<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-KSB
(MARK ONE)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD FROM JULY 4, 1994 TO DECEMBER 29, 1996
COMMISSION FILE NUMBER 0-17975
------------------------------------
REDHEADS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4169432
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
50 SOUTH BUCKHOUT STREET
IRVINGTON, NEW YORK 10533
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(914) 969-0600
(REGISTRANT'S TELEPHONE NUMBER)
------------------------------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
Title of Class
Common Stock, par value $0.001 per share
Check whether the issuer (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 / / No /X/
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ].
Registrant's revenues for the transition period: $ 7,700,920.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 28, 1997 was $3,656,914.80 (based on 1,108,156
shares held by non-affiliates and computed based on the administrative price for
which claims were converted to shares of Common Stock pursuant to the Company's
plan of reorganization).
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes / / No /X/
As of December 28, 1997, the Registrant had 2,386,439 shares of its $0.001
par value common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
MAGIC RESTAURANTS, INC.
(FORMER NAME)
JULY 1 TO JUNE 30
(FORMER FISCAL YEAR)
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I......................................................................................................... 3
Item 1. Description of the Business.................................................................. 3
Item 2. Description of Properties..................................................................... 11
Item 3. Legal Proceedings..............................................................................11
Item 4. Submission of Matters to a Vote of Security Holders........................................... 13
PART II......................................................................................................... 14
Item 5. Market for Common Equity and Related Stockholder Matters...................................... 14
Item 6. Selected Consolidated Financial Data.......................................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................. 18
Item 8. Financial State.ments..........................................................................31
Item 9. Changes in And Disagreements With Accountants on Accounting And
Financial Disclosure.......................................................................... 31
PART I...II......................................................................................................32
Item 10. Directors and Executive Officers of the Registrant............................................ 32
Item 11. Executive Compensation........................................................................ 35
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 37
Item 13. Certain Relationships and Related Transactions................................................ 38
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 39
SIGNATURES...................................................................................................... 41
</TABLE>
<PAGE> 3
PART I
This document contains certain forward looking information about the
Company, its business and its anticipated future performance. When used in this
document, the words "anticipate,""believe,""expect,""estimate," "project,"and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties, and assumptions by the
management of the Company and may not prove to be correct. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
expected, estimated, or projected. These assumptions include: (i) the receipt of
adequate additional capital on a timely basis to enable the Company to implement
its business plans; (ii) the availability of suitable restaurant leaseholds and
the Company's ability to successfully negotiate and enter into binding lease
agreements; (iii) the successful conversion and integration of existing Red
Robins and other restaurants into the Company's current business operations; and
(iv) the continuation of favorable economic conditions.
All of these assumptions are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company. Accordingly, there can be no assurance that actual results will meet
expectations or will not be materially lower than the results contemplated in
this document.
1. DESCRIPTION OF THE BUSINESS
INTRODUCTION
The Company owns and operates five casual dining, table service
restaurants in New York and New Jersey under the name "Redheads Bistro/Bar" and
"Red Robin Burgers & Spirits Emporium." The Company is currently converting its
remaining Red Robin facilities to the Redheads concept.
The Redheads Bistro/Bar concept is based upon the uniqueness,
flair and style associated with being a redheaded person. Redheads are honored
as a "breed apart" from the ordinary; a group of people with a flair for life
and unpredictable nature. These elements are presented in homage to famous
Redheads from celebrities to animated characters depicted in hundreds of
posters, photographs and sculptures which reflect the redheads state of mind.
Guest are encouraged to "expect the unexpected" and to absorb some of the fun,
irreverence and unpredictable nature of being a redhead.
GENERAL BUSINESS DEVELOPMENTS DURING THE LAST FISCAL YEAR
The Company and all of its subsidiaries filed petitions for relief
under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code")
on April 6, 1995 (the "Petition Date"), and all operated as debtors and
debtors-in-possession through the entirety of their Chapter 11 cases.
3
<PAGE> 4
On May 30, 1997 (the "Plan Effective Date"), the Second Amended Plan of
Reorganization for the Company and its subsidiaries (the "Plan"), which was
confirmed by court order dated December 30, 1996, became effective. In
connection with its reorganization, the Company caused its name to be changed to
"Redheads, Inc." and its Certificate of Incorporation and By-Laws to be amended
and restated. In addition, the Plan caused all equity securities issued prior to
the Plan Effective Date to be cancelled and extinguished. Under the Plan, the
Company issued on the Plan Effective Date a total of 2,235,743 shares of Common
Stock and 28,775 shares of Series A 12% Cumulative Convertible Preferred Stock
to certain claimants entitled to distributions under the Plan. Pursuant to the
Plan certain subsidiaries also issued preferred stock to certain claimants. See
"Item 5--Market for Common Equity and Related Stockholder Matters."
Subsequently, in June, 1997, the Company purchased the "Redheads
Bistro/Bar" concept and one operating Redheads Bistro/Bar restaurant located in
Middletown, New Jersey. For additional discussion of the terms of the purchase
of the Redheads concept and the Plan, see "Item 1. Business--The Redheads
Purchase" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report.
As of the time of the filing of its Chapter 11 petition for relief, the
Company operated and managed 15 restaurants in the New York and Washington, D.C.
metropolitan areas. In the New York metropolitan area, as of the Petition Date,
the Company operated six "Red Robin Burger and Spirits Emporium" restaurants
pursuant to franchise agreements under which Red Robin International, Inc.
licensed to the Company certain proprietary operating systems, trade dress, and
other specialized property. In the Washington, D.C. metropolitan area the
Company operated nine "The American Cafe" restaurants, which had been purchased
in March, 1994 from Monolith Enterprises, Inc., a subsidiary of W.R. Grace & Co.
In March, 1995, prior to the Petition Date, the Company had divested
itself of ownership of (i) the "Carmella's Cafe" restaurant concept and the five
upstate New York restaurants operating as "Carmella's Cafes," and (ii) minority
interests in two "Spiga" Italian-style family restaurants located in Westchester
County, New York.
While operating under Chapter 11 the Company ceased operations at all
of its restaurants in the Washington, D.C. metropolitan area and two of its
restaurants in the New York metropolitan area. As a result, on the Plan
Effective Date the Company operated four restaurants, all in the New York
metropolitan areas. Subsequent to the Plan Effective Date, the Company acquired
one restaurant, so that as of the date this Report is filed, the Company
operates a total of five restaurants.
In September of 1996, the Company began redirecting its strategic focus
towards development, ownership, and operation of a multi-unit, mid-scale, casual
dining concept operating under the name Redheads Bistro/Bar. In furtherance of
this strategic redirection, during the twenty-six week transition period ended
December 29, 1996, the Company ceased all restaurant operations under The
American Cafe concept, closed down two Red Robin restaurants in Smithhaven and
Staten Island New York, and caused the restaurant in Levittown, New York,
4
<PAGE> 5
formerly operating as a Red Robin restaurant, to be converted to a Redheads
Bistro/Bar. The company acquired rights to the Redheads Bistro/Bar concept in
June, 1997. See "The Redheads Purchase." Pursuant to an agreement with Red Robin
International entered into in connection with consummation of the Plan, the
Company is required to cease operating its three restaurants in Yonkers, New
York, Secaucus, New Jersey, and Brooklyn, New York as Red Robin restaurants by
no later than December 31, 1997. The Company intends to cause each of these
three restaurants to be converted to a Redheads Bistro/Bar in accordance with
such agreement; however, the Company was not able to maintain the schedule
required by the agreement and the Brooklyn, New York facility continues to be
operated as a Red Robin. No action has been commenced to date on account of this
delay in conversion of the Brooklyn facility but there can be no assurance Red
Robins will not pursue its legal remedies in the furture. Failure to convert the
restaurants as required by the Bankruptcy Court order could result in litigation
and the grant of injunctive relief against the Company, and the imposition of
unspecified monetary damages against the Company. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation--The
Reorganization Proceedings; Confirmation and Effectiveness of the Company's
Reorganization Plan."
THE REDHEADS RESTAURANT CONCEPT AND MENU
The Company believes that the trend in eating out is toward casual,
moderately priced, full-menu table service restaurants serving well-prepared,
high quality foods. The Company's restaurants offer large portions of high
quality, fresh food at moderate prices. The per person check average at the
Company's "Redheads" restaurants is approximately $9.75 for lunch and $12.75 for
dinner, with an average per restaurant seating capacity of approximately 250.
The Company believes that its restaurants are distinguishable from many
other casual, moderately priced full-menu table service restaurants by its
theme, decor and its menu. The theme, decor and menu are intended to appeal to a
varied clientele, including families, business patrons, casual diners, and
shoppers.
The restaurants are sophisticated yet comfortable and casual, with
lively colors, natural woods, plants, and brass fixtures. The bar area has
several large and small video screens, electronic and non-electronic games,
various entertainment features, caters to singles, couples, informal groups, and
late night dinner and drink crowds in an entertainment driven atmosphere that
often features live musical entertainment. Bars are well stocked with selections
from microbrewerys and boutique wineries along with a full liquor offering. Most
of the restaurants also have a satellite dish and multiple television screens
throughout the bar and dining facilities.
Casually dressed redheaded mannequins are playfully placed throughout
the restaurant, and the walls are extensively adorned with photos and prints
featuring all varieties of redheaded people, models, and personalities, of all
ages. Local patrons are encouraged to post photos of their own favorite redhead
friend, relative, or personality along the thin strip boards that traverse much
of the seating area.
5
<PAGE> 6
The international menu is diverse in its offering, catering to a
variety of tastes and budgets. Besides the daily luncheon and dinner specials,
the menu offers unique dishes in every category, including the "Mozzarella
Tower" appetizer, "Wisconsin Bisque," as well as "Thomas Jefferson Philly
Cheesteak", "Pacific Rim Pot Stickers", "Thai Pepper Beef Wraps", "Winston
Churchill's Shepards Pie", and old standards like "Chicken Parmigiana" and
"Corned Beef and Cabbage." Coffees, including espressos, and desserts are also
offered. The menu's breadth, coupled with time-of-day specials, caters to lunch,
early-bird, evening dinner, and late night appetites. The portions are generous,
and menu items range from $4.95 for appetizers to $16.95 for certain steak and
seafood entree selections.
Three of the restaurants offer a prominently displayed sushi bar,
staffed by oriental sushi chefs. The Company believes the trend in casual
restaurant dining is moving to eclectic menus accented by ethnicity of taste.
The Company addresses this trend through the addition of certain new design
elements know as modular dining, which in addition to a sushi bar could include
a Spanish tapas bar, a raw oyster bar, a hibatchi bar and/or a coffee bar. Menus
are adjusted to reflect the needs and dining preferences of the individual
restaurant market trade areas.
The service staff dresses casually, wearing Redheads-styled red polo
shirts and dark or khaki slacks or shorts, depending on the season.
Soon after acquiring the Redheads concept in June, 1997, the Company
hired David C. Sederholt as Executive Vice President and Chief Operating
Officer. Mr. Sederholt, an experienced restaurant operator, is directing the
growth and development of the Redheads Bistro/Bar concept. The Company is
implementing a number of operational changes within the concept that are
expected to significantly reduce food and labor costs, without affecting food or
service quality. The Company has recently enhanced control systems and training
manuals and programs to standardize Redheads Bistro/Bar operating procedures;
these manuals and programs are expected to improve productivity and reduce
employee turnover.
The Company believes that the success of the Redheads Bistro/Bar
concept depends on a number of factors including location, management, operating
practices, and employees.
The Company attempts to capture a significant portion of the market
share for food and beverage services in the immediate business area where its
restaurants are located. To this end, each restaurant provides take-out service
and has fax machines through which it accepts orders. The Company also caters
special events in its restaurants, and offers catering sales and events planning
managers to develop additional business in this area.
The Company's restaurants make extensive use of computerization,
providing management with precise information on hourly sales and labor costs.
This minimizes the need to carry large quantities of food inventory and
generally results in a higher quality of food inventory. Each of the Company's
restaurants uses a computerized point-of-sale system that tracks all food and
drink orders and expeditiously fulfills them. This enables the servers and
managers to remain on the restaurant floor and be available to serve patrons.
6
<PAGE> 7
DEVELOPMENT PLANS AND SITE STRATEGY
The Company's long-term objective is to continue to expand the Redheads
concept through the opening of Company owned and operated restaurants in
strategically desirable markets in New York and New Jersey. The Company intends
to concentrate on developing a strong presence in the geographic markets within
a 75 mile radius of New York City to achieve penetration levels that could
improve the Company's competitive position, marketing share, and profitability.
The Company intends to open at least one new Redheads Bistro/Bar restaurant each
quarter. The new restaurants will most likely be created by acquisition and
conversion of existing restaurants currently operated by third parties in order
to realize a high return on investment for each new restaurant.
The Company considers restaurant site selection to be critical to its
long-term success and will devote significant resources to the investigation and
selection of new locations. The site selection process will focus on a variety
of factors, including: area demographics, such as target population density and
household income levels; area psychographics, such as dominant or prevalent
lifestyle characteristics and purchase behaviors; site characteristics, such as
visibility, accessibility, traffic volume, proximity to activity centers, area
growth potential; and competitive factors specific to the local market.
The rate at which the Company will be able to open new restaurants will
be dependent upon availability of the necessary capital and its success in
locating satisfactory sites, negotiating acceptable lease or purchase terms,
securing appropriate local governmental permits and approvals, and finding
strong local restaurant talent.
The Company leases and operates both free-standing and in-line
restaurants. Free-standing restaurants are not attached to any other building,
while in-line restaurants are part of a shopping mall or office complex.
Following conversion of its three remaining Red Robin sites in Yonkers, Kings
Plaza, and Secaucus, the Company intends to expand into additional locations.
The Company anticipates that expansion will normally be through acquisition and
conversion of restaurants, currently owned by third parties that are marginally
profitable, not profitable or closed. The estimated cost of converting an
operating restaurant to the Redheads Bistro/Bar concept is approximately $50 per
square foot, although the actual amount will vary by location depending upon the
work required.
SUPPLIERS
The Company purchases food and other supplies for its restaurants from
various wholesalers on a daily basis. The Company's ability to maintain a
consistent quality of its products depends upon acquiring quality food products
and related items from reliable sources. While the Company believes that there
are multiple sources for most food products in the greater New York metropolitan
area, the Company is still subject to the common risks associated with
7
<PAGE> 8
restaurant supply relationships, such as those relating to freshness, quality,
selection, price and availability.
The cost of the Company's supplies depends upon the extent to which the
Company is able to negotiate satisfactory arrangements with suppliers and the
availability of and demand for various items. The combined unit volume of
purchases by each of its restaurants has enabled the Company to obtain volume
discounts and negotiating leverage in certain instances.
The Company may be materially adversely affected by external events,
such as local weather conditions affecting the price and supply of various
items, as well as strikes within the food or transportation industries, which
may limit the ability of suppliers to furnish food to the Company on a timely
and cost-effective basis. Generally, however, all essential food and beverage
products are available, or upon short notice can be made available, from
alternative qualified suppliers.
Because of the relatively rapid turnover of perishable food products,
inventories in the restaurants, consisting primarily of food, beverages, and
supplies, have a modest aggregate dollar value relative to revenues.
MARKETING
The Company primarily targets the 18 to 49 year old age group. Members
of this population segment generally grew up frequenting fast food restaurants;
but the Company believes that, with increasing maturity, they prefer a broader,
more adult, casual dining and bar experience. To attract this target group, the
Company has used various types of advertising and promotions, especially in
connection with the opening of new restaurants. Marketing programs are
regionalized to address the specific requirements of each trade area. Marketing
programs consist primarily of direct mail, advertisements in local newspapers,
radio commercials, distributing flyers, and sponsoring local activities. The
Company also plans to develop dining frequency promotional campaigns to increase
repeat business from its existing customer base. The Company expects to rely
primarily on targeted marketing efforts and positive word-of-mouth endorsements
from existing customers. In addition, the Company has added Catering Sales and
Special Events planners to directly market banquet, meetings, and on and off
premise events.
SEASONALITY
The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating incomes lower in the winter and fall (excluding the
year-end holiday shopping period) than in the spring and summer. This seasonal
effect is largely caused by colder and more inclement weather that keeps people
at home, and by reduced overall consumer spending in the fall in advance of the
year-end holiday season. Free-standing restaurant sales are higher in the late
spring and early summer months; sales at mall-based restaurants generally reach
their highest level during the year-end holiday season.
8
<PAGE> 9
COMPETITION
The retail food and beverage service industry is intensely competitive,
especially within the New York-Northern New Jersey metropolitan area. The
Company competes with other full menu table service restaurants and fast food
restaurants for location, service, personnel, perceived quality, variety, and
value of the food and ambiance offered. The Company competes with food service
operations, with locally-owned operations, and with national and regional
chains, like T.G.I.Friday's, Applebee's, Bennigan's, Chili's, Ground Round,
Houlihan's, and Lone Star Steakhouse, among others, several of whom have greater
financial and other resources, longer operating histories, substantially more
facilities, and greater name recognition than Redheads. Barriers to entry are
not substantial in the restaurant industry. Generally, however, locations and
restaurants comparable to the Company's restaurants require substantial capital
to open and operate.
The Company has no control over the number of competitive restaurants
that may open in the proximity of the Company's restaurants. Many of these
restaurants may enjoy much broader consumer recognition. Increasing competitive
pressure may require additional advertising and promotional expenditures, the
amount and timing of which may be determined in part by the need to respond to
the advertising of competitors.
CUSTOMER DEPENDENCE
No material part of the business of the Company is dependent upon a
single customer, or very few customers, the loss of any one of which would have
a material adverse effect on the Company.
GOVERNMENT REGULATION
The Company's restaurants are subject to licensing and regulation by
various government agencies, including those dealing with alcohol control,
health, sanitation, fire, building, planning, on-site dancing and live
entertainment, and local traffic patterns. Delays in obtaining, or denials of,
necessary licenses or approvals could have a material adverse impact upon the
Company's development of new restaurants and, consequently, the Company's
prospects. The Company is also subject to Federal and state laws pertaining to
fair labor standards, which govern such matters as working conditions and
minimum wages.
The Company has obtained liquor licenses for all of its present
locations, and does not anticipate any difficulty in obtaining liquor licenses
in the future. In New Jersey, the number of liquor licenses which may be granted
in any one municipality is limited and subject to local regulation. For this
reason, the acquisition of a liquor license may be time-consuming, difficult and
expensive, and the loss of a liquor license could have a materially adverse
impact upon the Company's prospects. In connection with the maintenance of its
liquor licenses, the Company is required to notify a local regulatory authority
in the event of certain changes in stock ownership of the licensed corporation
and changes in management of its New Jersey restaurants.
9
<PAGE> 10
Sales of alcoholic beverages represent approximately 20% of the
Company's food and beverage revenues. The temporary suspension or permanent loss
of any liquor license, or the inability to obtain a liquor license, could have a
materially adverse effect on the Company's sales and results of operations.
RESTAURANT MANAGEMENT AND OTHER EMPLOYEES
As of August 31, 1997, the Company employed 296 persons, of whom 8 were
executive and administrative personnel, 19 were managerial employees involved in
restaurant operations, 75 were kitchen personnel, and 194 were restaurant
service personnel. All of the restaurant service personnel are part-time
employees. All non-managerial restaurant employees are paid on an hourly basis.
The Company believes that it enjoys generally good relationships with its
employees. None of the Company's employees are covered by a collective
bargaining agreement.
The Company seeks to attract and retain high caliber restaurant
managers by providing them with an appropriate balance of autonomy, direction
and attractive financial incentives. To those incentives, the Company has
developed a management incentive program under which new general managers will
work with senior management to prepare quarterly budgets and performance plans
for their restaurants. More experienced general managers, who have demonstrated
the ability to achieve planned objectives, may be promoted to the district
manager level. The Company believes that by providing its general managers and
district managers with short and long-term financial incentives, it will
continue to attract and retain high caliber personnel. Company policy strongly
favors promoting existing non-management employees into management positions.
Management trainees must demonstrate their ability in every area of restaurant
operations before being considered for promotion.
TRADEMARKS
The Company is endeavoring to secure federal trademark and service mark
rights to the name and mark of "Redheads." A third party has an existing federal
service mark registration for "The Redhead" for "nightclub and cocktail lounge
services," which could preclude a registration by the Company. It appears,
however that the Company made "prior use," and may have a basis to bring a
cancellation proceeding with respect to the registered mark. The Company is
advised that its prior use of the name and mark protects its use of the name for
those restaurants which made such prior use. The Company may be precluded,
however, from use of the name and mark in the Chicago, Illinois market for as
long as the registrant conducts business there under "The Redhead" name. The
Company's current plan is to concentrate growth on the East Coast, and in the
Middle Atlantic states in particular, where the first use of the trademark and
service mark have been established.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state, and local laws and regulations which
have been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the
10
<PAGE> 11
protection of the environment, is not expected to have a material affect upon
the capital expenditures, earnings, or competitive position of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
All of the Company's restaurant locations are held under long term
leases. The Company's leases generally provide for a fixed base rent plus
additional rent based on the level of sales generated by the restaurant. Most of
the Company's leases require the Company to pay all or a portion of the costs of
owning and operating the premises, including the cost of insurance, taxes and
maintenance.
