to us by the Debtor
or by such other person or concern are hereby subordinated to your claims and
are hereby assigned to you.
In case bankruptcy or insolvency proceedings, or proceedings for reorganization,
or for the appointment of a receiver, trustee or custodian for us or the Debtor
or over our or its property or any substantial portion thereof, be instituted by
or against either us or the Debtor, or if we or the Debtor become insolvent or
make an assignment for the benefit of creditors, or attempt to effect a
composition with creditors, or encumber or dispose of all or a substantial
portion of our or its property or if we or the Debtor default in the payment or
repurchase of any such receivables or indebtedness as the same falls due, or
fail promptly to make good any default in respect of any undertakings, then the
liability of the undersigned hereunder shall at your option and without notice
become immediately fixed and be enforceable for the full amount thereof, whether
then due or not, the same as though all said receivables, debts and liabilities
had become past due.
This guaranty shall inure to the benefit of yourself, your successors and
assigns. It shall be binding on the undersigned, its successors and assigns, and
shall continue in full force and effect until notice of termination is given and
received as hereinbefore provided and all of said indebtedness, liabilities or
obligations created or assumed are fully paid.
Attest: Performance Industries, Inc.
---------------------------
/S/ Robert A. Cassalia By /S/ Edmund L. Fochtman, Jr.
- ---------------------- ---------------------------
Robert A. Cassalia, Secretary Edmund L. Fochtman, Jr., President
(AFFIX CORPORATE SEAL)
ACKNOWLEDGEMENT MUST BE COMPLETED ON REVERSE SIDE
<PAGE>
CERTIFICATION
I, Robert A. Cassalia, do hereby certify that i am the duly elected and
qualified Secretary of Performance Industries, Inc., A Arizona corporation, the
guarantor named in the foregoing Guaranty; that a (special) (regular) meeting of
the Board of Directors of said Corporation held on July 7th, 1995, at which
meeting a quorum was present and acting throughout, the foregoing Guaranty was
submitted to, and approved by, the Board of Directors of said Corporation, and
that the officer that executed the Guaranty for and on behalf of the Corporation
was so authorized by the Board of Directors of the Corporation.
In witness whereof, I have hereunto set my hand this 7th day of July,
1995.
/s/ Robert A. Cassalia
----------------------------------------
Robert A. Cassalia, Secretary
(CORPORATE SEAL)
RESTAURANT LEASE
PARTIES. This Lease, dated September 1, 1995, is made by and between
Flamingo Restaurant Joint Venture, an Arizona joint venture, by and between 1030
East Flamingo, L.L.C., an Arizona limited liability company, and Las Vegas
Garcia's Restaurant Limited Partnership, an Arizona limited partnership (such
joint venture called "'Lessor" herein), and Performance Restaurants of Nevada,
Inc., a Nevada corporation (herein called "Lessee").
1. DEFINITIONS.
1.1 As used in this Lease, the following terms have the following
meanings:
1.1.1 Lessor's Mailing Address: c/o Sam Nocifera
Arbitare Realty Corporation
5080 North 40th Street, Suite 100
Phoenix, Arizona 85018
1.1.2 Lessee's Mailing Address: Performance Restaurants of
Nevada, Inc.
2425 East Camelback Road, Suite 620
Phoenix, Arizona 85016
1.1.3 Premises - The real property generally located at 1030
East Flamingo, Las Vegas, Nevada, and more specifically described in Exhibit "A"
hereto ('the Property"), together with the restaurant building and improvements
constructed thereon ('the Premises") but excluding the furniture, fixtures, and
equipment described in Exhibit "B" hereto.
1.1.4 Broker(s)
a. Lessor's Broker: Arbitare Realty Corporation, an
Arizona Real Estate Brokerage corporation ("Arbitare").
b. Lessee's Broker: Paragon Commercial Real Estate, a
Nevada Real Estate Brokerage corporation ("Paragon").
c. Lessor's Broker has disclosed to Lessor and Lessee
that Lessor's Broker is acting in this transaction as the agent of:
[X] Lessor [ ] both Lessor and Lessee.
Lessor and Lessee each consent to such representation.
1.1.5 Commencement Date - The Term shall commence on September
1, 1995.
1.1.6 Term - The Term shall commence as of the Commencement
Date and shall continue thereafter for a period of ten (10) years and four (4)
months. There shall be two (2) option periods of five (5) years each, subject to
the terms and conditions set forth In Section 3.2.
1.1.7 Base Rent - Commencing January 1, 1996, Base Rent shall
be payable in the following amounts:
January 1, 1996 - December 31, 1998: $14,000,00 per month.
January 1, 1999 - December 31, 2005: $15,000.00 per month.
Base Rent shall accrue at the rate of $14,000.00 per month but not be payable
during the four-month period prior to January 1, 1996. Base Rent accruing during
the four-month period prior to January 1, 1996 shall be deemed waived
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on January 1, 1997 if Lessee is not then in default. If Lessee defaults at any
time prior to January 1, 1997, and such default is not cured within the
applicable cure period, all Base Rent accrued during the period prior to January
1, 1996 shall become immediately due and payable.
1.1.8 Annual Percentage Rental Rate - Six percent (6%).
1.1.9 Index - The United States Department of Labor Bureau of
Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup "all
items" (1982-84 = 100).
1.1.10 Rental Adjustment Dates - The Base Rent shall be
adjusted on the first day of the first Option Period and the first day of the
second Option Period ('the Rental Adjustment Dates") as set forth in Section
4.3.
1.1.11 Security Deposit - Twenty-Nine Thousand and No/100
Dollars ($29,000.00).
1.1.12 Use - Lessee shall use the Premises for the purpose of
conducting a restaurant business, and for no other purpose without the prior
written consent of Lessor, and shall operate its business on the Premises at all
times under the trade name of "Bobby McGee's." Lessee shall, at Lessee's sole
cost, comply with all requirements of municipal, state, and federal authorities
now in force or which hereafter may be in force pertaining to the use of the
Premises. Lessee shall not perform any acts or carry on any practices which may
injure the building or be a nuisance and shall prevent the emission of foul or
unpleasant odors from the Premises.
Lessee shall commence its restaurant business on the Premises no later
than January 1, 1995. Lessee shall not abandon, vacate, or surrender the
Premises during the term hereof and shall, upon commencement of the restaurant
business, use the Premises during the entire term with due diligence and
efficiency, except while the Premises are untenantable by reason of fire or
other casualty, so as to produce all of the gross sales which may be produced by
such manner of operation. Subject to inability by reason of strikes or labor
disputes, Lessee shall carry at all times a stock of food and beverages of such
size, character, and quality as shall be reasonably dispensed in the ordinary
course of the restaurant and bar business in the Las Vegas metropolitan area to
produce the maximum return to Lessor and Lessee.
Lessee agrees that, commencing with the date Base Rent is first due and
payable hereunder and for the remainder of the Term, Lessee shall keep the
restaurant and bar open and available for business continuously during the usual
business hours of restaurants in the Las Vegas metropolitan area, except while
the Premises are untenantable by reason of fire or other casualty.
Lessee shall not conduct or permit to be conducted any auction,
distress, or bankruptcy sales upon the Premises without the prior written
consent of Lessor.
2. PREMISES.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor the Premises.
3. TERM AND POSSESSION.
3.1 TERM. The Lease shall be for the Term specified in Section 1.1.6,
unless sooner terminated pursuant to any provision hereof.
3.2 OPTION PERIODS. If Lessee has fully and faithfully performed all of
its obligations under this Lease and is not then in default and if Lessee is in
possession of the Premises and has not assigned all of its rights under this
Lease, Lessee shall have the right and option to extend the Term of this Lease
for one (1) additional period of five (5) years ("the First Option Period") by
giving written notice to Lessor not less than six (6) months prior to the end of
the initial term. Provided Lessee has fully and faithfully performed all of its
obligations under this Lease and is not then in default and if Lessee is in
possession of the Premises and has not assigned all of its rights under this
Lease, Lessee shall also have the right and option to extend the Term of this
Lease for a second period of five (5) years ("the Second Option Period") by
giving written notice to Lessor not less than six (6) months prior to the end of
the First Option Period. During any such option period, all of the terms and
provisions hereof shall be applicable and shall remain in full force
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and effect, except that the Base Rent shall be adjusted as set forth in Section
4.3.
3.3 DELAY IN POSSESSION. If, for any reason, Lessor cannot deliver
possession of the Premises to Lessee on the Commencement Date, Lessor shall not
be subject to any liability therefor, nor shall such failure affect the validity
of this Lease or the obligations of Lessee hereunder or extend the Term hereof,
but in such case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be otherwise
provided in this Lease, until possession of the premises is tendered to Lessee
(provided, however, that if Lessor shall not have delivered possession of the
premises within sixty (60) days from said Commencement Date, Lessor or Lessee
may cancel this Lease by giving notice of such cancellation to the other in
which event the parties shall be discharged from all obligations hereunder).
3.4 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth above.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor the Base Rent as specified in
Section 1.1.7 without any offset deduction except as may otherwise by expressly
provided in this Lease (i.e., Section 5) on the first day of each month of the
Term. Rent for any period during the Term which is for less than one month shall
be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of
the United States to Lessor at the address stated herein or to such other
persons or at such other places as Lessor may designate in writing.
4.2 PERCENTAGE RENT. In additional to the Base Rent, Lessee shall pay
to Lessor at such time and in the manner hereinafter specified additional rent
in an amount equal to the Percentage Rental Rate multiplied by the amount of
gross sales made in, upon, or from the Premises during each six-month period
described below, less the aggregate amount of the Base Rent previously paid by
Lessee for said six-month period.
4.2.1 Within thirty (30) days after the end of each calendar
month commencing January 1, 1996, Lessee shall furnish to Lessor a statement in
writing, certified by Lessee to be correct, showing the total gross sales made
in, upon, or from the Premises during the preceding calendar month. Within
thirty (30) days after the end of each successive six (6) month period
commencing January 1, and July 1 throughout the Term of this Lease, Lessee shall
tender a payment to Lessor equal to said hereinabove stated percentage of the
total monthly gross sales made in, upon, or from the Premises during such six
(6) month period, less the Base Rent for such six (6) month period, if
previously paid. Said statement and payment shall be made with the succeeding
month's regular rental payment.
4.2.2 The term "gross sales" as used in this Lease shall mean
gross sales as determined in accordance with this paragraph. Gross sales shall
include the dollar aggregate of: (a) the sales price of all food, beverages,
goods, wares and merchandise sold, and the charges for all services performed,
by Lessee or any licensees, concessionaires, and subtenants of Lessee from all
business conducted on, in, at or from the Premises, whether such sales or
charges are made for cash, by check, on credit or otherwise, without reserve or
deduction for inability or failure to collect for the same, including, but not
limited to, sales and service (i) where the orders therefor originate at and are
accepted in the Premises, but delivery or performance thereof is made from or at
any other place; (ii) made pursuant to mail, telegraph, telephone or other
similar orders received or billed at or from the Premises; (iii) made by means
of mechanical or other vending devices located on the Premises, but only to the
extent that the proceeds from such sales are retained by Lessee and not paid
over to the owner of any leased vending machines as rental therefor; or (iv)
made as a result of transactions originating from whatever source which in the
normal and customary course of operations would be credited or attributed to
business at the Premises; (b) all moneys or other things of value received by
Lessee or its licensees, concessionaires or subtenants from its or their
operations which are neither included in or excluded from gross sales by the
other provisions of this definition. There shall be deducted from the above sum
in determining gross sales (a) the amount of cash or credit refunds made upon,
but not in excess of, transactions previously included within gross sales for
merchandise returned by the purchaser and accepted by Lessee, and (b) the amount
of cash or credit discounts from Lessee's regular published prices for any food,
beverage, or service sold to a customer which Lessee has allowed for the sole
purpose of acquiring or maintaining goodwill for Lessee's business conducted on
the Premises; and (c) the amount recorded by Lessee as sales for employee meals
for which no consideration was received from the employees, but only to the
extent such amount was previously
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included within gross sales. "Gross sales" shall not include the exchange of
merchandise between restaurants of Lessee where such exchanges are made solely
for the convenient operation of Lessee's business; returns to shippers or
manufacturers; sales of fixtures after use thereof; tips and other compensation
paid directly by customers to employees of the restaurant business to be
conducted on the Premises or designated for such employees on credit card charge
slips; the amount of any fixed, but separately stated, service charge added by
Lessee to the cost of food and beverages and collected by Lessee from its
customers, but only to the extent that the funds collected from such charge (a)
do not exceed fifteen percent (15%) of the cost of the food and beverages with
respect to which such charge is attributable and (b) are segregated for, and
actually paid to, employees providing the services to which the charges are
attributable; the amount of any city, county, state or federal sales, luxury or
excise tax which is added to the selling price or absorbed therein and also paid
to the taxing authority by Lessee; or gaming revenues from slot machines, video
poker games, or similar types of gaming devices. No franchise or capital stock
tax and no income or similar tax based upon income, profits or gross sales as
such shall be deducted from gross sales in any event whatsoever. Each charge or
sale upon installment or credit shall be treated as a sale for the full price in
the month during which such charge or sale shall be made, irrespective of the
time when Lessee shall receive payment therefor. Anything in this definition to
the contrary notwithstanding, Lessee may not permit any licensees,
concessionaires, or subtenants to conduct any business in, on or about the
Premises except with the written consent of Lessor pursuant to Article 12.
4.2.3 The term "restaurant business" as used in this Lease
shall include the operation of a restaurant/nightclub as is currently operated
by Lessee in its other locations under the trade name "Bobby McGee's" as well as
a bar, take-out service, catering service and incidental activities on the
Premises such as dancing, entertainment and games.
4.2.4 Lessee shall keep full, complete, and proper books,
records, and accounts of its daily gross sales, both for cash and on credit, of
each separate department, subtenant, and concessionaire operated at any time in
the Premises. Lessor and its agents and employees shall have the right at any
and all times, during the regular business hours, to examine and inspect all of
the books and records of Lessee, including any sales tax reports pertaining to
the business of Lessee conducted in, upon, or from the Premises, for the purpose
of investigating and verifying the accuracy of any statement of gross sales.
Lessor may once in any calendar year cause an audit of the business of Lessee to
be made by an accountant of Lessor's selection and if the statement of gross
sales previously made to Lessor shall be found to be inaccurate, then and in
that event, there shall be an adjustment and one party shall pay to the other on
demand such sums as may be necessary to settle in full the accurate amount of
said percentage rent that should have been paid for the period or periods
covered by such inaccurate statement or statements. Lessee shall keep all said
records for a minimum of three (3) years. If said audit shall disclose an
inaccuracy in favor of Lessee of greater than a three percent (3%) error with
respect to the amount of gross sales reported by Lessee for the period of said
report, then Lessee shall immediately pay to Lessor the cost of such audit;
otherwise, the cost of such audit shall be paid by Lessor. If such audit shall
disclose any willful or substantial inaccuracies Lessor may, in addition to any
other remedies it may have for Lessee's breach of this Lease, terminate this
Lease.
4.2.5 Notwithstanding the foregoing, any gross sales during
the period prior to January 1, 1996 shall be added to gross sales for the
six-month period ending June 30, 1996, for purposes of determining the
percentage rent payable July 30, 1996. In addition, it shall be presumed that
Lessee paid $14,000.00 per month Base Rent during such period for purposes of
calculating the percentage rent payable July 30, 1996.
4.3 BASE RENT ADJUSTMENT. The Base Rent set forth in Section 1.1.7
shall be adjusted on the Rental Adjustment Dates. Adjustments, if any, shall be
based only upon increases (if any) in the Index, as set forth in Section 1.1.9.
The Index in publication three (3) months before the Lease Term Commencement
Date shall be the "Base Index." The Index in publication three (3) months before
each Rental Adjustment Date shall be the "Comparison Index." As of each Rental
Adjustment Date, the Base Rent payable monthly shall be determined by increasing
the Initial Base Rent by a percentage equal to the percentage increase, if any,
in the applicable Comparison Index over the Base Index. If the Comparison Index
for any Rental Adjustment Date is equal to or less than the Comparison Index for
any preceding Rental Adjustment Date (or the Base Index, in the case of the
First Adjustment Date), the Base Rent for the ensuing period shall remain the
amount of Base Rent payable monthly during the preceding period. When the Base
Rent payable as of each Rental Adjustment Date is determined, Lessor shall
promptly give Lessee written notice of such adjusted Base Rent. The Base Rent as
so adjusted from time to time shall be the "Minimum Rent" for all purposes under
this Lease, if at any Rental Adjustment Date the Index no longer exists in the
form described in this Lease, Lessor may substitute any substantially equivalent
official Index published by the Bureau of Labor Statistics or
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its successor. Lessor shall use any appropriate conversion factors to accomplish
such substitution. The substitute Index shall then become the "Index" hereunder.
4.4 OPERATING EXPENSES. Lessee shall pay during the Term, in addition
to the Base Rent and percentage rent, all expenses relating to the operation of
the Premises, including but not limited to:
a. all expenses incurred in the operation,
maintenance, repair and replacement of the
following: (i) parking areas; (ii) trash
disposal services; (iii) landscaping; (iv)
fire detection systems, including sprinkler
system maintenance and repair; (v) security
services; (vi) the heating, air
conditioning, and fire protection systems
and equipment including fire sprinklers,
including the cost of a preventive
maintenance contract which Lessor may
procure, and (vii) any other service to be
provided by Lessor that is elsewhere in this
Lease stated to be an "Operating Expense";
b. the deductible portion of an insured loss
concerning the Premises;
c. the cost of the premiums for the liability
and property insurance policies to be
maintained by Lessor under Section 8 hereof;
d. the amount of the real property tax paid by
Lessor under Section 10 hereof;
e. the cost of water, gas, electricity and any
other utility servicing the Premises;
f. any other cost and expense to Lessor which
is fairly and equitably attributable to the
Premises.
4.4.1 The inclusion of improvements, facilities and services
set forth in Section 4.4.1.a as being within the definition of Operating
Expenses shall not be deemed to impose an obligation upon Lessor to either
provide said improvements or facilities or to provide those services unless the
Lessor already provides the services or Lessor has agreed elsewhere in this
Lease to provide the same or some of them. Lessor shall not be liable for
damages or loss of any kind caused by accident, breakage, repairs, strikes,
lockout or other labor disturbances or disputes of any character or by any other
cause beyond the reasonable control of Lessor.
4.4.2 Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expense is transmitted to Lessee by Lessor. At Lessor's option, however,
Lessee's Share of annual Operating Expenses may be estimated by Lessor from time
to time and the same shall be payable monthly on the same day as the Base Rent
is due hereunder. If Lessee pays Lessor's estimate of Lessee's Share of
Operating Expenses as aforesaid, Lessor shall transmit to Lessee within sixty
(60) days after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expenses incurred
during the preceding year. If Lessee's payments under this Section 4.4.2 for
said preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be entitled to credit the amount of such overpayment against Lessee's
Share of Operating Expenses next falling due. If Lessee's payments under this
paragraph during said preceding year were less than Lessee's Share as indicated
on said statement, Lessee shall pay to Lessor the amount of the deficiency
within ten (10) days after transmittal by Lessor to Lessee of said statement.
4.5 TAX. Lessee shall be liable for any tax (now or hereafter imposed
by any governmental entity) applicable to or measured by or on the rents or any
other charges payable by Lessee under this Lease, including but not limited to
any commercial rental tax, transaction privilege tax or excise tax with respect
to the rent or other charges or the possession, leasing, operation, use or
occupancy of the Premises, but not including any net income, franchise, capital
stock, estate or inheritance taxes. Lessee shall pay to Lessor at the same time
as Lessee pays its monthly installment of rent and at the same time as Lessee
pays to Lessor any other sum of money hereunder upon which the aforementioned
tax is imposed, an amount equal to such tax. Without limiting the foregoing,
Lessee shall also be liable and responsible for payment of any taxes or license
fees relating to gaming on the Premises.
5. SECURITY DEPOSIT. A $15,000.00 portion of the Security Deposit
specified in Section 1.1.11 is being held by Paragon and shall be applied as set
forth in Section 15. Lessee shall deposit with Lessor upon execution hereof
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the remaining $14,000.00 portion of the Security Deposit specified in Section
1.1.11 as security for Lessee's faithful performance of Lessee's obligations
hereunder. Lessor shall apply such $14,000.00 toward payment of Base Rent due
and payable January 1, 1996 if Lessee is not then in default. If Lessee fails to
pay rent or other charges due hereunder or otherwise defaults with respect to
any provision of this Lease, Lessor may use, apply or retain all or any portion
of said deposit for the payment of any rent or other charge in default or for
the payment of any other sum to which Lessor may become obligated by reason of
Lessee's default or to compensate Lessor for any loss or damage which Lessor may
suffer thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall, within ten (10) days after the date of written demand therefor,
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the Base Rent shall, from time to time,
increase during the Term of this Lease, Lessee shall, at the time of such
increase, deposit with Lessor additional money as a security deposit so that the
total amount of the security deposit held by Lessor shall at all times bear the
same proportion to the then current Base Rent as the initial security deposit
bears to the initial Base Rent set forth In Section 4. Lessor shall not be
required to keep said security deposit separate from its general accounts. If
Lessee performs all of Lessee's obligations hereunder, said deposit or so much
thereof as has not theretofore been applied by Lessor shall be returned, without
payment of interest or other Increment for its use to Lessee (or at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the Term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said security deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the use
specified in Section 1.1.12.
6.2 COMPLIANCE WITH LAW. Lessee shall, at Lessee's expense, promptly
comply with all applicable statutes, ordinances, rules, regulations, orders,
covenants and restrictions of record and requirements of any fire insurance
underwriters or rating bureaus now in effect or which may hereafter come into
effect relating in any manner to the Premises and/or the occupation and use by
Lessee of the Premises. Lessee shall not use or permit the use of the Premises
in any manner that will tend to create waste or a nuisance. Lessee shall, at
Lessee's expense, further comply with the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Responsibility Compensation and Liability Act, and
the Americans With Disabilities Act insofar as such Acts or any of them relate
to Lessee's use and occupancy of the Premises.