RESTAURANT LOCATIONS
The following chart sets forth the restaurants as of December 28, 1997
that are currently owned and/or operated by the Company through its wholly-owned
corporate subsidiaries, as listed below:
<TABLE>
<CAPTION>
LOCATION PRESENT CONCEPT EST. SEATING SQ. TERM (1)
-------- --------------- ------------ --- --------
FOOTAGE
-------
<S> <C> <C> <C> <C>
Brooklyn, NY Red Robin 250 6,500 May 1986 - Jan. 2005
Levittown, NY Redheads 340 10,000 Sept. 1993 - Aug. 2013
Yonkers, NY Red Robin 260 8,400 July 1988 - June 2012
Middletown, NJ Redheads 210 6,000 Apr. 1991 - Mar. 2006
Secaucus, NJ Red Robin 220 8,250 Oct. 1989 - Sept. 2009
</TABLE>
(1) Assumes that the Company exercises all of its extension options.
The Company's administrative headquarters are located at Fifty South
Buckhout Street, Irvington, New York 10533, where the Company leases
approximately 4,000 square feet of office space under a month-to-month lease.
The monthly lease payment is approximately $2,000, net of taxes, insurance, and
maintenance. The Company has been operating from this space since 1997.
The Company believes that its current facilities are adequate for their
present and future intended uses and that its properties are in good condition,
well maintained, and adequately insured.
ITEM 3. LEGAL PROCEEDINGS
11
<PAGE> 12
GENERAL
Pursuant to the Plan, the Bankruptcy Court retained jurisdiction to
hear and determine any objections to claims. Certain prepetition unsecured
claims against the Company, subject to resolution and discharge in the Chapter
11 cases, have not been resolved. However pursuant to the Plan, 125,000 shares
of the Company's Common Stock are allocated for distribution to all such
claimants, and no other stock or assets of the Company may be claimed by such
claimants. As a result, the resolution of such disputed claims will not affect
the Company.
The Company is a party to certain litigation pending before the
Bankruptcy Court. The first, Magic Restaurants, Inc., et al. v. Nicolo and
Joseph Ottomanelli, Adv. Pro. No. 97-54, the company objects to the $75,000
administrative claim filed by the Ottomanellis and seeks damages of $250,000 by
way of counterclaim. The Company is also presently appealing an order of the
Bankruptcy Court requiring the Company to pay approximately $100,000 to Bowie
Produce, Inc., a prepetition produce vendor, pursuant to the Perishable
Agricultural Commodities Act ("PACA"). The resolution of these matters is not
expected to become final until the latter part of fiscal year 1998. The Company
believes that an adverse decision to the Company in each of these matters will
not materially affect the Company's operations, and further that it will have
sufficient cash available to pay any judgments that may be entered with finality
against the Company.
In July, 1997, Mr. Gallagher, one of the former owners of the Redheads
concept, tendered his resignation to the Company and embarked upon design and
construction of another concept restaurant named "Jersey Girls." Upon review of
the completed facility and discussions with Mr. Gallagher and others, the
Company believes that Mr. Gallagher, his partners, his affiliates and the
designer, Mr. Greg Sheridan may have infringed upon the trade dress of the
Redheads concept. The Company is reviewing the possibility of bringing legal
action against the parties believed to be infringing. The Company is unable at
this time to determine the likely outcome of this dispute. Failure to obtain
injunctive relief against these infringing parties could have a materially
adverse effect upon the Company's rights in its proprietary trade dress.
The Company is required by an order of the Bankruptcy Court, entered
into in connection with the Plan, to remove all Red Robin trade dress from its
restaurant locations in Secaucus, New Jersey, Yonkers, New York, and Kings
Plaza, Brooklyn, on or before December 31, 1997. Failure to remove the trade
dress as required by the Bankruptcy Court order could result in litigation and
the grant of injunctive relief against the Company, and the imposition of
unspecified monetary damages against the Company. The Company is proceeding with
the conversions as directed by the court. As of January 1998 the Yonkers
location had been successfully converted, the Secaucus unit was closed for
conversion and only the Kings Plaza location was in violation of this order.
The Company's litigation pending before the Bankruptcy Court regarding
Magic Restaurants, Inc., et al. v. Nicolo and Joseph Ottomanelli, Adv. Pro. No.
97-54, was settled in
12
<PAGE> 13
December 1997. The settlement required The Company to issue to the Ottomanellis
2,500 shares of common stock.
In January 1998 The Company came to agreement with Mr. Michael Ezzo of
Carmella Cafes with regard to a note held by The Company for the March 6, 1995
sale of the Carmella Cafes. The agreement forgives all unpaid interest through
Dec. 31, 1997 ($173,821) and reduces the interest rate from 11% to 7%
contingent on receipt of all payments due on a timely basis. The note was
restructured to 7% with a 20 year term and quarterly payments of $12,990.89
commencing April 30, 1998.
Other than as discussed in this Item 3, there are no other legal
proceedings to which the Company is a party that are material to the Company's
business.
POTENTIAL DRAM SHOP LIABILITY
All restaurants in New Jersey and New York are subject to dram shop
legislation which imposes liability on licensed alcoholic beverage servers for
injuries or damages caused by their negligent service of alcoholic beverages to
a visibly intoxicated person or to a minor, if such service is the proximate
cause of the injury or damage and such injury or damage is reasonably
foreseeable. Additional restaurants established or acquired by the Company in
the future are likely to be subject to similar potential liability in New Jersey
and New York or elsewhere. While the Company maintains insurance which it
believes is adequate to protect against such liability, there can be no
assurance that it will not be subject to a judgment in excess of its insurance
coverage or that it will be able to continue to obtain insurance coverage at
reasonable costs or at all. The imposition of a judgment substantially in excess
of the Company's insurance coverage would have a material adverse effect on the
Company. The failure or inability of the Company to maintain insurance coverage
could materially and adversely affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company was operating pursuant to the orders of the Bankruptcy
Court through May 25, 1997 and did not submit any matters to a vote of the
security holders during that period.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock issued pursuant to the Plan has not been publicly
traded since the Plan Effective Date. Prior to the Plan Effective Date, the
Company's then issued Common Stock was quoted for trading on the NASDAQ (symbol
"MGIK"), until it was de-listed on April 10, 1995. Pursuant to its obligations
under the Plan, the Company will use reasonable efforts to have the Common Stock
quoted for trading on the automated quotation system maintained by the National
Quotation Bureau, Inc (symbol "REDH").
The following table sets forth the quarterly high and low sales prices
for the then issued Common Stock of the Company for the two years preceding the
May 30, 1997 Plan Effective Date. The source of these quotations is the National
Quotations Bureau. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C>
1995
Second quarter................................................ $ 0.01 $ 0.06
Third quarter................................................. $ 0.01 $ 0.06
Fourth quarter................................................ $ 0.01 $ 0.06
1996..........................................................
First quarter................................................. $ 0.01 $ 0.12
Second quarter................................................ $ 0.01 $ 0.12
Third quarter................................................. $ 0.01 $ 0.12
Fourth quarter................................................ $ 0.01 $ 0.12
1997
First quarter (through March 17, 1997)........................ $ 0.01 $ 0.12
</TABLE>
HOLDERS
As of December 28, 1997, there were approximately 324 holders of record
of the Company's Common Stock.
DIVIDENDS
Common Stock. No dividends have been declared in respect of the
Company's Common Stock since the April 6, 1995 Petition Date. The Company is not
prohibited or restricted from paying dividends on the Common Stock, but the
Company does not anticipate paying any dividends to holders of the Company's
Common Stock in the foreseeable future.
14
<PAGE> 15
Series A 12% Cumulative Convertible Preferred Stock. The Company is
obligated to pay dividends to the holders of the Series A 12% Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") that was issued under
the Plan at a rate equal to tweleve percent (12%) per annum on the $75 stated
value. The dividends are payable annually through the issuance of shares of
Common Stock of the Company at a price equal to 80% of the average bid price for
the Common Stock during the preceding 12 months. As of August 31, 1997, a total
of 28,775 shares of the Series A Preferred Stock was outstanding, and all of
such shares were held by Teleferscot International, Ltd., ("Teleferscot"). Any
newly issued Series A Preferred Stock will be entitled to dividends on the same
terms as the currently outstanding shares of Series A Preferred Stock. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--The Reorganization Proceedings; Confirmation and Effectiveness of
the Company's Reorganization Plan" for further discussion of the nature and
terms of the Series A Preferred Stock.
R.B.B. of Secaucus and R.B.B. of Yonkers Preferred Stock. Pursuant to
the Plan, R.B.B. of Secaucus, Inc. and R.B.B. of Yonkers, Inc. issued 8%
Cumulative Exchangeable Preferred Stock (the "Subsidiary Preferred Stock"). Each
issuing subsidiary owns and operates the restaurant unit located in the city
designated in the corporate name of the particular issuing subsidiary.
Dividends are payable on the Subsidiary Preferred Stock at a rate of 8%
per annum based on the liquidation preference of $75 per share. The dividends
are payable semi-annually, to the extent funds are legally available therefor.
At the election of the issuing subsidiary such dividends may be paid by issuance
of shares of Common Stock of the Company, valued for this purpose at the closing
price as of the 10th business day preceding declaration of the dividend.
Further, to the extent funds are legally available therefor, on May 30, 2000,
May 30, 2001, and May 30, 2002, each issuing subsidiary will offer to purchase,
at a cash price equal to $75 per share, plus accrued and unpaid dividends,
one-sixth, one-third, and one-half, respectively of the Subsidiary Preferred
Stock issued under the Plan; provided, however, that if at any time the closing
bid price of the Common Stock exceeds $5 per share for 40 consecutive trading
days, any such mandatory repurchase obligation shall expire.
Levittown Preferred Stock. R.B.B. of Levittown, Inc. has also issued
its own 8% Cumulative Exchangeable Preferred Stock (the "Levittown Preferred
Stock"). Dividends are payable on the Levittown Preferred Stock in cash at a
rate of 8% per annum based on the liquidation preference of $75 per share. The
dividends are payable semi-annually, to the extent funds are legally available
therefor. Further, to the extent funds are legally available therefor, beginning
on May 30, 1998, and monthly thereafter, the Levittown subsidiary will offer to
purchase one forty-eighth (1/48) of the shares of the Levittown Preferred Stock
issued under the Plan to the holder. The purchase price for such repurchase is
equal to the liquidation preference of $75 per share, plus accrued and unpaid
dividends.
For further discussion of certain material terms of the Subsidiary
Preferred Stock and the Levittown Preferred Stock, see "Item 7. Management's
Discussion and Analysis of Financial
15
<PAGE> 16
Condition and Results of Operation--The Reorganization Proceedings; Confirmation
and Effectiveness of the Company's Reorganization Plan."
CERTAIN RIGHTS OF PREFERRED SHAREHOLDERS
The Company's charter provisions forbid mergers or consolidations in
which the Company is not the survivor, and certain asset sales, without the
consent of holders of a majority of the shares of the Series A Preferred Stock,
voting as a single class.
The Subsidiary Preferred Stock and the Levittown Preferred Stock each
provide that if the issuing subsidiary of the preferred stock fails to pay three
consecutive semiannual dividends or fails to make one mandatory repurchase, then
the holders of such stock in such subsidiary, voting as a single class, shall be
entitled to elect one director to the Board of Directors of the issuing
subsidiary. Such director will serve until all accrued dividend and mandatory
repurchase payments are brought current.
The certificates of incorporation of the subsidiaries issuing the
Subsidiary Preferred Stock each provide that the subsidiary may not create,
incur, assume, or otherwise become or be liable for any indebtedness for
borrowed money or for the deferred purchase price of property (except to the
Company or another subsidiary of the Company).
The certificate of incorporation of R.B.B. of Levittown provides that
it may not create, incur, assume, or otherwise become or be liable for any
indebtedness for borrowed money or for the deferred purchase price of property.
Further, the charter provides that the issuing subsidiary will not sell,
transfer, or dispose of the assets of the subsidiary, except for cash in the
ordinary course of business at then fair market value.
The certificate of incorporation of R.B.B. of Levittown also provides
it may not enter into mergers or consolidations in which R.B.B. of Levittown is
not the survivor, or into certain asset sales, without the consent of holders of
a majority of the shares of the Levittown Preferred Stock, voting as a single
class.
Holders of the Levittown Preferred Stock also have the right, if a
default in payment of dividends or mandatory repurchase is uncured for 60 days
or if the covenant on incurrence of indebtedness or ownership of the subsidiary
assets is breached, to require the Company to deliver to the holder all
outstanding shares of common stock of R.B.B. of Levittown, Inc. in exchange for
the Levittown Preferred Stock.
16
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data has been derived from the
Company's consolidated financial statements. The consolidated financial data set
forth below as of July 2, 1995, June 30, 1996, and for the twenty-six week
transition period ended December 29, 1996 are derived from the Company's audited
financial statements, which have been audited by Cogen Sklar, LLP, the Company's
independent certified public accountants. The consolidated financial data for
the twenty-six week period ending December 31, 1995 set forth below are derived
from the Company's unaudited financial statements.
The information should be read in conjunction with and is qualified by
reference to "Item 8. Financial Statements and Supplementary Data" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," both of which are included elsewhere in this report.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
(AUDITED) (AUDITED) (UNAUDITED) (AUDITED)
FY ENDED FY ENDED 26 WKS ENDED 25 WKS ENDED
7/2/95 06/30/96 12/31/95 12/29/96
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES 37,184,836 26,458,229 13,769,915 7,700,920
Total Operating Expenses 46,454,926 29,114,318 14,731,845 8,887,142
Loss from Operations (9,269,991) (2,658,069) (971,930) (1,186,222)
Loss Aft. Restruc. & Other Exp. (14,234,306) (6,193,228) (1,582,341) (3,126,413)
Per Share Loss from Operations ($1.33) ($0.37) ($0.13) ($0.16)
Per Share Loss After Restructuring
& Other Expenses ($2.04) ($0.85) ($0.22) ($0.43)
Weighted Average Shares used in computing
loss per Common Share (1) 6,976,865 7,241,546 7,241,546 7,241,546
</TABLE>
- --------------------------------------
(1) Pursuant to the Company's confirmed Plan, all shares of Common Stock
outstanding prior to the May 30, 1997 effective date of the Plan were canceled
and extinguished.
17
<PAGE> 18
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
(AUDITED) (AUDITED) (UNAUDITED) (AUDITED)
FY ENDED FY ENDED 26 WKS ENDED 26 WKS ENDED
7/2/95 06/30/96 12/31/95 12/29/96
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Cash 613,289 270,567 173,184 58,332
Current Assets 1,818,873 1,006,585 926,336 432,229
Total Assets 7,849,183 4,460,831 5,673,895 2,671,864
Current Liabilities 17,901,953 20,896,850 18,254,941 22,234,296
Total Liabilities 19,881,953 22,876,650 20,261,783 24,214,296
Stockholders' Equity
(Deficit)(1) (12,232,790) (18,416,019) (13,587,888) (21,542,432)
Working Capital (Deficit) (16,083,280) (19,890,065) (17,328,605) (21,802,067)
</TABLE>
- -----------------------------------
(1) Subsequent to the effectiveness of the Plan the Company has accounted for
the reorganization using "fresh-start" reporting. Accordingly, all assets
and liabilities are restated to reflect their reorganization value, which
approximates fair value at the date of reorganization. Applying principles
of "fresh-start" reporting resulted in elimination of the Stockholders'
Deficit and $22,435,338 of Total Liabilities against the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company was originally organized as a Delaware corporation on July
14, 1988 under the name Wetherly Ventures Associates, Inc., which name was
subsequently changed to Magic Restaurants, Inc. on October 28, 1988, and to
Redheads, Inc. on May 30, 1997. The Company owns and operates five casual
dining, table service restaurants in New York and New Jersey under the name
"Redheads Bistro/Bar" and "Red Robin Burgers & Spirits Emporium."
Each of the Company's five restaurants is operated through a separate
wholly-owned subsidiary of the Company. Those subsidiaries are R.B.B. of
Levittown, Inc.; R.B.B. of Brooklyn, Inc.; R.B.B. of Yonkers, Inc.; R.B.B. of
Secaucus, Inc.; and R.B.B. of Middletown, Inc.
18
<PAGE> 19
THE REORGANIZATION PROCEEDINGS; CONFIRMATION AND EFFECTIVENESS OF THE COMPANY'S
REORGANIZATION PLAN
GENERALLY. On April 6, 1995, the Company (then Magic Restaurants, Inc.)
and its 17 wholly-owned subsidiaries filed petitions for relief under Chapter 11
of Title 11 of the United States Code in the Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court"), thereby commencing their Chapter 11 cases
(the "Reorganization Cases"). While under the protection of Chapter 11, actions
to collect on all claims against the Company that were in existence prior to the
filing of the petitions for relief, whether secured or unsecured, were stayed
while the Company and its subsidiaries reorganized their businesses as debtors
and debtors-in-possession. These claims are reflected in the Company's December
29, 1996 audited balance sheet as "liabilities subject to compromise."
Additional claims may arise subsequent to the petition date from rejection of
executory contracts and unexpired leases and from determination by the
Bankruptcy Court (or otherwise agreed by the claimant) of allowed claims for
contingencies and other disputed amounts. The Company received Bankruptcy Court
approval to pay or otherwise honor certain of its prepetition obligations,
including employee wages, which the Company did primarily in the last quarter of
the fiscal year ended July 2, 1995.
The lack of liquidity that precipitated the Company's Chapter 11 filing
stemmed from under-capitalization, the collapse of its stock price, the
concomitant inability to obtain equity or debt financing through the public
capital markets, rising interest costs of nearly $1 million annually, mounting
amortization and accelerations of nearly $4 million in notes payable, high level
of general and administrative expenses, and delays in closing several
unprofitable restaurant locations.
POSTPETITION FINANCING. Pursuant to several orders of the Bankruptcy
Court following commencement of the Reorganization Cases, the Company was
authorized to continue to use "cash collateral" in the ordinary course of its
business. Pursuant to these Orders, and as protection of certain secured
creditors' interests in such cash collateral, these secured creditors were
granted replacement liens on the postpetition accounts and inventory of the
Company and its subsidiaries to the extent of their use of the cash collateral.
On the Petition Date, the Company filed a motion for an order
authorizing it to obtain up to $1.5 million in credit through the issuance of
certain debt securities (the "Postpetition Senior Secured Notes"). The
Bankruptcy Court entered an order authorizing such debt. The order was
subsequently amended to authorize the issuance of up to $2.5 million in
Postpetition Senior Secured Notes. A total of $2.5 million was advanced during
the Company's reorganization through the issuance of these Postpetition Senior
Secured Notes.
The Postpetition Senior Notes, among other things, (a) carried an
interest rate of 12 percent (12%) per annum; (b) allowed for the payment of up
to a ten percent commission on borrowings to "finders" or broker representatives
of noteholders; (c) constituted administrative superpriority claims; and (d)
liens on all the Company's assets, junior only to valid preexisting liens
existing as of the Petition Date.
19
<PAGE> 20
OPERATIONAL RESTRUCTURING OF THE BUSINESS. The operational problems
encountered by the Company prior to filing Chapter 11 increased in the first
several months following the filing. Once the Company filed for Chapter 11
relief, sales dropped significantly. In addition, some of the Company's
employees left the Company and were hired by the Company's direct competition.
Finding replacements for these employees took substantial time, and generally
required training and promotion of in-house talent. As a result of these
problems, same store sales for the Red Robin restaurants were nearly 17% lower
in 1995 than the prior year's sales levels. Similarly, same store sales for The
American Cafe restaurants were down in 1995 approximately 8% from the prior
year's sales levels.
To turn around the Company's operating business, the new management
team implemented hundreds of corrective changes at both the corporate and unit
levels, including: food cost factors, training and personnel factors, service
improvements, staff and overhead reductions, outsourcing of certain service
needs, point-of-sale equipment upgrades, and new marketing efforts. As a result,
same store sales at several of the Red Robin locations by the end of fiscal year
ended June 30, 1996 were even with, or ahead of, the previous year's sales.
SELECTION AND PURCHASE OF THE REDHEADS CONCEPT. In September of 1996
the Company began redirecting its strategic focus towards development,
ownership, and operation of a multi-unit, mid-scale, casual dining concept
operating under the name Redheads Bistro/Bar. In furtherance of this strategic
redirection, during the twenty-six week transition period ended December 29,
1996, the Company ceased all restaurant operations under The American Cafe
concept, closed down two marginal Red Robin restaurants in Smithhaven and Staten
Island New York, and caused the restaurant in Levittown, New York, formerly
operating as a Red Robin restaurant, to be converted to a Redheads Bistro/Bar.
Pursuant to an agreement with Red Robin International, entered into in
connection with consummation of the Plan, the Company is required to cease
operating its three restaurants in Yonkers, New York, Secaucus, New Jersey, and
Kings Plaza Brooklyn, New York as Red Robin restaurants by no later than
December 31, 1997. The Company intends to cause each of these three restaurants
to be converted to a Redheads Bistro/Bar in accordance with that agreement.
Failure to remove the trade dress as required by the Bankruptcy Court order
could result in litigation and the grant of injunctive relief against the
Company, and the imposition of unspecified monetary damages against the Company.
The Company is proceeding with the conversions as directed by the court. As of
January 1998 the Yonkers location had been successfully converted, the Secaucus
unit was closed for conversion and only the Kings Plaza location was in
violation of this order.
On June 11, 1997 the Bankruptcy Court overseeing the Chapter 11 cases
of Red One, Inc., Mr. Gallagher entered an order authorizing the sale of the
Redheads Bistro/Bar concept and the Middletown Redheads Bistro/Bar facility to
the Company. The Company purchased the trade name, trade dress elements, and all
related intellectual property rights in the Redheads Bistro/Bar concept for
$100,000, and purchased the Middletown Redheads Bistro/Bar for $175,000 cash,
plus assumption of the underlying lease. The closing of this sale occurred on
June 23, 1997, and ownership of the Redheads concept and the Middletown Redheads
Bistro/Bar transferred to the
20
<PAGE> 21
Company. No appeals of the order authorizing the sale were filed, and the
property was transferred, by the Bankruptcy Court order, free and clear of all
liens, claims, and encumbrances.
THE REORGANIZATION PLAN. By order of the Bankruptcy Court entered on
December 30, 1997, the Bankruptcy Court confirmed the Company's Second Amended
Plan of Reorganization. The Plan became effective by its terms on May 30, 1997.
Prior to such date the Company's name was changed to Redheads, Inc. The Plan
addressed the treatment of all claims against and equity interests in the
Company through the Plan Effective Date in the following manner:
Postpetition Series A Notes. The holders of $2,520,000 of the
Postpetition Series A Notes received 1,896,983 shares of the Company's Common
Stock in exchange for their notes and interest due of approximately $325,000.
Postpetition Series B Notes. Teleferscot, the holder of $1,700,000 in
Postpetition Series B Notes received 23,442 shares of the Company's newly issued
12% Series A Preferred Stock (MRI) in exchange for the notes and interest due of
approximately $58,150. The holder of the Series A Preferred Stock is authorized
under the terms thereof to exchange one share of Series A Preferred Stock for
(a) 5 shares of Common Stock through May 30, 1998, (b) 3.75 shares of Common
Stock from May 31, 1998 through May 30, 1999, and (c) 3 shares of Common Stock
from May 31, 1999 through May 30, 2000. The Series A Preferred Stock carries a
$75 liquidation preference per share (plus accrued and unpaid dividends) and is
callable by the Company at any time at the liquidation preference price. The 12%
Series A Preferred Stock also grants the Company an option to repurchase a
percentage of the Series A Preferred Stock, each year, at $75 per share
commencing on May 30, 2000. If the Company exercised all such options it would
retire the Series A Preferred Stock by May 30, 2004.
Postpetition Liabilities. Approximately $1,882,000 of postpetition
liabilities were exchanged for 5,333 shares of newly issued 8% Subsidiary
Preferred Stock and 213,760 shares of newly issued Common Stock. The holders of
the Subsidiary Preferred Stock are authorized under the terms thereof (with the
Company's consent), to exchange one share of Preferred Stock for (a) 5 shares of
Common Stock through May 30, 1998, (b) 3.75 shares of Common Stock through May
30, 1999, and (c) 3 shares of Common Stock through May 30, 2000. The Subsidiary
Preferred Stock carries a $75 liquidation preference per share (plus accrued and
unpaid dividends) and is callable by the Company at any time at the liquidation
preference price. The present holder of all Subsidiary Preferred Stock is Red
Robin International, which holds 1,778 shares of Subsidiary Preferred Stock of
R.B.B. of Secaucus, Inc., 1,777 shares of R.B.B. of Yonkers, Inc. and 1,777
shares of R.B.B. of Levittown, Inc.
Secured Claims. Secured claims of approximately $1,207,000 (including
interest of approximately $197,000) were exchanged for payables of $209,000 in
cash, and 11,333 shares of Levittown Preferred Stock. The present holder of this
8% Levittown Preferred Stock is Keybro Enterprises, Inc., with 11,333 shares.
21
<PAGE> 22
Trade and Other Miscellaneous Claims. The holders of approximately
$13,456,000 of trade and miscellaneous claims received 125,000 shares of Common
Stock of the Company, to be shared pro rata among certain of the claimants.
Approximately $26,000 of these liabilities were not discharged in bankruptcy.
Pre-Plan Effective Date Equity Interests. All equity interests
outstanding prior to the Plan Effective Date were canceled and extinguished
without compensation.
Other Disputed Postpetition Claims. The Company is a party to certain
litigation pending before the Bankruptcy Court. In the first, Magic Restaurants,
Inc., et al. v. Nicolo and Joseph Ottomanelli, Adv. Pro. No. 97-54, the Company
objects to the $75,000 administrative claim filed by the Ottomanellis and seeks
damages of $250,000 by way of counterclaim. The Company is also presently
appealing an order of the Bankruptcy Court requiring the Company to pay
approximately $100,000 to Bowie Produce, Inc., a prepetition produce vendor,
pursuant to the Perishable Agricultural Commodities Act ("PACA"). The resolution
of these matters is not expected to become final until the latter part of fiscal
year 1998. The Company believes that an adverse decision to the Company in each
of these matters will not materially affect the Company's operations, and
further that it will have sufficient cash available to pay any judgments that
may be entered with finality against the Company. The Company's litigation
pending before the Bankruptcy Court regarding Magic Restaurants, Inc., et al. v.
Nicolo and Joseph Ottomanelli, Adv. Pro. No. 97-54, was settled in December
1997. The settlement required The Company to issue to the Ottomanellis 2,500
shares of common stock.
THE REDHEADS PURCHASE
Central to the Company's restructuring strategy was acquisition of the
Redheads Bistro/Bar concept from its owners, Red One, Inc., a New Jersey
corporation and J. Michael Gallagher. Red One, Inc. and Mr. Gallagher were
operating under Chapter 11. On June 11, the Bankruptcy Court overseeing the
Chapter 11 cases of Red One, Inc., and Mr. Gallagher entered an order
authorizing the sale of the Redheads concept and the Middletown Redheads
Bistro/Bar in Middletown, New Jersey, to the Company. The Company purchased the
trade name, trade dress elements, and all related intellectual property rights
in the Redheads concept for $100,000, and purchased the Middletown Redheads
Bistro/Bar for $175,000 cash, plus assumption of the underlying lease. The sale
closed on June 23, 1997, and ownership of the Redheads Bistro/Bar concept and
the Middletown Redheads Bistro/Bar were transferred to the Company. No appeals
of the order authorizing the sale were filed, and the property was transferred,
by Court order, free and clear of all liens, claims, and encumbrances.
SUMMARY OF HISTORICAL RESULTS OF OPERATIONS
22
<PAGE> 23
The table that follows sets forth for the periods indicated the
Company's statements of operations, with operating expenses, loss, and other
income or expense items listed as a percentage of total revenues for such
periods:
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
26 WEEKS 26 WEEKS
DECEMBER 29, 1996 DECEMBER 31, 1995
--------------------------- --------------------------
<S> <C> <C> <C> <C>
SALES 7,700,920 100.00% 13,759,915 100.00%
COST OF SALES 2,279,267 -29.60% 4,008,818 -29.13%
---------------- -----------------
GROSS PROFIT 5,421,653 70.40% 9,751,297 70.87%
---------------- -----------------
OPERATING EXPENSES
Labor costs 2,741,441 35.60% 4,855,091 35.28%
Occupancy costs 990,332 12.88% 1,835,618 13.34%
General and administrative expenses 2,530,950 32.87% 3,410,479 24.79%
Depreciation 345,152 4.48% 621,839 4.52%
---------------- -----------------
TOTAL OPERATING EXPENSES 6,607,875 85.81% 10,723,227 77.93%
---------------- -----------------
INCOME (LOSS) FROM OPERATIONS (1,186,222) -15.40% (971,930) -7.06%
---------------- -----------------
OTHER INCOME (EXPENSE)
Interest income (expense) (333,699) -4.33% (212,886) -1.55%
Other income (expense) net (151,146) -1.96% 90,555 0.66%
---------------- -----------------
TOTAL OTHER INCOME (EXPENSE) (484,845) -6.30% (122,132) -0.89%
---------------- -----------------
REORGANIZATION EXPENSES
Professional fees (102,285) -1.33% (488,279) -3.55%
Loss on abandonment or disposal of restaurants (1,353,050) -17.57% 0 0.00%
Closing of American Cafe restaurants 0 0.00% 0 0.00%
---------------- -----------------
TOTAL REORGANIZATION EXPENSES (1,455,345) -18.90% (488,279) -3.55%
---------------- -----------------
NET INCOME (LOSS) (3,126,413) -40.60% (1,582,341) -11.50%
================ =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,244,000 6,976,885
================ =================
INCOME (LOSS) PER COMMON SHARE $(0.43) $(0.23)
================ =================
RESTAURANTS OPEN AT BEGINNING OF PERIOD 15 15
RESTAURANTS OPENED IN PERIOD 1 1
RESTAURANTS CLOSED IN PERIOD 12 2
RESTAURANTS OPEN AT END OF PERIOD 4 14
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
(AUDITED) (AUDITED)
52 WEEKS 52 WEEKS
JUNE 30, 1996 JULY 2, 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
SALES 26,456,229 100.00% 37,184,935 100.00%
COST OF SALES 7,823,258 29.57% 10,735,704 28.87%
------------ ------------
GROSS PROFIT 18,632,971 70.43% 26,449,231 71.13%
------------ ------------
OPERATING EXPENSES
Labor costs 9,327,255 35.28% 13,746,467 36.97%
Occupancy costs 3,486,573 13.16% 5,039,140 13.55%
General and administrative expenses 7,378,225 27.89% 15,385,737 41.38%
Depreciation 1,099,007 4.15% 1,547,878 4.16%
------------ ------------
TOTAL OPERATING EXPENSES 21,291,060 80.48% 35,719,222 96.06%
------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,658,089) -10.05% (9,269,991) -24.93%
------------ ------------
OTHER INCOME (EXPENSE)
Interest income (expense) (514,725) -1.95% (832,729) -2.24%
Other income (expense) net 239,900 0.91% 628,891 1.69%
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (274,825) -1.04% (203,838) -0.55%
------------ ------------
REORGANIZATION EXPENSES
Professional fees (859,155) -3.25% 0 0.00%
Loss on abandonment or disposal of
restaurants 0 0.00% (1,589,417) -4.27%
Closing of American Cafe restaurants (2,391,159) -9.04% 0 0.00%
Write off goodwill 0 0.00% (3,171,060) -8.53%
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (3,250,314) -12.29% (4,760,477) -12.80%
------------ ------------
NET INCOME (LOSS) $(6,183,228) -23.37% $(14,234,306) -38.28%
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,244,000 6,978,865
============ ============
INCOME (LOSS) PER COMMON SHARE $(0.85) $(2.04)
============ ============
RESTAURANTS OPEN AT BEGINNING OF PERIOD 15 26
RESTAURANTS OPENED IN PERIOD 2 2
RESTAURANTS CLOSED IN PERIOD 2 13
RESTAURANTS OPEN AT END OF PERIOD 15 15
</TABLE>
24
<PAGE> 25
COMPARISON OF THE TWENTY-SIX WEEK PERIODS ENDED DECEMBER 29, 1996 AND DECEMBER
31, 1995
Total revenues decreased $6,058,995 or 44% to $7,700,920 for the
twenty-six week transition period ended December 29, 1996 (the "1996 Period")
from $13,759,915 for the twenty-six weeks ended December 31, 1995 (the "1995
Period"). The decrease was attributable primarily to the closure of the
Company's nine The American Cafe restaurants in the 1996 period. Alcoholic
beverage revenues, as a percentage of food and beverage revenues, were 18% for
the 1996 period compared to 16% for the comparable 1995 period. This reflects
the effects of the closure of The American Cafe, which averaged lesser liquor
sales volume than did the Red Robin restaurants.
Food and beverage expense decreased $1,729,352 or 43% to $2,279,267 for
the 1996 Period from $4,008,618 for the comparable 1995 Period, principally as a
result of the closure of The American Cafe units. Food and beverage expenses as
a percentage of food and beverage revenues were 29.6% and 29.1% for the 1996
Period and the 1995 Period, respectively.
Labor costs and related expenses decreased $2,113,650 or 43.5% to
$2,741,441 for the 1996 Period from $4,855,091 for the comparable 1995 Period,
primarily because of the closure of The American Cafe, but also because of
improved productivity, scheduling, and training. Restaurant labor expenses as a
percentage of revenues increased slightly to 35.6% in the 1996 Period from 35.3%
in the 1995 Period primarily due to the high labor cost associated with the
opening of the Levittown, New York Redhead Bistro/Bar concept.
Restaurant occupancy expenses decreased $845,486 or 46.1% to $990,332
for the 1996 Period from $1,835,818 for the 1995 Period, primarily because of
the closure of The American Cafe units. The higher occupancy charges relative to
sales at The American Cafe also contributed to the lower restaurant occupancy
expenses as a percentage of revenues once these units were closed. In the 1996
period, restaurant occupancy charges as a percentage of revenues decreased to
12.8% from 13.3% in the 1995 Period.
General and administrative expenses decreased $879,529 or 25.8% to
$2,530,950 for the 1996 Period from $3,410,479 for the 1995 Period. This
decrease reflects the effects of the consolidation and streamlining of the
Company's operations. General and administrative expenses consist of, among
other things, executive salaries, other administrative compensation, corporate
office rent, and corporate overhead expenses. General and administrative
expenses as a percentage of revenues increased to 32.8% in the 1996 Period from
24.8% in the 1995 Period, primarily because of the increased costs associated
with the closure of The American Cafe units, the start-up of the Redheads
concept, and the work associated with preparing for conversion of the Company's
remaining restaurant units.
Depreciation and amortization expense decreased $276,687 or 44.5% to
$345,152 for the 1996 Period from $621,839 for the 1995 Period, primarily as a
result of the Company's divestiture of The American Cafe units.
25
<PAGE> 26
Interest expense-net increased $121,013 or 57% to $333,699 for the 1996
Period from $212,686 for the 1995 Period, principally as a result of the
interest expense accrued in connection with loan advances made to the Company
during the Company's Chapter 11 case by certain postpetition lenders, the
principal amount of which exceeded $2.9 million as of the end of the 1996
Period. Interest expense-net as a percentage of revenues increased to 4.3% in
the 1996 Period from 1.6% in the 1995 Period.
Other income (expense) increased $241,701 or 266.9% to $(151,146) for
the 1996 Period from $90,555 for the 1995 Period, primarily resulting from the
closure of The American Cafe units. The benefits of the closure were offset in
part by the increased expenses associated with their closure, as well as to
increased operating costs in the 1996 Period associated with the training,
systems development, and start-up of the Redheads Bistro/Bar concept during that
period and the conversion of the Levittown, New York location to the Redheads
Bistro/Bar concept. Other expenses as a percentage of revenues increased to 2.0%
(expense) in the 1996 Period from .6% (income) in the 1995 Period.
Restructuring expenses, primarily professionals in the Company's
Chapter 11 case, decreased $385,984 or 79.1% to $102,966 in the 1996 Period from
$488,279 in the 1995 Period. The high costs of administering the Company's
Chapter 11 case during the 1996 Period occurred when the Company was engaged in
a number of highly contested proceedings as it moved towards confirmation in the
1996 Period of its Plan kept restructuring expenses at an elevated level in the
1996 Period. The higher legal costs were offset by the termination of a
consulting contract for restaurant management services during 1996 resulting in
lower overall restructuring expenses. Restructuring expenses as a percentage of
revenues increased to (1.3%) in the 1996 Period from 3.6% in the 1995 Period.
The Company recognized a loss on disposal of restaurants in the 1996
Period of $1,353,050, primarily from the closure of The American Cafe units and
the Staten Island and Smithhaven Red Robin locations.
The Company's net loss for the 1996 Period was $3,126,413, as compared
to a net loss of $1,582,341 for the 1995 Period. The increase, 97.6%, was
primarily attributable to the loss and increased expenses associated with the
closure of The American Cafe units and the increased expense associated with the
start-up of the Redheads concept and the conversion of the Levittown location to
a Redheads Bistro/BarThe loss as a percentage of . The loss as a percentage of
revenue increased to 40.6% in the 1996 Period from 11.5% in the 1995 Period.
COMPARISON OF THE FISCAL YEAR ENDED JUNE 30, 1996 TO THE FISCAL YEAR ENDED JULY
2, 1995
Total revenues decreased $10,728,706 or 29% to $26,456,229 in fiscal
year ended June 30, 1996 ("Fiscal Year 1996") from $37,184,935 in the fiscal
year ended July 2, 1995 ("Fiscal Year 1995"). Total Operating expense decreased
$14,428,162 or 40% to $21,291,060 in Fiscal Year 1996 from $37,184,935 in the
Fiscal Year 1995. Loss from operations decreased $6,611,902 or 71% to $2,658,089
in Fiscal Year 1996 from $9,269,991 in the Fiscal Year 1995. The decreases were
attributable primarily to the sale by the Company in March, 1995 of its five
26
<PAGE> 27
Carmella's Cafe units, the prepetition closure of six The American Cafe units
the closure of two Red Robin units and cost control measures put in place by new
management.
Food and beverage expense decreased $2,912,446 or 27% to $7,823,258 for
Fiscal Year 1996 from $10,735,704 for Fiscal Year 1995, principally as a result
of the decreased sales volumes caused by the closure of 13 restaurants by the
end of Fiscal Year 1995. Food and beverage expenses as a percentage of food and
beverage revenues were 29.6% in Fiscal Year 1996 compared with 28.9% in Fiscal
Year 1995, reflecting the increased weighted average of sales in The American
Cafe units (which maintained higher food costs percentages) following the
closure of two Red Robin and five Carmella's Cafe restaurant units.
Restaurant labor and related expenses decreased $4,419,212 or 32% to
$9,327,255 in Fiscal Year 1996 from $13,746,467 in Fiscal Year 1995, primarily
because of the many unit closures that had been effected by the end of Fiscal
Year 1995, but also because of improved productivity, scheduling, and training.
Restaurant labor expenses as a percentage of revenues decreased to 35.3% in
Fiscal Year 1996 from 37.0% in Fiscal Year 1995.
Restaurant occupancy expenses decreased $1,552,567 or 32.2% to
$3,486,573 in Fiscal Year 1996 from $5,039,140 in Fiscal Year 1995, primarily
because of the many unit closures that had been effected in Fiscal Year 1995. In
the 1996 period, restaurant occupancy charges as a percentage of revenues
decreased to 13.2% from 13.6% in the 1995 Period.
General and administrative expenses decreased $8,007,512 or 52% to
$7,378,225 in Fiscal Year 1996 from $15,385,737 in Fiscal Year 1995. This
decrease reflects the immediate impact management had on eliminating wasteful
general and administrative expenses upon their succeeding prior management in
April, 1995 at the commencement of the Company's Chapter 11 cases. General and
administrative expenses as a percentage of revenues decreased to 27.9% in Fiscal
Year 1996 from 41.4% in Fiscal Year 1995.
Depreciation and amortization expense decreased $448,871 or 29% to
$1,099,007 in Fiscal Year 1996 from $1,547,878 in Fiscal Year 1995, primarily as
a result of the Company's divestiture of a number of units in Fiscal Year 1995.
Interest expense-net decreased $318,004 or 38.2% to $514,725 in Fiscal
Year 1996 from $832,729 in Fiscal Year 1995, principally as a result of the
paydown of certain secured loans prepetition and the cessation of certain
interest payable obligations upon the commencement of the Company's Chapter 11
case. Interest expense-net as a percentage of revenues decreased to 2.0% in
Fiscal Year 1996 from 2.3% in Fiscal Year 1995.
Other income (expense) decreased $388,991 or 61.9% to $239,900 in
Fiscal Year 1996 from $628,891 in Fiscal Year 1995, primarily because of the
unit closures effected by the end of Fiscal Year 1995. Other operating expenses
as a percentage of revenues decreased to .9% in the 1996 Period from 1.7% in the
1995 Period. A significant portion of this decrease is attributable to the loss
of banquet related income lost with the closure of The American Cafes.