Lessee shall also, at Lessee's expense, promptly comply with all
applicable statutes, rules, ordinances, regulations, orders, covenants, and
restrictions of record concerning or relating to gaming activities on the
Premises.
6.3 CONDITION OF PREMISES.
6.3.1 Lessor shall deliver the Premises to Lessee In "'As-Is"
condition, without any representations or warranties.
6.3.2 Except as otherwise provided in this Lease, Lessee
hereby accepts the Premises in their condition existing as of the Commencement
Date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed hereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE.
7.1 LESSOR'S OBLIGATIONS. Except as otherwise set forth in this Lease,
Lessor, at Lessor's expense, shall keep in good condition and repair the
foundations, exterior walls and roof structure of the Premises. Lessor shall
not, however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises nor perform any other maintenance, repair
and/or replacement not specifically the obligation of Lessor pursuant to this
Lease. Lessor shall have no obligation to make repairs under this Section 7.1
until Lessor has received written notice from Lessee of the need for such
repairs. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the
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right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair. With
respect to damage caused by any negligent or intentional act or omission of
Lessee, Lessee's employees, agents, independent contractors or invitees, Lessor
shall have the right, but not the obligation, to make such repairs and/or
replacements as may be necessary or required by reason of such damage and all
such costs and expenses so incurred by Lessor in connection therewith, together
with interest thereon at the rate of eighteen percent (18%) per annum, from the
date of expenditure by Lessor until paid by Lessee, shall become due and payable
as additional rent to Lessor, together with Lessee's next rental installment.
Lessor may require as a condition to Lessor's obligation to commence repairs
and/or replacements that Lessee deposit with Lessor within twenty (20) days
after Lessor sends Lessee a statement therefor in an amount that Lessor
estimates will be necessary to pay for such costs and expenses. If the amount
deposited by Lessee is greater than the actual amount expended by Lessor, the
difference thereof shall be credited by Lessor to Lessee against the next
payment due Lessor from Lessee pursuant to this Lease. If the amount deposited
by Lessee is less than the amount expended by Lessor, Lessee shall pay the
deficiency to Lessor upon demand. If Lessee fails to pay any amount required
pursuant to this paragraph, all of Lessor's cost and expenses in connection with
such repairs and/or replacements or the amount of any deficiency shall bear
interest at the rate of eighteen percent (18%) per annum from the date of
expenditure by Lessor until repaid by Lessee. Lessor shall not be liable for and
Lessee shall not be entitled to any abatement of rent with respect to any injury
to or any interference with Lessee's business arising from any repair,
maintenance, alteration or improvement in business arising from any repair,
maintenance, alteration or improvement in or to any portion of the Premises.
7.2 LESSEE'S OBLIGATIONS.
7.2.1 Except for the items to be maintained by Lessor as set
forth in Section 7.1, Lessee, at Lessee's expense, shall keep in good condition
and repair the Premises and every part thereof including, without limiting the
generality of the foregoing, all plumbing, electrical and lighting facilities
and equipment, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass and skylights located within the Premises
and shall perform any other maintenance, repair and/or replacement not
specifically the obligation of Lessor pursuant to this Lease.
7.2.2 On the last day of the Term hereof or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, broom clean and free of debris.
Any damage or deterioration of the Premises shall not be deemed ordinary wear
and tear if the same could have been prevented by good maintenance practices.
Lessee shall leave the space heaters, air conditioning, heating and plumbing
servicing Utility Installations on the Premises in good operating condition.
7.3 TENANT IMPROVEMENTS. Lessee shall be responsible for all tenant
improvements. Lessee shall submit to Lessor on or before September 10, 1995
three (3) sets of Lessee's proposed construction plans and specifications for
all tenant improvements to be constructed in the Premises and within seven (7)
working days after receipt of Lessee's plans and specifications Lessor shall
either: (a) evidence Its approval by endorsement on one (1) set of said plans
and specifications and return such signed or initialled set to Lessee (whereupon
such approved preliminary plans and specifications shall then constitute the
final plans and specifications for the tenant improvement work, although such
plans may subsequently be amended by Lessee with Lessor's prior approval, which
approval shall be given or refused within seven (7) working days after receipt
of such amended plans and specifications); or (b) refuse such approval if Lessor
shall determine that the same (i) do not conform to the standards of design,
motif, and decor established or adopted by Lessor for the Premises; (ii) would
subject Lessor or the Premises to any additional cost, expense, liability,
violation, fine, penalty, or forfeiture; (iii) would adversely affect the
reputation, character, or nature of the Premises; (iv) would provide for or
require any installation of work which is or might be unlawful, create an
unsound or dangerous condition, or adversely affect the structural soundness of
the Premises or the building; or (v) interfere with or abridge the use and
enjoyment of any adjoining or other properties. If Lessor refuses approval,
Lessor shall advise Lessee within such seven (7) day working period of those
revisions and corrections which Lessor requires and Lessee shall, within ten
(10) days thereafter, submit three (3) sets of proposed plans and
specifications, as so revised or corrected, to Lessor for its approval in
accordance with this paragraph.
All tenant improvements in the Premises ("Lessee's Work") shall be
furnished and installed by Lessee's general contractor or other contractor
employed by Lessee upon the following terms and conditions:
7.3.1 Lessee's contractor must be approved by Lessor, which
approval will not be unreasonably
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withheld;
7.3.2 Prior to commencement of Lessee's Work, Lessee's
contractor shall deliver to Lessor a true, accurate, and complete list of all
subcontractors, suppliers, and materialmen who will be utilized for Lessee's
Work, which list will be certified by Lessee to be true, correct, and complete;
7.3.3 Lessee shall perform and complete Lessee's Work in
accordance with the plans and specifications approved by Lessee and Lessor in
accordance with this Section. Lessee's Work shall be performed and completed at
Lessee's sole cost and expense by Lessee's contractor;
7.3.4 Lessor may require Lessee to provide a lien and
completion bond for Lessee's Work and/or also to present lien waivers to Lessor
for services or materials used in performing Lessee's Work. Upon approval of the
plans and specifications for Lessee's Work in accordance with the provisions of
this Section, Lessee shall thereafter, through its general contractor, commence
and diligently pursue completion of Lessee's Work;
7.3.5 No improvements shall be installed by Lessee unless and
until (i) Lessor has approved the plans and specifications therefor as provided
in this Section, and (ii) Lessee has submitted to Lessor certificates of
insurance evidencing that Lessee's general contractor has in full force and
effect, with Lessor named as an additional insured, contractor's general and
automobile liability insurance coverage and workmen's compensation insurance
against liability arising from claims of workmen in amounts and with insurers
with an A or better rating in the most recent Best's Insurance guide or approved
by Lessor, which approval will not be unreasonably withheld. Lessee shall cause
the insurance described in subparagraph (ii) to be maintained during the period
any construction Is being performed on the Premises and such Insurance shall be
In addition to that required by Section 8 below;
7.3.6 Lessor is hereby granted the right, but not the
obligation, to inspect the Premises from time to time at reasonable times during
construction of Lessee's Work, so long as such entry does not adversely
interfere with the work of Lessee's contractor and subcontractors. Any
inspection by Lessor shall not be a representation by Lessor that there has been
or will be compliance with the plans and specifications for Lessee's Work or
that the construction is free from defective materials or workmanship, nor shall
any inspection by Lessor constitute approval of any certification given to
Lessor.
7.4 ALTERATIONS AND ADDITIONS.
7.4.1 Except as set forth in Section 7.3, Lessee shall not,
without Lessor's prior written consent, make any alterations, additions, or
Utility Installations in, on or about the Premises except for nonstructural
alterations to the Premises not exceeding Twenty Thousand Dollars ($20,000.00)
in cumulative costs, during the Term of this Lease. In any event, whether or not
in excess of Twenty Thousand Dollars ($20,000.00) in cumulative cost, Lessee
shall make no change or alteration to the Premises without Lessor's prior
written consent, which may be given or withheld at Lessor's sole and absolute
discretion. As used in this Section 7.4, the term, "Utility Installation," shall
mean air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, heating and plumbing. Lessor may
require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements to insure Lessor against any liability for mechanics' and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
written approval of Lessor, Lessor may, at any time during the Term of this
Lease, require that Lessee remove any or all of the same and restore the
Premises to the condition that existed immediately prior to the alteration,
improvement, addition or Utility Installations.
7.4.2 Any alterations, additions or Utility Installations in
or about the Premises that Lessee shall desire to make and which require the
consent of the Lessor shall be presented to Lessor in written form, with
detailed plans therefor. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee's acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
7.4.3 Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee or for
use in the Premises, which claims are or may be secured by any mechanics' or
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materialmen's lien against the Premises or Lessee's interest therein. Lessee
shall give Lessor not less than ten (10) days notice in writing prior to the
commencement of any work in the Premises, and Lessor shall have the right to
post notices of nonresponsibility in or on the Premises or the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall at its sole expense, defend itself
and Lessor against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof against the Lessor
or the Premises. Lessor may, however, require Lessee to procure, at Lessee's
cost, a surety bond complying with the provision of A.R.S. ss. 33-1004 so as to
discharge the Premises from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
7.4.4 Subject to Section 7.5, all alterations, additions and
Utility Installations, and all equipment, machinery, and fixtures affixed to or
installed in the premises, whether by Lessor or by Lessee, and whether at
Lessor's expense or Lessee's expense, at Lessor's option, shall either (i) be
the property of Lessor at the expiration or earlier termination of this Lease
and shall not be removed at the expiration of the Term or earlier termination
thereof or, (ii) be removed by Lessee at Lessee's sole cost and expense, and
Lessee shall repair any damage occasioned to the Premises by reason of such
removal. Any personal property of Lessee, including furnishings and trade
fixtures installed by or at the expense of Lessee at the Premises (collectively,
"Lessee's property") that are removable without damage to the Premises, shall be
and remain Lessee's property and, at the expiration of the Term or earlier
termination thereof, shall be removed by Lessee at Lessee's sole cost and
expense. Lessee shall promptly repair any damage to the Premises resulting from
such removal. Any of Lessee's property not removed from the Premises before the
expiration of the Term or earlier termination thereof, at Lessor's option, shall
either become the property of Lessor or may be removed by Lessor and Lessee
shall pay to Lessor the cost of such removal and the cost to repair any damage
occasioned to the Premises by reason of such removal within ten (10) days after
delivery of a statement reflecting the costs of the removal and repair to
Lessee. Any damage to the Premises or to the Premises resulting from Lessee's
use of Lessee's property or of the alterations shall be repaired by Lessee at
Lessee's expense or at Lessor's option by Lessor but at Lessee's expense.
7.5 FURNITURE, FIXTURES AND EQUIPMENT. All furniture, fixtures, and
equipment situated on or in the Premises constitute property of Lessor and are
described In the inventory attached hereto as Exhibit "B" ("the Existing FF&E').
Lessor shall remain the sole and exclusive owner of the Existing FF&E throughout
the Term of this Lease and any option period and it is mutually agreed that
Lessee neither has nor shall acquire any ownership or leasehold interest in the
Existing FF&E by virtue of this Lease. The Existing FF&E shall remain in the
Premises during the Term of this Lease and shall not be disinstalled or removed
from the Premises without Lessor's prior written consent.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the Term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises. Such insurance shall be in an amount of not less than One Million
Dollars ($1,000,000.00). The limits of said insurance shall not, however, limit
the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the Term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor against liability arising out of
the ownership, use, occupancy or maintenance of the Premises in an amount not
less than $1,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during
the Term of this Lease a policy or policies of all risk insurance covering loss
or damage to the Premises (but not Lessee's property, fixtures, equipment or
tenant improvements) in such amount as Lessor may elect, but not to exceed the
full replacement value thereof, as the same may exist from time to time. Lessor
shall obtain and keep in force during the Term of this Lease such other
insurance as Lessor deems advisable. In addition, Lessor may obtain and keep in
force, during the Term of this Lease, a policy of rental loss insurance covering
a period of one year, with loss payable to Lessor, which insurance may also
cover all Operating Expenses for said period. In the event that the Premises
shall suffer an insured loss as defined In Section 10.1.7 hereof, the deductible
amounts under the insurance policies relating to the Premises
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shall be paid by Lessee.
8.4 PAYMENT OF PREMIUM INCREASE. Lessee shall pay the entirety of any
increase in the property insurance premium for the Premises over what it was
immediately prior to the Commencement Date if the Increase is specified by
Lessor's insurance carrier as being caused by the nature of Lessee's occupancy
or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least A, Class XII, or
such other rating as may be required by a lender having a lien on the Premises,
as set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under Section 9.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other and waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils insured against, which
perils occur in, on or about the Premises, whether due to the negligence of
Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee
and Lessor shall, upon obtaining the policies of insurance required, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises. Lessee shall further
indemnify and hold harmless Lessor from and against any and all claims arising
from any breach or default in the performance of any obligation on Lessee's part
to be performed under the terms of this Lease or arising from any act or
omission of Lessee or any of Lessee's agents, independent contractors,
employees, and/or invitees and from and against all costs, attorneys' fees,
expenses and liabilities in the defense of any such claim or any action or
proceeding brought thereon. If any action or proceeding is brought against
Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend
the same at Lessee's expense, by counsel reasonably satisfactory to Lessor, and
Lessor shall cooperate with Lessee in such defense. Lessee, as a material part
of the consideration to Lessor, hereby assumes all risk of damage to property of
Lessee or injury to persons in, upon or about the Premises arising from any
Cause and Lessee hereby waives all claims in respect thereto against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, agents, independent contractors and/or invitees or
any other person in or about the Premises, nor shall Lessor be liable for injury
to the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electrical gas, water
or rain or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or from any other cause, and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
9.1.1 "Premises Partial Damage" shall mean, if the Premises
are damaged or destroyed to the extent that the cost of repair is less than
fifty percent (50%) of the then replacement cost of the Premises.
9.1.2 "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair Is fifty percent
(50%) or more of the then replacement cost of the Premises.
9.1.3 "Premises Building Partial Damage" shall mean if the
building of which the Premises are a
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part is damaged or destroyed to the extent that the cost to repair is less than
fifty percent (50%) of the then replacement cost of the building.
9.1.4 "Premises Building Total Destruction" shall mean if the
building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then replacement
cost of the building.
9.1.5 "Insured Loss" shall mean damage or destruction which
was covered by an event required to be covered by the insurance described in
Section 9. The fact that an Insured Loss has a deductible amount shall not make
the loss an Uninsured Loss.
9.1.6 "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
9.2.1 Insured Loss. Subject to the provisions of Sections 9,4
and 9.5, if at any time during the Term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall proceed
diligently to cause a repair of such damage to the Premises (but not Lessee's
fixtures, equipment, property or tenant Improvements) as soon as reasonably
possible after Lessor has received the insurance proceeds, and this Lease shall
continue in full force and effect.
9.2.2 Uninsured Loss. Subject to the provisions of Sections
9.4 and 9.5, if at any time during the Term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within sixty (60) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10 day period, this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION.
Subject to the provisions of Sections 9.4 and 9.5, if at any time during the
Term of this Lease there is damage, whether or not it is an Insured Loss, and
which falls into the classifications of either (i) Premises Total Destruction,
or (ii) Premises Building Total Destruction, then Lessor may at Lessor's option
either (i) repair such damage or destruction (but not Lessee's fixtures,
equipment, property or tenant improvements) as soon as reasonably possible after
Lessor has received the insurance proceeds at Lessor's expense, and this Lease
shall continue in full force and effect, or (ii) give written notice to Lessee
within sixty (60) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case, this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
9.4.1 Subject to Section 9.4.2, if at any time during the last
six (6) months of the Term of this Lease there is damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage
or Premises Building Partial Damage, Lessor may at Lessor's option cancel and
terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within sixty (60) days
after the date of occurrence of such damage.
9.4.2 Notwithstanding Section 9.4.1, if Lessee has an option
to extend or renew this Lease, and
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the time within which said option may be exercised has not yet expired, Lessee
shall exercise such option, if it is to be exercised at all, no later than
thirty (30) days after the occurrence of an Insured Loss falling within the
classification of Premises Partial Damage or Premises Building Partial Damage
during the last six (6) months of the Term of this Lease. If Lessee duly
exercises such option during said thirty (30) day period, Lessor shall, at
Lessor's expense, repair such damage (but not Lessee's fixtures, equipment,
property or tenant improvements) as soon as reasonably possible after receipt of
the insurance proceeds, and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option during said thirty (30) day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said thirty (30) day period by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the expiration of said
thirty (30) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
9.5.1 In the event Lessor repairs or restores the Premises
pursuant to the provisions of this Section 9, the rent payable hereunder for the
period during which such damage, repair or restoration continues shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair of
restoration.
9.5.2 If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Section 9 and shall not commence such
repair or restoration within one hundred eighty (180) days after such obligation
shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by
giving Lessor written notice of Lessee's election to do at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6 TERMINATION ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Section 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in Section 10.2, applicable to the Premises subject to reimbursement by
Lessee of Lessee's Share of such taxes in accordance with the provisions of
Section 4.4, except as otherwise provided in Section 10.2.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed on the Premises or any portion thereof by any authority having the
direct or indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Lessor in the Premises or in any portion thereof, as against Lessor's right
to rent or other income therefrom, and as against Lessor's business of leasing
the Premises. The term "real property tax" shall also include any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally, any
tax, fee, levy, assessment or charge hereinabove included within the definition
of "real property tax," (ii) the nature of which was hereinbefore included
within the definition of "real property tax," or (iii) which is imposed by
reason of this transaction, any modifications or changes hereto or any transfers
hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's Share of the real property tax liability shall be an equitable
proportion of the real property taxes for all of the land and buildings included
within the tax parcel assessed, such portion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES.
10.4.1 Lessee shall pay at least thirty (30) days prior to
delinquency all taxes, license fees, charges and assessments assessed against
and levied upon fixtures, equipment, leasehold improvements and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said fixtures, equipment, leasehold improvements
and all other personal property of Lessee to be assessed and billed separately
from the real property of Lessor.
10.4.2 If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee's property within ten (10) days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a breach of
this Lease without the need for notice to Lessee under Section 12.6.1. Any sale
or other transfer, including transfer by consolidation, merger or
reorganization, of twenty-five percent (25%) or more of the voting stock of
Lessee if Lessee is a corporation or any sale or other transfer of twenty-five
percent (25%) or more of the partnership interest in Lessee if Lessee is a
partnership or twenty-five percent (25%) or more of the member interests of
Lessee is a limited liability company shall be an assignment for the purpose of
this Section 12.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of Section 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee or to any corporation resulting from the
merger or consolidation with Lessee or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, which consent shall
not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder or
alter the primary liability of Lessee to pay the Base Rent, Operating Expenses
and any other monetary sums payable by Lessee hereunder and to perform all other
obligations to be performed by Lessee hereunder. Lessor may accept rent from any
person other than Lessee pending approval or disapproval of such assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of rent shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the breach of any of the terms or conditions of this
Section 12 or this Lease. Consent to one assignment shall not be deemed consent
to any subsequent assignment. In the event of a default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee or any successor of Lessee, and
without obtaining its or their consent thereto and such action shall not relieve
Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases: Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income
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arising from any sublease heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a default shall occur in the
performance of Lessee's obligations under this Lease, Lessee may receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of this or any other assignment of such sublease to Lessor nor by reason
of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease, Lessee agrees that such sublessee shall have the right to rely upon
any such statement and request from Lessor, and that such sublessee shall pay
such rents to Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right to claim against such sublessee or
Lessor for any rents so paid by said sublessee to Lessor.
12.5 ATTORNEYS' FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do,
then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection
therewith.
12.6 PROCEDURE.
12.6.1 If Lessee desires to enter into an assignment or a
sublease, Lessee shall request in writing ('the notice'), at least sixty (60)
days before the effective date of the assignment or sublease, Lessor's consent
to the assignment or sublease and provide the following: (i) the name of the
proposed assignee, sublessee or occupant; (ii) the nature of the proposed
assignee's, sublessee's or occupant's business to be carried an in the Premises;
(iii) the terms and provisions of the proposed assignment or sublease and (iv)
such financial information concerning the proposed assignee, sublessee or
occupant which Lessor shall have requested following its receipt of Lessee's
request for consent.
12.6.2 At any time within forty-five (45) days after Lessor's
receipt of the notice, Lessor may by written notice to Lessee elect either to
(i) consent to the proposed assignment or sublease, or (ii) refuse to consent to
the proposed assignment or sublease. Lessor and Lessee agree (by way of example
and not limitation) that it shall be reasonable for Lessor to withhold its
consent if any of the following situations may exist: (i) the proposed
transferee's use of the Premises conflicts with the permitted use under this
Lease, (ii) in Lessor's reasonable business judgment, the proposed transferee
lacks sufficient business reputation or experience to operate a successful
business of the type and quality permitted under this Lease, (iii) Lessee is in
default pursuant to this Lease, or (iv) the proposed transferee's financial
condition at such time is less favorable than Lessee's financial condition as of
the date of this Lease, or (v) the percentage rent that would be reasonably
anticipated from the sales by the contemplated transferee would reasonably be
expected to be less than that of Lessee hereunder.
12.6.3 Each assignee or other transferee shall assume all
obligations of Lessee under this Lease and shall be and remain liable jointly
and severally with Lessee for the payment of rent and all other monetary
obligations hereunder and for the performance of all the terms, covenants,
conditions and agreements herein contained on Lessee's part to be performed for
the Term.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
13.1.1 The vacating or abandonment of the Premises by Lessee.
13.1.2 The failure by Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder, as and when due,
where such failure shall continue for a period of five (5) days after the date
of written notice thereof from Lessor to Lessee.
13.1.3 The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described In Section 13.1.2 above, where such failure
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shall continue for a period of thirty (30) days after the date of written notice
thereof from Lessor to Lessee; provided, however that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
13.1.4 (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becomes a "Debtor"
as defined in 11 U.S.C. ss. 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. If any provision of this Section 13.1.4 is contrary to any applicable law,
such provision shall be of no force or effect.