27
<PAGE> 28
Restructuring expenses, primarily representing the fees and expenses of
professionals and restaurant management consultants employed in the Company's
Chapter 11 case, were $859,155 in Fiscal Year 1996. The Company has not employed
any restaurant consultants since February, 1996.
The Company recognized a loss on disposal of restaurants $1,589,417 in
Fiscal Year 1995 from the sale, closure, or liquidation of the Carmella
restaurant units and certain other assets of the Company. This represented 4.3%
of revenue.
The Company recognized a loss on the closing of The American Cafe
Restaurants of $2,391,159 in Fiscal Year 1996, this represented 9% of revenue.
The Company recognized a loss on the write off of goodwill of
$3,171,060 relating to the sale, closure, or liquidation of restaurants and
other assets of the Company in Fiscal Year 1995. This represented 8.5% of
revenue.
The Company's net loss in Fiscal Year 1996 was $6,183,228 as compared
to a net loss of $14,234,306 in Fiscal Year 1995. This represents an $8,051,078,
or 56.6% decrease in net loss which reflects the substantial benefit brought to
bear by the new management team appointed at the outset of the Company's Chapter
11 case.
FINANCIAL CONDITION AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Since inception, the Company has incurred losses
from operations. As of December 29, 1996, the Company had an accumulated deficit
of $35,437,302. During the Transition Period ended December 29, 1996, net cash
flow used in operations totaled $1,190,717.
As of December 26, 1996, the Company had negative working capital of
$21,802,066, as compared to negative working capital of $19,890,065 as of June
30, 1996.
The Company has, upon the effectiveness of its confirmed Plan,
accounted for the reorganization using "fresh-start" reporting. Accordingly, all
assets and liabilities are restated to reflect their reorganization value, which
approximates fair value at the date of reorganization. Application of the
principles of "fresh-start" reporting resulted in elimination of the
stockholders' deficit and caused $22,435,338 of total liabilities to be
extinguished, as provided specifically in the Plan itself. See"-- The
Reorganization Proceedings; Confirmation and Effectiveness of the Company's
Reorganization Plan" for further discussion of the consequences of the Plan's
confirmation and effectiveness.
The Company does not have trade accounts receivable, since sales are
for cash or by credit card receipts, which are usually paid within one week. The
Company does not maintain substantial inventories due to the relatively brief
shelf life and frequent turnover of food products and liquor. The restaurants
receive deliveries of food and liquor no less frequently than every other day.
Additionally, the Company has been able to obtain modest amounts of trade credit
for purchasing food, liquor, and restaurant supplies.
28
<PAGE> 29
Increases in food and labor costs and interest rates can have a direct
affect on the Company's operations. The Company believe it has responded
appropriately to such increases, some of which are passed through to the
consumer. The federal minimum wage required to be paid to employees has
increased, however many of the Company's employees are paid hourly rates higher
than the federal minimum wage.
The Company's current leases require, and future leases may require,
the Company to pay taxes, maintenance, insurance, repairs and utility costs
which are also subject to inflation, and in addition, some leases contain, and
future leases may contain, escalations of annual rentals based upon limited
increases in specific cost-of-living indices, none of which are controllable by
the Company.
Increases in interest rates will adversely affect the Company's ability
to obtain financing necessary for the establishment of additional restaurants
and additional working capital needs.
INVESTING ACTIVITIES. In August, 1996, the Company caused its Red Robin
restaurant unit in Levittown, New York to be converted to a Redheads Bistro/Bar.
This first unit conversion by the Company to the Redheads Bistro/Bar concept
cost the Company approximately $60 per square foot or approximately $468,000.
The Company is required by an order of the Bankruptcy Court, entered
into in connection with the Plan, to remove all Red Robin trade dress from its
restaurant locations in Secaucus, New Jersey, Yonkers, New York, and Kings
Plaza, Brooklyn, on or before December 31, 1997. Failure to remove the trade
dress as required by the Bankruptcy Court order could result in litigation and
the grant of injunctive relief against the Company, and the imposition of
unspecified monetary damages against the Company. The Company is proceeding with
the conversions of these three units to the Redheads Bistro/Bar concept. Failure
to remove the trade dress as required by the Bankruptcy Court order could result
in litigation and the grant of injunctive relief against the Company, and the
imposition of unspecified monetary damages against the Company. The Company is
proceeding with the conversions as directed by the court. As of January 1998 the
Yonkers location had been successfully converted, the Secaucus unit was closed
for conversion and only the Kings Plaza location was in violation of this order.
FINANCING ACTIVITIES. To fund these units' conversion to the Redheads
Bistro/Bar concept, as well as other costs, the Company obtained a funding
commitment from Teleferscot to provide up to $3.5 million. Through confirmation
and effectiveness of the Plan, the Company received approximately $2,100,000 of
the committed funding. The Company presently intends to draw down on the
remaining amount available under commitment in order to fund the remaining unit
conversions to the Redheads Bistro/Bar concept. The Company believes that the
remaining committed funds will be sufficient to enable the Company to convert
all three restaurant units to the Redheads Bistro/Bar concept and, additionally,
to supply the Company with sufficient cash (along with cash from operations) to
meet its normal obligations in the ordinary course of business, including the
obligations owing to taxing authorities under the Plan. In exchange for each $75
drawn down under the funding commitment, Teleferscot will receive 1 additional
share of the Company's Series A Preferred Stock.
29
<PAGE> 30
Before the filing of the Chapter 11 case, the Company funded its
growth, operating losses, and expansion costs primarily through a combination of
public and private offerings of debt and equity, through bank loans, and
operating cash flows, including the continued modest extensions of trade credit
to the Company. To fund the Company's losses during the Chapter 11 case, the
Company relied primarily upon the issuance of Bankruptcy Court approved
debtor-in-possession secured loans, of which a total of nearly $2.5 million was
advanced between the April 6, 1995 Petition Date and the close of the Transition
Period ended December 29, 1996.
It is management's belief that profitability will be achieved by
opening or acquiring additional restaurants to provide an expanding revenue base
to absorb fixed corporate overhead charges. The Company anticipates that
revenues will exceed the increased expenditures associated with the construction
and acquisition of additional restaurants.
The poor performance of any one restaurant could have a materially
adverse effect upon the financial condition of the Company. However, the Company
believes, although there can be no assurance, that the adverse effect of the
results of any one restaurant will diminish as the number of restaurants
operated by the Company increases. While the Company believes that management
efficiencies and marketing strategies will limit declines in existing store
revenues, there can be no assurance that future declines in existing restaurant
revenues will not occur and adversely affect the Company.
The Company anticipates that it will require substantial additional
debt or equity capital to fund the Company's expansion plans, which contemplate
the opening of at least one new Redheads Bistro/Bar restaurant each quarter. The
inability of the Company to obtain such additional financing will result in the
curtailment by the Company of its expansion activities and further restructuring
or downsizing of the Company's operations.
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Certified Public Accountants..............................
Consolidated Balance Sheet......................................................
Consolidated Statement of Operations............................................
Consolidated Statement of Cash Flows............................................
Consolidated Statement of Changes in Stockholders' Equity.......................
Notes to Consolidated Financial Statements......................................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In May, 1996, the Board of Directors of the Company determined
that it would be in the best interests of the Company to terminate the services
of its independent accountant Most Harowitz & Co., which acted as its
independent accountant with respect to the fiscal year ended July 3, 1994. The
Board of Directors also decided to retain the firm of Cogen Sklar LLP to be its
independent accountants for the fiscal year ending July 2, 1995. The dismissal
of Most Harowitz & Co. was recommended and approved by the Board of Directors of
the Company and is not the result of any disagreement with Most Harowitz & Co.
on any matter of accounting principles or practice, financial statement
disclosure or auditing scope or procedure.
No report has been issued since the report by Most Harowitz & Co., for the
fiscal year ending July 3, 1994 which contained an adverse opinion or a
disclaimer of opinion, or was qualified or, modified as to uncertainty, audit
scope, or accounting principles.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles O. Olson, Jr.(2)............................. 40 President, Chief Executive Officer & Director
David C. Sederholt................................... 46 Executive Vice President & Chief Operating
Officer, Secretary
A. Keith Hebert ..................................... 38 Vice President - Director of Operations
Pierpaolo Matteuzzi (2).............................. 45 Director
John E. McConnaughy, Jr. (1) (2)..................... 67 Director
Julio Pasini (1)..................................... 43 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
CHARLES O. OLSON, JR. Mr. Olson was elected a director of the Company
at its annual meeting held on July 21, 1994 and has served as its President
since April 6, 1995, the Petition Date. He has been, since January 1994, a
principal of RehCam Investments, a private Houston, Texas investment firm. He
has also been, since 1987, the sole principal of Rye Management, Inc., a
financial consulting firm. Until October 1993, Mr. Olson served for more than
five years as President of Capital Holdings, Inc., a private financial
management firm in Houston. Mr. Olson received a B.A. (Accounting) from the
University of Houston in 1981. He is currently on the Board of Directors of SLB
Snacks Corporation.
DAVID C. SEDERHOLT. Mr. Sederholt joined the Company as Executive Vice
President and Chief Operating Officer in July, 1997. From 1991 until joining the
Company, Mr. Sederholt served as President and Chief Operating Officer of
Rattlesnake Holding Co., Inc. and its subsidiary Rattlesnake Grill Restaurants.
Mr. Sederholt co-founded and developed the Rattlesnake concept in 1991. Mr.
Sederholt was responsible for the reduction of labor and food cost through
creation and continual modification of the menu, while furthering the market
identity of the concept. Mr. Sederholt additionally served as Chief Financial
Officer at Rattlesnake from 1992 to 1996. From 1986 through 1991, Mr. Sederholt
served as Managing Partner of Atlantic Professional Resources, Inc., a
management and marketing consulting firm serving the foodservice and hospitality
industries. From 1983 through 1986, he served as Corporate Director of Food and
Beverage for Huckleberry's restaurants, a multi-unit company with restaurants in
New York, Connecticut, and Florida. Mr. Sederholt received a B.S. (Biology and
Chemistry) from Pace University.
A. KEITH HEBERT. Mr. Hebert has served as Vice President - Director of
Operations since joining the Company in July, 1995. From 1982 to 1986 Mr. Hebert
operated his own restaurant,
32
<PAGE> 33
Checkers Pizza, which he sold in 1986. From 1986 to 1989 Mr. Hebert acted as
Regional Director for Nachos (now known as Two Pesos) restaurant in Houston,
Texas. Mr. Hebert joined the Casa Ole/Crazy Jose's chain of restaurants in 1990
and, until joining the Company, served in various positions of increasing
responsibility eventually being appointed vice president.
PIERPAOLO MATTEUZZI. Mr. Matteuzzi became a director of the Company in
1997. Mr. Matteuzzi has served since 1987 as managing director of Sogevalor,
S.A., a Swiss portfolio managing company. In the 12 years prior to joining
Sogevalor, Matteuzzi ascended to senior management of an international finance
department in a major Swiss bank.
JOHN E. MCCONNAUGHY, JR. Mr. McConnaughy became a director of the
Company in 1997. Until 1994, Mr. McConnaughy was Chairman of the Board and Chief
Executive Officer of GEO International Corporation, a New York Stock Exchange
company specializing in graphic systems, quality laboratories, and oil field
equipment and services. He remains a director of GEO International Corporation.
From 1969 until 1985, Mr. McConnaughy served as Chairman of the Board and Chief
Executive Officer of Peabody International Corporation. During his tenure at
Peabody, the company's sales grew from approximately $23 million to $850
million. He was named outstanding Chief Executive Officer for his industry group
(Environmental Control) by Financial World Magazine in 1975, 1976, and 1978. He
is currently on the Board of Directors of Mego Corporation, Transact
International, Inc., Pets Choice, Ltd., Cryptologics International, Inc.,
Pantopec International, Inc., Oxi-Gene, Inc., and Riddell, Inc. He also serves
on the Board of Trustees of Strang Cancer Prevention Center and the Harlem
School for the Arts. Mr. McConnaughy has been a director of the Company since
the Plan Effective Date.
JULIO M.V. PASINI. Mr. Pasini became a director of the Company in 1997.
Mr. Pasini has been Chief Executive Officer of Dumont Investments, Inc. since
its inception in January 1996. Dumont Investments, Inc. is a money management
company with investments in the USA. Prior to joining Dumont Mr. Pasini was at
Swiss Bank Corporation holding a variety of positions in Financial Institutions
and Capital Markets, culminating with the global responsibility of developing
and servicing relationships with Italian banks and investment funds.
Executive officers are appointed by the Board of Directors and serve at
the pleasure of the Board of Directors. All directors hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified.
BOARD COMMITTEES
Audit Committee. The Audit Committee of the Board of Directors (i)
review the results and scope of the annual audit and other services provided by
the Company's independent auditors, (ii) reviews and evaluates the Company's
internal audit and control functions and (iii) monitors transactions between the
Company and its employees, officers and directors. Charles Olson, Jr., Pierpaolo
Matteuzzi and John McConnaughy, Jr. are members of the Audit Committee.
Compensation Committee. The Compensation Committee of the Board of
Directors administers the Company's stock option and stock purchase plans and
designates compensation
33
<PAGE> 34
levels for the Company's executive officers and directors. Julio Pasini and John
McConnaughy, Jr. are members of the Compensation Committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than ten percent of the Company's Common
Stock or the Company's Preferred Stock, to file reports of ownership and changes
in ownership with the Commission. During the entire Transition Period the
Company was operating under Chapter 11 and none of the persons serving as
officers and directors filed any reports under Section 16(a) of the Exchange
Act.
COMPENSATION OF DIRECTORS
Until otherwise authorized, the directors of the Company are not paid
or reimbursed for out-of-pocket expenses for each Board meeting attended by such
director. During the period from July 1, 1995 to December 31, 1995 none of the
directors were compensated for any service provided as a director.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation of the Company, as amended,
provides that no director of the Company shall be liable to the Company for
monetary damages for breach of fiduciary duty or care as a director except for
liability for breach of the director's duty of loyalty, for acts not in good
faith, intentional misconduct or knowing violations of law, for unlawful payment
of dividends or stock purchases or redemptions or for transactions in which the
directors derived an improper personal benefit. The By-Laws of the Company
provide for the indemnification of officers and directors to the fullest extent
permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) in connection with the
securities being registered, the Company will, unless in the opinion of counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
34
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information, concerning the annual and
long-term compensation of the Company's chief executive officer and other
individuals acting in a similar capacity for the past three fiscal years. No
information is included regarding compensation paid to other executive officers
during such three year period because no such executive officer earned annual or
long-term compensation in excess of $100,000. Except as set forth in the tables
below, no bonus, other annual compensation, long-term compensation (in the form
of restricted stock awards, options, stock appreciation rights, long-term
incentive plans, or otherwise), or other forms of compensation were paid to the
Company's chief executive officer, any other individuals acting in a similar
capacity, or any other executive officer of the Company at any time during such
periods as are reflected in the tables set forth below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR ANNUAL COMPENSATION STOCK ALL OTHER
NAME AND PRINCIPAL POSITION OR PERIOD SALARY ($) BONUS ($) AWARD COMPENSATION
--------------------------- --------- ---------- --------- ----- ------------
<S> <C> <C> <C> <C> <C>
Charles Olson, Jr........................ 1996-T $ 33,500 $0 $27,000
President/CEO (1) 1996 $ 66,000 $0 $54,000
1995 $ 30,000 $0 $0
Gary Rogers.............................. 1995 $ 165,833 $0 $0
President/CEO (1)
Steven R. Jakubowski..................... 1996-T $0 $0 $60,000
Chief Operating Officer 1996 $ 80,000 $0 $40,000
1996 $ 30,000 $0 $0
</TABLE>
(1) Mr. Olson assumed from Mr. Rogers the responsibilities of President and
Chief Executive Officer on April 6, 1995.
EMPLOYMENT CONTRACTS
The Company has no employment contract with any of its executive
officers other than Mr. Sederholt. It is anticipated that the Company will enter
into an employment agreement with Mr. Olson prior to the end of fiscal year
1997, the terms of which are under discussion and review by the Company's board
of directors.
The employment contract with Mr. Sederholt, entered into in July, 1997,
has a one year term and automatically renews for successive one year periods
unless terminated upon at least
35
<PAGE> 36
sixty days prior written notice. The contract provides for a base salary of
$100,000 annually. In addition, the Company granted to Mr. Sederholt the right
to purchase a number of shares equal to 1.75% of the Company's issued and
outstanding shares of Common Stock at an exercise price of $1.50 per share
(subject to customary anti-dilution provisions and adjustment for certain other
events such as stock splits and recapitalizations). These options will vest 25%
on each anniversary date of the employment contract.
The Company has no compensatory plan or arrangement with any of its
executive officers in the event of (i) that officer's resignation, retirement,
or termination in any other manner, (ii) a change-in-control of the Company, or
(iii) a change in such officer's responsibilities following a change-in-control
of the Company
THE FISCAL YEAR 1997 STOCK OPTION PLAN
On the Plan Effective Date, as approved in the Confirmation Order of
the Bankruptcy Court, the Company adopted a long-term incentive plan (the
"Incentive Plan") providing for the issuance of stock options (the "Options") to
purchase shares of Common Stock, thereby entitling the holder thereof, upon
exercise, to receive the value or the increase in value of the shares of Common
Stock subject thereto.
The Options shall constitute either "incentive stock options" within
the meaning of Section 422A of the Internal Revenue Code ("ISO's") or
"nonqualified stock options" ("NQSO's"). All Options granted to non-employee
directors and consultants will constitute NQSO's. The Company believes that the
Incentive Plan will provide the Company with significant advantages in
attracting, retaining, and motivating key employees, officers, and directors of
the Company by providing such persons with incentives that are linked directly
to increases in stockholder value.
The Incentive Plan is administered by a committee (the "Compensation
Committee") of the Company's Board of Directors, consisting of no fewer than two
directors, none of whom may be employees of the Company and each of whom serves
at the pleasure of the Board of Directors. Currently the Compensation Committee
is composed of Messrs. Pasini and McConnaughy. This Board Committee has full
power to administer and to make all determinations as it deems necessary or
advisable for the proper administration of the Incentive Plan, including,
without limitation, the power to select from among the employees, consultants,
and directors eligible for awards, those individuals to whom awards will be
granted and the number of awards to be granted to such persons. The Compensation
Committee is authorized to interpret the Incentive Plan and may at any time
adopt such rules and regulations as it deems advisable.
Under the Incentive Plan, the Compensation Committee is authorized to
issue, pursuant to Options granted pursuant to the Incentive Plan, shares of
Common Stock representing, in the aggregate, up to 250,000 shares of Common
Stock. The eligible persons to whom options are actually granted under the
Incentive Plan and the number of shares subject to each such option shall be
determined by the Compensation Committee in its sole discretion in accordance
with the terms and conditions of the Incentive Plan.
36
<PAGE> 37
Options awarded pursuant to the Incentive Plan shall vest and become
exercisable (subject to the other provisions of the Incentive Plan) at any time
over a four year period commencing the date issued. The Compensation Committee
or the Board of Directors, as the case may be, in its sole discretion, may
determine that a different vesting period should apply. At the time an Option is
granted under the Incentive Plan, the Compensation Committee may establish one
or more terms or conditions which are applicable to such Option and which are
not inconsistent with any provision of the Incentive Plan; provided that if such
Option is an incentive stock option, such terms and conditions shall not be
inconsistent with Section 422 of the Internal Revenue Code or any successor
provision.
The exercise price per share to be purchased pursuant to any Option
shall be fixed by the Compensation Committee at the time the Option is granted
and may be less than, equal to, or greater than the fair market value of one
share on the date such Option is granted, depending, in part, on the nature of
the Option granted. The duration of any Option granted under the Incentive Plan
shall be for a period fixed by the Compensation Committee, in its sole
discretion, but generally not longer than between five and ten years, depending
on the nature of the Option granted.
The Incentive Plan may not be amended to effect the following changes
unless such amendment shall have been approved by the Board of Directors and,
within one year of such amendment, by the stockholders of the Corporation: (i)
increase the number of shares of stock which may be issued under the Incentive
Plan, except for changes in capitalization; (ii) materially modify the
requirements as to eligibility for participation; (iii) extend the duration
beyond that approved by the stockholders; or (iv) materially increase the
benefits accruing to participants under the Incentive Plan.
The Board of Directors may terminate or suspend the Incentive Plan at
any time, but without the consent of the participant, such termination or
suspension shall not affect any Options then outstanding. The Board of Directors
may amend the Incentive Plan, but may not, without the prior approval of its
stockholders, make any amendment that would, in accordance with the principles
of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, require the
approval of the holders of the Common Stock issued and outstanding.