13.1.5 The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder was materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
13.2.1 Terminate this Lease, which said termination shall be
evidenced, if at all, only by written notice to Lessee of termination.
13.2.2 Immediately lock out and/or reenter and resume
possession of the Premises or any part thereof (which said lock out and/or
reentry and resumption shall not operate to terminate this Lease), without
compensation to Lessee for any improvements placed upon the Premises, and at
Lessor's option to seize all personal property, furnishings, inventory,
equipment and any other property of Lessee upon the Premises (the "Lessee's
Personal Property") and cause the Lessee's Personal Property to be removed and
stored in a public or private warehouse or elsewhere at Lessor's sole and
absolute discretion at the cost of and for the account of Lessee, all without
service of notice of resort to legal process and without being deemed guilty of
wrongful eviction, forcible entry, trespass or conversion, or becoming liable
for any loss or damage that may be occasioned thereby. In the event of any
default by Lessee under this Lease, Lessee hereby appoints Lessor as its
attorney-in-fact to lock out and/or reenter and resume possession of the
Premises and seize and take possession of the Lessee's Personal Property and
cause the Lessee's Personal Property to be removed and stored in a public or
private warehouse or elsewhere at Lessor's sole and absolute discretion at the
cost of Lessee.
13.2.3 Lessor may, in its own name but acting as agent for
Lessee, relet the Premises or any part thereof for such term or terms (which may
be greater or less than the period that would otherwise have constituted the
balance of the Term of this Lease) and on such conditions (which may include
concessions, such as by way of illustration, but not of limitation, free rent
and alteration of Premises) as Lessor may, in its sole and absolute discretion,
deem appropriate and may collect and receive the rents therefor. Lessor shall in
no way be responsible or liable for any failure to relet the Premises or any
part thereof or any failure to collect any rent due under such reletting. Should
Lessor have re-entered and resumed possession of the Premises or any part
thereof without terminating this Lease, the rentals received by Lessor from such
reletting shall be applied to the following in such order and in such amounts as
Lessor may, in its sole and absolute discretion, deem appropriate: (i) to the
payment of any indebtedness, other than rent, due hereunder from Lessee to
Lessor; (ii) to the payment of rent due and unpaid hereunder; (iii) to the
payment of any costs of such reletting, including but not limited to, broker's
commissions, attorneys' fees and other expenses incurred by Lessor in reentering
and reletting the Premises; (iv) to the payment of the cost of any alterations
and repairs to the Premises; and the residue, if any, shall be held by Lessor
and applied in payment of the above. Should any rental received from such
reletting during any month be less than that required to satisfy items (i)
through (iv), inclusive, then Lessee agrees to pay such deficiency to Lessor
upon demand. If no rental is received during any month, Lessee agrees to pay
such sums of money as is necessary to satisfy items (i) through (iv), inclusive.
Such sums shall be calculated and paid monthly on the date on which the rent
under this Lease became due and payable. Lessor may elect to bring an action to
recover from Lessee for damages caused by Lessee's breach of the Lease. The
filing or
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prosecution of any such action shall not be construed as a termination of this
Lease.
13.2.4 If this Lease is terminated, Lessor at any time
thereafter may bring an action to recover from Lessee damages caused by Lessee's
breach of this Lease. Lessee agrees that such damage will include, but not be
limited to, all unpaid rent and other charges required or which would be
required to be paid by Lessee had this Lease not be terminated. If the Premises
are relet by Lessor for and on behalf of the Lessee, the net proceeds of such
reletting after deducting any and all expenses incurred will be credited against
amounts owed by Lessee to Lessor under this Lease if judgment had not been
entered or will be considered a partial satisfaction of judgment if judgment has
been recovered against Lessee. Expenses incurred to relet the Premises include,
but are not limited to, all repossession costs, brokerage and management
commissions, attorneys' fees, alteration costs, free rent and expenses
associated with preparation for such reletting.
13.2.5 To recover from Lessee all expenses including
attorneys' fees as may be determined by the court without a jury, incurred by
Lessor in recovering possession of the Premises and caring for the Premises and
any part thereof while vacant. In the event Lessor employs the services of an
attorney by reason of Lessee's breach, then any such breach shall,
notwithstanding any action taken by Lessee, not be deemed fully cured until such
time as Lessee has also paid to Lessor an amount equal to the attorneys' fees
incurred by Lessor by reason of Lessee's default.
13.2.6 The term "rent" as used herein shall be deemed to be
and to mean the Base Rent, percentage rent, if applicable, and in such
connection the amount of percentage rent shall be the highest amount paid by
Lessee for any six-month period during the Lease term, Lessee's share of
Operating Expenses, real property taxes, and all other sums required to be paid
by Lessee pursuant to the terms of this Lease.
13.2.7 Lessor shall have the right, but not the obligation,
immediately or at any time after the event of any act of default hereunder by
Lessee without notice, written or otherwise, to cure such default for the
account and at the expense of Lessee. If Lessor at any time by reason of any
such default, is compelled to pay, or elects to pay, any sum of money or to do
any act that will require the payment of any sum of money, or is compelled or
elects to incur any expense, including attorneys' fees, in instituting or
prosecuting or defending any action or proceeding to enforce any of Lessor's
rights hereunder or otherwise, Lessor may recover the sum or sums so paid by
Lessor together with interest at the rate of eighteen percent (18%) per annum
from the date of expenditure by Lessor until repaid by Lessee.
13.2.8 No termination of this Lease by forfeiture or otherwise
nor taking or recovering possession of the Premises, shall deprive Lessor of any
other action, right or remedy against Lessee.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, and in
no event earlier than thirty (30) days after receipt by Lessor of written notice
from Lessee, specifying wherein Lessor has failed to perform such obligations;
provided, however, that if the nature of Lessor's obligations is such that more
than thirty (30) days are required for performance, then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. Lessee agrees to give
any mortgagee and/or deed of trust holder by certified mail a copy of any notice
of default given by Lessee to Lessor, provided that before such notice Lessee
has been notified in writing (by way of notice of assignment of rents and leases
or otherwise) of the address of such mortgagee and/or deed of trust holder,
Lessee further agrees that if Lessor has failed to cure such default within the
time period provided in this Lease, that the mortgagees and/or deed of trust
holders shall have an additional thirty (30) days within which to cure such
default; or if such default cannot be cured within that time, then such
additional time as may be necessary to cure such default (including but not
limited to commencement of foreclosure proceedings, if necessary to effect such
cure) in which event this Lease shall not be terminated while such remedies are
being diligently pursued.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or 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, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee on the due date, then, without any requirement for
notice to Lessee, Lessee shall pay to Lessor a late charge equal to five percent
(5%) of such
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overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's default with respect to such overdue amount nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of any of the aforesaid monetary
obligations of Lessee, then Base Rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding Section 4.1 of any
other provision of this Lease to the contrary.
13.5 LESSEE'S BANKRUPTCY OR INSOLVENCY. If the Lessor is not permitted
to terminate this Lease as hereinabove provided because of the provisions of the
United States Code relating to bankruptcy, as amended ("Bankruptcy Code"), then
Lessee as a Debtor-in-possession, or any trustee for Lessee, agrees promptly,
within no more than fifteen (15) days after request by Lessor to the Bankruptcy
Court or to any court of competent jurisdiction, to assume or reject this Lease
and Lessee on behalf of itself, and any trustee, agrees not to seek or request
an extension or adjournment of any application to assume or reject this Lease by
Lessor with such court. In such event, Lessee or any trustee for Lessee may only
assume this Lease if it (a) cures or provides adequate assurance that all
defaults thereunder will be cured promptly, and, with respect to any monetary
defaults, cures by making a lump sum payment in cash or cash equivalent, (b)
compensates or provides adequate assurance that Lessee or any trustee for Lessee
will promptly compensate Lessor for any actual pecuniary loss to Lessor
resulting from Lessee's defaults, and (c) provides adequate assurance of
performance during the fully stated Term hereof of all of the terms, covenants
and provisions of this Lease to be performed by Lessee. In no event after the
assumption of this Lease shall any then existing default remain uncured for a
period in excess of the earlier of ten (10) days or the time period set forth
for cure herein. Lessor's right to be compensated for damages shall survive any
rejection, assumption or assignment of this Lease. Adequate assurance of
performance of this Lease shall include, without limitation, adequate assurance
(i) of the source of rent reserved hereunder, (ii) that any percentage rents, if
applicable, or additional rent, if applicable, due hereunder will not decline
from the levels anticipated, and (iii) the assumption of any permitted
assignment of this Lease will not breach any provision hereunder. In the event
of the filing of a petition under the Bankruptcy Code, Lessor shall have no
obligation to provide Lessee with any services or utilities as herein required,
unless Lessee shall have paid and be current in all payments of operating costs,
utilities or other charges therefor.
14. CONDEMNATION. If the Premises or any portion thereof is taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are hereunder called "condemnation"), this Lease shall terminate
as to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises is taken by condemnation, Lessee may, at Lessee's option,
exercised in writing within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession), or Lessor may
at Lessor's option exercised by written notice to Lessee, terminate this Lease
as of the date the condemning authority takes possession or title whichever
first occurs. If Lessee or Lessor do not terminate this Lease in accordance with
the foregoing, this Lease shall remain in full force and effect as to the
portion of the promises remaining, except that the rent shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. No reduction of rent shall occur if the only area taken is
that which does not have the Premises located thereon. Any award for the taking
of all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's trade fixtures and removable personal property. In the event
that this Lease is not terminated by reason of such condemnation, Lessor shall
to the extent of severance damages received by Lessor in connection with such
condemnation, which are attributable to the improvements only, repair any damage
to the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE. Paragon holds $15,000,00 received from Lessee. Upon
Lessee's execution of this Lease, Paragon shall receive ownership, possession,
and control of such $15,000.00 as and for its broker's fee. In addition, the
following commissions are to be paid monthly by Lessee to the respective broker
('the Monthly Commission Payments'):
17
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To Paragon To Arbitare
Commencing February 1, 1996
through June 30, 1997 (17 mos,) $ 2,500 $ 490
Commencing July 1, 1997 through -0- $ 490
September 30, 1999
Commencing October 1, 1999 -0- $ 525
through the remaining term of the
Lease
The Monthly Commission Payments shall be paid directly by Lessee to the
respective broker. The Monthly Commission Payments may be deducted from Lessee's
monthly Base Rent payment only if paid concurrently with Lessee's monthly Base
Rent payment. Lessor shall have no liability for brokers' fees or commissions
due and payable pursuant to this paragraph.
15.1 Lessor and Lessee agree that no further fee or commissions are
owed or payable with respect to this Lease unless expressly set forth in a
separate agreement executed between Lessor and the broker(s) named in Section
1.1.4 above, which fee or commission shall be paid in accordance with the terms
of such agreement.
15.2 Lessee represents to Lessor that no broker or sales agent other
than the broker named in Section 1.1.4 above is entitled to any commission or
fee payable in connection with this Lease. Lessee agrees to indemnify and hold
Lessor harmless from claims for fees or commissions which may become payable and
which are claimed to have been incurred by reason of the act or omission of
Lessee.
16. ESTOPPEL CERTIFICATE.
16.1 Each party (as "responding party") shall at any time upon not less
than twenty (20) days prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing, which shall include such information as Lessor or any prospective
purchaser or encumbrancer may reasonably require, including by way of
illustration but not of limitation, (i) certification that this Lease is
unmodified and in full force and effect (or, if modified, states the nature of
such modification and certification that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledgment that there are not, to the responding
party's knowledge, any uncured defaults on the part of the requesting party's
knowledge, any uncured defaults on the part of the requesting party, or
specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises or of the business of the requesting party.
16.2 At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
16.3 If Lessor desires to finance, refinance or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean The Flamingo
Garcia's Joint Venture. In the event of any transfer of fee title to the
Premises or any interest therein, Lessor and its joint venture partners (and in
case of any subsequent transfers, then the grantor) shall be relieved from and
after the date of such transfer of all liability with respect to Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding upon
Lessor's
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successors and assigns, only during their respective periods of ownership.
Lessee agrees that: (a) the obligations of Lessor, if any, under or
with respect to this Lease do not constitute personal obligations of Lessor or
of any of the directors, officers, partners or shareholders of Lessor; (b)
Lessee and all persons and other entities claiming by, through or under Lessee
shall look solely to Lessor's interests in the Premises, including any proceeds
arising therefrom, and not to any other assets of Lessor or any of its officers,
directors, partners or shareholders for satisfaction of any liability of Lessor
in respect of this Lease; and (c) Lessee shall not seek recourse against any of
such directors, officers, partners or shareholders or against any of their
personal assets or any of Lessor's other assets for such satisfaction. The
foregoing provisions do not expand or create new obligations of Lessee under
this Lease. Lessor agrees that the obligations of Lessee do not constitute
personal obligations of the Lessee's directors, officers, partners or
shareholders, but they are the personal (corporate) obligations of Lessee and
Lessee's guarantor.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the rate of
eighteen percent (18%) per annum from the date due until paid.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned hereon. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither real estate broker listed
in Section 1.1.4 hereof nor any cooperating broker on this transaction nor the
Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the Term of this Lease except as otherwise
specifically stated in this Lease.
22. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted in Section 1.1.1 and 1.1.2 for the respective
parties. Either party may by notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice purposes. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addressed as Lessor
may from time to time hereafter designate by notice to Lessee. Notices given as
required shall be deemed received within 72 hours after the same deposited in
the U.S. mail.
23. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
24. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the Term hereof, such
occupancy shall be a tenancy from month to month at double the last month's
rental, upon all the provisions of this Lease pertaining to the obligations of
Lessee, but all Options, if any, granted under the terms of this Lease shall be
deemed terminated and be of no further effect during said month to month
tenancy.
25. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
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26. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
27. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee, this Lease shall bind the parties, their
personal representatives, successors and assigns. To the extent practicable,
this Lease shall be governed by the laws of the State of Arizona and any
litigation concerning this Lease between the parties hereto shall be initiated
in Maricopa County, Arizona.
28. SUBORDINATION.
28.1 This Lease, at Lessor's option, shall be subordinate to any
mortgage, deed of trust, or any other hypothecation or security now or hereafter
placed upon the Premises and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease Is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Lessee, this
Lease and such options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
28.2 Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within ten (10) days after the date of written demand
shall constitute a material default by Lessee hereunder without further notice
to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf
of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name,
place and stead, to execute such documents in accordance with this Section 28.2.
28.3 In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Lessor covering the Premises, the Lessee shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Lessor under this Lease.
29. RIGHT OF FIRST OFFER. During the term of this Lease and any extension or
renewal thereof, provided that Lessee is not then in default hereunder, and as a
condition precedent to any good faith sale or proposed sale by Lessor of any
portion of the Premises ("the Affected Property"), Lessor shall give Lessee
written notice of Lessor's intent to sell the Affected Property and the purchase
price and all material terms of any listing of the Affected Property or any
offer Landlord may have received to purchase the Affected Property, and Lessee
shall thereafter have the right to purchase the Affected Property for the same
purchase price and upon the same material terms as set forth in such written
notice from Lessor to Lessee. Lessee may then exercise its right of purchase by
giving Lessor written notice thereof received by Lessor within fourteen (14)
days after the date Lessee receives the aforementioned written notice from
Lessor together with a refundable earnest money deposit in the amount of Fifty
Thousand Dollars ($50,000.00) in cash or certified funds. If Lessee timely
exercises its right of purchase as provided herein, the parties shall forthwith
and in good faith set up an escrow account and execute all documents necessary
to complete a sale of the Affected Property to Lessee upon the accepted terms.
If Lessee chooses not to exercise its right of purchase as provided herein,
Lessor may thereafter sell the Affected Property upon the terms offered to
Lessee or on terms more favorable to Lessor than those offered to Lessee or for
a purchase price which is not less than ninety-seven and one-half percent
(97.5%) or more than the price offered to Lessee without any further obligation
to Lessee pursuant to this paragraph; provided, however, that Lessor may not
thereafter sell the Affected Property for less than ninety-seven and one-half
percent (97.5%) of the purchase price offered to Lessee or upon material terms,
which are materially less favorable to Lessor than were offered to Lessee unless
and until Lessor again complies with the provisions of this paragraph by written
notice to Lessee that Lessee may have the opportunity to purchase the Affected
Property upon the same terms. If the Affected Property has not been placed in
escrow within twelve (12) months from the date of the expiration of the
aforesaid fourteen (14) day period, the Affected Property must be offered to
Lessee again. For purposes of this Article, a "sale" or "purchase" of the
property shall mean the transfer or conveyance, or a contract or option for the
transfer or
20
<PAGE>
conveyance, of title to the Affected Property. Neither party shall record this
Lease or a memorandum thereof reflecting the rights granted herein. Should
Lessee not exercise its right as hereinbefore set forth, Lessee agrees to
execute such documents, instruments, or writings as Lessor may reasonably
require in order to confirm Lessee's election not to exercise its right of first
refusal. Lessee agrees to execute such document, instrument or writing within
seven (7) days after the date of Lessee's receipt of such document, instrument
or writing. Should Lessor not have received such document, instrument or writing
within said seven (7) day period, then Lessor may send a second notice requiring
Lessee to execute such document, instrument or writing. Should Lessor not have
received such document, instrument or writing duly executed by Lessee within
five (5) days from Lessee's receipt thereof, then and in such event, Lessee
agrees to indemnity and hold Lessor free and harmless from any loss, liability,
cost, or expense, including reasonable attorneys' fees, should Lessee fail or
refuse so to do.
30. ATTORNEYS FEES. If either party brings an action to enforce the terms
hereof or declares rights hereunder, the prevailing party in any such action, on
trial or appeal, shall be entitled to his reasonable attorney's fees to be paid
by the losing party as fixed by the court.
31. LESSOR'S ACCESS. Lessor or Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable. To
the extent Lessor commences alteration or repair work, Lessor shall make
reasonable efforts to avoid disruption of Lessee's restaurant business. Lessor
may, at any time, place on or about the Premises or the Building any ordinary
"For Sale" signs, and Lessor may at any time during the last 120 days of the
Term place on or about the Premises any ordinary "For Lease" signs. All
activities of Lessor pursuant to this Section shall be without abatement of
rent, nor shall Lessor have any liability to Lessee for the same.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary of this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
33. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent which may be given or withheld in Lessor's reasonable
discretion. Under no circumstances shall Lessee place a sign on any roof of the
Premises. Subject to the foregoing, Lessor shall support Lessee's application
for signs to the appropriate county authorities, as well as Lessee's application
to Nevada Power to place signage in the Nevada Power easement. All expenses
concerning such applications shall be borne exclusively by Lessee.
34. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
35. CONSENTS. Except as otherwise specified in this Lease, wherever in this
Lease the consent of one party is required to an act of the other party, such
consent shall not be unreasonably withheld or delayed.
36. GUARANTOR. In the event there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
37. QUIET POSSESSION. Upon Lessee's paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution Is binding upon all parties holding an ownership interest in the
Premises.
38. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises. Lessee assumes all responsibility for the
protection of Lessee, its agents and invitees and the property of Lessee and of
Lessee's agents and invitees
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<PAGE>
from acts of third parties. Nothing herein contained shall prevent Lessor, at
Lessor's sole option, from providing security protection for the Premises or any
portion thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth In Section 4.4 above.
39. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
40. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
41. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
42. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
43. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
44. INABILITY TO PERFORM. This lease and the obligations of Lessee hereunder
shall not be affected or impaired because the Lessor is unable to fulfill any of
its obligations hereunder or is delayed in doing so if such inability or delay
is caused by reason of strike, labor troubles, acts of God or any other cause
beyond the reasonable control of Lessor.
45. LESSOR'S RESERVED RIGHTS. All exterior walls and windows bounding the
Premises, and all space located within the Premises for public building stairs,
elevator shafts, fire towers, flues, vents, stacks, pipe shafts, vertical ducts,
conduits, electric and all other utilities, air conditioning, sinks or other
building facilities, the use thereof and all access thereto through the Premises
for operation, maintenance, repair or replacement thereof, and all other
appurtenant rights, are reserved to Lessor. Lessor further reserves the right
from time to time, without unreasonable interference with Lessee's use, to
install, remove or relocate any of the foregoing to locations which will not
materially interfere with Lessee's use of the Premises; to relocate any pipes,
ducts, conduits, wires and appurtenant meters and equipment included in the
Premises; to make alterations or additions to the Premises.
46. RENTABLE SQUARE FEET. The rentable square feet of the Premises is computed
by measuring the exterior finish of permanent outer walls of the building to the
centerline of the hallway or public corridors and to the centerline of
partitions or other party walls which separate the Premises from adjoining
rentable areas, with no deduction for columns and projections necessary to the
building structure,
47. WINDOW COVERING. Lessee may install, at Lessee's expense, ordinary
window coverings in the Premises such as blinds, drapes, etc. However, Lessee
may not install window film or similar tinting material without Lessor's written
consent.
48. HAZARDOUS MATERIALS.
48.1 DEFINED TERMS. "Environmental Laws" means any one of the
following: Comprehensive
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Environmental Response, Compensation and Liability Act; Resource Conservation
and Recovery Act; Solid Waste Disposal Act; National Environmental Policy Act;
Endangered Species Act; Toxic Substances Control Act; Safe Drinking Water Act;
Clean Water Act; Nevada Hazardous Waste Management Act; Nevada Environmental
Quality Act: Superfund Amendments and Reauthorization Act; regulations
promulgated under each such Act; and any other laws or regulations now in effect
or hereinafter enacted including any applicable state or local environmental
legislation such as, but not limited to, any so called "Superfund" or
"Superlien" laws, or any applicable regulations regulating, relating to, or
imposing liability or standards of conduct concerning any hazardous, toxic, or
dangerous waste, substance or material, including asbestos or any substance or
compound containing asbestos, and any other hazardous, toxic or dangerous
substance or material specifically defined in such regulations. "Hazardous
Material" means and includes, but is not limited to, any hazardous substance,
pollutant, contaminant, or regulated substance defined in the Environmental
Laws.