The Incentive Plan has a term of ten (10) years through May 30, 2007.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of August 31,
1997, regarding beneficial ownership of the Company Stock of each executive
officer or director of the Company, and all executive officers and directors as
a group, and each stockholder who is known by Company to beneficially own more
than five percent of the Common Stock of the Company.
37
<PAGE> 38
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
NAME AND ADDRESS (IF REQUIRED) OF BENEFICIAL OWNER COMMON STOCK (3) OF TOTAL
- -------------------------------------------------- ---------------- --------
<S> <C> <C>
Charles O. Olson, Jr. (1) ..................................... 1,039,048 41.8%
Mohammedali Hassanali .......................................... 151,886 6.1%
Bellaty N.V (1) ................................................ 668,705 26.9%
RehCam Investments L.P (1) .................................... 153,698 6.1%
Chillington Corporation N.V (1) ............................... 190,246 7.6%
Ali Khin ....................................................... 156,550 6.3%
John E. McConnaughy, Jr ........................................ 363,251 14.6%
Teleferscot International Limited (2) .......................... 1,787,750 41.9%
David C. Sederholt ............................................. 10,000 0.4%
A. Keith Hebert ................................................ 9,324 0.4%
All Officers and Directors as a Group .......................... 1,421,623 57.3%
(6 Persons)
</TABLE>
- -----------------------
(1) Charles Olson, Jr. is the president of Rye Management, Inc., (Rye) the
general partner of RehCam Investments Limited Partnership (RehCam).
Additionally Mr. Olson is a limited partner in RehCam. RehCam owns 153,698
shares. Mr Olson is the attorney in fact for Chillington Corporation N.V.
which owns 190,246 shares. Mr. Olson exercises voting and investment power
over the shares held by this entity, but disclaims beneficial ownership.
Mr. Olson is the attorney in fact for Bellaty N.V. which owns 668,705
shares. Mr. Olson exercises voting and investment power over the shares
held by this entity, but disclaims beneficial ownership. Mr. Olson owns
26,399 shares personally. Does not include shares, if any, available to Rye
Management, Inc. under the terms of the consulting agreement to be paid to
Rye as a reorganization bonus. (see Certain Relationship and Related
Transactions)
(2) Represents warrants, exercisable within 60 days, to purchase 750,000 shares
at $4.00 per share and 750,000 shares at $10.00 per share. The remaining
287,750 represents the right of Teleferscot (with the Company's consent),
as the owner of all outstanding Series A 12% Cumulative Convertible
Preferred Stock, to exchange one share of Preferred Stock for (a) 5 shares
of Common Stock through May 30, 1998, (b) 3.75 shares of Common Stock
through May 30, 1999, and (c) 3 shares of Common Stock through May 30,
2000.
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of May 25, 1997 are
deemed outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1995, the Bankruptcy Court overseeing the Company's Chapter 11 case,
in connection with the employment of Mr. Olson as President and Chief Executive
Officer, approved a consulting agreement between the Company and Rye Management,
Inc. ("Rye"), that was extensively negotiated between the Company and the
Creditors' Committee. Rye is a corporation owned and controlled by Mr. Olson.
The consulting agreement called for a reorganization bonus to be paid to Rye
upon the confirmation of the Plan. The consulting agreement assigns various
"Success Factors" that are
38
<PAGE> 39
based on the actual recovery (as a percentage of Allowed Claims) realized by
general unsecured creditors in the Chapter 11 cases. The Success Factors range
from 0, for a 0% recovery level, to 10.5, for a 50% recovery level, to 20 for a
100% recovery level. The total reorganization bonus due Rye will be equal to the
aggregate in each Chapter 11 case, of (x) the applicable Success Factor (taken
as a percentage) times (y) the total consideration paid to all claimants in the
case under the Plan.
This reorganization bonus will be paid through the issuance of the
Company's Common Stock. Under the confirmed Plan, the number of shares issued
will be based on the sustained trading prices achieved for the Common Stock over
the three year period following the Plan Effective Date. The reorganization
bonus will be calculated based upon the highest average trading price achieved
by the Common Stock over the course of ten consecutive trading days during the
three years following the Effective Date (with average share volumes traded per
day in excess of 10,000 shares). The Company estimates that, on average, a total
of 18,000 shares would be issuable for each $1.00 of sustained price realized up
to $53 per share during the three year period.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements and the Report of Independent
Accountants are filed as a part of this report on the pages indicated:
Page
----
Report of Independent Public Accountants
Consolidated Balance Sheets as of July 2, 1995, June 30, 1996,
December 29, 1996
Consolidated Statements of Operations for the Years Ended
July 2, 1995 and June 30, 1996 and the Twenty-Six Week
Transition Period Ended December 29, 1996
Consolidated Statements of Stockholders' Equity for Years Ended
July 2, 1995 and June 30, 1996 and the Twenty-Six Week
Transition Period Ended December 29, 1996
Consolidated Statements of Cash Flows for the Years Ended
July 2, 1995 and June 30, 1996 and the Twenty-Six Week
Transition Period Ended December 29, 1996
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENTS SCHEDULES
Not applicable.
(a)(3) EXHIBITS
The following exhibits, designated by an asterisk (*), have been
previously filed with the Commission pursuant Form S-1, File No. 33-35416 and,
pursuant to 17 C.F.R. Section 230.411, are incorporated by reference. Those not
so designated are filed herewith.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
39
<PAGE> 40
<TABLE>
<S> <C>
2.1 Second Amended Plan of Reorganization and Order Confirming the Second Amended Plan of
Reorganization (December 30, 1996)
2.2 Statement of Immaterial Modifications to the Plan and Order Approving Immaterial
Modifications to the Plan (January 28, 1997)
3.1 Amended and Restated Certificate of Incorporation (May 30, 1997)
3.2 Amended and Restated Bylaws (May 30, 1997)
4.1* Form of Certificate representing shares of Common Stock
4.2* Form of Certificate representing shares of Series A 12% Cumulative Convertible Preferred Stock
10.1 Lease dated October, 1985 between Kings Plaza Shopping Center of Flatbush Avenue, Inc. and
Kings Plaza Shopping Center of Avenue, U., Inc., as lessor, and Registrant, as lessee
10.2* Lease dated March 23, 1988 between Hartz Mountain Development Corp., as lessor, and
Registrant, as lessee
10.3* Lease dated September 19, 1986 between Robert Martin Company, as lessor, and Registrant, as
lessee
10.4* Lease dated December 23, 1992 between Crescent Land Development Associates, as lessor, and
Registrant, as lessee, plus amendment thereto dated March 1, 1996
10.4.1 Amendment dated March 1, 1996 to lease dated December 23,
1992 between Cresent Land Development Associates, as lessor, and Registrant,
as lessee.
10.6 Commitment Letter dated as of May 30, 1997 between Teleferscot International Limited and
Registrant
10.7 Asset Purchase Agreement among Red One, Inc., J. Michael Gallagher (collectively, the owners
of the Redheads concept and the Middletown Redheads Bistro/Bar restaurant facility) and
Registrant dated May, 1997 and Order of the Court authorizing this acquisition
10.8 Employment Agreement dated July, 1997 between David C. Sederholt, Executive Vice President
and Chief Operating Officer, and Registrant
11.1* Statement regarding computation of per share earnings
21.1* List of Subsidiaries
</TABLE>
(a)(4) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the
last quarter of 1996. The Company is filing a Form 8-K concurrently with this
Form 10-KSB to report the effectiveness of the Company's confirmed Plan of
Reorganization.
40
<PAGE> 41
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, in the City of
Yonkers, State of New York on March 19, 1998.
Redheads, Inc.
By: /s/ CHARLES O. OLSON, JR.
------------------------------
CHARLES O. OLSON, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and directors of Redheads, Inc. (the "Company") hereby constitutes and appoints
Charles O. Olson, Jr., his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and file this
report under the Securities Exchange Act of 1934, as amended, and any or all
amendments (including, without limitation, post-effective amendments), with all
exhibits and any and all documents required to be filed with respect thereto,
with the Securities and Exchange Commission or any regulatory authority,
granting unto such attorneys-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same, as fully to all intents
and purposes as he himself might or could do if personally present, hereby
ratifying and confirming all that such attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ CHARLES O. OLSON, JR. President & CEO, Director March 19, 1998
- -------------------------
Charles O. Olson, Jr.
/s/ JOHN E. McCONNAUGHY Director March 19, 1998
- -------------------------
John E. McConnaughy
/s/ PIERPAOLO MATTEUZZI Director March 19, 1998
- -------------------------
Pierpaolo Matteuzzi
/s/ JULIO PASINI Director March 19, 1998
- -------------------------
Julio Pasini
</TABLE>
41
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Magic Restaurants, Inc. and Subsidiaries
(Debtor-in-Possession)
Yonkers, New York
We have audited the accompanying consolidated balance sheets of Magic
Restaurants, Inc. and Subsidiaries (Debtor-in-Possession) as of December 29,
1996, June 30, 1996 and July 2, 1995, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the twenty-six weeks ended
December 29, 1996 and the fifty-two weeks ended June 30, 1996 and July 2, 1995.
The consolidated financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 in the first
paragraph present fairly, in all material respects, the consolidated financial
position of Magic Restaurants, Inc. and Subsidiaries (Debtor-in-Possession) as
of December 29, 1996, June 30, 1996 and July 2, 1995 and the results of their
operations and cash flows for the twenty-six weeks ended December 29, 1996 and
the fifty-two weeks ended June 30, 1996 and July 2, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company filed a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code on April 6, 1995 and through December 29, 1996 has operated
under the protection of the Bankruptcy Court. Continuation of the Company as a
going concern is dependent upon the confirmation of a plan of reorganization
which occurred on May 30, 1997 (Note 11), future successful operations and the
ability to generate sufficient cash flow from operations and capital/financing
sources to meet its obligations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ COGEN SKLAR LLP
-------------------
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
May 30, 1997
F-1
<PAGE> 43
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, June 30, July 2,
1996 1996 1995
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 58,332 $ 270,567 $ 613,289
Inventory 80,840 232,539 230,544
Other current assets 293,057 503,479 974,840
------------ ------------ ------------
TOTAL CURRENT ASSETS 432,229 1,006,585 1,818,673
PROPERTY AND EQUIPMENT - NET 1,942,966 3,137,263 5,419,075
OTHER ASSETS 296,669 316,783 411,415
------------ ------------ ------------
TOTAL ASSETS $ 2,671,864 $ 4,460,631 $ 7,649,163
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Postpetition senior secured notes payable $ 2,979,530 $ 1,324,530 $ 574,530
Accounts payable and accrued expenses 3,739,587 3,981,817 1,513,426
Sales and payroll taxes payable 99,496 174,620 375,818
Deferred income -- -- 7,500
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 6,818,613 5,480,967 2,471,274
------------ ------------ ------------
LIABILITIES SUBJECT TO COMPROMISE 15,415,682 15,415,682 15,430,679
REDEEMABLE 5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
$10,000 par and redeemable value; authorized, issued and
outstanding - 198 shares 1,980,000 1,980,000 1,980,000
------------ ------------ ------------
TOTAL LIABILITIES 24,214,295 22,876,649 19,881,953
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock - $.001 par value; authorized - 1,000,000
shares; issued and outstanding - 107,000 shares 107 107 107
Common stock - $.001 par value; authorized - 15,000,000
shares; issued and outstanding - 7,244,000 shares 7,244 7,244 7,244
Additional paid-in capital 13,887,520 13,887,520 13,887,520
Accumulated deficit (35,437,302) (32,310,889) (26,127,661)
------------ ------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (21,542,431) (18,416,018) (12,232,790)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,671,864 $ 4,460,631 $ 7,649,163
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE> 44
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twenty-Six Weeks
Ended Fifty-Two Weeks Ended
--------------------------------
December 29, June 30, July 2,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
SALES $ 7,700,920 $ 26,456,229 $ 37,184,935
COST OF SALES 2,279,267 7,823,258 10,735,704
------------ ------------ ------------
GROSS PROFIT 5,421,653 18,632,971 26,449,231
------------ ------------ ------------
OPERATING EXPENSES
Labor costs 2,741,441 9,327,255 13,746,467
Occupancy costs 990,332 3,486,574 5,039,140
General and administrative 2,530,951 7,378,226 15,385,737
Depreciation and amortization 345,152 1,099,006 1,547,878
------------ ------------ ------------
6,607,876 21,291,061 35,719,222
------------ ------------ ------------
LOSS FROM OPERATIONS (1,186,223) (2,658,090) (9,269,991)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (333,699) (514,725) (832,729)
Other income (expense), net (151,146) 239,901 628,891
------------ ------------ ------------
(484,845) (274,824) (203,838)
------------ ------------ ------------
REORGANIZATION EXPENSES
Professional fees (102,295) (859,154) --
Loss on abandonment or disposal of restaurants (1,353,050) -- (1,589,417)
Closing of American Cafe restaurants -- (2,391,160) --
Write-off of goodwill -- -- (3,171,060)
------------ ------------ ------------
(1,455,345) (3,250,314) (4,760,477)
------------ ------------ ------------
NET LOSS $ (3,126,413) $ (6,183,228) $(14,234,306)
============ ============ ============
NET LOSS PER SHARE OF COMMON STOCK $ (0.43) $ (0.85) $ (2.04)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
OF COMMON STOCK $ 7,244,000 $ 7,244,000 $ 6,976,865
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 45
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD JULY 3, 1994 TO DECEMBER 29, 1996
<TABLE>
<CAPTION>
Preferred Common Paid-In Accumulated Subscriptions
Stock Stock Capital Deficit Receivable
----- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 3, 1994 $ 121 $6,563 $ 14,240,152 $(11,893,355) $(154,225)
Write-off of subscriptions receivable -- -- -- -- 154,225
Expenses of issuance of redeemable 5% cumulative preferred stock -- -- (672,862) -- --
Dividends paid on preferred stock (14) -- (147,280) -- --
Issuance of common stock upon conversion of redeemable 5%
cumulative preferred stock -- 222 219,778 -- --
Issuance of common stock for professional services -- 100 46,775 -- --
Issuance of common stock to employee -- 85 31,790 -- --
Issuance of common stock to vendor -- 274 169,167 -- --
Net loss for the fifty-two weeks ended July 2, 1995 -- -- -- (14,234,306) --
----- ------ ------------ ------------ ---------
BALANCE AT JULY 2, 1995 107 7,244 13,887,520 (26,127,661) --
Net loss for the fifty-two weeks ended June 30, 1996 -- -- -- (6,183,228) --
----- ------ ------------ ------------ ---------
BALANCE AT JUNE 30, 1996 107 7,244 13,887,520 (32,310,889) --
Net loss for the twenty-six weeks ended December 29, 1996 -- -- -- (3,126,413) --
----- ------ ------------ ------------ ---------
BALANCE AT DECEMBER 29, 1996 $ 107 $7,244 $ 13,887,520 $(35,437,302) $ --
===== ====== ============ ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 46
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-Six Weeks
Ended Fifty-Two Weeks Ended
-----------------------------
December 29, 1996 June 30, 1996 July 2, 1995
----------------- -------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING EXPENSES
Net loss $ (3,126,413) $ (6,183,228) $(14,234,306)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation 333,814 1,070,554 1,436,214
Amortization 11,338 28,452 111,664
Provision for loss on note receivable -- -- 400,000
Write-off of goodwill -- -- 3,171,060
Write-off of other assets 16,049 -- --
Write-off subscription receivable -- -- 154,225
Issuance of common stock for services -- -- 78,750
Loss on disposal of property and equipment 1,337,001 -- 1,589,417
Loss on abandonment of American Cafe restaurants -- 1,923,305 --
(Increase) decrease in assets
Inventories 151,699 (1,995) 41,206
Other current assets 360,422 471,361 1,045,410
Other assets 42,727 (2,898) 931,595
(Increase) decrease in liabilities
Liabilities subject to compromise -- (14,997) --
Accounts payable and accrued expenses (242,230) 2,468,391 7,184,909
Sales and payroll taxes payable (75,124) (201,198) (336,190)
Deferred income -- (7,500) (242,500)
------------ ------------ ------------
Net cash provided by (used in) operating activities (1,190,717) (449,753) 1,331,454
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Note receivable and escrow funds from sale of property and
equipment, net of commissions of $250,000 -- -- 327,048
Proceeds from sale of property and equipment 5,061 -- --
Capital acquisitions (681,579) (642,969) (913,696)
Purchase of goodwill -- -- (824,407)
------------ ------------ ------------
Net cash used in investing activities (676,518) (642,969) (1,411,055)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable-banks -- -- (45,000)
Payment of notes payable-stockholders -- -- (192,075)
Payment of postpetition senior secured notes payable (145,000) (150,000) (564,532)
Proceeds from postpetition senior secured notes payable 1,800,000 900,000 594,612
Reduction of overdraft payable -- -- (564,803)
Proceeds from issuance of redeemable preferred stock, net of
debt issuance costs of $330,000 -- -- 1,870,000
Debt issuance costs -- -- (342,862)
Payment of dividend on redeemable preferred stock -- -- (147,294)
------------ ------------ ------------
Net cash provided by (used in) financing activities 1,655,000 750,000 (608,046)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (212,235) (342,722) 528,445
CASH - BEGINNING OF PERIOD 270,567 613,289 84,844
------------ ------------ ------------
CASH - END OF PERIOD $ 58,332 $ 270,567 $ 613,289
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 47
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Twenty-Six Weeks
Ended Fifty-Two Weeks Ended
------------------------------
December 29, 1996 June 30, 1996 July 2, 1995
----------------- --------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 43,088 $ 203,717 $ 651,409
=============== =============== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Note receivable from sale of American Cafe Restaurant
located in Tyson's Corner, Virginia $ 200,000 $ -- $ --
=============== =============== ===========
Transfer of construction in progress to property and equipment $ -- $ -- $ 789,281
=============== =============== ===========
Accounts payable and long-term debt assumed in the sale of
property and equipment
Accounts payable $ -- $ -- $ 601,704
Long-term debt -- -- 4,002,630
--------------- --------------- -----------
$ -- $ -- $ 4,604,334
=============== =============== ===========
Reclassification of notes and accounts payable to
liabilities subject to compromise
Notes payable-banks $ -- $ -- $ 491,000
Notes payable-stockholders -- -- 604,173
Long-term debt -- -- 2,756,446
Accounts payable -- -- 11,579,060
--------------- --------------- -----------
Liabilities subject to compromise $ -- $ -- $15,430,679
=============== =============== ===========
Conversion of redeemable preferred stock to common stock $ -- $ -- $ 220,000
=============== =============== ===========
Common stock issued to vendors $ -- $ -- $ 169,441
=============== =============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 48
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History and Nature of the Business
Magic Restaurants, Inc. and Subsidiaries (the "Company") are engaged in the
development, ownership and operation of restaurants that offer an upscale
alternative to fast food restaurants by providing high quality, moderately
priced food, and quick convenient full-menu table service. The Company operated
nine American Cafe restaurants located in the Washington, D.C., Maryland and
Virginia areas. The Company also operated six Red Robin Burger and Spirits
Emporiums ("Red Robin"), in the New York metropolitan area pursuant to a
franchise granted by Red Robin International, Inc., serving American style food
with international specialties. Additionally, the Company operated five Carmella
Cafe restaurants and two Spiga Italian-style family restaurants. In March 1995,
the Company divested itself of ownership of the Carmella Cafe and Spiga
restaurants. On April 6, 1995 the Company filed a voluntary petition for relief
under Chapter 11 of Title II of the Federal Bankruptcy Code. During the
twenty-six week period ended December 29, 1996 the Company ceased operations of
all American Cafe restaurants and two Red Robin restaurants, located in
Smithhaven, New York and Staten Island, New York.
Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Magic
Restaurants, Inc. and its subsidiaries. All material intercompany transactions
have been eliminated in consolidation.
Effective July 1, 1993, the Company adopted a fiscal year of fifty-two or
fifty-three weeks. Effective July 1, 1996, the Company changed its fiscal year
end to the last Sunday of December.
Fair Value of Financial Statements
The Company's financial instruments consist of cash, short-term receivables,
payables and accrued expenses. The carrying values of cash, short-term
receivables, payables and accrued expenses approximate fair value because of
their short maturities.
The carrying value of the fixed rate noncurrent notes receivable and current
portion of long-term debt approximate fair value since the interest rate
associated with the debt approximates the current market interest rate.
Concentration of Credit Risk Involving Cash
The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. During the year, the Company may have cash balances in these
financial institutions in excess of these limits. At December 29, 1996 balances
were in excess of insurable amounts by approximately $104,000.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. The cost of leasehold improvements is amortized
over the lesser of the length of the related leases or the estimated useful
lives of the assets.
Depreciation is computed using the straight line method.
Inventory
Inventory consists of food, liquor, bar and other supplies and is stated at the
lower of cost (determined by the first-in, first-out method) or market.
License Fees and Deferred Leasing Expenses
License fees and deferred leasing expenses are amortized on a straight-line
method over the related license or lease.