48.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. Lessee shall, at Lessee's
own expense, comply with all present and hereinafter enacted Environmental Laws,
and any amendments thereof, affecting Lessee's operation on the Premises.
48.3 NOTIFICATION. Lessee shall immediately notify Lessor of any of the
following: (i) any correspondence or communication from any governmental entity
regarding the application of Environmental Laws to the Premises or Lessee's
operation on the Premises; (ii) any change in Lessee's operation on the Premises
that will change or has the potential to change Lessee's or Lessor's obligation
or liabilities under the Environmental Laws.
48.4 INDEMNITY. Lessee shall not cause or permit any Hazardous Material
to be brought upon, kept or used in or about the Premises by Lessee, its agents,
employees, contractors, or invitees, without the prior written consent of Lessor
(which Lessor shall not unreasonably withhold as long as Lessee demonstrates to
Lessor's reasonable satisfaction that such Hazardous Material is necessary or
useful to Lessee's business and will be used, kept and stored in a manner that
complies with all laws regulating any such Hazardous Materials so brought upon
or used or kept in or about the Premises). If Lessee breaches the obligations
stated in the preceding sentence, or if the presence of Hazardous Material on
the Premises caused or permitted by Lessee results in contamination of the
Premises, or if contamination of the Premises by Hazardous Material otherwise
occurs for which Lessee is legally liable to Lessor for damage resulting
therefrom, the Lessee 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 of 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 Project, and sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the Term as a
result of such contamination. This indemnification of Lessor by Lessee includes,
without limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or groundwater on or under the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises caused or permitted by Lessee results in any
contamination of the Premises, Lessee shall promptly take all actions at its
sole expense as are necessary to return the Premises to the condition existing
prior to the introduction of any such Hazardous Material to the Premises;
provided that Lessor's written approval of such actions shall first be obtained,
which approval shall not be unreasonably withheld so long as such actions would
not potentially have any material adverse long-term or short-term effect on the
Premises. Lessee's failure to comply with the terms of this paragraph shall be
restrainable by injunction.
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49. EXHIBITS. All exhibits which are attached hereto are incorporated
herein by reference.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
LESSOR
FLAMINGO RESTAURANT JOINT VENTURE, an
Arizona joint venture
BY /s/ Sam Nocifera, President
---------------------------
Sam Nocifera, its authorized agent
LESSEE:
PERFORMANCE RESTAURANTS OF NEVADA,
INC., a Nevada corporation
By /s/ James W. Brown
-------------------
Its Secretary
24
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me, the undersigned
Notary Public, on this lst day of September, 1995, by Sam Nocifera, the
authorized agent of FLAMINGO RESTAURANT JOINT VENTURE, an Arizona joint venture.
/s/ Barbara H. Holt
----------------------------------------
Notary Public
My Commission Expires:
1/16/96
- --------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me, the undersigned
Notary Public, on this 1st day of September, 1995, by James W. Brown, the
secretary of PERFORMANCE RESTAURANTS OF NEVADA, INC., a Nevada corporation, for
and on behalf of the corporation.
/s/ Barbara H. Holt
----------------------------------------
Notary Public
My Commission Expires:
1/16/96
- --------------------
25
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EXHIBIT "A"
That portion of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4)
of Section 15, Township 21 South, Range 61 East, M.D.M., more particularly
described as follows:
Lot Two (2) as shown by map thereof on file in File 31 of Parcel Maps, page 46,
record June 3, 1980 as Document No. 1194617, Official Records.
TOGETHER WITH AND RESERVING THEREFROM the east 15 feet of the South 50 feet of
Lot One (1) of Parcel Map in File 31 of plats, page 46; the East 15 feet of Lot
Two (2) of Parcel Map in File 31 of plats, page 46; and the West 15 feet of the
South 1560.02 feet of Lot three (3) of Parcel Map in File 31 of plats, page 46,
with right of ingress and egress for roads, pubic utilities and purposes
incidental thereto as disclosed by Instrument No. 1486092.
Memo: Property Address: 1030 E. Flamingo Rd., Las Vegas, NV
26
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All personal property, furniture, fixtures, and equipment situated on or In the
Premises on the Commencement Date
Exhibit "B"
27
WHEN RECORDED, RETURN TO:
- -------------------------
Jay S. Kramer
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, AZ 85004
SECOND AMENDMENT TO
RETAIL PHASE CONSTRUCTION LOAN AGREEMENT,
RETAIL PHASE PROMISSORY NOTE
AND
RETAIL PHASE LEASEHOLD
DEED OF TRUST AND SECURITY AGREEMENT WITH
ASSIGNMENT OF RENTS AND FIXTURE FILING
THIS SECOND AMENDMENT TO RETAIL PHASE CONSTRUCTION LOAN AGREEMENT,
RETAIL PHASE PROMISSORY NOTE AND RETAIL PHASE LEASEHOLD DEED OF TRUST AND
SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING (the "Amendment")
is made as of this 31st day of October, 1995 by and among CAMELBACK PLAZA
DEVELOPMENT L.C., an Arizona limited liability company ("Borrower"), NORWEST
BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"),
the successor-by-merger to Caliber Bank, an Arizona banking corporation
("Caliber"), and PERFORMANCE INDUSTRIES, INC., an Ohio corporation
("Guarantor").
WHEREAS, Borrower and Caliber entered into that certain Retail Phase
Construction Loan Agreement dated as of June 24, 1994 (the "Loan Agreement"),
pursuant to which Lender agreed to advance up to $3,000,000 to Borrower (the
"Construction Loan") for the construction and equipping of the Improvements;
WHEREAS, the Construction Loan is evidenced or secured by, among
others, the Loan Agreement, that certain Retail Phase Promissory Note dated June
24, 1994 from Borrower in favor of Caliber in the original amount of $3,000,000
(the "Note"), that certain Retail Phase Leasehold Construction Deed of Trust and
Security Agreement with Assignment of Rents and Fixture Filing dated June 24,
1994 from Borrower in favor of Caliber, recorded on September 26, 1994 as
Instrument No. 94-0702374, Records of Maricopa County, Arizona (the "Deed of
Trust"), as amended by Amendment to Retail Phase Construction Loan Agreement,
Retail Phase Promissory Note, and Retail Phase Deed of Trust dated September 21,
1994, recorded on September 26, 1994 as Instrument No. 94-0702377, Records of
Maricopa County, Arizona, which encumbers the Mortgaged Property as described
therein, that certain Assignment of Retail Leases dated June 24, 1994 from
Borrower in favor of Caliber, recorded on September 26, 1994 as Instrument No.
94-0702375, Records of Maricopa County, Arizona (the "Assignment of Leases"),
that certain Subordination Agreement (Retail Phase) dated June 24, 1994 from
Guarantor in favor of Caliber, recorded on September 26, 1994 as Instrument No.
94-0702373, Records of Maricopa County, Arizona (the "Subordination Agreement"),
and that certain
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Unconditional Guarantee of Payment dated June 24, 1994 from Guarantor in favor
of Caliber (the "Guaranty") (the Loan Agreement, the Note, the Deed of Trust,
the Assignment of Leases, the Subordination Agreement and the Guaranty and any
other agreement now or hereafter given by Borrower or Guarantor evidencing,
securing or relating to the Loan are sometimes hereinafter referred to
collectively as the "Loan Documents");
WHEREAS, the Loan Agreement provided for a mini-permanent loan upon the
expiration of the Initial Maturity Date of the Note, provided that Borrower
satisfied certain conditions precedent thereto, which conditions precedent were
not satisfied;
WHEREAS, the Construction Loan has been fully advanced and Borrower has
not fulfilled all of the conditions precedent for the final advance under the
Construction Loan;
WHEREAS, Borrower has requested, and Lender has agreed, to extend the
Initial Maturity Date upon the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises set forth above and
the covenants and agreements contained herein, and other consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender,
intending to be legally bound, agree as follows:
1. Interpretation. Except as otherwise defined herein, all capitalized
terms used herein shall have the meanings ascribed thereto in the Loan
Documents. In the event of any conflicts between the terms and provisions of
this Amendment and the terms and provisions of the Loan Documents, the terms and
provisions of this Amendment shall govern and prevail.
2. Conditions Precedent. The effectiveness of this Amendment is subject
to the condition precedent that Lender shall have received on or before the date
hereof the following, in form and substance satisfactory to Lender:
(a) This Amendment, duly executed and delivered by Borrower
and Guarantor.
(b) Certified copies of the resolutions of the boards of
directors of Performance Camelback Development Corp. and Guarantor authorizing
the execution, delivery and performance of this Amendment and any other
documents, agreements or certificates required by Lender or any other Person in
connection with the transactions contemplated by this Amendment.
(c) An incumbency certificate from the Secretary or an
Assistant Secretary of Performance Camelback Development Corp. and Guarantor,
certifying the names and true signatures of the officers of Performance
Camelback Development Corp. and Guarantor authorized to sign this Amendment and
the other documents to be delivered by them hereunder.
(d) Current certificates of good standing for Borrower and
Guarantor issued by the applicable governmental agency of their state of
formation.
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(e) An Amendment to the Restaurant Phase Construction Loan
Agreement, Retail Phase Promissory Note and Retail Phase Leasehold Construction
Deed of Trust and Security Agreement with Assignment of Rents and Fixture Filing
from Borrower and Guarantor in favor of Lender, and satisfaction of all
conditions to the effectiveness thereof.
(f) An opinion of Borrower's and Guarantor's counsel from
legal counsel and in form and substance satisfactory to Lender.
(g) A final as-built survey of the Retail Phase of the
Project.
(h) A Certificate of the Architect that the Improvements have
been completed in accordance with the Plans and Specifications.
(i) Evidence of, and a certificate of insurance naming Lender
as mortgagee satisfactory to Lender with respect to, the fire and extended
coverage insurance policy and rental interruption insurance for the Retail Phase
as required pursuant to Section 4.3.2 of the Loan Agreement, and evidence of
compliance with all other insurance requirements under the Loan Documents and
all insurance requirements under the Ground Lease.
(j) Full and final lien waivers from the Contractor and all
subcontractors and materialmen for the Retail Phase.
(k) Such endorsements to Lender's existing title policy as may
be requested by Lender insuring the continued priority of Lender's lien, in the
same priority as stated in the original title policy, subject only to the
exceptions shown in the title policy and current taxes and assessments.
(l) A Ground Lessor Estoppel Certificate and Agreement in form
and substance satisfactory to Lender.
(m) Evidence satisfactory to Lender that the legal action
instituted by Just For Feet, Inc. against Borrower has been dismissed with
prejudice and/or settled on terms acceptable to Lender, that the space lease
between Borrower and Just For Feet, Inc. has been amended such that the deadline
for occupancy and opening for business of the Hard Rock Cafe has been extended
to no earlier than December 31, 1995, and that $100,000 was paid in cash by
Borrower to Just for Feet, Inc. for reimbursement of tenant improvement expenses
incurred by Just for Feet, Inc.
(n) A Subordination, Non-Disturbance and Attornment Agreement
and an Estoppel Certificate from Just For Feet, Inc., both satisfactory to
Lender.
(o) Final certificates of occupancy for all shell buildings
and tenant improvements for the Mortgaged Property.
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(p) The balance sheets, statements of income and changes in
financial position of Borrower for the fiscal year ending December 31, 1994 and
the year-to-date ending September 30, 1995, accompanied by a statement from the
President or chief financial officer of the managing member of Borrower that the
same have been prepared in accordance with GAAP.
(q) The balance sheets, statements of income and changes in
financial position of Guarantor for the fiscal year ending December 31, 1994 and
the fiscal quarter ending September 30, 1995, accompanied by a statement from
the President or chief financial officer of Guarantor that the same have been
prepared in accordance with GAAP and, with respect to the fiscal year-end
information, certified with an unqualified opinion from independent public
accountants acceptable to the Lender.
(r) Copies of Guarantor's quarterly report on Form 10-Q for
the fiscal quarter ending September 30, 1995 and annual report on Form 10-K for
the fiscal year ending December 31, 1994, together with all exhibits and
schedules thereto, and copies of any reports of Guarantor on Form 8-K, and all
exhibits and schedules thereto, not previously provided to Lender.
(s) All costs and expenses incurred by Lender in connection
with the negotiation, due diligence and documentation of this Amendment and any
other agreements relating to the Mortgaged Property.
(t) Such other documents, instruments, approvals (and, if
requested by the Lender, certified duplicates of executed copies thereof) or
opinions as the Lender may request.
3. Representations and Warranties. Borrower and Guarantor, jointly and
severally, represent and warrant as follows:
(a) Borrower is a limited liability company duly formed and
validly existing under the laws of the State of Arizona.
(b) Guarantor is a corporation duly formed and validly
existing under the laws of the State of Ohio and Guarantor is duly
qualified to transact business as a foreign corporation in the State of
Arizona.
(c) The execution, delivery and performance by Borrower and
Guarantor of this Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment are within their company or corporate
powers, have been duly authorized by all necessary action, do not
contravene (i) their organizational documents or (ii) any law or
contractual restriction binding on or affecting Borrower or Guarantor,
and do not result in or require the creation of any lien, security
interest or other charge or encumbrance (other than pursuant to this
Agreement and the other documents executed in connection herewith) upon
or with respect to any of their properties.
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(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by Borrower
or Guarantor of this Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment.
(e) This Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment are the legal, valid and binding
obligations of Borrower and Guarantor enforceable against them in
accordance with their respective terms (except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally or subject to general principles of equity).
(f) There is no pending or, to the best of Borrower's or
Guarantor's knowledge, threatened action, investigation or proceeding
before any court, governmental agency or arbitrator against or
affecting Borrower, Guarantor or any of their affiliates which, if
adversely determined, would materially adversely affect the financial
condition or operations of Borrower or Guarantor or their affiliates.
(g) The balance sheet of Borrower and the related statements
of income and of changes in financial position of Borrower and for its
fiscal year most recently ended, copies of which have been furnished to
Lender, present fairly the financial condition of Borrower as of such
date and the results of the operations of Borrower for the period ended
on such date, all in accordance with GAAP consistently applied; and
since the date of such statement, there has been no material adverse
change in Borrower's financial condition or operations. The balance
sheet of Guarantor, and the related statements of income and changes in
financial position of Guarantor, for its fiscal year most recently
ended, fairly present the financial condition of Guarantor at such date
and the results of operations for the period then ended, all in
accordance with GAAP consistently applied; and since such date there
has been no material adverse change in Guarantor's financial condition
or operations.
4. Amendments to Loan Agreement. (a) Section 1.16 of the Loan Agreement
is hereby deleted in its entirety and the following inserted therefor:
1.16 "Lender": Norwest Bank Arizona, National
Association, a national banking association, whose address,
for the purpose of this Agreement, and particularly provisions
hereof relating to notice is: Norwest Bank Arizona, 3300 North
Central Avenue, M.S. 9008, Phoenix, AZ 85012-2501, Attn: Ms.
Vicki Slade, Vice President.
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(b) Section 6.4 of the Loan Agreement is hereby deleted in its entirety
and the following inserted therefor:
6.4 Records. Borrower shall maintain, and shall cause
Guarantor to maintain, proper books of record and account, in
which full and correct entries shall be made in accordance
with generally accepted accounting principles, of all its
business and affairs. Borrower shall furnish to Lender, or
cause Guarantor to furnish to Lender:
6.4.1 As soon as available and in any event
within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of Borrower and as soon as
available and in any event within one-hundred twenty (120)
days after the end of each fiscal year of Borrower, balance
sheets, statements of income and changes in financial position
of Borrower for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter
or fiscal year, as applicable, accompanied by a compliance
certificate in the form attached hereto as Exhibit "D" and
incorporated herein by this reference (the "Borrower
Compliance Certificate").
6.4.2 As soon as available and in any event
within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of Guarantor and as soon as
available and in any event within one-hundred twenty (120)
days after the end of each fiscal year of Guarantor, balance
sheets, statements of income and changes in financial position
of Guarantor for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter
or fiscal year, as applicable, accompanied by a statement from
the President or chief financial officer of Guarantor that the
same have been prepared in accordance with GAAP and, with
respect to the fiscal year-end information, certified with an
unqualified opinion from independent public accountants
acceptable to the Lender, together with a compliance
certificate in the form attached hereto as Exhibit "E" and
incorporated herein by this reference (the "Guarantor
Compliance Certificate").
6.4.3 On or before fifteen (15) days after
delivery to the Securities Exchange Commission, copies of
Guarantor's quarterly report on Form 10-Q and annual report on
Form 10-K reports, together with all exhibits and schedules
thereto. On or before five (5) days after delivery to the
Securities Exchange Commission, copies of Guarantor's reports
on Form 8-K, and all exhibits and schedules thereto.
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(c) Section 6 of the Loan Agreement is hereby amended to add the
following:
6.14 Negative Covenants. So long as any indebtedness
of Borrower or Guarantor to Lender remains unpaid, without the
prior written consent of the Lender, Borrower will not do, or
permit to be done, the following:
(a) Make any loan to an affiliate.
(b) Incur any guarantee of any indebtedness of an
affiliate.
(c) Borrow money from, or otherwise create
indebtedness to, any affiliate unless such borrowing or the
creation of such indebtedness is specifically subordinated in
writing to the indebtedness of Borrower and Guarantor to
Lender and the terms and conditions of all such subordinated
borrowings and indebtedness shall be subject to prior written
approval of Lender.
(d) Permit any further encumbrance on the Mortgaged
Property.
(d) Section 7 of the Loan Agreement is hereby amended to add the
following:
7.11 Restaurant Phase Construction Loan Agreement. An
event of default shall occur and be continuing under that
certain Restaurant Phase Construction Loan Agreement dated as
of June 24, 1994 between Borrower and Caliber Bank and any
documents or instruments now or hereafter evidencing, securing
or otherwise relating to the $1,900,000 loan (the "Restaurant
Phase Loan") advanced or to be advances thereunder (together
with any amendments, modifications or supplements thereto, or
restatements thereof, the "Restaurant Phase Loan Documents").
and (e) Section 10 of the Loan Agreement is hereby deleted in its entirety and
the following inserted therefor:
10. MINI-PERMANENT LOAN.
--------------------
Provided that no Event of Default under the
Loan Documents or "event of default" under the Restaurant
Phase Loan Documents has occurred and is continuing on
December 31, 1995, and provided further that Borrower has
complied by such date with the conditions precedent enumerated
in the Mini-Perm Loan Documents (as defined below), the
maturity date of the Construction Loan and the Restaurant
Phase Loan shall be
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extended for a period of forty (40) months from December 31,
1995 (the "Mini-Perm Loan"). Borrower and Lender shall execute
and deliver loan documents in the form attached to the
Restaurant Phase Construction Loan Agreement and incorporated
herein by this reference (the "Mini-Perm Loan Documents").
5. Amendments to Note. (a) Section 2 of the Note is hereby deleted in
its entirety and the following inserted therefor:
2. Initial Term. Commencing on October 31, 1995, and
on the last day of each calendar month thereafter, continuing
to and including December 31, 1995 (the "Initial Maturity
Date"), Maker shall pay installments of interest only on the
balance outstanding hereunder, but with a final payment of all
unpaid principal and interest due and payable on the Initial
Maturity Date.
(b) Section 3 of the Note is hereby deleted in its entirety and the
following inserted therefor:
3. INTENTIONALLY DELETED.
and (c) Exhibits "A" and "B" to the Note are hereby deleted in their entirety.
6. Amendments to Deed of Trust. (a) Paragraphs "TWO" and "THREE" on
page 4 of the Deed of Trust are hereby deleted in their entirety and the
following inserted therefor:
TWO: Payment and performance of each and every
obligation and liability of Trustor and/or Performance
Industries, Inc. ("Guarantor") under that certain Restaurant
Phase Construction Loan Agreement dated as of June 24, 1994
between Borrower and Caliber Bank and any documents or
instruments now or hereafter evidencing or securing the
$1,900,000 loan (the "Restaurant Phase Loan") advanced or to
be advances thereunder (together with any amendments,
modifications or supplements thereto, or restatements thereof,
the "Restaurant Phase Loan Documents").
THREE: Payment of all other monies herein or in the
Loan Documents (as defined below) agreed or provided to be
paid by Trustor or Guarantor.
(b) The first paragraph on page 5 of the Deed of Trust is hereby deleted
in its entirety and the following inserted therefor:
This Deed of Trust, the Note, the Guarantee and any
other agreement now or hereafter given by Trustor or Guarantor
evidencing, securing or otherwise relating to the obligations
under
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the Note are sometimes hereinafter referred to collectively as
the "Loan Documents".
(c) Section 1.2 of the Deed of Trust is hereby amended to add the
following:
Trustor shall not, without the prior written approval of
Beneficiary, create or suffer to exist any mortgage, lien,
charge, encumbrance, easement, or license of any kind on, or
pledge of, the Mortgaged Property.
(d) Section 1.6.4 of the Deed of Trust is hereby deleted in its entirety
and the following inserted therefor:
1.6.4 The architect for the Improvements shall be
required to provide architect's professional liability
insurance with a limit of liability of not less than
$1,000,000.00. This policy shall permit claims to be filed
thereunder for a period of not less than three (3) years
following the completion of the Improvements.
(e) The first paragraph of Section 1.10.1 of the Deed of Trust is hereby
deleted in its entirety and the following inserted therefor:
1.10.1 Trustor will submit to Beneficiary for
approval each lease for leasing any portion of the Property
and each amendment, modification, supplement or restatement of
any lease of any portion of the Property, which approval shall
not be unreasonably withheld by Beneficiary. Beneficiary shall
not withhold its approval of any amendment, modification,
supplement or restatement of any existing lease which does not
release tenant or any other person or entity liable for the
obligations of the tenant under such lease, reduce the rent or
additional rent payments of the tenant or otherwise change the
payment terms under such lease, shorten the lease term, reduce
the size of the leased premises, increase the obligations or
liabilities of the Trustor under such lease or otherwise
change any other material provision of such lease.
(f) The second paragraph of Section 1.12 of the Deed of Trust is hereby
deleted in its entirety and the following inserted therefor:
Trustor shall furnish Beneficiary and shall cause Guarantor to
furnish to Beneficiary:
(a) As soon as available, but in no event
later than 45 days after each fiscal quarter (including
Borrower's and Guarantor's fiscal year-end quarter), an
unaudited balance sheet as of the end of the relevant fiscal
quarter and an unaudited statement
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of income for the same period, setting forth in each case in
comparative form the figures for the corresponding periods of
the preceding year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles
consistently applied and certified as complete and correct,
subject to changes resulting from year end adjustments, by a
principal financial officer of Trustor or Guarantor, as the
case may be, together with the Borrower Compliance Certificate
or Guarantor Compliance Certificate, as applicable, as
required pursuant to the Loan Agreement; and
(b) Within 120 days after the end of each
fiscal year, an unaudited balance sheet of Trustor and an
audited balance sheet of Guarantor, as at the end of such
year, setting forth in comparative form the figures for the
previous calendar year, all in reasonable detail and, with
respect to Guarantor, accompanied by an opinion thereon of
independent certified public accounts, who shall have been
approved by Beneficiary, which opinion shall state that such
financial statements fairly present the financial condition of
Guarantor (subject to such reasonable qualifications as may be
necessary, so long as the substance of the qualification does
not involve a scope limitation imposed by Guarantor on such
accountants, their audit, or audit procedures), that such
financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied
(except for changes in application in which such accountants
concur), that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards, and
accordingly, included such tests of the accounting records and
such other auditing procedures as were considered necessary
under the circumstances, and, in the course of such
examination such accountants did not become aware of any Event
of Default, or act, omission or event that with the giving of
notice and/or passage of time would constitute an Event of
Default, under the Loan Documents. Trustor will furnish
Beneficiary and cause Guarantor to furnish Beneficiary with
such other financial information, reports, and statements, pro
forma or otherwise, as Beneficiary may from time to time
reasonably request concerning the financial affairs and
business operations of Trustor or Guarantor.
(c) On January 1 and July 1 of each year,
current rent rolls and financial and accounting data relative
to the Improvements and operation of the business conducted
therein, in form and substance satisfactory to Beneficiary.
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(d) On or before fifteen (15) days after
delivery to the Securities Exchange Commission, copies of
Guarantor's quarterly report on Form 10-Q and annual report on
Form 10-K reports, together with all exhibits and schedules
thereto. On or before five (5) days after delivery to the
Securities Exchange Commission, copies of Guarantor's reports
on Form 8-K, and all exhibits and schedules thereto.
(g) Section 2.1.1 of the Deed of Trust is hereby deleted in its entirety
and the following inserted therefor:
2.1.1 Breach or default in payment of any principal,
interest or other indebtedness evidenced by the Note and/or
any other indebtedness or payments of money secured hereby,
including, without limitation, the Restaurant Phase Loan
Documents, which is not cured within ten (10) days after the
occurrence of such breach or default; or
(h) all notices to Beneficiary under Section 3.6.1 of the Deed of Trust
shall be addressed as follows:
To Beneficiary: Norwest Bank Arizona
3300 North Central Avenue
M.S. 9008
Phoenix, AZ 85012-2501
Attn: Ms. Vicki Slade, Vice President
With a copy to: Jay S. Kramer
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, AZ 85004-2390
(i) Section 3.14 of the Deed of Trust is hereby deleted in its entirety
and the following inserted therefor:
3.14 Conveyance of Property; Change of Ownership. In
order to protect Beneficiary under this Deed of Trust and the
other Loan Documents, Trustor agrees that if either (i)
Trustor sells, conveys, transfers, disposes of, or leases
(except as provided in Section 1.10.1 of the Deed of Trust)
the Property or any portion thereof, either voluntarily,
involuntarily, or otherwise, or enters into an agreement so to
do, or (ii) if there is any change in the general partners,
shareholders, or members of Trustor without the prior written
consent of Beneficiary (other than transfers as a result of
death or transfers by a natural person to a member or members
of his or her immediate family or transfers by any natural
persons
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in connection with bona fide estate planning), Trustor shall,
not less than thirty (30) days prior to any such event, notify
Beneficiary in writing of the occurrence of any such event,
and Beneficiary, whether or not it received such notice, upon
the occurrence of any one or more of any such events, shall
have the right to declare the obligations under that certain
Restaurant Phase Construction Loan Agreement dated as of June
24, 1994 between Borrower and Caliber Bank and any documents
or instruments now or hereafter evidencing, securing or
otherwise relating to the $1,900,000 loan (the "Restaurant
Phase Loan") advanced or to be advances thereunder (together
with any amendments, modifications or supplements thereto, or
restatements thereof, the "Restaurant Phase Loan Documents")
and the Loan Documents immediately due and payable, together
with all accrued and unpaid interest and other amounts due
hereunder and under the other Loan Documents and under the
Restaurant Phase Loan Documents, which sum shall be applied,
after being applied to payment of all other sums secured
hereby then due and payable in such order as Beneficiary may
determine, to the reduction of the unpaid principal balance of
the Note and the Restaurant Phase Note.
Trustor agrees to submit or cause to be submitted to
Beneficiary within thirty (30) days after December 31 of each
calendar year after the date hereof, without further request
from Beneficiary, and within ten (10) days after any written
request by Beneficiary for the same, a sworn, notarized
certificate signed by Trustor or the general partners or
officer of Trustor stating whether (i) the property encumbered
by this Deed of Trust or any part thereof has been conveyed,
transferred, assigned, sold or leased, and (ii) there has been
any change in the general partners, shareholders, or members
of Trustor.
and (j) Article III of the Deed of Trust is hereby amended to add the following:
3.18 General Indemnification. Trustor agrees to
indemnify and hold Beneficiary harmless from and against any
claim, liability, expense, or cause of action arising out of
Trustor's ownership of the Mortgaged Property (including
environmental liabilities and claims related to any Hazardous
Substance or otherwise), Trustor's construction, use, and
occupancy of the Improvements and the mortgaging of the
Mortgaged Property to Beneficiary.
7. Lien Priority. Borrower and Lender acknowledge and agree that the
lien of the Deed of Trust and any other document evidencing, securing or
guaranteeing the Note and all advances made thereunder are, and shall remain,
prior in lien and in payment to the lien and payment of that certain Restaurant
Phase Leasehold Construction Deed of Trust and Security
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Agreement with Assignment of Rents and Fixture Filing dated June 24, 1994 from
Trustor in favor of Beneficiary, recorded on July 8, 1994 as Instrument No.
94-0528680, Records of Maricopa County, Arizona, as amended by Amendment to
Restaurant Phase Construction Loan Agreement, Restaurant Phase Promissory Note,
and Restaurant Phase Deed of Trust dated September 21, 1994, recorded on
September 26, 1994 as Instrument No. 94-0702378, Records of Maricopa County,
Arizona, and Tenth Amendment to Restaurant Phase Construction Loan Agreement,
Restaurant Phase Promissory Note, and Restaurant Phase Deed of Trust dated
October 31, 1995 between Trustor and Beneficiary, and recorded concurrently
herewith, and the promissory note secured thereby and all advances made
thereunder.
8. Release Of Lender and Caliber.
-----------------------------
(a) As additional consideration for the agreements by Lender
as set forth in this Amendment, Borrower and Guarantor hereby release and
forever discharge Lender and Caliber, and their agents, servants, employees,
directors, officers, attorneys, branches, affiliates, subsidiaries, successors
and assigns and all persons, firms, corporations, and organizations in their
behalf, of and from all damage, loss, claims, demands, liabilities, obligations,
actions and causes of action whatsoever which Borrower or Guarantor may now have
or claim to have against Lender or Caliber, whether presently known or unknown,
and of every nature and extent whatsoever on account of or in any way touching,
concerning, arising out of or founded upon the Note, the Loan Documents or upon
this Amendment, including, without limitation, all such loss or damage of any
kind heretofore sustained, or that may arise as a consequence of the dealings
between the parties prior to the date hereof. The release set forth above shall
not extend to any claim arising after the date hereof to the extent based on
acts or omissions of Lender or Caliber occurring after such date, except that
such release is specifically intended by the parties to include the transactions
leading up to the execution of this Amendment. This Amendment and the covenants
contained in this Section 8 are contractual, and not a mere recital, and the
parties hereto acknowledge and agree that no liability whatsoever is admitted on
the part of any party, except as provided for by the Loan Documents and this
Amendment.
(b) Borrower and Guarantor acknowledge and agree that Lender
is not, and shall not be, obligated in any way to continue or undertake any
loan, financing or other credit arrangement with Borrower, including, without
limitation, any renewal of the indebtedness evidenced by the Note, beyond the
maturity date thereof as set forth therein.
9. Miscellaneous Provisions.
------------------------
(a) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Arizona.
(b) Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall constitute an original and all of which
combined shall constitute one and the same instrument.
(c) Headings. Paragraph or other headings contained in this
Amendment are for reference purposes only and are not intended to affect in any
way the meaning or interpretation of this Amendment.
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(d) Binding Effect. All of the provisions of this Amendment
shall be binding upon and inure to the benefit of Borrower and Lender and their
permitted successors and assigns, including without limitation any successor
trustor or beneficiary under the Deed of Trust.
10. Amendment. The Note and all other Loan Documents, including without
limitation the Guaranty and Subordination Agreement, shall remain in full force
and effect, except as modified by this Amendment, and the liability thereunder,
the liens and security interests granted therein and the priority thereof, and
the continued enforceability thereof, is hereby acknowledged, confirmed and
ratified by Borrower and Guarantor. By execution of this Amendment, Guarantor
acknowledges and agrees that it remains jointly and severally liable for all of
the debts and obligations of Borrower and all debts of Borrower to Guarantor
shall remain subordinate and inferior in all respects to the indebtedness
evidenced by the Note.
11. ARBITRATION. EXCEPT FOR "CORE PROCEEDINGS" UNDER THE UNITED STATES
BANKRUPTCY CODE, THE PARTIES AGREE TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS,
DISPUTES AND CONTROVERSIES BETWEEN OR AMONG THEM, WHETHER IN TORT, CONTRACT OR
OTHERWISE (AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND
OTHER AGENTS) ARISING OUT OF OR RELATING TO IN ANY WAY THIS AMENDMENT OR THE
LOAN DOCUMENTS. ANY ARBITRATION PROCEEDING WILL (A) PROCEED IN PHOENIX, ARIZONA;
(B) BE GOVERNED BY THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES
CODE); AND (C) BE CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES
OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THIS ARBITRATION REQUIREMENT
DOES NOT LIMIT THE RIGHT OF ANY PARTY TO (I) FORECLOSE AGAINST REAL OR PERSONAL
PROPERTY COLLATERAL; (II) EXERCISE SELF-HELP REMEDIES RELATING TO COLLATERAL OR
PROCEEDS OF COLLATERAL SUCH AS SETOFF OR REPOSSESSION; OR (III) OBTAIN
PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE RELIEF, ATTACHMENT
OR THE APPOINTMENT OF A RECEIVER, BEFORE, DURING OR AFTER THE PENDENCY OR ANY
ARBITRATION PROCEEDING. THIS EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT
OR OBLIGATION OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION, INCLUDING THOSE
ARISING FROM THE EXERCISE OF THE ACTIONS DETAILED IN CLAUSES (I), (II) AND (III)
ABOVE. ANY ARBITRATION PROCEEDING WILL BE BEFORE A SINGLE ARBITRATOR SELECTED
ACCORDING TO THE COMMERCIAL ARBITRATION RULES OF THE AAA. THE ARBITRATOR WILL BE
A NEUTRAL ATTORNEY WHO HAS PRACTICED IN THE AREA OF COMMERCIAL LAW FOR A MINIMUM
OF TEN YEARS. THE ARBITRATOR WILL DETERMINE WHETHER OR NOT AN ISSUE IS
ARBITRABLE AND WILL GIVE EFFECT TO THE STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. IN ANY ARBITRATION PROCEEDING, THE ARBITRATOR WILL
DECIDE (BY DOCUMENTS ONLY OR WITH A HEARING AT THE ARBITRATOR'S DISCRETION) ANY
PRE-HEARING MOTIONS WHICH ARE SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE
A CLAIM OR
-14-
<PAGE>
MOTIONS FOR SUMMARY ADJUDICATION. IN ANY ARBITRATION PROCEEDING DISCOVERY WILL
BE PERMITTED AND WILL BE GOVERNED BY THE ARIZONA RULES OF CIVIL PROCEDURE. ALL
DISCOVERY MUST BE COMPLETED NO LATER THAN 20 DAYS BEFORE THE HEARING DATE AND
WITHIN 180 DAYS OF THE COMMENCEMENT OF ARBITRATION PROCEEDINGS. ANY REQUESTS FOR
AN EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY DISPUTES, WILL BE
SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR UPON A SHOWING THAT THE REQUEST
FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S PRESENTATION AND THAT NO ALTERNATIVE
MEANS FOR OBTAINING INFORMATION IS AVAILABLE. THE ARBITRATOR SHALL AWARD COSTS
AND EXPENSES OF THE ARBITRATION PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF
THIS AGREEMENT. EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA,
WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.
------- ------- -------
INITIAL INITIAL INITIAL
[THE REMAINDER OF THIS PAGE
IS LEFT INTENTIONALLY BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BORROWER:
CAMELBACK PLAZA DEVELOPMENT L.C.,
an Arizona limited liability company
By: Performance Camelback
Development Corp., an Arizona
corporation
Managing Member
By: /s/ James W. Brown
-----------------------
Name: James W. Brown
-----------------------
Title: Secretary
-----------------------
GUARANTOR:
PERFORMANCE INDUSTRIES, INC., an Ohio
corporation
By: /s/ James W. Brown
-----------------------
Name: James W. Brown
-----------------------
Title: Treasurer
-----------------------
LENDER:
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking
association
By: /s/ Timothy J. Stouffer
----------------------------
Name: Timothy J. Stouffer
----------------------------
Title: Vice President
----------------------------
-16-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared James W. Brown, the Secretary
of Performance Camelback Development Corp., an Arizona corporation, the managing
member of CAMELBACK PLAZA DEVELOPMENT L.C., an Arizona limited liability
company, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Terri L. Smith
------------------
Notary Public
My Commission Expires:
August 18, 1999
- ---------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared James W. Brown, the Treasurer
of PERFORMANCE INDUSTRIES, INC., an Ohio corporation, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Terri L. Smith
------------------
Notary Public
My Commission Expires:
August 18, 1999
- ---------------
-17-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared Timothy J. Stouffer, the Vice
President of NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking
association, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Terri L. Smith
------------------
Notary Public
My Commission Expires:
August 18, 1999
- ---------------
-18-
<PAGE>
EXHIBIT "D"
BORROWER COMPLIANCE CERTIFICATE
The undersigned, the [President/Chief Financial Officer] of Performance
Camelback Development Corp., the managing member of Camelback Plaza Development
L.C., an Arizona limited liability company (the "Company"), hereby certifies as
follows:
1. I am familiar with the agreements and instruments evidencing,
securing or otherwise relating to the Retail Phase Construction Loan Agreement
dated as of June 24, 1994 between the Company and Caliber Bank ("Caliber"), as
amended, including, without limitation, the Retail Phase Promissory Note dated
June 24, 1994 from the Company in favor of Caliber in the original amount of
$3,000,000, as amended (the "Note"), and the Retail Phase Leasehold Construction
Deed of Trust and Security Agreement with Assignment of Rents and Fixture Filing
dated June 24, 1994 from the Company in favor of Caliber, recorded on September
26, 1994 as Instrument No. 94-0702374, Records of Maricopa County, Arizona, as
amended (collectively, the "Loan Documents").
2. I am familiar with the Ground Lease dated December 15, 1976 between
Bill J. Davis and Betty Davis, Ida E. Davis, William S. Davis and Robert J.
Davis (collectively, "Ground Lessor"), as Lessor, and Douglas P. Simpson and
Janice C. Simpson, d/b/a Bayshore Development Company ("Ground Lessee"), as
Lessee, as amended (the "Ground Lease").
3. In connection with this Certificate, I have reviewed the books and
records of the Company and I am familiar with the affairs of the Company.
4. The financial statements provided together with this Certificate
present fairly, in all material respects, the financial position of the Company
as of [insert appropriate date] and the results of its operations and cash flows
for the period then ended in conformity with generally accepted accounting
principles.
5. To the undersigned knowledge, after diligent investigation, except
as indicated below, the Company is not in default of any of its representations,
warranties, covenants or agreements under the Loan Documents or the Ground Lease
[if any Event of Default, or act, omission or event that with the passage of
time and/or giving of notice would constitute an Event of Default, has occurred
and is continuing, set forth details of such Event of Default or incipient Event
of Default below and the action which the Company proposes to take with respect
thereto]:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATE: , 199 .
----------------------------------- ----
-------------------------------
[Name], [title]
-19-
<PAGE>
EXHIBIT "E"
GUARANTOR COMPLIANCE CERTIFICATE
The undersigned, the [President/Chief Financial Officer] of Performance
Industries, Inc., an Ohio corporation (the "Company"), hereby certifies as
follows:
1. I am familiar with the agreements and instruments evidencing,
securing or otherwise relating to the Retail Phase Construction Loan Agreement
dated as of June 24, 1994 between the Company and Caliber Bank ("Caliber"), as
amended, including, without limitation, the Retail Phase Promissory Note dated
June 24, 1994 from the Company in favor of Caliber in the original amount of
$3,000,000, as amended (the "Note"), and the Retail Phase Leasehold Construction
Deed of Trust and Security Agreement with Assignment of Rents and Fixture Filing
dated June 24, 1994 from the Company in favor of Caliber, recorded on September
26, 1994 as Instrument No. 94-0702374, Records of Maricopa County, Arizona, as
amended, and the Unconditional Guarantee of Payment dated June 24, 1994 from the
Company in favor of Caliber (collectively, the "Loan Documents").
2. In connection with this Certificate, I have reviewed the books and
records of the Company and I am familiar with the affairs of the Company.
3. The financial statements provided together with this Certificate
present fairly, in all material respects, the financial position of the Company
as of [insert appropriate date] and the results of its operations and cash flows
for the period then ended in conformity with generally accepted accounting
principles.
4. To the undersigned knowledge, after diligent investigation, except
as indicated below, the Company is not in default of any of its representations,
warranties, covenants or agreements under the Loan Documents [if any Event of
Default, or act, omission or event that with the passage of time and/or giving
of notice would constitute an Event of Default, has occurred and is continuing,
set forth details of such Event of Default or incipient Event of Default below
and the action which the Company proposes to take with respect thereto]:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATE: , 199 .
------------------------------------ ----
-------------------------------
[Name], [title]
-20-
WHEN RECORDED, RETURN TO:
Jay S. Kramer
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, AZ 85004
TENTH AMENDMENT TO
RESTAURANT PHASE CONSTRUCTION LOAN AGREEMENT,
RESTAURANT PHASE PROMISSORY NOTE
AND
RESTAURANT PHASE LEASEHOLD
DEED OF TRUST AND SECURITY AGREEMENT WITH
ASSIGNMENT OF RENTS AND FIXTURE FILING
THIS TENTH AMENDMENT TO RESTAURANT PHASE CONSTRUCTION LOAN AGREEMENT,
RESTAURANT PHASE PROMISSORY NOTE AND RESTAURANT PHASE LEASEHOLD DEED OF TRUST
AND SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING (the
"Amendment") is made as of this 31st day of October, 1995 by and among CAMELBACK
PLAZA DEVELOPMENT L.C., an Arizona limited liability company ("Borrower"),
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association
("Lender"), the successor-by-merger to Caliber Bank, an Arizona banking
corporation ("Caliber"), and PERFORMANCE INDUSTRIES, INC., an Ohio corporation
("Guarantor").
WHEREAS, Borrower and Caliber entered into that certain Restaurant
Phase Construction Loan Agreement dated as of June 24, 1994, as amended by,
among others, Amendment to Restaurant Phase Construction Loan Agreement,
Restaurant Phase Promissory Note, and Restaurant Phase Deed of Trust dated
September 21, 1994, recorded on September 26, 1994 as Instrument No. 94-0702378,
Records of Maricopa County, Arizona, Second Amendment to Restaurant Phase
Construction Loan Agreement dated April 26, 1995, Third Amendment to Restaurant
Phase Construction Loan Agreement dated May 19, 1995, Fourth Amendment to
Restaurant Phase Construction Loan Agreement dated June 19, 1995, Fifth
Amendment to Restaurant Phase Construction Loan Agreement dated June 26, 1995,
Sixth Amendment to Restaurant Phase Construction Loan Agreement dated July 24,
1995, Seventh Amendment to Restaurant Phase Construction Loan Agreement dated
August 18, 1995, Eighth Amendment to Restaurant Phase Construction Loan
Agreement dated August 30, 1995 and Ninth Amendment to Restaurant Phase
Construction Loan Agreement dated September 26, 1995 (the "Loan Agreement"),
pursuant to which Caliber advanced $1,900,000 to Borrower (the "Construction
Loan"), which Construction Loan was placed in a reserve deposit account (the
"Reserve Account") with Caliber and, simultaneously, Caliber issued an
unconditional letter of credit (the "Original Letter of Credit") in favor of
Hard Rock Cafe Investors, Ltd. XIV, a California limited partnership ("Tenant");
<PAGE>
WHEREAS, the Construction Loan is evidenced by the Loan Agreement and
that certain Restaurant Phase Promissory Note dated June 24, 1994 from Borrower
in favor of Caliber in the original amount of $1,900,000 (the "Note"), and is
secured by, among others, that certain Restaurant Phase Leasehold Construction
Deed of Trust and Security Agreement with Assignment of Rents and Fixture Filing
dated June 24, 1994 from Borrower in favor of Caliber, recorded on July 8, 1994
as Instrument No. 94-0528680, Records of Maricopa County, Arizona, as amended by
Amendment to Restaurant Phase Construction Loan Agreement, Restaurant Phase
Promissory Note, and Restaurant Phase Deed of Trust dated September 21, 1994,
recorded on September 26, 1994 as Instrument No. 94-0702378, Records of Maricopa
County, Arizona (collectively, the "Deed of Trust"), which encumbers the
Mortgaged Property described therein;
WHEREAS, the Original Letter of Credit expired on its own terms without
any draws by Tenant thereunder, but, at the request of Borrower, Lender has
subsequently advanced, in the aggregate, $1,288,575.88 to Hard Rock America
(Phoenix) L.P., a Delaware limited partnership ("HRC"), the assignee of Tenant,
from the Reserve Account (the "Prior Advances");
WHEREAS, the remaining balance held in the Reserve Account,
$611,424.12, shall be applied as a prepayment under the Restaurant Note (which
may be readvanced pursuant to that certain Tri-Party Agreement dated October 31,
1995 among Borrower, Lender and HRC (the "Tri-Party Agreement")); and
WHEREAS, in lieu of issuing a replacement letter of credit in favor of
HRC in the amount of $611,424.12, Borrower, Guarantor, Lender and HRC executed
and delivered the Tri- Party Agreement which provides for the disbursement by
Lender, on behalf of Borrower, to HRC of $611,424.12 upon the terms and
conditions contained therein;
NOW, THEREFORE, in consideration of the premises set forth above and
the covenants and agreements contained herein, and other consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower,
intending to be legally bound, agree as follows:
1. Interpretation. Except as otherwise defined herein, all capitalized
terms used herein shall have the meanings ascribed thereto in the Deed of Trust.