Net Loss Per Common Share
Net loss per common share was based on the weighted average number of common
shares outstanding. Fully-diluted net loss per common share was not presented as
it is antidilutive.
F-7
<PAGE> 49
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes
The Company accounts for income taxes on an asset and liability approach to
financial accounting. Deferred income tax assets and liabilities are computed
annually for temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and 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 expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly, actual results could differ from those
estimates.
Recoverability of Long Lived Assets
Effective July 1, 1996 the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company is not aware of any events or circumstances which
indicate the existence of an impairment which would be material to the Company's
quarterly or annual financial statements.
Accounting for Stock-Based Compensation
Compensation costs attributable to stock option and similar plans are recognized
based on any difference between the quoted market price of the stock on the date
of the grant over the amount the employee is required to pay to acquire the
stock (the intrinsic value method under Accounting Principles Board Opinion 25).
Such amount, if any, is accrued over the related vesting period, as appropriate.
Effective July 1, 1996 the Company implemented SFAS No. 123, "Accounting for
Stock-Based Compensation." The Statement encourages employers to account for
stock compensation awards based on their fair value on their date of grant.
Entities may choose not to apply the new accounting method but instead, disclose
in the notes to the financial statements the pro forma effects on net income and
earnings per share as if the new method had been applied. The Company has
adopted the disclosure-only approach of the Standard.
Recently Issued Accounting Pronouncements
In March 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This Statement establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. This Statement is effective for
financial statements issued for periods ending after December 15, 1997 (earlier
application is not permitted). This Statement requires restatement of all
prior-period EPS data presented. The Company is currently evaluating the impact,
if any, adoption of SFAS No. 128 will have on its financial statements.
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11
On April 6, 1995, Magic Restaurants, Inc. and Subsidiaries (the "Debtor") filed
petitions for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the District of Delaware. Under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-Possession. These claims are
reflected in the balance sheets as "liabilities subject to compromise".
Additional claims may arise subsequent to the filing date resulting from
rejection of executory contracts, including leases, and from the determination
by the court (or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts. Claims secured against the Debtor's
assets ("secured claims") also are stayed, although the holders of such claims
are secured primarily by liens on the Debtor's property and equipment.
F-8
<PAGE> 50
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11 (Continued)
The Debtor received approval from the Bankruptcy Court to pay or otherwise honor
certain of its prepetition obligations, including employee wages.
On May 30, 1997, the Bankruptcy Court confirmed the Company's plan of
reorganization, see Note 11.
NOTE 3 - OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
Other current assets consist of the following: December 29, June 30, July 2,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current portion of notes receivable $ 223,801 $ 231,251 $ 122,413
Prepaid expenses 7,286 134,128 464,934
Credit card receivables 34,791 114,874 110,824
Other receivables 17,179 3,226 256,669
Other 10,000 20,000 20,000
---------- ---------- ----------
$ 293,057 $ 503,479 $ 974,840
========== ========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following: December 29, June 30, July 2,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements $2,790,208 $3,889,250 $4,185,952
Restaurant fixtures and equipment 877,692 1,646,920 3,518,303
Equipment held under capital leases 628,935 928,935 928,935
Computer software 437,979 478,771 474,245
Furniture and fixtures 366,198 547,855 650,536
---------- ---------- ----------
5,101,012 7,491,731 9,757,971
Less: Accumulated depreciation 3,266,020 4,354,468 4,419,074
---------- ---------- ----------
1,834,992 3,137,263 5,338,897
Construction in progress 107,974 -- 80,178
---------- ---------- ----------
$1,942,966 $3,137,263 $5,419,075
========== ========== ==========
</TABLE>
NOTE 5 - OTHER ASSETS
<TABLE>
<CAPTION>
Other assets consist of the following: December 29, June 30, July 2,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Notes receivable $ 331,040 $ 302,406 $ 122,413
Liquor license 150,000 150,000 150,000
License fees - net 3,787 9,432 94,518
Deposits 22,208 60,013 53,288
Deferred leasing expenses - net 7,329 11,733 17,310
Deferred legal expenses - net 4,437 4,638 5,768
Deferred brokerage fees - net 1,669 9,812 90,531
---------- ---------- ----------
520,470 548,034 533,828
Less: Current portion of notes receivable 223,801 231,251 122,413
---------- ---------- ----------
$ 296,669 $ 316,783 $ 411,415
========== ========== ==========
</TABLE>
F-9
<PAGE> 51
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 5 - OTHER ASSETS (Continued)
The notes receivable consist of three notes, with interest rates ranging from 5%
to 9.75% maturing through February 2002, with property as collateral. The
current portion of notes receivable has been included in other current assets.
License fees, deferred leasing expenses, deferred legal expenses and deferred
brokerage fees are net of accumulated amortization of $158,873, $147,535 and
$119,083 as of December 29, 1996, June 30, 1996 and July 2, 1995.
NOTE 6 - COMMITMENTS
The Company leases its remaining restaurant premises under various operating
leases expiring through August 2013. The Company leases its executive offices in
Yonkers, New York on a month to month basis. Rent expense for the twenty-six
weeks ended December 29, 1996 and the fifty-two weeks ended June 30, 1996 and
July 2, 1995 was $695,453, $2,548,805 and $3,866,376.
Future minimum annual rentals are as follows:
<TABLE>
<CAPTION>
FIFTY-TWO / FIFTY-THREE WEEKS
ENDING DECEMBER,
-----------------------------
<S> <C>
1997 $ 868,063
1998 896,673
1999 926,393
2000 948,893
2001 971,160
Thereafter 9,063,480
-----------
$13,674,662
===========
</TABLE>
NOTE 7 - POSTPETITION SENIOR SECURED NOTES
Postpetition senior secured notes consist of the following:
<TABLE>
<CAPTION>
December 29, June 30, July 2,
1996 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Postpetition Series A senior secured notes payable to various
individuals and corporations, interest accruing at 12%, no
stated maturity date, collateralized by certain assets of
the Company $2,379,530 $1,174,530 $474,530
Postpetition Series A senior secured notes payable to a
corporation whose president is the chief operating officer
of the Company, interest accruing at 12%, no stated
maturity date, collateralized by certain assets of the
Company 200,000 150,000 100,000
Postpetition Series B senior secured notes payable to a
corporation, interest accruing at 12%, no stated maturity
date, collateralized by certain assets of the Company 400,000 -- --
---------- ---------- --------
$2,979,530 $1,324,530 $574,530
========== ========== ========
</TABLE>
F-10
<PAGE> 52
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 8 - CAPITALIZATION
Redeemable 5% Cumulative Convertible Preferred Stock
On September 4, 1994, the Company's management authorized and issued 220 shares
of redeemable 5% cumulative preferred stock for $1,870,000, net of commissions
of $330,000. The value assigned to these securities was $10,000 per share. The
holder of the preferred stock has the option to redeem the stock for $10,000 per
share. Additionally, each share is convertible into 1.25 to 4 shares of common
stock, depending on the market value and subject to certain restrictions.
On February 2, 1995, 22 shares of the preferred stock were converted to 222,222
shares of common stock at a conversion price of $0.45 per share, in accordance
with the agreement.
Preferred Stock
The Company's management is authorized to issue 1,000,000 shares of $0.001 par
value preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
the loss of voting control of others. The Company has 107,000 shares of Series A
15% preferred stock issued and outstanding as of December 29, 1996, June 30,
1996 and July 2, 1995. The shares are redeemable by the Company's management at
any time for $10 per share plus any unpaid dividends. Dividends are cumulative.
Liquidating distributions are $10 per share plus any unpaid dividends.
Common Stock
During the year ended July 2, 1995, the Company issued 100,000 shares of common
stock for professional services, 85,000 shares of common stock to an employee
and 274,000 shares of common stock to a vendor. These shares were valued at the
fair market value of the common stock at the time of issuance.
NOTE 9 - REORGANIZATION EXPENSES
Loss on Abandonment or Disposal of Restaurants
For the twenty-six weeks ended December 29, 1996, the loss on disposal of
equipment is mainly due to the abandonment of equipment due to the closing of
the American Cafe restaurant located in Tyson's Corner, Virginia and the two Red
Robin restaurants located in Smithhaven, New York and Staten Island, New York.
For the fifty-two weeks ended July 2, 1995, the loss on disposal of equipment is
mainly due from the sale or abandonment of equipment due to the closing of an
American Cafe restaurant located in Ballston, Virginia, two Red Robin
restaurants located in Sayreville, New Jersey and Kew Garden, New York, the sale
of the Company's five Carmella's Restaurants, the minority interest in Scarsdale
and Bedford subsidiaries and the Company's Spiga restaurants.
Write-off of Goodwill
For the fifty-two weeks ended July 2, 1995, the Company wrote off the goodwill
associated with the restaurants that were closed or sold during the year.
Closing of American Cafe Restaurants
Prior to the June 30, 1996 year end, the management of the Company adopted a
formal plan to close all of its American Cafe restaurants, except the restaurant
located in Tyson's Corner, Virginia.
As of June 30, 1996 the Company recognized a $467,855 net loss from winding down
operations of these restaurants from July 1996 through October 1996.
Additionally, the Company recognized a loss of abandonment of the net book value
of the property and equipment at these restaurants in the amount of $1,923,305.
F-11
<PAGE> 53
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 10 - INCOME TAXES
The Company files a consolidated federal income tax return and certain combined
state and city returns.
There are no significant temporary differences for the twenty-six weeks ended
December 29, 1996 and the fifty-two weeks ended June 30, 1996 and July 2, 1995.
The Company's federal, state and local tax returns have not been filed for the
twenty-six weeks ended December 29, 1996 and the fifty-two weeks ended June 30,
1996 and July 2, 1995.
As of December 29, 1996, the Company had approximately $30,029,000 of net
operating loss carryforwards expiring through 2011, available to offset future
federal income taxes.
As a result of the change in control described in Note 11, the Company is
subject to limitations on the future utilization of its federal net operating
loss carryforwards. These limitations, described in Section 382 of the Internal
Revenue Code, limit the amount of future taxable income which may be offset by
pre-change net operating loss and capital loss carryforwards. This limitation is
calculated by reference to the value of the Company immediately before the
change date, multiplied by a discount factor, known as the "long term tax-exempt
rate".
There is no income tax benefit for operating losses for the twenty-six weeks
ended December 29, 1996 and the fifty-two weeks ended June 30, 1996 and July 2,
1995 due to the following:
Current tax benefit - the operating losses cannot be carried back to
earlier years.
Deferred tax benefit - the tax benefit of the net operating losses
described above were offset by a 100% valuation allowance. Management
believes that a valuation allowance is considered necessary since it is
more likely than not that the deferred net asset will not be realized
through future taxable income.
NOTE 11 - PLAN OF REORGANIZATION
The Bankruptcy Court confirmed the Company's plan of reorganization (the
"plan"), effective May 30, 1997. On this date, the name of the reorganized
company will be changed to Redhead Bistro Bar, Inc. The confirmed plan also
provided for the following:
Priority Tax Claims - Federal and state payroll, withholding and other
taxes of approximately $382,000 are payable in equal periodic
installments over a period ending six years after the date of assessment
in an aggregate amount equal to the amount of such allowed claim plus
interest from the effective date on the unpaid portion.
Secured Claims - The secured claims of approximately $1,207,000
(including interest of approximately $197,000) were exchanged for
payables of $209,000 and 11,333 shares of 8% preferred stock of
Levittown subsidiary.
Trade and Other Miscellaneous Claims - The holders of approximately
$13,456,000 of trade and miscellaneous claims received 125,000 shares of
the new common stock of the Company. $26,000 of claim liabilities
remained intact.
Postpetition Series A Senior Secured Notes - The holders of $2,520,000
of Series A Senior Secured Notes received 1,896,983 shares of the new
common stock in exchange for their notes and interest due of
approximately $325,000. $35,000 of Series A Senior Secured Notes
remained intact.
Postpetition Series B Senior Secured Notes - The holders of $1,700,000
of Series B Senior Secured Notes received 23,442 shares of new 12%
preferred stock of parent corporation in exchange for their notes and
interest due of approximately $58,000.
F-12
<PAGE> 54
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, JUNE 30, 1996 AND JULY 2, 1995
NOTE 11 - PLAN OF REORGANIZATION (Continued)
Postpetition Liabilities - Approximately $1,882,000 of postpetition liabilities
were exchanged for 5,333 shares of new 8% subsidiary preferred stock and 213,760
shares of new common stock. Approximately $1,227,000 of postpetition liabilities
remained intact. Included in this amount was approximately $500,000 due to
certain professionals retained in the bankruptcy case, which will be paid at a
rate of approximately $15,000 per month. No interest will accrue on the
outstanding unpaid balances due these professionals.
Other Disputed Postpetition Claims - The Company is a party to certain
litigation pending before the Bankruptcy Court. The first, Magic Restaurants,
Inc., et al. v. Nicolo and Joseph Ottomanelli, objects to the $75,000
administrative claim filed by the Ottomanellis and seeks damages of $250,000 by
way of counterclaim. The Company is also presently appealing an order of the
Bankruptcy Court requiring the Company to pay approximately $100,000 to Bowie
Produce, Inc., a prepetition produce vendor, pursuant to the Perishable
Agricultural Commodities Act ("PACA"). The resolution of these matters is not
expected to become final until the latter part of the fiscal year 1998. The
Company believes that an adverse decision to the Company in each of these
matters will not materially affect the Company's operations, and further that it
will have sufficient cash available to pay any judgements that may be entered
with finality against the Company.
The Company accounted for the reorganization using fresh-start reporting because
holders of existing voting shares immediately before filing and confirmation of
the plan received less than 50% of the voting shares of the emerging entity and
its reorganization value is less than its postpetition liabilities and allowed
claims, as shown below:
<TABLE>
<S> <C>
Postpetition current liabilities $ 4,458,202
Liabilities deferred pursuant to Chapter 11 proceedings 19,855,378
-----------
Total postpetition liabilities and allowed claims 24,313,580
Reorganization value 5,123,105
-----------
Excess of liabilities over reorganization value $19,190,475
===========
</TABLE>
It was determined that the Company's reorganization value approximated the net
book value of the assets immediately before May 30, 1997, the date of the plan
confirmation.
The Company's reorganization capital structure should be as follows:
<TABLE>
<S> <C>
Postpetition current liabilities $1,227,025
Postpetition senior secured notes 35,000
Prepetition current liabilities 616,217
Preferred stock 300,815
Additional paid-in capital - Preferred stock 1,141,812
Common stock 2,236
10% Preferred stock subscribed 1,800,000
----------
$5,123,105
==========
</TABLE>
The gain on debt discharge upon emergence from Chapter 11 was approximately
$16,072,000.
The following table ("Plan of Reorganization Recovery Analysis") summarizes the
adjustments required to record the reorganization and the issuance of the
various securities in connection with the implementation of the plan.
F-13
<PAGE> 55
MAGIC RESTAURANTS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
PLAN OF REORGANIZATION
RECOVERY ANALYSIS
<TABLE>
<CAPTION>
R E C O V E R Y
--------------------------------------------------------------------------------------------
Account
Balances
Immediately Elimination Preferred Stock
Prior to of Debt and Surviving Tax -------------------
Reorganization Equity Debt Claims % Amount
------------ ------------ ---------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Postpetition liabilities $ 4,458,202 $ (3,037,064) $1,227,025 $ -- 13.3% $ 40,000
------------
Claim Interest
Series A secured notes 3,004,229 (2,967,332) 35,000 -- -- --
Series B secured notes 1,806,888 (964,986) -- -- 58.4 175,815
Priority tax claim 381,605 -- -- 381,605 -- --
Secured claim 1,206,656 (591,218) 208,612 -- 28.3 85,000
Trade and other
miscellaneous claims 13,456,000 (13,429,875) 26,000 -- -- --
------------
19,855,378
------------
Preferred stock 1,980,000 (1,980,000) -- -- -- --
Common stock 7,000 (7,000) -- -- -- --
Additional paid-in capital 13,743,005 (13,743,005) -- -- -- --
Preferred stock subscribed 1,800,000 -- -- -- -- --
Deficit (36,720,480) 36,720,480 -- -- -- --
------------
(19,190,475) -- -- -- -- --
------------ ------------ ---------- ------------ ----- ----------
$ 5,123,105 $ -- $1,496,637 $ 381,605 100.0% $ 300,815
============ ============ ========== ============ ===== ==========
</TABLE>
<TABLE>
<CAPTION>
R E C O V E R Y
--------------------------------------------------------------------------------
Additional
Paid-In
Capital Preferred Common Stock Total Recovery
Preferred Stock ------------------- -------------------------
Stock Subscribed % Amount Amount %
----------- ------------- ----- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Postpetition liabilities $ 153,899 $ -- 9.5% $ 214 $ 1,421,138 31.88%
Claim Interest
Series A secured notes -- -- 84.9 1,897 36,897 1.23
Series B secured notes 666,087 -- -- -- 841,902 46.59
Priority tax claim -- -- -- -- 381,605 100.00
Secured claim 321,826 -- -- -- 615,438 51.00
Trade and other
miscellaneous claims -- -- 5.6 125 26,125 0.19
Preferred stock -- -- -- -- -- --
Common stock -- -- -- -- -- --
Additional paid-in capital -- -- -- -- -- --
Preferred stock subscribed -- 1,800,000 -- -- 1,800,000 100.00
Deficit -- -- -- -- -- --
--
-- -- -- -- -- --
----------- ------------- ----- --------- -----------
$ 1,141,812 $ 1,800,000 100.0% $ 2,236 $ 5,123,105
=========== ============= ===== ========= ===========
</TABLE>
F-14
<PAGE> 56
EXHIBIT INDEX
-------------
The following exhibits, designated by an asterisk (*), have been
previously filed with the Commission pursuant Form S-1, File No. 33-35416 and,
pursuant to 17 C.F.R. Section 230.411, are incorporated by reference. Those not
so designated are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Second Amended Plan of Reorganization and Order Confirming the Second Amended Plan of
Reorganization (December 30, 1996)
2.2 Statement of Immaterial Modifications to the Plan and Order Approving Immaterial
Modifications to the Plan (January 28, 1997)
3.1 Amended and Restated Certificate of Incorporation (May 30, 1997)
3.2 Amended and Restated Bylaws (May 30, 1997)
4.1* Form of Certificate representing shares of Common Stock
4.2* Form of Certificate representing shares of Series A 12% Cumulative Convertible Preferred Stock
10.1 Lease dated October, 1985 between Kings Plaza Shopping Center of Flatbush Avenue, Inc. and
Kings Plaza Shopping Center of Avenue, U., Inc., as lessor, and Registrant, as lessee
10.2* Lease dated March 23, 1988 between Hartz Mountain Development Corp., as lessor, and
Registrant, as lessee
10.3* Lease dated September 19, 1986 between Robert Martin Company, as lessor, and Registrant, as
lessee
10.4* Lease dated December 23, 1992 between Crescent Land Development Associates, as lessor, and
Registrant, as lessee, plus amendment thereto dated March 1, 1996
10.4.1 Amendment dated March 1, 1996 to lease dated December 23,
1992 between Cresent Land Development Associates, as lessor, and Registrant,
as lessee.
10.6 Commitment Letter dated as of December 27, 1996 between Teleferscot International Limited and
Registrant
10.7 Asset Purchase Agreement among Red One, Inc., J. Michael Gallagher (collectively, the owners
of the Redheads concept and the Middletown Redheads Bistro/Bar restaurant facility) and
Registrant dated May, 1997 and Order of the Court authorizing this acquisition
10.8 Employment Agreement dated July, 1997 between David C. Sederholt, Executive Vice President
and Chief Operating Officer, and Registrant
11.1* Statement regarding computation of per share earnings
21.1* List of Subsidiaries
</TABLE>
<PAGE> 1
EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
) CHAPTER 11
)
MAGIC RESTAURANTS, INC., ET AL., ) CASE NOS. 95-376
) THROUGH 95-392
DEBTORS. ) AND CASE NOS. 95-674
) THROUGH 95-676 (HSB)
ORDER CONFIRMING THE
SECOND AMENDED PLAN OF REORGANIZATION
Magic Restaurants, Inc. ("Magic" or "Debtor") and its affiliated
debtors and debtors-in-possession (collectively, the "Debtors") filed their
Second Amended Plan of Reorganization ("Amended Plan") and a disclosure
statement ("Disclosure Statement") with respect to the Amended Plan. This Court
approved the Disclosure Statement with respect to the Amended Plan, as modified.
A copy of the Amended Plan, the Disclosure Statement, and a ballot for accepting
or rejecting the Amended Plan was served in accordance with this Court's Order
upon all creditors whose Claims were impaired under the Amended Plan and who
were solicited to vote, with a notice ("Notice") advising such creditors of the
voting deadline and the date originally scheduled for the Confirmation Hearing.