In the event of any conflicts between the terms and provisions of this Amendment
and the terms and provisions of the Loan Documents, the terms and provisions of
this Amendment shall govern and prevail.
2. Conditions Precedent. The effectiveness of this Amendment is subject
to the condition precedent that Lender shall have received on or before the date
hereof the following, in form and substance satisfactory to Lender:
(a) This Amendment, duly executed and delivered by Borrower
and Guarantor.
(b) Certified copies of the resolutions of the boards of
directors of Performance Camelback Development Corp. and Guarantor
authorizing the execution, delivery and performance of this Amendment
and any other documents, agreements or
-2-
<PAGE>
certificates required by Lender or any other Person in connection with
the transactions contemplated by this Amendment.
(c) An incumbency certificate from the Secretary or an
Assistant Secretary of Performance Camelback Development Corp. and
Guarantor, certifying the names and true signatures of the officers of
Performance Camelback Development Corp. and Guarantor authorized to
sign this Amendment and the other documents to be delivered by them
hereunder.
(d) Current certificates of good standing for Borrower and
Guarantor issued by the applicable governmental agency of their state
of formation.
(e) An Amendment to the Retail Phase Construction Loan
Agreement, Retail Phase Promissory Note and Retail Phase Leasehold
Construction Deed of Trust and Security Agreement with Assignment of
Rents and Fixture Filing from Borrower and Guarantor in favor of
Lender, and satisfaction of all conditions to the effectiveness
thereof.
(f) A Cash Collateral Account Agreement from Borrower and
Guarantor in favor of Lender.
(g) A Tri-Party Agreement among Borrower, HRC and Lender.
(h) A commitment fee of $61,250 for the Mini-Perm Loan (as
defined below) commitment (which shall be deemed fully earned upon
payment and shall not be applicable to the indebtedness).
(i) An opinion of Borrower's and Guarantor's counsel from
legal counsel and in form and substance satisfactory to Lender.
(j) Such endorsements to Lender's existing title policy as
may be requested by Lender insuring the continued priority of Lender's
lien, in the same priority as stated in the original title policy,
subject only to the exceptions shown in the title policy and current
taxes and assessments.
(k) A copy of HRC's construction budget and all construction
contracts for the improvements on the Mortgaged Property, certified by
HRC.
(l) A Ground Lessor Estoppel Certificate and Agreement in
form and substance satisfactory to Lender.
(m) Evidence that HRC has been duly formed and is validly
existing as a limited partnership under the laws of the State of
Delaware.
(n) A copy of the Assignment and Assumption of Lessee's
Interest Under Lease between Tenant and HRC.
-3-
<PAGE>
(o) Evidence of compliance with all insurance requirements
under the Loan Documents and the Ground Lease.
(p) The balance sheets, statements of income and changes in
financial position of Borrower for the fiscal year ending December 31,
1994 and the year-to-date ending September 30, 1995, accompanied by a
statement from the President or chief financial officer of the managing
member of Borrower that the same have been prepared in accordance with
GAAP.
(q) The balance sheets, statements of income and changes in
financial position of Guarantor for the fiscal year ending December 31,
1994 and the fiscal quarter ending September 30, 1995, accompanied by a
statement from the President or chief financial officer of Guarantor
that the same have been prepared in accordance with GAAP and, with
respect to the fiscal year-end information, certified with an
unqualified opinion from independent public accountants acceptable to
the Lender.
(r) Copies of Guarantor's quarterly report on Form 10-Q for
the fiscal quarter ending March 31, 1995 and annual report on Form 10-K
for the fiscal year ending December 31, 1994, together with all
exhibits and schedules thereto, and copies of any reports of Guarantor
on Form 8-K, and all exhibits and schedules thereto, not previously
provided to Lender.
(s) All costs and expenses incurred by Lender in connection
with the negotiation, due diligence and documentation of this Amendment
and any other agreements relating to the Mortgaged Property.
(t) Such other documents, instruments, approvals (and, if
requested by the Lender, certified duplicates of executed copies
thereof) or opinions as the Lender may request.
3. Representations and Warranties. Borrower and Guarantor, jointly and
severally, represent and warrant as follows:
(a) Borrower is a limited liability company duly formed and
validly existing under the laws of the State of Arizona.
(b) Guarantor is a corporation duly formed and validly
existing under the laws of the State of Ohio and Guarantor is duly
qualified to transact business as a foreign corporation in the State of
Arizona.
(c) The execution, delivery and performance by Borrower and
Guarantor of this Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment are within their company or corporate
powers, have been duly authorized by all necessary action, do not
contravene (i) their organizational documents or (ii) any law or
contractual restriction binding on or affecting Borrower or Guarantor,
and do not result in or require the creation of any lien, security
interest or other charge or encumbrance (other than
-4-
<PAGE>
pursuant to this Agreement and the other documents executed in
connection herewith) upon or with respect to any of their properties.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by Borrower
or Guarantor of this Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment.
(e) This Amendment and any other documents, agreements or
certificates required by Lender in connection with the transactions
contemplated by this Amendment are the legal, valid and binding
obligations of Borrower and Guarantor enforceable against them in
accordance with their respective terms (except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally or subject to general principles of equity).
(f) There is no pending or, to the best of Borrower's or
Guarantor's knowledge, threatened action, investigation or proceeding
before any court, governmental agency or arbitrator against or
affecting Borrower, Guarantor or any of their affiliates which, if
adversely determined, would materially adversely affect the financial
condition or operations of Borrower or Guarantor or their affiliates.
(g) The balance sheet of Borrower and the related statements
of income and of changes in financial position of Borrower and for its
fiscal year most recently ended, copies of which have been furnished to
Lender, present fairly the financial condition of Borrower as of such
date and the results of the operations of Borrower for the period ended
on such date, all in accordance with GAAP consistently applied; and
since the date of such statement, there has been no material adverse
change in Borrower's financial condition or operations. The balance
sheet of Guarantor, and the related statements of income and changes in
financial position of Guarantor, for its fiscal year most recently
ended, fairly present the financial condition of Guarantor at such date
and the results of operations for the period then ended, all in
accordance with GAAP consistently applied; and since such date there
has been no material adverse change in Guarantor's financial condition
or operations.
4. Amendments to Loan Agreement. (a) Section 1.5 of the Loan
Agreement is hereby deleted in its entirety and the following inserted therefor:
1.5 "Completion Date": December 29, 1995.
(b) Section 1.18 of the Loan Agreement is hereby deleted in its entirety and the
following inserted therefor:
1.18 "Lender": Norwest Bank Arizona, National
Association, a national banking association, whose address,
for the
-5-
<PAGE>
purpose of this Agreement, and particularly provisions hereof
relating to notice is: Norwest Bank Arizona, 3300 North
Central Avenue, M.S. 9008, Phoenix, AZ 85012-2501, Attn: Ms.
Vicki Slade, Vice President.
(c) The first and second paragraphs of Section 2.1 of the Loan Agreement are
hereby deleted in their entirety and the following inserted therefor:
2.1 Note. The Construction Loan is evidenced by and
payable as to principal, interest and premiums, if any, in
accordance with the Note, as it may be amended, modified,
supplemented, restated or replaced from time to time.
(d) Section 6.4 of the Loan Agreement is hereby deleted in its entirety and the
following inserted therefor:
6.4 Records. Borrower shall maintain, and shall cause
Guarantor to maintain, proper books of record and account, in
which full and correct entries shall be made in accordance
with generally accepted accounting principles, of all its
business and affairs. Borrower shall furnish to Lender, or
cause Guarantor to furnish to Lender:
6.4.1 As soon as available and in any event
within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of Borrower and as soon as
available and in any event within one-hundred twenty (120)
days after the end of each fiscal year of Borrower, balance
sheets, statements of income and changes in financial position
of Borrower for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter
or fiscal year, as applicable, accompanied by a compliance
certificate in the form attached hereto as Exhibit "D" and
incorporated herein by this reference (the "Borrower
Compliance Certificate").
6.4.2 As soon as available and in any event
within forty-five (45) days after the end of each of the first
three quarters of each fiscal year of Guarantor and as soon as
available and in any event within one-hundred twenty (120)
days after the end of each fiscal year of Guarantor, balance
sheets, statements of income and changes in financial position
of Guarantor for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter
or fiscal year, as applicable, accompanied by a statement from
the President or chief financial officer of Guarantor that the
same have been prepared in accordance with GAAP and, with
respect to the fiscal year-end information, certified with an
unqualified opinion from independent public
-6-
<PAGE>
accountants acceptable to the Lender, together with a
compliance certificate in the form attached hereto as Exhibit
"E" and incorporated herein by this reference (the "Guarantor
Compliance Certificate").
6.4.3 On or before fifteen (15) days after
delivery to the Securities Exchange Commission, copies of
Guarantor's quarterly report on Form 10-Q and annual report on
Form 10-K reports, together with all exhibits and schedules
thereto. On or before five (5) days after delivery to the
Securities Exchange Commission, copies of Guarantor's reports
on Form 8-K, and all exhibits and schedules thereto.
(e) Section 6 of the Loan Agreement is hereby amended to add the following:
6.14 Negative Covenants. So long as any indebtedness
of Borrower or Guarantor to Lender remains unpaid, without the
prior written consent of the Lender, Borrower will not do, or
permit to be done, the following:
(a) Make any loan to an affiliate.
(b) Incur any guarantee of any indebtedness of an
affiliate.
(c) Borrow money from, or otherwise create
indebtedness to, any affiliate unless such borrowing or the
creation of such indebtedness is specifically subordinated in
writing to the indebtedness of Borrower and Guarantor to
Lender and the terms and conditions of all such subordinated
borrowings and indebtedness shall be subject to prior written
approval of Lender.
(d) Permit any further encumbrance on the Mortgaged
Property.
(f) Section 7 of the Loan Agreement is hereby amended to add the following:
7.11 Retail Phase Construction Loan Agreement. An
event of default shall occur and be continuing under that
certain Retail Phase Construction Loan Agreement dated as of
June 24, 1994 between Borrower and Caliber Bank and any
documents or instruments now or hereafter evidencing, securing
or otherwise relating to the $3,000,000 loan (the "Retail
Phase Loan") advanced or to be advances thereunder (together
with any amendments, modifications or supplements thereto, or
restatements thereof, the "Retail Phase Loan Documents").
-7-
<PAGE>
and (g) Section 10 of the Loan Agreement is hereby deleted in its entirety
and the following inserted therefor:
10. MINI-PERMANENT LOAN.
-------------------
Provided that no Event of Default under the
Loan Documents or "event of default" under the Retail Phase
Loan Documents has occurred and is continuing on December 31,
1995, and provided further that Borrower has complied by such
date with the conditions precedent enumerated in the Mini-Perm
Loan Documents (as defined below), the maturity date of the
Construction Loan and the Retail Phase Loan shall be extended
for a period of forty (40) months from December 31, 1995 (the
"Mini- Perm Loan"). Borrower and Lender shall execute and
deliver loan documents in the form attached hereto as Exhibits
"F-1" and "F-2" and incorporated herein by this reference (the
"Mini-Perm Loan Documents").
5. Amendments to Note. (a) Section 3 of the Note is hereby deleted in
its entirety and the following inserted therefor:
3. INTENTIONALLY DELETED.
(b) Section 4 of the Note is hereby amended to add the following:
Holder has applied the remaining funds held in the Reserve
Account in the amount of $611,424.12 (the "Reserve Account
Prepayment") to the indebtedness evidenced by the Note.
Notwithstanding anything to the contrary contained in the Loan
Agreement, this Note or the other Loan Documents, Maker shall
be deemed to have reborrowed all or any portion of the Reserve
Account Prepayment disbursed by Holder to Hard Rock America
(Phoenix) L.P. ("Tenant"), pursuant to that certain Tri-Party
Agreement dated October 31, 1995 among Maker, Holder and
Tenant (the "Tri-Party Agreement"). To the extent that all or
any portion of the Reserve Account Prepayment has not been
disbursed to Tenant on or before December 31, 1995, Holder
shall advance to Maker under the Exchange Note and deposit
into a bank- controlled, non-interest bearing account the
remainder of the Reserve Account Prepayment. After December
31, 1995, the remainder of the Reserve Account Prepayment
shall bear interest and be subject to all of the terms and
provisions of the Exchange Note and the Loan Documents.
Provided that no demand has been made for the remainder of the
Reserve Account Prepayment on or before January 31, 1995 by
Tenant, any portion of the Reserve Account Prepayment that has
not been disbursed to Tenant on February 8, 1996 shall be
applied as a prepayment of the Note in
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accordance with the terms of the Exchange Note.
Notwithstanding the foregoing, in the event that a final,
non-appealable order is entered requiring Holder to disburse
any portion of the Reserve Account Prepayment applied as a
prepayment of the Note in accordance with the terms of the
Exchange Note, such disbursement shall be added to the
principal amount of the Exchange Note and bear interest and be
subject to all of the terms and provisions of the Exchange
Note and the Loan Documents.
and (c) Exhibits "A" and "B" to the Note are hereby deleted in their entirety.
6. Deed of Trust. (a) Paragraphs "TWO" and "THREE" on page 4 of the
Deed of Trust are hereby deleted in their entirety and the following inserted
therefor:
TWO: Payment of the indebtedness evidenced by that
certain Retail Phase Promissory Note dated June 24, 1994 from
Trustor payable to Beneficiary in the original amount of
$3,000,000 (the "Retail Phase Note"), and any other sums
Trustor or any successor in ownership hereafter may borrow
from Beneficiary (or any successor or assign of Beneficiary)
when evidenced by a promissory note or promissory notes,
reciting that it is secured by this Deed of Trust.
THREE: Payment of all other monies herein or in the
Loan Documents (as defined below) agreed or provided to be
paid by Trustor or Performance Industries, Inc. ("Guarantor").
(b) The first paragraph on page 5 of the Deed of Trust is hereby deleted in its
entirety and the following inserted therefor:
This Deed of Trust, the Note, that certain Tri-Party
Agreement dated October 31, 1995 among Trustor, Beneficiary
and Hard Rock America (Phoenix) L.P. (the "Tri-Party
Agreement"), the Cash Collateral Agreement dated October 31,
1995 among Trustor, Guarantor and Beneficiary (the "Cash
Collateral Agreement") and any other agreement given by
Trustor or Guarantor to evidence or secure the obligations
under the Note are sometimes hereinafter referred to
collectively as the "Loan Documents".
(c) Section 1.2 of the Deed of Trust is hereby amended to add the following:
Trustor shall not, without the prior written approval of
Beneficiary, create or suffer to exist any mortgage, lien,
charge, encumbrance, easement, or license of any kind on, or
pledge of, the Mortgaged Property.
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(d) Section 1.6.4 of the Deed of Trust is hereby deleted in its entirety and the
following inserted therefor:
1.6.4 The architect for the Improvements shall be
required to provide architect's professional liability
insurance with a limit of liability of not less than
$1,000,000.00. This policy shall permit claims to be filed
thereunder for a period of not less than three (3) years
following the completion of the Improvements.
(e) Section 1.10.2 of the Deed of Trust is hereby deleted in its entirety and
the following inserted therefor:
1.10.2 Except for leases for premises of less than
1,000 rentable square feet, a default by Trustor in the
performance of any lease assigned to Beneficiary, by reason of
which default the tenants have the right to cancel such lease
or to claim any diminution of or offset against future rents,
shall, at the option of Beneficiary, constitute a default
hereunder and under the Loan Documents, and Beneficiary shall
have all the rights and remedies herein as if such default had
occurred under this Deed of Trust.
(f) The second paragraph of Section 1.12 of the Deed of Trust is hereby deleted
in its entirety and the following inserted therefor:
Trustor shall furnish Beneficiary and shall cause Guarantor to
furnish to Beneficiary:
(a) As soon as available, but in no event
later than 45 days after each fiscal quarter (including
Borrower's and Guarantor's fiscal year-end quarter), an
unaudited balance sheet as of the end of the relevant fiscal
quarter and an unaudited statement of income for the same
period, setting forth in each case in comparative form the
figures for the corresponding periods of the preceding year,
all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied
and certified as complete and correct, subject to changes
resulting from year end adjustments, by a principal financial
officer of Trustor or Guarantor, as the case may be, together
with the Borrower Compliance Certificate or Guarantor
Compliance Certificate, as applicable, as required pursuant to
the Loan Agreement; and
(b) Within 120 days after the end of each
fiscal year, an unaudited balance sheet of Trustor and an
audited balance sheet of Guarantor, as at the end of such
year, setting forth in comparative form the figures for the
previous calendar year, all in reasonable detail and, with
respect to Guarantor,
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accompanied by an opinion thereon of independent certified
public accounts, who shall have been approved by Beneficiary,
which opinion shall state that such financial statements
fairly present the financial condition of Guarantor (subject
to such reasonable qualifications as may be necessary, so long
as the substance of the qualification does not involve a scope
limitation imposed by Guarantor on such accountants, their
audit, or audit procedures), that such financial statements
have been prepared in accordance with generally accepted
accounting principles consistently applied (except for changes
in application in which such accountants concur), that the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and accordingly,
included such tests of the accounting records and such other
auditing procedures as were considered necessary under the
circumstances, and, in the course of such examination such
accountants did not become aware of any Event of Default, or
act, omission or event that with the giving of notice and/or
passage of time would constitute an Event of Default, under
the Loan Documents. Trustor will furnish Beneficiary and cause
Guarantor to furnish Beneficiary with such other financial
information, reports, and statements, pro forma or otherwise,
as Beneficiary may from time to time reasonably request
concerning the financial affairs and business operations of
Trustor or Guarantor.
(c) On January 1 and July 1 of each year,
current rent rolls and financial and accounting data relative
to the Improvements and operation of the business conducted
therein, in form and substance satisfactory to Beneficiary.
(d) On or before fifteen (15) days after
delivery to the Securities Exchange Commission, copies of
Guarantor's quarterly report on Form 10-Q and annual report on
Form 10-K reports, together with all exhibits and schedules
thereto. On or before five (5) days after delivery to the
Securities Exchange Commission, copies of Guarantor's reports
on Form 8-K, and all exhibits and schedules thereto.
(g) Article I of the Deed of Trust is hereby amended to add the following:
1.26 Completion. Construction of the Improvements
will be made in accordance with the Completion Schedule and
will be completed on or before the Completion Date.
1.27 No Conditions Precedent. There shall be no
amendment to or any change or modification in or any
termination or curtailment of any document, instrument, or
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agreement delivered to Beneficiary as a condition precedent to
effectiveness of this Deed of Trust without the prior written
consent of Beneficiary.
1.28 Construction. All construction of the
Improvements will be accomplished in accordance with the Plans
and Specifications and this Deed of Trust and the other Loan
Documents.
(h) Section 2.1.1 of the Deed of Trust is hereby deleted in its entirety and the
following inserted therefor:
2.1.1 Breach or default in payment of any principal,
interest or other indebtedness evidenced by the Note and/or
any other indebtedness or payments of money secured hereby,
including, without limitation, that certain Retail Phase Note,
which is not cured within ten (10) days after the occurrence
of such breach or default; or
(i) All notices to Beneficiary under Section 3.6.1 of the Deed of Trust shall be
addressed as follows:
To Beneficiary: Norwest Bank Arizona
3300 North Central Avenue
M.S. 9008
Phoenix, AZ 85012-2501
Attn: Ms. Vicki Slade, Vice President
With a copy to: Jay S. Kramer
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, AZ 85004-2390
(j) Section 3.14 of the Deed of Trust is hereby deleted in its entirety and the
following inserted therefor:
3.14 Conveyance of Property; Change of Ownership. In
order to protect Beneficiary under this Deed of Trust and the
other Loan Documents, Trustor agrees that if either (i)
Trustor sells, conveys, transfers, disposes, of, or leases
(except as provided in Section 1.10.1 of the Deed of Trust)
the Property or any portion thereof, either voluntarily,
involuntarily, or otherwise, or enters into an agreement so to
do so, or (ii) if there is any change in the general partners,
shareholders, or members of Trustor without the prior written
consent of Beneficiary (other than transfers as a result of
death or transfers by a natural person to a member or members
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<PAGE>
of his or her immediate family or transfers by any natural
persons in connection with a bona fide estate planning),
Trustor shall, not less than thirty (30) days prior to any
such event, notify Beneficiary in writing of the occurrence of
any such event, and Beneficiary, whether or not it received
such notice, upon the occurrence of any one or more of any
such events, shall have the right to declare the obligations
under that certain Retail Phase Construction Loan Agreement
dated as of June 24, 1994 between Trustor and Caliber Bank and
any documents or instruments now or hereafter evidencing,
securing or relating to the Retail Phase Note (together with
any amendments, modifications or supplements thereto, or
restatements thereof, the "Retail Phase Loan Documents") and
the Loan Documents immediately due and payable, together with
all accrued and unpaid interest and other amounts due
hereunder and under the other Loan Documents and under the
Retail Phase Loan Documents, which sum shall be applied, after
being applied to payment of all other sums secured hereby then
due and payable in such order as Beneficiary may determine, to
the reduction of the unpaid principal balance of the Note and
the Retail Phase Note. In the event that Beneficiary's
obligations under the Tri-Party Agreement have not expired
prior to the declaration by Beneficiary that the obligations
under the Retail Phase Loan Documents and the Loan Documents
are immediately due and payable, Trustor shall deposit with
Beneficiary an amount equal to the then remaining obligation
of Beneficiary under the Tri-Party Agreement, which
Beneficiary shall hold in a bank-controlled, non-interest
bearing account for payment of any obligations of Beneficiary
to HRC under the Tri- Party Agreement.
Trustor agrees to submit or cause to be submitted to
Beneficiary within thirty (30) days after December 31 of each
calendar year after the date hereof, without further request
from Beneficiary, and within ten (10) days after any written
request by Beneficiary for the same, a sworn, notarized
certificate signed by Trustor or the general partners or
officer of Trustor stating whether (i) the property encumbered
by this Deed of Trust or any part thereof has been conveyed,
transferred, assigned, sold or leased, and (ii) there has been
any change in the general partners, shareholders, or members
of Trustor.
and (k) Article III of the Deed of Trust is hereby amended to add the following:
3.18 General Indemnification. Trustor agrees to
indemnify and hold Beneficiary harmless from and against any
claim, liability, expense, or cause of action arising out of
Trustor's ownership of the Mortgaged Property (including
environmental
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<PAGE>
liabilities and claims related to any Hazardous Substance or
otherwise), Trustor's construction, use, and occupancy of the
Improvements and the mortgaging of the Mortgaged Property to
Beneficiary.
7. Lien Priority. Borrower and Lender acknowledge and agree that the
lien of the Deed of Trust and any other document evidencing, securing or
guaranteeing the Note and all advances made thereunder are, and shall remain,
junior and inferior in lien and in payment to the lien and payment of that
certain Retail Phase Leasehold Construction Deed of Trust and Security Agreement
with Assignment of Rents and Fixture Filing dated June 24, 1994 from Borrower in
favor of Lender, recorded on September 26, 1994 as Instrument No. 94-0702374,
Records of Maricopa County, Arizona, as amended by Amendment to Retail Phase
Construction Loan Agreement, Retail Phase Promissory Note, and Retail Phase Deed
of Trust dated September 21, 1994, recorded on September 26, 1994 as Instrument
No. 94-0702377, Records of Maricopa County, Arizona, and Second Amendment to
Retail Phase Construction Loan Agreement, Retail Phase Promissory Note, and
Retail Phase Deed of Trust dated October 31, 1995 between Borrower and Lender,
and recorded concurrently herewith, and the promissory note secured thereby and
all advances made thereunder.
8. Release Of Lender and Caliber.
-----------------------------
(a) As additional consideration for the agreements by Lender
as set forth in this Amendment, Borrower and Guarantor hereby release and
forever discharge Lender and Caliber, and their agents, servants, employees,
directors, officers, attorneys, branches, affiliates, subsidiaries, successors
and assigns and all persons, firms, corporations, and organizations in their
behalf, of and from all damage, loss, claims, demands, liabilities, obligations,
actions and causes of action whatsoever which Borrower or Guarantor may now have
or claim to have against Lender or Caliber, whether presently known or unknown,
and of every nature and extent whatsoever on account of or in any way touching,
concerning, arising out of or founded upon the Note, the Loan Documents or upon
this Amendment, including, without limitation, all such loss or damage of any
kind heretofore sustained, or that may arise as a consequence of the dealings
between the parties prior to the date hereof. The release set forth above shall
not extend to any claim arising after the date hereof to the extent based on
acts or omissions of Lender or Caliber occurring after such date, except that
such release is specifically intended by the parties to include the transactions
leading up to the execution of this Amendment. This Amendment and the covenants
contained in this Section 8 are contractual, and not a mere recital, and the
parties hereto acknowledge and agree that no liability whatsoever is admitted on
the part of any party, except as provided for by the Loan Documents and this
Amendment.
(b) Borrower and Guarantor acknowledge and agree that Lender
is not, and shall not be, obligated in any way to continue or undertake any
loan, financing or other credit arrangement with Borrower, including, without
limitation, any renewal of the indebtedness evidenced by the Note, beyond the
maturity date thereof as set forth therein.
9. Miscellaneous Provisions.
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<PAGE>
(a) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Arizona.
(b) Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall constitute an original and all of which
combined shall constitute one and the same instrument.
(c) Headings. Paragraph or other headings contained in this
Amendment are for reference purposes only and are not intended to affect in any
way the meaning or interpretation of this Amendment.
(d) Binding Effect. All of the provisions of this Amendment
shall be binding upon and inure to the benefit of Borrower and Lender and their
permitted successors and assigns, including without limitation any successor
trustor or beneficiary under this Deed of Trust.
10. Amendment. The Deed of Trust and all other Loan Documents,
including without limitation the Guaranty and Subordination Agreement, shall
remain in full force and effect, except as modified by this Amendment, and the
liability thereunder, the liens and security interests granted therein and the
priority thereof, and the continued enforceability thereof, is hereby
acknowledged, confirmed and ratified by Borrower and Guarantor. By execution of
this Amendment, Guarantor acknowledges and agrees that it remains jointly and
severally liable for all of the debts and obligations of Borrower and all debts
of Borrower to Guarantor shall remain subordinate and inferior in all respects
to the indebtedness evidenced by the Reimbursement Agreement.
11. ARBITRATION. EXCEPT FOR "CORE PROCEEDINGS" UNDER THE UNITED STATES
BANKRUPTCY CODE, THE PARTIES AGREE TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS,
DISPUTES AND CONTROVERSIES BETWEEN OR AMONG THEM, WHETHER IN TORT, CONTRACT OR
OTHERWISE (AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND
OTHER AGENTS) ARISING OUT OF OR RELATING TO IN ANY WAY THIS AMENDMENT OR THE
LOAN DOCUMENTS. ANY ARBITRATION PROCEEDING WILL (A) PROCEED IN PHOENIX, ARIZONA;
(B) BE GOVERNED BY THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES
CODE); AND (C) BE CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES
OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THIS ARBITRATION REQUIREMENT
DOES NOT LIMIT THE RIGHT OF ANY PARTY TO (I) FORECLOSE AGAINST REAL OR PERSONAL
PROPERTY COLLATERAL; (II) EXERCISE SELF-HELP REMEDIES RELATING TO COLLATERAL OR
PROCEEDS OF COLLATERAL SUCH AS SETOFF OR REPOSSESSION; OR (III) OBTAIN
PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE RELIEF, ATTACHMENT
OR THE APPOINTMENT OF A RECEIVER, BEFORE, DURING OR AFTER THE PENDENCY OR ANY
ARBITRATION PROCEEDING. THIS EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT
OR OBLIGATION OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION, INCLUDING THOSE
ARISING FROM THE EXERCISE OF THE ACTIONS DETAILED
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<PAGE>
IN CLAUSES (I), (II) AND (III) ABOVE. ANY ARBITRATION PROCEEDING WILL BE BEFORE
A SINGLE ARBITRATOR SELECTED ACCORDING TO THE COMMERCIAL ARBITRATION RULES OF
THE AAA. THE ARBITRATOR WILL BE A NEUTRAL ATTORNEY WHO HAS PRACTICED IN THE AREA
OF COMMERCIAL LAW FOR A MINIMUM OF TEN YEARS. THE ARBITRATOR WILL DETERMINE
WHETHER OR NOT AN ISSUE IS ARBITRABLE AND WILL GIVE EFFECT TO THE STATUTES OF
LIMITATION IN DETERMINING ANY CLAIM. JUDGMENT UPON THE AWARD RENDERED BY THE
ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. IN ANY ARBITRATION
PROCEEDING, THE ARBITRATOR WILL DECIDE (BY DOCUMENTS ONLY OR WITH A HEARING AT
THE ARBITRATOR'S DISCRETION) ANY PRE-HEARING MOTIONS WHICH ARE SIMILAR TO
MOTIONS TO DISMISS FOR FAILURE TO STATE A CLAIM OR MOTIONS FOR SUMMARY
ADJUDICATION. IN ANY ARBITRATION PROCEEDING DISCOVERY WILL BE PERMITTED AND WILL
BE GOVERNED BY THE ARIZONA RULES OF CIVIL PROCEDURE. ALL DISCOVERY MUST BE
COMPLETED NO LATER THAN 20 DAYS BEFORE THE HEARING DATE AND WITHIN 180 DAYS OF
THE COMMENCEMENT OF ARBITRATION PROCEEDINGS. ANY REQUESTS FOR AN EXTENSION OF
THE DISCOVERY PERIODS, OR ANY DISCOVERY DISPUTES, WILL BE SUBJECT TO FINAL
DETERMINATION BY THE ARBITRATOR UPON A SHOWING THAT THE REQUEST FOR DISCOVERY IS
ESSENTIAL FOR THE PARTY'S PRESENTATION AND THAT NO ALTERNATIVE MEANS FOR
OBTAINING INFORMATION IS AVAILABLE. THE ARBITRATOR SHALL AWARD COSTS AND
EXPENSES OF THE ARBITRATION PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT. EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT
REGARD TO ITS CONFLICT OF LAWS RULES.
------- ------- -------
INITIAL INITIAL INITIAL
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<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
BORROWER:
CAMELBACK PLAZA DEVELOPMENT L.C.,
an Arizona limited liability company
By: Performance Camelback
Development Corp., an Arizona
corporation
Managing Member
By: /s/ James W. Brown
-----------------------
Name: James W. Brown
-----------------------
Title: Secretary
-----------------------
LENDER:
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking
association
By: /s/ Timothy J. Stouffer
----------------------------
Name: Timothy J. Stouffer
----------------------------
Title: Vice President
----------------------------
GUARANTOR:
PERFORMANCE INDUSTRIES, INC., an Ohio
corporation
By: /s/ James W. Brown
-----------------------
Name: James W. Brown
-----------------------
Title: Treasurer
-----------------------
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<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared James W. Brown, the Secretary
of Performance Camelback Development Corp., an Arizona corporation, the managing
member of CAMELBACK PLAZA DEVELOPMENT L.C., an Arizona limited liability
company, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
Terri L. Smith
-------------------
Notary Public
My Commission Expires:
August 18, 1999
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared Timothy J. Stouffer, the Vice
President of NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking
association, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Terri L. Smith
-------------------
Notary Public
My Commission Expires:
August 18, 1999
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<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 14th day of March, 1996, before me, the undersigned notary
public, in and for said state, personally appeared James W. Brown, the Treasurer
of PERFORMANCE INDUSTRIES, INC., an Ohio corporation, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Terri L. Smith
-------------------
Notary Public
My Commission Expires:
August 18, 1999
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EXHIBIT "D"
BORROWER COMPLIANCE CERTIFICATE
The undersigned, the [President/Chief Financial Officer] of Performance
Camelback Development Corp., the managing member of Camelback Plaza Development
L.C., an Arizona limited liability company (the "Company"), hereby certifies as
follows:
1. I am familiar with the agreements and instruments evidencing,
securing or otherwise relating to the Restaurant Phase Construction Loan
Agreement dated as of June 24, 1994 between the Company and Caliber Bank
("Caliber"), as amended, including, without limitation, the Restaurant Phase
Promissory Note dated June 24, 1994 from the Company in favor of Caliber in the
original amount of $1,900,000, as amended (the "Note"), and the Restaurant Phase
Leasehold Construction Deed of Trust and Security Agreement with Assignment of
Rents and Fixture Filing dated June 24, 1994 from the Company in favor of
Caliber, recorded on July 8, 1994 as Instrument No. 94-0528680, Records of
Maricopa County, Arizona, as amended (collectively, the "Loan Documents").
2. I am familiar with the Ground Lease dated December 15, 1976 between
Bill J. Davis and Betty Davis, Ida E. Davis, William S. Davis and Robert J.
Davis (collectively, "Ground Lessor"), as Lessor, and Douglas P. Simpson and
Janice C. Simpson, d/b/a Bayshore Development Company ("Ground Lessee"), as
Lessee, as amended (the "Ground Lease").
3. In connection with this Certificate, I have reviewed the books and
records of the Company and I am familiar with the affairs of the Company.
4. The financial statements provided together with this Certificate
present fairly, in all material respects, the financial position of the Company
as of [insert appropriate date] and the results of its operations and cash flows
for the period then ended in conformity with generally accepted accounting
principles.
5. To the undersigned knowledge, after diligent investigation, except
as indicated below, the Company is not in default of any of its representations,
warranties, covenants or agreements under the Loan Documents or the Ground Lease
[if any Event of Default, or act, omission or event that with the passage of
time and/or giving of notice would constitute an Event of Default, has occurred
and is continuing, set forth details of such Event of Default or incipient Event
of Default below and the action which the Company proposes to take with respect
thereto]:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATE: , 199 .
--------------------------------- ----
---------------------------------
[Name], [title]
<PAGE>
EXHIBIT "E"
GUARANTOR COMPLIANCE CERTIFICATE
The undersigned, the [President/Chief Financial Officer] of Performance
Industries, Inc., an Ohio corporation (the "Company"), hereby certifies as
follows:
1. I am familiar with the agreements and instruments evidencing,
securing or otherwise relating to the Restaurant Phase Construction Loan
Agreement dated as of June 24, 1994 between the Company and Caliber Bank
("Caliber"), as amended, including, without limitation, the Restaurant Phase
Promissory Note dated June 24, 1994 from the Company in favor of Caliber in the
original amount of $1,900,000, as amended (the "Note"), and the Restaurant Phase
Leasehold Construction Deed of Trust and Security Agreement with Assignment of
Rents and Fixture Filing dated June 24, 1994 from the Company in favor of
Caliber, recorded on July 8, 1994 as Instrument No. 94-0528680, Records of
Maricopa County, Arizona, as amended, and the Unconditional Guarantee of Payment
dated June 24, 1994 from the Company in favor of Caliber (collectively, the
"Loan Documents").
2. In connection with this Certificate, I have reviewed the books and
records of the Company and I am familiar with the affairs of the Company.
3. The financial statements provided together with this Certificate
present fairly, in all material respects, the financial position of the Company
as of [insert appropriate date] and the results of its operations and cash flows
for the period then ended in conformity with generally accepted accounting
principles.
4. To the undersigned knowledge, after diligent investigation, except
as indicated below, the Company is not in default of any of its representations,
warranties, covenants or agreements under the Loan Documents [if any Event of
Default, or act, omission or event that with the passage of time and/or giving
of notice would constitute an Event of Default, has occurred and is continuing,
set forth details of such Event of Default or incipient Event of Default below
and the action which the Company proposes to take with respect thereto]:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATE: , 199 .
--------------------------------- ----
---------------------------------
[Name], [title]
CASH COLLATERAL AGREEMENT
THIS CASH COLLATERAL AGREEMENT (as the same may be amended,
supplemented or otherwise modified from time to time, the "Agreement") is made
as of this 31st day of October, 1995 by and among CAMELBACK PLAZA DEVELOPMENT
L.C., an Arizona limited liability company ("Borrower"), PERFORMANCE INDUSTRIES,
INC., an Ohio corporation ("Pledgor"), and NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking association ("Lender"), the successor-by-merger
to Caliber Bank, an Arizona banking corporation ("Caliber").
R E C I T A L S:
WHEREAS, Borrower and Caliber entered into that certain Retail Phase
Construction Loan Agreement dated June 24, 1994, as amended by Amendment to
Retail Phase Construction Loan Agreement, Retail Phase Promissory Note, and
Retail Phase Deed of Trust dated September 21, 1994, recorded on September 26,
1994 as Instrument No. 94-0702377, Records of Maricopa County, Arizona, and
Second Amendment to Retail Phase Construction Loan Agreement, Retail Phase
Promissory Note, and Retail Phase Deed of Trust of even date herewith (as
hereafter amended, modified, supplemented or restated from time to time, the
"Retail Loan Agreement"), pursuant to which Caliber made a construction loan of
up to $3,000,000.00 to Borrower (the "Retail Loan");
WHEREAS, Borrower and Caliber entered into that certain Restaurant
Phase Construction Loan Agreement dated as of June 24, 1994, as amended by,
among others, Amendment to Restaurant Phase Construction Loan Agreement,
Restaurant Phase Promissory Note, and Restaurant Phase Deed of Trust dated
September 21, 1994, recorded on September 26, 1994 as Instrument No. 94-0702378,
Records of Maricopa County, Arizona, Second Amendment to Restaurant Phase
Construction Loan Agreement dated April 26, 1995, Third Amendment to Restaurant
Phase Construction Loan Agreement dated May 19, 1995, Fourth Amendment to
Restaurant Phase Construction Loan Agreement dated June 19, 1995, Fifth
Amendment to Restaurant Phase Construction Loan Agreement dated June 26, 1995,
Sixth Amendment to Restaurant Phase Construction Loan Agreement dated July 24,
1995, Seventh Amendment to Restaurant Phase Construction Loan Agreement dated
August 18, 1995, Eighth Amendment to Restaurant Phase Construction Loan
Agreement dated August 30, 1995 and Ninth Amendment to Restaurant Phase
Construction Loan Agreement dated September 26, 1995 and Tenth Amendment to
Restaurant Phase Construction Loan Agreement, Restaurant Phase Promissory Note,
and Restaurant Phase Deed of Trust of even date herewith (the "Restaurant Loan
Agreement"), pursuant to which Caliber advanced $1,900,000 to Borrower (as
hereafter amended, modified, supplemented or restated from time to time, the
"Restaurant Loan"), which Restaurant Loan was placed in a reserve deposit
account (the "Reserve Account") with Caliber and, simultaneously, Caliber issued
an unconditional letter of credit (the "Original Letter of Credit") in favor of
Hard Rock Cafe Investors, Ltd. XIV, a California limited partnership ("Tenant");
<PAGE>
WHEREAS, the Restaurant Loan is evidenced by the Loan Agreement and
that certain Restaurant Phase Promissory Note dated June 24, 1994 from Borrower
in favor of Caliber in the original amount of $1,900,000, as amended (the
"Restaurant Note"), and is secured by, among others, that certain Restaurant
Phase Leasehold Construction Deed of Trust and Security Agreement with
Assignment of Rents and Fixture Filing dated June 24, 1994 from Borrower in
favor of Caliber, recorded on July 8, 1994 as Instrument No. 94-0528680, Records
of Maricopa County, Arizona, as amended by Amendment to Restaurant Phase
Construction Loan Agreement, Restaurant Phase Promissory Note, and Restaurant
Phase Deed of Trust dated September 21, 1994, recorded on September 26, 1994 as
Instrument No. 94-0702378, Records of Maricopa County, Arizona (collectively,
the "Restaurant Deed of Trust");
WHEREAS, Lender succeeded to the interest of Caliber through the merger
of Caliber with and into Lender;
WHEREAS, the Original Letter of Credit expired on its own terms without
any draws by Tenant thereunder, but, at the request of Borrower, Lender has
subsequently advanced, in the aggregate, $1,288,575.88 to Hard Rock America
(Phoenix) L.P., a Delaware limited partnership ("HRC"), the assignee of Tenant,
from the Reserve Account (the "Prior Advances");
WHEREAS, the remaining balance held in the Reserve Account,
$611,424.12, shall be applied as a prepayment under the Restaurant Note (which
may be readvanced pursuant to that certain Tri-Party Agreement dated October 31,
1995 among Borrower, Lender and HRC (the "Tri-Party Agreement")); and
WHEREAS, in lieu of issuing a replacement letter of credit in favor of
HRC in the amount of $611,424.12, Borrower, Pledgor, Lender and HRC executed and
delivered the Tri- Party Agreement which provides for the disbursement by
Lender, on behalf of Borrower, to HRC of $611,424.12 upon the terms and
conditions contained therein;
WHEREAS, Pledgor executed and delivered that certain Unconditional
Guarantee of Payment dated June 24, 1994 in favor of Lender (the "Guarantee");
WHEREAS, Pledgor has, or will, benefit directly or indirectly from the
making of the Retail Loan, the Restaurant Loan, the Prior Advances and any
disbursements under the Tri-Party Agreement;
WHEREAS, it is a condition precedent to the effectiveness of the Tenth
Amendment to the Restaurant Phase Construction Loan Agreement Construction,
Restaurant Phase Promissory Note and Restaurant Phase Leasehold Deed of Trust
and Security Agreement with Assignment of Rents and Fixture Filing (the "Tenth
Amendment") and the Second Amendment to the Retail Phase Construction Loan
Agreement Construction, Retail Phase Promissory Note and Retail Phase Leasehold
Deed of Trust and Security Agreement with Assignment of Rents and Fixture
-2-
<PAGE>
Filing (the "Second Amendment") that Borrower and Pledgor execute and deliver
this Agreement to Lender;
NOW, THEREFORE, in consideration of TEN AND NO/100 DOLLARS, the
recitals above and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower, Pledgor and Lender,
intending to be legally bound, agree as follows:
1. Definitions. Except as otherwise defined herein, all capitalized
terms used herein shall have the meanings ascribed thereto in the Retail Loan
Agreement or the Restaurant Loan Agreement.