The Confirmation Hearing was continued, pursuant to a Filed notice of
continuance and announcements made in open Court, to December 30, 1996, at 2:30
p.m.
<PAGE> 2
On or about December 5, 1996 and on December 30, 1996, the
Debtors filed certain technical modifications (the "Modifications") to the
Amended Plan (the Amended Plan, as modified by the Modifications and any other
amendments or modifications stated on the record of the hearing on December 30,
1996, is hereinafter referred to as the "Plan"). A copy of the Plan is attached
as Exhibit "A". Capitalized terms used but not defined herein have the meanings
set forth in the Plan. Notice of the Modifications Filed on December 5, 1996,
and the December 30, 1996 continued Confirmation Hearing was mailed to all
Creditors, and has been found appropriate pursuant to a separate Order of this
Court.
Based upon the entire record of this case and upon the
transcript and the proffer of evidence offered at the Confirmation Hearing and
all proceedings held before the Court; and after due deliberation and sufficient
cause appearing therefor,
THE COURT HEREBY FINDS AS FOLLOWS:
A. This Court has jurisdiction over the Debtors and this
matter pursuant to 28 U.S.C. Section 1334 and venue is proper pursuant to 28
U.S.C. Section 1408. This is a core proceeding pursuant to 28 U.S.C. Section
157(b)(2)(L).
B. Any Person, entity or governmental authority required to
receive notice of the Confirmation Hearing has received due, proper and adequate
notice thereof;
C. The Modifications (i) do not cause the Plan to violate
Sections 1122, 1123, 1127 or any other provision of the Bankruptcy Code;
and (ii) do not affect the adequacy of the Disclosure Statement.
D. Notice of the Modifications was sufficient under the
circumstances.
<PAGE> 3
E. The Plan complies with all applicable provisions of Title
11, United States Code (the "Bankruptcy Code" or simply the "Code").
F. The Debtors, as proponents of the Plan, have complied with
all applicable provisions of the Bankruptcy Code.
G. The Plan specifies the Classes of Claims and Classes of
Interests impaired under the Plan and the treatment of each impaired Class.
Class 2 Creditors are not impaired under the Plan. Classes 1A through 1K, and
Class 3A and 3AA Creditors are impaired under the Plan.
H. The Plan provides the same treatment for each Claim or
Interest within each particular Class.
I. The classification of Claims under the Plan complies with
Section 1122 of the Code.
J. The Plan provides adequate means for the execution and
implementation of the Plan.
K. The Plan complies with Section 1123(a)(6) of the Bankruptcy
Code.
L. The treatment under the Plan of Claims (if any) of the type
specified in Sections 507(a)(1) of the Code complies with the provisions of
Section 1129(a)(9) of the Code, or the Holders of such Claims have agreed to
accept a different treatment.
M. The Plan has been proposed in good faith and not by any
means forbidden by law. The solicitation of acceptances and rejections of the
Plan was in good faith and in compliance with Section 1126(b) of the Code.
<PAGE> 4
N. The Debtors' objectives in proposing the Plan were to
reorganize the Debtors and to maximize payments to and recoveries by creditors.
O. The primary purpose of the Plan was not the avoidance of
taxes or the avoidance of the Securities Act of 1933.
P. Any payments made or promised by the Debtors for
professional services or for costs and expenses associated therewith in
connection with the Plan and incident to the Debtors' cases have been disclosed
to this Court and have been approved by or are subject to the approval of the
Court as reasonable.
Q. The Debtors have disclosed the identity and affiliations of
individuals proposed to serve, after confirmation of the Plan, as a director,
officer or voting trustee of the Reorganized Debtors, and the continuance in
such office of such individuals is consistent with the interests of the
creditors and equity security holders and with public policy. The Debtors have
disclosed the identity of any affiliate or insider that will be employed or
retained by it and the nature of any compensation for such affiliate or insider.
R. The Plan does not provide for any rate change which is
subject to the approval of a governmental regulatory commission.
S. The procedures by which the Ballots were distributed and
tabulated were fair and properly conducted.
T. The Ballot Certificate filed with the Court on December 30,
1996 is hereby approved and found to accurately reflect the result of the
balloting.
U. At or prior to the Confirmation Hearing, the Plan has been
accepted and approved by the requisite number of holders of Classes 1D, 1G, 1H
Claims. Holders of
<PAGE> 5
Class 3AA Claims have previously accepted the Plan by requisite number and
amount, and the Modifications do not materially adversely affect the treatment
of Class 3AA creditors under the Plan.
Classes 1B, 1C, 1E, 1F, 1I, 1J, and 3A were each adversely
affected by the Modifications, and thus are deemed to have rejected the Plan.
The Plan is confirmable as to each of those Classes pursuant to 11 U.S.C.
Section 1129 of the Code.
V. Class 2 Claims are unimpaired under the Plan and are deemed
conclusively to have accepted the Plan pursuant to Section 1126(f) of the Code.
W. With respect to each Class, each holder of a Claim in such
Class has accepted the Plan, or will receive or retain under the Plan on account
of such Claim property of a value, as of the Effective Date, that is not less
than the amount that such holder would receive or retain if the Debtors were
liquidated under Chapter 7 of the Code on the same date.
X. The Plan is feasible. The Debtors have demonstrated that
there is a reasonable prospect of (i) their being able to obtain funds necessary
to pay for the obligations required to be paid under the Plan and being able to
meet the financial obligations imposed under the Plan without the need for
further financial arrangements or reorganization, and (ii) the Debtors being
able to execute and deliver, all documents, agreements and/or instruments
provided for under the Plan and/or required by applicable law to consummate the
transactions and conveyances contemplated by the Plan. Confirmation of the Plan
is not likely to be followed by the liquidation of the Reorganized Debtors.
<PAGE> 6
Y. The Plan provides for the payment of all fees payable under
28 U.S.C. Section 1930 on the Effective Date.
Z. With respect to all Classes of Equity Interests, the Plan
is fair and equitable, and does not discriminate unfairly with respect to any
Class of Claims or Interests.
AA. The Debtors have met their burden of showing their ability
to cure any defaults under the executory contracts to be assumed and assigned
under Article IV of the Plan.
BB. The parties to the executory contracts to be assumed by
the Debtors under the Plan and this Order (which contracts are listed on Exhibit
IV to the Plan) have received adequate assurances of future performance within
the meaning of Section 365(f)(2) of the Code.
WHEREFORE, IT IS HEREBY ORDERED:
1. The above findings are incorporated herein by reference as
if fully set forth herein.
2. The Plan is approved and confirmed pursuant to Section
1129(a) of the Bankruptcy Code and the terms of the Plan are incorporated
herein.
3. The Plan and its provisions shall be binding upon the
Debtors, the Reorganized Debtors, any entity acquiring property under the Plan,
any holder of a Claim or Interest against the Debtor, any federal, state or
local taxing authority, and any other party in interest regardless of whether
the Claim or Interest of such holder or right or obligation of any party in
interest is impaired under the Plan and whether or not such holder or party in
interest has accepted the Plan.
<PAGE> 7
4. Except as otherwise provided in the Plan and this Order and
in accordance with Sections 1141(b) and (c) of the Code, all assets of the
estates of MRI and the Subsidiaries shall automatically (without the need for
further action) vest in the respective Reorganized Debtors on the Effective
Date, free and clear of all Claims, liens, encumbrances and equities.
5. The Debtors and their respective directors, officers,
agents, attorneys and affiliates are hereby authorized to execute, deliver,
implement and perform each of the requirements of the Plan and to take such
other steps and perform such other acts as may be necessary to implement and
effectuate the Plan, and are further hereby authorized and directed to execute
and deliver any instrument and perform any other act that is necessary for the
consummation of the Plan.
6. The Debtor shall have the right, to the fullest extent
permitted under Section 1142 of the Bankruptcy Code, to apply to the Court for
an order directing any Person to execute and deliver any instrument or perform
any other act required under or pursuant to the Plan.
7. The Claims of the Holders of Postpetition Senior Secured
Notes against MRI and the Subsidiaries are hereby allowed in the amounts set
forth on Exhibit ____ of this Order, together with accrued and unpaid interest
incurred through the Effective Date. Each such Holder, and the Debtors, have
agreed that the allowed Claims of such Holders against MRI and the Subsidiaries
shall, upon the Effective Date, be converted into shares of New Common Stock in
accordance with Article III.A.1.c. of the Plan. Upon such conversion, all liens
previously granted to the holders of the Postpetition Senior Secured Notes in
and
<PAGE> 8
to any property of MRI or the Subsidiaries shall be deemed released, with no
further action required by the Holders of such Claims, the Debtors, or the
Reorganized Debtors. The Claims of such Holders against Debtors that are not
Reorganized under the Plan are not released under this Order or the Plan.
8. The assumption by the Debtors of the executory contracts
listed on Exhibit IV to the Plan are approved as of the Effective Date.
9. All executory contracts and unexpired leases of MRI and the
Subsidiaries other than the executory contracts listed on Exhibit IV to the Plan
are rejected as of the date hereof.
10. Any Claim arising from the rejection of any executory
contract or unexpired lease involving any of the Debtors not filed with the
Court by the deadline for doing so set forth in the Plan shall be forever barred
from assertion against the Debtors, their estates, or otherwise.
11. The treatment of disputed claims pursuant to Article V.K
of the Plan is approved.
12. Objections to Claims shall be filed by the Reorganized
Debtors and served upon each Holder of each of the Claims to which objections
are made not later than twelve (12) months subsequent to the Effective Date or
within such other time period as may be fixed by the Court.
13. Any certificate or instrument, required or permitted by
law to be filed or recorded with any state official of any state to accomplish
any corporate purpose under the Plan, including without limitation the filing of
restated certificates of incorporation,
<PAGE> 9
bylaws, certificates of merger, and certificates of dissolution, may be signed
and filed on behalf of any Reorganized Debtor under the Plan by such Reorganized
Debtor's president, any vice president, secretary or treasurer, without any
action by the board of directors or shareholder(s) of such entity.
14. From and after the Effective Date, in accordance with the
Plan, the Reorganized Debtors shall litigate to judgment, settle or withdraw
objections to Disputed Claims, in the sole discretion of the Reorganized Debtors
without notice to any party in interest with the exception of the party to whom
a claim objection is being interposed.
15. Distributions required to be made to the holders of Claims
against the Reorganized Debtors shall be made as provided in the Plan.
16. In the event that there exists any inconsistency between
the terms of the Plan and this Order, the terms of this Order shall control.
17. Pursuant to the Notice of (I) Order Approving the Debtors'
Disclosure Statement, (II) Setting Administrative Claims Bar Date, (III)
Confirmation Hearing, (IV) Cancellation of Stock Interests, and (V) Deadline for
Filing Objections to Second Amended Plan, and the Court's Order dated August 30,
1996, all administrative claims and entitlement to payment from the Debtors'
estates of the kind specified in Section 507(a)(1) of the Bankruptcy Code
(except for (i) Claims of professionals of the Debtors and the Creditors
Committee, (ii) Claims of Red Robin, (iii) Claims evidence by Postpetition
Senior Secured Notes, (iv) Claims of the IRS, and (v) Claims otherwise preserved
or allowed in this Order) that were not filed with the Court and served on
counsel for the Debtors by October 3, 1996 are forever barred from assertion
against the Debtors, the Reorganized Debtors, and their
<PAGE> 10
estates. With respect to claims of professionals of the Debtors and the
Creditors Committee retained by Order of this Court, except as otherwise
provided in such Order, each professional shall file a fee application with this
Court covering the period from the commencement of this case through the date of
this Order by no later than forty-five (45) days after the Effective Date.
Professional fees incurred subsequent to the Confirmation Date shall be paid in
the Reorganized Debtors' ordinary course of business without further approval of
the Bankruptcy Court.
18. Except as otherwise expressly provided in the Plan or this
Order, from and after the Effective Date, all state and local governmental
agencies, entities or authorities are hereby jointly and severally restrained
and enjoined from commencing or continuing any action to collect, from the
Reorganized Debtors or their property, any stamp or similar tax within the
meaning of Section 1146(c) of the Code with respect to the transactions
contemplated or described in this Confirmation Order or the Plan.
19. Except as otherwise provided in the Plan, the Reorganized
Debtors and their estates shall be discharged and released from any and all
Claims and Interests of any nature whatsoever existing as of the Effective Date.
Except as otherwise provided in the Plan and the documents executed in
conjunction therewith, including without limitations this Order, from and after
the Effective Date, all Creditors shall be precluded from asserting against the
Reorganized Debtors, and their estates, Claims based on any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date.
20. The discharge and injunction set forth in Article V.H. of
the Plan is approved.
<PAGE> 11
21. Without limiting the effect or terms of Article X.G of the
Plan, the commencement or continuation of any action which seeks to assert a
claim for relief against the Debtors, the Debtors' affiliates, or the present or
past directors, officers, partners, employees, agents, nominees, representatives
and attorneys of the Debtors in respect of (a) any actions taken or not taken
during the course of this case, (b) the Plan or for any statements or
representations included in, or alleged omissions from the Disclosure Statement,
(c) the authorization for or the formulation, negotiation, confirmation or
consummation of the Plan, (d) any distributions, payments or transfers made
under the Plan, or (e) acts performed pursuant to the Plan, are forever
enjoined. This paragraph shall not prohibit or impair the Debtors or the
Reorganized Debtors from commencing proceedings in this Bankruptcy Court as
permitted under of the Plan to enforce, preserve and protect their respective
rights and benefits arising or preserved under, or related to, the Plan.
22. Except as otherwise provided in the Plan or in this Order,
the restraining provision of Section 362(a) of the Code shall continue in effect
as to all Debtors and their property until the Effective Date.
23. The Debtors' settlement of various claims and rights
involving Monolith Enterprises, Inc. ("Monolith") and its affiliates is hereby
approved in all respects (subject to the occurrence of the Effective Date) on
the terms set forth hereafter, and upon the Effective Date the Reorganized
Debtors are directed and authorized to consummate the following settlements in
all respects:
(a) W.R. Grace & Co. -- Conn. ("Grace") holds
administrative rent claims of $241,444.88, $5,000.00, and
$20,000.00 with respect to rental
<PAGE> 12
payments made to the landlords at the Fair Oaks, HarborPlace,
Chevy Chase locations (the "Administrative Rent Claims"). In
full satisfaction of the Administrative Rent Claims Grace
shall be paid $95,000.00 cash by Reorganized MRI on the
Effective Date.
(b) The $171,444.88 balance of Grace's Administrative
Rent Claims, and Grace's general Unsecured Claim in the amount
of $482,748.13, shall be Allowed in the total amount of
$654,193.01 as an Unsecured Claim against MRI, and shall be
treated under Subclass 3A of the Plan.
(c) The claims of Grace Culinary Systems, Inc.
("Grace Culinary") against the Debtors shall be allowed as a
general Unsecured Claim against MRI in the amount $165,323.94,
and shall be treated under Subclass 3A of the Plan.
(d) Monolith shall be paid, on the Effective Date,
$5,000.00, in full satisfaction of its Secured Claims with
respect to Collateral located at or used in the Tyson's Corner
restaurant. All other Collateral of Monolith, if any, shall be
treated as described in Subclass 1G of the Plan.
(e) All other claims of Monolith shall be fully
satisfied by an Allowed Unsecured Claim against MRI in the
amount of $2,719,571.45, which shall be treated pursuant to
Subclass 3A of the Plan.
(f) Monolith, Grace, and Grace Culinary may, on or
after this date, assign the claims allowed under this Order or
the right to receive distributions of New Common Stock under
Subclass 3A of the Plan to or among each
<PAGE> 13
other, their affiliates, or third parties, upon written
designation to Reorganized MRI.
(g) As a material condition of this compromise and
settlement, Monolith, Grace, and Grace Culinary shall receive
an interim distribution of 50,000 shares (total) of New Common
Stock from the MRI Share Allocation, within 60 days of the
Effective Date.
(h) Upon the occurrence of the Effective Date, Grace,
Grace Culinary, Monolith, and their affiliates, predecessors,
successors, and assigns (collectively, the "Grace Parties")
shall be deemed to and shall have in fact released all claims,
causes of actions and rights they may have against each of the
Debtors, the Reorganized Debtors, their assets, and their
properties, excepting only those claims and rights expressly
preserved in this paragraph of this Order.
(i) Upon the Effective Date the Debtors, the
Reorganized Debtors, and their affiliates, predecessors,
successors, and assigns shall be deemed to and shall have in
fact released all claims, causes of actions, and rights they
may have against any of the Grace Parties.
24. In accordance with but without limiting the terms of
Article V.G. of the Plan, the Debtors, and all of their attorneys, officers,
agents, and employees, have acted in good faith and in compliance with
applicable laws, including Sections 1125 and 1145 of the Code and the federal
securities laws. The Section 1145 exemption from registration applies to the New
Securities to be issued under the Plan.
<PAGE> 14
25. The name of Reorganized MRI shall be changed, without the
necessity for further corporate action, to "Redhead Bistro Bar, Inc," and the
name of each operational Reorganized Debtor that operates as a Redhead
restaurant after the Effective Date shall be changed, without further corporate
action, to "Redhead Bistro Bar at [location], Inc."
26. The Reorganized MRI Restated Certificate of Incorporation
and the Reorganized MRI Restated Bylaws attached as Exhibits __ and ___ are
approved in all respects, and shall constitute the constituent corporate
documents of Redhead Bistro Bar, Inc.
27. The model form Reorganized Other Debtor Restated
Certificate of Incorporation and the model form Reorganized Other Debtor
Restated Bylaws attached as Exhibits __ and ___ are approved in all respects,
and shall constitute the form of constituent corporate documents of each
operational Reorganized Debtor that operates, after the Effective Date, as a
"Redhead Bistro Bar at [location], Inc."
28. Irrespective of the terms on which the Reorganized Debtors
are authorized to issue New Preferred Stock in Exhibits ___ and ___, the terms
of the New Preferred Stock issued to Creditors under the Plan shall be as set
forth in Exhibits 1.A-1, 1.A-2, and 1.A-3 of the Plan, or as has been or may
otherwise be agreed between such Creditors and the Reorganized Debtors.
29. Notwithstanding anything to the contrary in the Plan, (a)
the Reorganized Debtors' first quarterly installment to the IRS on account of
its Tax Claims shall be made ninety (90) days after the Effective Date, (b) any
and all rights of setoff the
<PAGE> 15
IRS may have pursuant to Bankruptcy Code Section 553 are preserved and not
affected by the Plan.
30. The Class 1D Secured Claim of Keybro shall be treated as
follows:
(a) The subclass 1D Secured Claim of Keybro is hereby
Allowed in the amount of $764,572 (principal), plus simple
interest from April 5, 1995 through the Effective Date at the
rate of 12% per annum, less $12,000 in post-petition interest
paid during the pendency of the Reorganization Cases.
(b) Keybro shall be paid $100,000 in Cash upon the
Effective Date, in partial satisfaction of its Allowed Secured
Claim.
(c) The balance of the Keybro Secured Claim shall be
satisfied by the delivery to Keybro of New Preferred Stock
issued by Red Heads Bistro Bar at Levittown, Inc. under the
terms set forth on Exhibit I.A-2 to the Plan.
(d) Upon the occurrence of the Effective Date and the
payment to Keybro described in subparagraph (b) above, Keybro
will be deemed to and will in fact have released all of its
liens and security interests in all property of MRI or any of
the Reorganized Debtors.
(e) Keybro shall retain its liens and security
interests in the property of Magic Restaurant at Staten
Island, Inc. ("MRI Staten") and Magic Restaurant at
Sayreville, Inc. ("MRI Sayreville"), and such liens and
security interests (if any) shall continue in effect to secure
the Reorganized Debtors' obligations under the Plan. In the
event that any assets of MRI Staten or MRI Sayreville upon
which Keybro holds a lien or security interest are sold or
<PAGE> 16
liquidated after this date, the proceeds of the sale, after
payment of expenses of sale and satisfaction of any prior
perfected liens in or to those assets, shall be paid to Keybro
in Cash and applied to redeem the New Preferred Stock issued
to Keybro.
(f) The preceding treatment of Keybro is in full
satisfaction of all claims Keybro may hold against any of the
Debtors, whether Secured or Unsecured, as of this date.
31. All of the Collateral identified on Exhibit ____ (the
"Paramount Collateral") which is presently located at the Debtor's Staten
Island, New York restaurant and which secures the Secured Claim of Paramount
shall be abandoned to Paramount upon entry of this Order, in full satisfaction
of all of Paramount's claims, Secured or Unsecured, against any of the Debtors.
This abandonment is expressly subject to any valid and perfected liens, if any,
in the Paramount Collateral held by Keybro.
32. Reorganized MRI shall pay any Allowed Administrative rent
claims due the Rouse Companies (or their affiliates) from Magic Restaurant at
Staten Island, Inc. for the period ending December 31, 1996 by the later of (1)
sixty (60) days after the Effective Date, or (2) if the claim is Dispute, the
date the claim is Allowed.