2. Establishment of Cash Collateral Account. Borrower, Pledgor and
Lender agree that concurrently with the execution and delivery of this
Agreement, there is established and shall be maintained at Norwest Bank Arizona,
an interest-bearing cash collateral account with account number 3000507868 in
the name of Lender and designated as the "Camelback Plaza Collateral Account"
(the "Cash Collateral Account") in which Pledgor or Borrower has, or shall,
deposit $1,000,000 (the "Pledged Funds"). From time to time Lender may establish
additional interest-bearing cash collateral accounts for the receipt of Pledged
Funds, which accounts shall be deemed to be included within the Cash Collateral
Account and shall be subject to the terms and conditions hereof.
3. Grant of Security Interest. As collateral security for the prompt
and complete payment when due of all the obligations of Borrower and Pledgor to
Lender under the Retail Loan and the Restaurant Loan and all other obligations
and liabilities of Borrower and Pledgor to Lender, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, arising under, out of, or in connection with, the Retail Loan, the
Tri-Party Agreement, the Guarantee, this Agreement and all other documents
evidencing, securing or otherwise relating to the Retail Loan or the Restaurant
Loan (collectively, the "Loan Documents"), Pledgor does hereby grant, bargain,
sell, assign, pledge, transfer and set over unto the Lender, and its successors
and assigns, all of Pledgor's right, title and interest in and to any Pledged
Funds now or hereafter held or deposited in the Cash Collateral Account.
4. Terms and Conditions.
a. The Cash Collateral Account and all amounts deposited
therein shall be held in the sole dominion and control of Lender and shall be
administered by Lender as a collateral account for the benefit of Lender, and
neither Borrower nor Pledgor shall have any rights or powers with respect to, or
control over, the Cash Collateral Account or any part thereof. Pledgor's sole
right with respect to the Pledged Funds shall be as provided herein.
b. Prior to the occurrence of an Event of Default, the Pledged
Funds shall be applied by Lender for the purposes provided in, and pursuant to,
this Agreement and Lender shall make withdrawals from the Cash Collateral
Account in connection with such application of Pledged Funds. From and after the
occurrence and during the continuation of an Event of
-3-
<PAGE>
Default, Lender may continue to withdraw and apply the Pledged Funds as if no
Event of Default has occurred and is continuing or, in the sole and absolute
discretion of Lender, Lender may apply the Pledged Funds to the Obligations in
the following order: (i) all outstanding costs, expenses, fees and late charges
due to Lender, (ii) interest at the rate or rates specified in the Loan
Documents and (iii) the principal amount of the Obligations. All interest and
other amounts from time to time accrued and paid on the Pledged Funds (i) shall
be paid to Pledgor so long as no Event of Default has occurred and is
continuing, or (ii) if the conditions set forth in clause (i) of this sentence
are not satisfied, shall be retained in the Cash Collateral Account and shall be
applied in accordance with this Agreement.
c. Lender shall have, with respect to the Pledged Funds, all
rights and remedies of a secured party under Article 9 of the Arizona Uniform
Commercial Code and other applicable laws.
5. Release of Pledged Funds. Provided that no Event of Default has
occurred and is continuing, Lender shall release the Pledged Funds from the
Collateral Account upon receipt of the following:
a. Upon execution and delivery of this Agreement and any
documents and instruments to be delivered concurrently herewith, Lender shall
release, for the account of Borrower from the Collateral Account, $100,000 to be
directly applied by Lender, first, to the commitment fee of $61,250 for the
Mini-Perm Loan; second, to Lender's attorneys' fees and costs in the approximate
amount of $30,000, and the remainder, if any, to accrued and unpaid interest
under the Loans.
b. Upon Lender's receipt of the executed Ground Lessor
Estoppel Certificate and Agreement and a copy of the fully executed arbitration
agreement between Borrower and Ground Lessor with respect to the sidewalk
easement, in form and substance reasonably satisfactory to Lender, and Lender's
receipt of evidence satisfactory to Lender that Borrower or Pledgor has paid
$66,667 or more to Balducci's for tenant improvements to the property securing
the Retail Loan, together with invoices or other evidence satisfactory to Lender
showing that such tenant improvements were purchased and/or installed into the
property securing the Retail Loan and evidence that the cost of such tenant
improvements have been fully paid, Lender shall release to Pledgor from the
Collateral Account the actual amount paid by Borrower or Pledgor to Balducci's
for such tenant improvements, but not to exceed the lesser of (i) $66,667 and
(ii) the remaining Pledged Funds then held in the Collateral Account.
c. Upon satisfaction of the conditions in Section 5.b. above
and Lender's receipt of evidence satisfactory to Lender that Borrower or Pledgor
has paid $133,333 or more to Balducci's for tenant improvements to the property
securing the Retail Loan, together with invoices or other evidence satisfactory
to Lender showing that such tenant improvements were purchased and/or installed
into the property securing the Retail Loan and evidence that the cost of such
tenant improvements have been fully paid, Lender shall release to Pledgor from
the Collateral Account the actual amount paid by Borrower or Pledgor to
Balducci's for such tenant
-4-
<PAGE>
improvements less the amount released to Pledgor from the Collateral Account
pursuant to clause b. above, but not to exceed the lesser of (i) $66,667 and
(ii) the remaining Pledged Funds then held in the Collateral Account.
d. Upon satisfaction of the conditions in Section 5.b. above
and Lender's receipt of evidence satisfactory to Lender that Borrower or Pledgor
has paid $220,000 or more to Balducci's for tenant improvements to the property
securing the Retail Loan, together with invoices or other evidence satisfactory
to Lender showing that such tenant improvements were purchased and/or installed
into the property securing the Retail Loan and evidence that the cost of such
tenant improvements have been fully paid, Lender shall release to Pledgor from
the Collateral Account the actual amount paid by Borrower or Pledgor to
Balducci's for such tenant improvements less the amounts released to Pledgor
from the Collateral Account pursuant to clauses b. and c. above, but not to
exceed the lesser of (i) $86,666 and (ii) the remaining Pledged Funds then held
in the Collateral Account.
e. On or before ten (10) business days after satisfaction of
the conditions in Section 5.b. above, receipt of final certificates of occupancy
for all building shells and tenant improvements for the Property and receipt of
operating statements for the Project and a Debt Retirement Coverage Certificate
in the form attached hereto as Exhibit "A" and incorporated herein by this
reference (the "Debt Retirement Coverage Certificate"), certified as true,
correct and complete by the chief financial officer or President of the managing
member of Borrower, together with such additional information as Lender shall
request, for any three-month period ending no earlier than the end of the third
full calendar month of operation of HRC, demonstrating that the real property
and improvements located at or about 26th Street and Camelback Road and
including, HRC, Just For Feet, Sound Warehouse and Balducci's (collectively, the
"Project"), has achieved a "Debt Retirement Coverage Ratio" of 1.5:1.0, in the
aggregate, Lender shall release to Pledgor from the Collateral Account $90,000,
and, thereafter, on or before ten (10) business days after receipt of operating
statements for the Project and a Debt Retirement Coverage Certificate, certified
as true, correct and complete by the chief financial officer or President of the
managing member of Borrower, together with such additional information as Lender
shall request, for three (3) subsequent months (whether or not consecutive)
demonstrating that the Project has achieved a "Debt Retirement Coverage Ratio"
of 1.5:1.0 individually for such month, Lender shall release to Pledgor from the
Collateral Account $30,000 per month, but in no event more than $90,000 in the
aggregate or more than the remaining Pledged Funds then held in the Collateral
Account.
f. On or before ten (10) business days after satisfaction of
the conditions in Section 5.b. above, receipt of final certificates of occupancy
for all building shells and tenant improvements for the Property and receipt of
operating statements for the Project and a Debt Retirement Coverage Certificate
substantiating the below-referenced "Debt Retirement Coverage Ratio", certified
as true, correct and complete by the chief financial officer or President of the
managing member of Borrower, together with such additional information as Lender
shall request, for the six-month period ending upon the latest of (i) October
31, 1996, (ii) the end of the sixth full month after Balducci's commences
payment of rent and additional rent at the lease rate, or (iii) the end of the
sixth full month after the Project demonstrates a "Debt Retirement Coverage
Ratio" of 1.3:1.0 for each of six (6) consecutive months, Lender shall release
to
-5-
<PAGE>
Pledgor from the Collateral Account the lesser of (X) $500,000 or (Y) the
remainder of the Pledged Funds held in the Collateral Account.
For purposes of this Agreement, the following terms shall have the following
meanings:
The term "Debt Retirement Coverage Ratio" shall mean the ratio
of "Net Operating Income" (as hereinafter defined) for each
month to the actual monthly scheduled principal and interest
payments due under the Retail Loan Documents and the
Restaurant Loan Documents, but in no event less than $45,000,
and, after December 31, 1995, the actual monthly scheduled
principal and interest payments due under the Mini-Perm Loan
Documents.
The term "Net Operating Income" shall mean the amount by which
Gross Rental Income (as hereinafter defined) exceeds Expenses
(as hereinafter defined).
The term "Gross Rental Income" shall mean the total of all
rentals, additional rentals, reimbursements, expense, income,
interest and other monies directly or indirectly received by
or on behalf of or credited to Borrower from any person or
entity with respect to Borrower's ownership, use, development,
operation, leasing, franchising, marketing or licensing of the
Property, including, without limitation, price index increases
and other rental adjustments to leases, but, for purposes of
subsection f. above, specifically excluding any percentage
rent income, and for both subsections e. and f., specifically
excluding gain on the sale of assets and extraordinary income.
All rentals, sums or other considerations which are to be
included in Gross Rental Income shall be computed on a cash
accounting basis and shall include for each month all amounts
actually received in such month which are attributable to a
charge arising in such month. Gross Income shall exclude any
prepaid rent or prepaid expense reimbursements.
The term "Expenses" shall mean the sum of all expenses accrued
or paid by or on behalf of Borrower in connection with or
related to the ownership, development, operation and
maintenance of the Property, including, without limitation,
(i) the amount of any taxes and assessments imposed on the
Property required to be paid by Borrower; (ii) all amounts
paid on account of insurance premiums for insurance carried in
connection with the Property, provided that if insurance on
the Property is maintained as part of a blanket policy
covering the Property and other properties, the insurance
premium included in this subparagraph shall be the premium
fairly
-6-
<PAGE>
allocable to the Property; (iii) all operating expenses for
the management, operation, cleaning, leasing, marketing,
maintenance and repair of the Property, properly chargeable
against income according to generally accepted accounting
practice, including wages and payroll costs, management
company fees, outside accounting fees for preparation of tax
returns, attorneys' fees incurred in connection with leasing
the Property or resolving tenant disputes, advertising costs,
utility and heating charges, material costs, maintenance
costs, costs of services, water and sewer charges, and license
fees and business taxes; (iv) leasing commissions; (v) ground
lease rental payments and any other payments required under
the terms of any ground lease in respect of the Property; and
(vi) a reserve for replacements or improvements of a capital
nature equivalent to $0.40 per gross square foot of the
Project per year, but in no event less than $20,000 per year.
Expenses shall not include any allocation or allowance for
depreciation or amortization. Expenses shall be calculated on
a cash accounting basis with the exception of property taxes,
insurance, replacement reserves, operating expenses payable on
other than a monthly basis, and ground lease payments, all of
which shall be calculated on an annual accrual basis and
expensed as if paid in equal monthly installments. Expenses
that are payable monthly shall be deemed paid on the date due,
notwithstanding the actual date of payment.
6. Further Assurances. Borrower or Pledgor will, at any time and from
time to time, execute and deliver such further documents and do such further
acts as shall be required by law or be reasonably requested by Lender to confirm
or further assure the interest of Lender hereunder.
7. No Liability for Lawful Actions. Neither Lender nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be liable for any action lawfully taken or omitted to be taken
by any of them under or in connection with this Agreement (except for gross
negligence or willful misconduct).
8. Notices. All notices, requests, demands or other communications to
or upon the parties hereto shall be deemed to have been given or made when
mailed, delivered or transmitted in accordance with the requirements of Section
9.5 of the Restaurant Loan Agreement.
9. No Failure, etc. No failure to exercise and no delay in exercising
on the part of Lender of any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other power or right. The rights and remedies herein provided
are cumulative and not exclusive of any rights or remedies provided by law.
-7-
<PAGE>
10. Waiver; Amendments. None of the terms and provisions of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing executed by the parties hereto.
11. Representations and Warranties; Covenants.
a. Pledgor hereby represents and warrants to Lender, effective
upon the date hereof and each deposit of Pledged Funds to the Cash Collateral
Account, that:
(1) No filing, recordation, registration or declaration with
or notice to any person or entity is required in connection
with the execution, delivery and performance of this Agreement
by Pledgor or in order to preserve or perfect the first
priority lien and charge intended to be created hereunder in
the Pledged Funds.
(2) Except for the security interest granted to Lender
pursuant to this Agreement, Pledgor is the sole owner of the
Pledged Funds, having good and marketable title thereto, free
and clear of any and all mortgages, liens, security interests,
encumbrances, claims or rights of others.
(3) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering
all or any part of the Pledged Funds is on file or of record
in any public office, except such as may have been filed by
Pledgor in favor of Lender.
(4) This Agreement constitutes a valid and continuing first
lien on and first security interest in the Pledged Funds in
favor of Lender, prior to all other liens, encumbrances,
security interests and rights of others, and is enforceable as
such as against creditors of and purchasers from Pledgor.
b. Without the prior written consent of Lender, Pledgor hereby
covenants and agrees that it will not sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the Pledged Funds,
nor will it create, incur or permit to exist any pledge, lien, mortgage,
hypothecation, security interest, charge, option or any other encumbrance with
respect to any of the Pledged Funds, or any interest therein, except for the
security interest provided for by this Agreement.
c. Pledgor hereby covenants and agrees that it will defend
Lender's right, title and security interest in and to the Pledged Funds against
the claims and demands of all persons whomsoever except to the extent which
arise out of the willful misconduct or gross negligence of Lender.
12. Lender's Expenses and Liabilities. Borrower and Pledgor shall pay
all costs and out-of-pocket expenses of Lender in connection with the
maintenance and operation of the Cash
-8-
<PAGE>
Collateral Account. Borrower and Pledgor also agree to pay all costs of Lender,
including, without limitation, reasonable attorneys' fees, incurred with respect
to the enforcement of Lender's rights hereunder.
13. ARBITRATION. EXCEPT FOR "CORE PROCEEDINGS" UNDER THE UNITED STATES
BANKRUPTCY CODE, THE PARTIES AGREE TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS,
DISPUTES AND CONTROVERSIES BETWEEN OR AMONG THEM, WHETHER IN TORT, CONTRACT OR
OTHERWISE (AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND
OTHER AGENTS) ARISING OUT OF OR RELATING TO IN ANY WAY THIS AGREEMENT. ANY
ARBITRATION PROCEEDING WILL (A) PROCEED IN PHOENIX, ARIZONA; (B) BE GOVERNED BY
THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE); AND (C) BE
CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). THIS ARBITRATION REQUIREMENT DOES NOT LIMIT THE
RIGHT OF ANY PARTY TO (I) FORECLOSE AGAINST REAL OR PERSONAL PROPERTY
COLLATERAL; (II) EXERCISE SELF- HELP REMEDIES RELATING TO COLLATERAL OR PROCEEDS
OF COLLATERAL SUCH AS SETOFF OR REPOSSESSION; OR (III) OBTAIN PROVISIONAL
ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE RELIEF, ATTACHMENT OR THE
APPOINTMENT OF A RECEIVER, BEFORE, DURING OR AFTER THE PENDENCY OR ANY
ARBITRATION PROCEEDING. THIS EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT
OR OBLIGATION OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION, INCLUDING THOSE
ARISING FROM THE EXERCISE OF THE ACTIONS DETAILED IN CLAUSES (I), (II) AND (III)
ABOVE. ANY ARBITRATION PROCEEDING WILL BE BEFORE A SINGLE ARBITRATOR SELECTED
ACCORDING TO THE COMMERCIAL ARBITRATION RULES OF THE AAA. THE ARBITRATOR WILL BE
A NEUTRAL ATTORNEY WHO HAS PRACTICED IN THE AREA OF COMMERCIAL LAW FOR A MINIMUM
OF TEN YEARS. THE ARBITRATOR WILL DETERMINE WHETHER OR NOT AN ISSUE IS
ARBITRABLE AND WILL GIVE EFFECT TO THE STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. IN ANY ARBITRATION PROCEEDING, THE ARBITRATOR WILL
DECIDE (BY DOCUMENTS ONLY OR WITH A HEARING AT THE ARBITRATOR'S DISCRETION) ANY
PRE-HEARING MOTIONS WHICH ARE SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE
A CLAIM OR MOTIONS FOR SUMMARY ADJUDICATION. IN ANY ARBITRATION PROCEEDING
DISCOVERY WILL BE PERMITTED AND WILL BE GOVERNED BY THE ARIZONA RULES OF CIVIL
PROCEDURE. ALL DISCOVERY MUST BE COMPLETED NO LATER THAN 20 DAYS BEFORE THE
HEARING DATE AND WITHIN 180 DAYS OF THE COMMENCEMENT OF ARBITRATION PROCEEDINGS.
ANY REQUESTS FOR AN EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY
DISPUTES, WILL BE SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR UPON A
-9-
<PAGE>
SHOWING THAT THE REQUEST FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S PRESENTATION
AND THAT NO ALTERNATIVE MEANS FOR OBTAINING INFORMATION IN AVAILABLE. THE
ARBITRATOR SHALL AWARD COSTS AND EXPENSES OF THE ARBITRATION PROCEEDING IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. EXCEPT AS OTHERWISE PROVIDED
HEREIN, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ARIZONA, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.
------- ------- -------
INITIAL INITIAL INITIAL
14. WAIVER OF RIGHT TO JURY TRIAL. IN THE EVENT THAT ANY PARTY
EXERCISES ITS RIGHTS TO JUDICIALLY FORECLOSE UPON REAL OR PERSONAL PROPERTY
COLLATERAL OR SEEK PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE
RELIEF, ATTACHMENT OR THE APPOINTMENT OF A RECEIVER, THE PARTIES AGREE THAT ANY
LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
------- ------- -------
INITIAL INITIAL INITIAL
15. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Successors and Assigns. This Agreement and all obligations of
Borrower and Pledgor hereunder shall be binding upon the successors or assigns
of Borrower and Pledgor, and shall, together with the rights and remedies of
Lender hereunder, inure to the benefit of Lender and its successors and assigns.
17. Termination. This Agreement shall terminate and, upon request of
Pledgor, all monies (if any) remaining in the Cash Collateral Account shall be
returned to Pledgor upon the earlier of the following to occur: (i) all amounts
payable to Lender under the Loan Documents have been paid in full and Lender has
no further obligation to make any loans or advances to Borrower or HRC pursuant
to the Loan Documents, including, without limitation, the Tri-Party Agreement,
or (ii) all Pledged Funds held in the Collateral Account have been released to
Pledgor and neither Borrower nor Pledgor has any further obligations or
liabilities under this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be duly executed and delivered as of the date first above written.
LENDER:
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking
association
By: /S/ Timothy J. Stouffer
----------------------------
Name: Timothy J. Stouffer
----------------------------
Title: Vice President
----------------------------
BORROWER:
CAMELBACK PLAZA DEVELOPMENT L.C.,
an Arizona limited liability company
By: Performance Camelback
Development Corp., an Arizona
corporation
Managing Member
By: /s/ James W. Brown
-----------------------
Name: James W. Brown
-----------------------
Title: Secretary
-----------------------
PLEDGOR:
PERFORMANCE INDUSTRIES, INC., an
Arizona corporation
By: /s/ James W. Brown
----------------------
Name: James W. Brown
-----------------------
Title: Treasurer
-----------------------
-11-
<PAGE>
EXHIBIT "A"
DEBT RETIREMENT COVERAGE CERTIFICATE
RENTS MONTH/DAY
Tenants
-------
Just For Feet
16,292 sq. ft. ----------
Sound Warehouse (Blockbuster)
14,925 sq. ft. ----------
Restaurant of America (Balducci's)
6,500 sq. ft. ----------
Kelly's Specialty Group, Inc.
960 sq. ft. ----------
Other
sq.ft. ----------
Hard Rock Cafe/Base Rent
8,500 sq. ft. ----------
Hard Rock Cafe/Percentage Rent
----------
TOTAL GROSS RENTAL INCOME
==========
(Less) EXPENSES
Common Area Maintenance Expense
(Amounts due in excess of reimbursement actually received) ----------
Real Estate Taxes
(Assume payable monthly) ----------
Insurance
(Assume payable monthly) ----------
Operating Expenses
(Attach schedule showing itemization) ----------
Ground Lease
(Assume payable monthly) ----------
Replacement Reserves
(The greater of $0.40 per gross sq. ft. or $1,666.67) ----------
TOTAL EXPENXES
==========
NET OPERATING INCOME
==========
DEBT SERVICE REQUIREMENT
(Use $45M through 12/31/95 and actual P&I payment on
Mini-Perm after 1/1/96) ==========
DEBT RETIREMENT COVERAGE RATIO
(Net Operating Income/Debt Service Requirement) ----------
DEBT RETIREMENT COVERAGE RATIO (Without Percentage Rent)
(Net Operating Income-Percentage Rent/Debt Service
Requirement) ----------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 411
<SECURITIES> 1,783
<RECEIVABLES> 3,790
<ALLOWANCES> 506
<INVENTORY> 293
<CURRENT-ASSETS> 7,052
<PP&E> 16,640
<DEPRECIATION> 1,989
<TOTAL-ASSETS> 24,878
<CURRENT-LIABILITIES> 4,652
<BONDS> 0
31,202
0
<COMMON> 0
<OTHER-SE> (19,367)
<TOTAL-LIABILITY-AND-EQUITY> 24,878
<SALES> 20,253
<TOTAL-REVENUES> 20,253
<CGS> 18,279
<TOTAL-COSTS> 19,887
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 533
<INCOME-PRETAX> (165)
<INCOME-TAX> (21)
<INCOME-CONTINUING> (144)
<DISCONTINUED> 438
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