33. Without limiting the effectiveness or terms of any other
provision of the Red Robin Settlement,
a. Nothing in the Plan, including Article X.G. of the
Plan, or in this Order shall discharge or release any current or former officer
or director of the Debtors from
<PAGE> 17
personal liability to Red Robin under any such officer's or director's guarantee
of any Debtor's indebtedness to Red Robin;
b. In accordance with Article IV.B.2 of the Plan,
upon and after the Effective Date, the Red Robin Settlement shall be fully
implemented and binding, upon its terms, upon the Reorganized Debtors, except as
modified under subsections (c) and (d) hereafter;
c. The 5333 shares of New Preferred Stock to be
issued to Red Robin on the Effective Date shall be issued by Redhead Bistro Bar
at Secaucus, Inc. (1778 shares), Redhead Bistro Bar at Levittown, Inc. (1778
shares), and Redhead Bistro Bar at Yonkers, Inc. (1777 shares), nothwithstanding
anything in the Red Robin Settlement to the contrary. The New Preferred Stock to
be issued by Redhead Bistro Bar at Levittown shall have the terms set forth in
Plan Exhibit 1.A.2; the New Preferred Stock issued by Redheads Bistro Bar at
Secaucus, Inc. and Redheads Bistro Bar at Yonkers, Inc. shall have the terms set
forth in Plan Exhibit 1.A.1.
d. The "Conversion Period" under the Red Robin
Settlement shall expire on September 30, 1997.
e. Red Robin's $975,000 Unsecured Claim shall be
treated under Subclass 3A of the Plan. No portion of the claim shall be treated
under Subclass 3AA.
34. The Court shall retain exclusive jurisdiction over the
Debtors' cases to the extent provided in this Order, and Article IX of the Plan,
including exclusive jurisdiction over all controversies, disputes, and suits
which may arise in connection with the interpretation or enforcement of the Plan
or this Confirmation Order.
<PAGE> 18
35. This Court hereby further retains jurisdiction of these
proceedings pursuant to and for the purposes of Sections 105(a), 1127 and 1142
of the Code and for such purposes as may be necessary or useful to aid the
confirmation and consummation of the Plan and implementation of the Plan.
32. Neither the filing of the Plan, nor any statement or
provision contained therein, nor the taking by the Debtors or any party in
interest of any action with respect to the Plan may (a) be or be deemed to be an
admission against interest, and (b) until the Effective Date, be or be deemed to
be a waiver of any rights the Debtors or any party in interest might have
against the Debtors or any Creditor or Interest holder, and until the Effective
Date all of such rights are specifically reserved. In the event that the
Effective Date does not occur, neither the Plan, nor any statement contained
therein, nor this Order may be used or relied upon in any manner in any suit,
action, proceeding or controversy within or outside of the Chapter 11 case
involving the Debtors.
33. The failure to reference or discuss any particular
provision of the Plan in this Order shall have no effect on the validity,
binding effect and enforceability of such provision and such provision shall
have the same validity, binding effect and enforceability as every other
provision of the Plan.
34. If any provision of this Order, or the application of any
provision of this Order to any person or circumstance, shall be held invalid or
contrary to the provisions of the Bankruptcy Code, the remainder of this Order,
or the application of the provisions of this Order other than those as to which
it is held invalid, shall not be affected thereby.
<PAGE> 19
35. Within five (5) business days of the entry of this Order,
the Debtors shall serve a notice of confirmation of Plan upon all Creditors, and
upon the parties to any executory contract listed on Exhibit IV to the Plan.
Dated: Wilmington, Delaware
December , 1996
------------------------------
Helen S. Balick
United States Bankruptcy Judge
<PAGE> 20
EXHIBIT _____
SERIES A DIP LENDERS, PRINCIPAL AND ACCRUED
INTEREST
<TABLE>
<CAPTION>
ACCRUED
INTEREST
THROUGH
NOVEMBER
NAME ADDRESS DATE PRINCIPAL 30, 1996
- ---- ------- ---- --------- --------
<S> <C> <C> <C> <C>
Kamar Jamal 2628 S. Glenhaven 4/6/95 $100,000 $10,981
Houston, Texas 77025
RehCam 4900 Woodway #675 Various $200,000 $20,844
Investments Houston, Texas 77056
Mohammadali P. O. Box 3112 Various $400,000 $35,441
Hassanali Dubai, U.A.E.
Paul Micheal 2909 Hillcroft, Suite 450 8/24/95 $50,000 $10,981
Houston, Texas
Charles Cook 3827 Kiamesha 12/8/95 $50,000 $5,885
Missouri City, Texas
77549
Ali Khin 1005 Gulf Blvd. #401 1/4/96 $200,000 $21,764
Indian Rock Beach,
Florida 34635
Belaty Holland Intertrust N.V. Various $800,000 $40,110
Corporation N.V. Landhusi Joonchi Kaya
Richard J. Beaujon z/n
Curacao, Netherlands
Antilles
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
ACCRUED
INTEREST
THROUGH
NOVEMBER
NAME ADDRESS DATE PRINCIPAL 30, 1996
- ---- ------- ---- --------- --------
<S> <C> <C> <C> <C>
Chillington Holland Intertrust N.V. 8/12/96 $150,000 $5,129
Corporation N.V. Landhusi Joonchi Kaya
Richard J. Beaujon z/n
Curacao, Netherlands
Antilles
John 8/31/96 $500,000 $14,959
McConnoughy
</TABLE>
<PAGE> 22
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
MAGIC RESTAURANTS, INC., (Tax I.D. No. 95- )
4169432), MAGIC ENTERPRISES INC., (Tax I.D. No. ) Case Nos. 95-376 through
13-3256164), MAGIC RESTAURANT OF L.I. CORP., ) 95-392 and Case Nos. 95-674
(Tax I.D. No. 13-3276570), MAGIC RESTAURANT AT ) through 95-676 (HSB)
SECAUCUS, INC., (Tax I.D. No. 13-3327446), MAGIC )
RESTAURANT AT SMITHHAVEN, INC., (Tax I.D. ) (Jointly Administered under
No. 13-3353366), MAGIC RESTAURANT AT ) Case No. 95-376)
YONKERS, CORP., (Tax I.D. No. 13-3370106), MAGIC )
RESTAURANT AT WAYNE, INC., (Tax I.D. No. 13- )
3536223), MAGIC RESTAURANT OF N.J. CORP., )
(Tax I.D. No. 13-3276574), MAGIC CARMELLA'S )
RESTAURANT INC., (Tax I.D. No. 13-3661220), )
MAGIC RESTAURANT AT SAYREVILLE, INC., (Tax )
I.D. No. 22-33-4247), MAGIC RESTAURANT AT KEW )
GARDENS, INC., (Tax I.D. No. 13-3549656), MAGIC )
RESTAURANTS AT KINGS PLAZA, INC., (Tax I.D. )
No. 13-3318650), MAGIC AMERICAN CAFE INC., )
(Tax I.D. No. 13-3744367), CARMELLA'S CAFE OF )
GREECE, INC., (Tax I.D. No. 16-1363431), MAGIC )
ROCK INC., (Tax I.D. No. 13-3687093), MAGIC ROCK )
BEDFORD, INC., (Tax I.D. No. 13-3687094), 10 )
COLUMBIA CORPORATE CENTER, INC., (Tax I.D. )
No. 22-3018095), MAGIC RESTAURANT OF NEW )
YORK CORP., (Tax I.D. No. 13-3256167), MAGIC )
RESTAURANT AT ELMSFORD, INC. and MAGIC )
RESTAURANT AT STATEN ISLAND, INC. )
Debtors.
DEBTORS' SECOND AMENDED PLAN OF REORGANIZATION
(AS MODIFIED THROUGH DECEMBER 30, 1996)
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
Exhibits
<S> <C>
Exhibit I.A--1 Reorganized Magic Restaurants, Inc. -- Subsidiary Preferred
Stock -- Summary of Principal Terms and Conditions
Exhibit I.A--2 Reorganized Magic Restaurants, Inc. -- Levittown Preferred
Stock -- Summary of Principal Terms and Conditions
Exhibit I.A--3 Reorganized Magic Restaurants, Inc. -- Series B Notes MRI Preferred
Stock -- Summary of Principal Terms and Conditions
Exhibit I.A--4 Red Head Plan
Exhibit IV.A Schedule of Contracts to be Assumed
Exhibit IV.B Schedule of Contracts to be Rejected
</TABLE>
<PAGE> 24
I.
PREAMBLE
Magic Restaurants, Inc., Magic Enterprises, Inc., Magic Restaurant of
L.I. Corp., Magic Restaurant at Secaucus, Inc., Magic Restaurant at Smithhaven,
Inc., Magic Restaurant at Yonkers, Corp., Magic Restaurant at Wayne, Inc., Magic
Restaurant of N.J. Corp., Magic Carmella's Restaurant, Inc., Magic Restaurant at
Sayreville, Inc., Magic Restaurant at Kew Gardens, Inc., Magic Restaurants at
Kings Plaza, Inc., Magic American Cafe, Inc., Carmella's Cafe of Greece, Inc.,
Magic Rock, Inc., Magic Rock Bedford, Inc., 10 Columbia Corporate Center, Inc.,
Magic Restaurant at Staten Island, Inc., Magic Restaurant at Elmsford, Inc., and
Magic Restaurant of N.Y. Corp., debtors and debtors in possession in the
above-captioned jointly administered Reorganization Cases (collectively,
"Debtors" or the "MRI Group"), hereby propose the following "Debtors' Second
Amended Plan Of Reorganization" (this "Plan"). Reference is made to the
"Disclosure Statement Relating to the Debtors' Second Amended Plan Of
Reorganization" (the "Disclosure Statement") for a discussion of (i) the MRI
Group's businesses, (ii) their historical financial and operational information,
(iii) projections for the Reorganized Debtors, (iv) the Red Head Plan, and (v) a
summary and analysis of this Plan.
A. DEFINITIONS
In addition to such other terms as are defined in the foregoing
Preamble or in other Sections of this Plan, the following terms (which appear in
this Plan or in the Disclosure Statement as capitalized terms) have the
following meanings as used in this Plan or the Disclosure Statement, as the case
may be:
1. "Administrative Claim" means a Claim for costs and expenses of
administration Allowed under Bankruptcy Code Section 503(b) or 507(b).
Administrative Claims include, but are not limited to, fees payable under 28
U.S.C. Section 1930, and all Claims evidenced by Postpetition Senior Secured
Notes.
2. "Affiliate" means any Person that is an "affiliate" of a Debtor
within the meaning of Bankruptcy Code Section 101(2).
3. "Allowed" means, with respect to a Claim against or Equity Interest,
(a) that proof of such Claim or Equity Interest was filed within the applicable
period of limitation fixed by the Bankruptcy Court in accordance with Rule
3003(c)(3) of the Bankruptcy Rules, and either (i) no objection to the allowance
thereof has been interposed within the applicable period of limitation fixed by
this Plan, the Bankruptcy Code, the Bankruptcy Rules, or a Final Order or (ii)
an objection has been interposed, but such Claim or Equity Interest has been
allowed in whole or in part by a Final Order (and if in part, only to the extent
so allowed), (b) that no proof thereof was so filed, but that such Claim or
Equity Interest has been listed by such Debtor in its Schedules, as such
Schedules may be amended from time to time in accordance with Bankruptcy Rule
1009, as liquidated in amount and not disputed or contingent, (c) that such
Claim arises from the recovery of property
<PAGE> 25
under Bankruptcy Code Section 550 or 553 and is allowed in accordance with
Bankruptcy Code Section 502(h), or (d) that such Claim is allowed under this
Plan. No Claim that is a Disputed Claim or subject to becoming a Disputed Claim
under this Plan will be deemed an Allowed Claim.
4. "Applicable Tax Interest Rate" means, (a) with respect to Tax Claims
due the IRS, 8.5%, and (b) with respect to all other Tax Claims, the 5-year
United States Treasury bill rate as in effect on the Effective Date.
5. "Ballot" means the form or forms distributed to each holder of an
Impaired Claim or Impaired Equity Interest on which is to be indicated
acceptance or rejection of this Plan and any election for treatment of such
Impaired Claim or Equity Interest in a particular manner under this Plan.
6. "Ballot Date" means the date set by the Bankruptcy Court by which
all Ballots for acceptance or rejection of this Plan must be received.
7. "Bankruptcy Code" means title 11 of the United States Code, as the
same may from time to time be amended and in effect and applicable to
proceedings in the Reorganization Cases.
8. "Bankruptcy Court" means the United States Bankruptcy Court for the
District of Delaware or, in the event such court ceases to exercise jurisdiction
over the Reorganization Cases, such other court or adjunct thereof as exercises
jurisdiction over the Reorganization Cases.
9. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure,
as the same may from time to time be amended and in effect and applicable to
proceedings in the Reorganization Cases.
10. "Bar Date Orders" means the orders of the Bankruptcy Court
establishing (i) October 30, 1995 as the deadline for Filing proofs of Claim in
respect of Claims arising or deemed to have arisen prior to commencement of the
Reorganization Cases and (ii) establishing October 3, 1996 as the deadline for
filing requests for payment and allowance of certain Administrative Claims.
11. "Big Apple" means Big Apple Family Fun Center, Inc.
12. "Big Apple Prepetition Credit Agreements" means those certain
documents and agreements by and between Big Apple, or its predecessor in
interest, and certain Debtor(s), with respect to or evidencing certain
indebtedness from said Debtor(s) to Big Apple, including but not limited to all
promissory notes, security agreements, assignments, license agreements, and any
other agreements entered into or other documents executed in connection
therewith, or as an adjunct or supplement thereto or required thereby.
2
<PAGE> 26
13. "Board of Directors" means the board of directors (or any committee
thereof which, under applicable law, has the power of such board of directors)
of any member of the MRI Group or the Reorganized Debtors, as the context may
indicate.
14. "Business Day" means any day, other than a Saturday, Sunday, "legal
holiday" (as defined in Bankruptcy Rule 9006(a)), or any other day on which
commercial banks in New York, New York are required or authorized by law or
executive order to close.
15. "Carmella's Cafe of Greece, Inc." means Carmella's Cafe of Greece,
Inc., a New Jersey corporation, and one of the Debtors.
16. "Cash" means legal tender of the United States of America. Any
payment made by wire or other transfer of immediately available funds shall be
deemed to have been made in Cash.
17. "Claim" means a claim as that term is defined in Bankruptcy Code
Section 101(5).
18. "Claimant" means the holder of a Claim.
19. "Claims Bar Date" means the applicable bar date by which a proof of
Claim must be Filed, as established by a Final Order of the Bankruptcy Court,
including, without limitation, the Bar Date Order.
20. "Claims Estimation Order" means an order of the Bankruptcy Court,
including, as applicable, the Confirmation Order, estimating any Claim or Claims
that are or may become Disputed Claims for purposes of distributions under this
Plan.
21. "Class" means one of the classes of Claims or Equity Interests
established under Article II of this Plan pursuant to Bankruptcy Code Section
1122.
22. "Collateral" means any property or interest in property of the
estate of any Debtor subject to an unavoidable Lien to secure the payment or
performance of a Claim.
23. "Concept" means an integrated program or system for the operation
of casual dining restaurants under the name "REDHEADS" (the "Concept Name"), as
effected in restaurants currently operating under the Concept Name and
including, without limitation, the Concept Name, all trademarks, trade names,
patents, service marks, brand marks, brand names, industrial designs, trade
dress, copyrights and other items of intellectual property of whatever nature,
operating systems and procedures, menus, recipes and food preparation and
service guidelines, design elements (including, without limitation, design of
signage, logos, interior decor, furnishings, fixtures and equipment, employee
uniforms and badges, china, flatware, placemats and the like), advertising
materials (of whatever kind in whatever media), and all other items, of whatever
kind or description, whether similar or dissimilar to any of the foregoing, in
any way forming part of, related to, or used
3
<PAGE> 27
or useful in connection with, such program or system (including the Concept
Name), or operations thereunder.
24. "Confirmation" means the entry by the Clerk of the Bankruptcy Court
of the Confirmation Order.
25. "Confirmation Date" means the date on which Confirmation occurs.
26. "Confirmation Hearing" means the hearing held by the Bankruptcy
Court on confirmation of this Plan, as it may be adjourned or continued from
time to time.
27. "Confirmation Order" means the order of the Bankruptcy Court
confirming this Plan.
28. "Creditor" means a creditor as such term is defined in Bankruptcy
Code Section 101(10).
29. "Creditors' Committee" means the Official Unsecured Creditors'
Committee appointed pursuant to Bankruptcy Code Section 1102 in the
Reorganization Cases, as constituted from time to time.
30. "Davstar" means Davstar Managed Investment Corp.
31. "Davstar Prepetition Credit Agreements" means those certain
documents and agreements by and between Davstar and certain Debtor(s), with
respect to or evidencing certain indebtedness from said Debtor(s) to Davstar,
including but not limited to all promissory notes, security agreements,
assignments, license agreements, and any other agreements entered into or other
documents executed in connection therewith, or as an adjunct or supplement
thereto or required thereby.
32. "Debtors" has the meaning assigned to it in the Preamble of this
Plan, and "Debtors in Possession" means each Debtor in its capacity as a debtor
in possession under Sections 1107(a) and 1108 of the Bankruptcy Code.
33. "Disbursing Agent" means any Person in its capacity as a disbursing
agent under this Plan.
34. "Disclosure Statement" means the "Disclosure Statement Relating to
the Debtors' Second Amended Plan Of Reorganization" (and all Exhibits annexed
thereto or referenced therein), that relates to this Plan and that has been
approved by order of the Bankruptcy Court pursuant to Bankruptcy Code Section
1125.
35. "Disputed Claim" means a Claim (a) as to which a proof of Claim has
been Filed or deemed Filed and as to which an objection has been timely Filed,
which objection has not been
4
<PAGE> 28
withdrawn and has not been overruled or denied by a Final Order, and, (b) prior
to the deadline under this Plan for filing objections to Claims, as to which (i)
the amount of the Claim specified in the Filed proof of Claim exceeds the amount
of the Claim Scheduled by the MRI Group as other than disputed, contingent, or
unliquidated, (ii) the priority of the Claim specified in the Filed proof of
Claim is of a more senior priority than the priority of the Claim Scheduled by
the MRI Group, (iii) the Claim has been Scheduled as disputed, contingent, or
unliquidated, or (iv) the Claim has not been Scheduled.
36. "Distribution Date" means the date a distribution of Cash or New
Common Stock is required to be made under this Plan.
37. "Distribution Record Date" means the date fixed by the Bankruptcy
Court as the deadline for any Disbursing Agent to recognize assignments of
Allowed Claims or Equity Interests pursuant to Bankruptcy Rule 3001(e).
38. "Effective Date" has the meaning set forth in Article VII of this
Plan.
39. "Equity Holder" means a holder of an Allowed Equity Interest in any
of the Debtors.
40. "Equity Interest" means any ownership interest in any of the
Debtors, evidenced by any share certificate or other instrument, whether or not
transferable or denominated "stock" (including, without limitation, interests
denominated as common stock or preferred stock), or similar security, and any
warrant or right (other than a right to convert) to purchase or subscribe to any
such ownership interest.
41. "Estate" means the estate created in the Reorganization Cases for
each of the Debtors by Bankruptcy Code Section 541.
42. "Existing Common Stock" means the issued and outstanding common
stock, par value $0.001, of MRI.
43. "Existing Equity Interests" means all Equity Interests in MRI prior
to the Effective Date.
44. "Existing Stock Options" means all contractual rights, existing on
the Effective Date, of any Person to purchase or acquire any common stock or
other Equity Interests in MRI.
45. "Extebank" means Extebank, Inc.
46. "Extebank Prepetition Credit Agreements" means those certain
documents and agreements by and between Extebank and certain Debtor(s), with
respect to or evidencing certain indebtedness from said Debtor(s) to Extebank,
including but not limited to all promissory notes, security agreements,
assignments, license agreements, and any other agreements entered into or other
5
<PAGE> 29
documents executed in connection therewith, or as an adjunct or supplement
thereto or required thereby.
47. "Filed" means filed with the Bankruptcy Court in the Reorganization
Cases.
48. "Final Order" means (a) an order of the Bankruptcy Court as to
which the time to appeal, petition for certiorari, or move for reargument or
rehearing has expired and as to which no appeal, petition for certiorari, or
other proceedings for reargument or rehearing shall then be pending or (b) an
order of the Bankruptcy Court as to which an appeal, writ of certiorari,
reargument, or rehearing thereof has been sought, but such order shall have been
affirmed by the highest court to which such order was appealed, or certiorari
shall have been denied or reargument or rehearing shall have been denied or
resulted in no modification of such order, and the time to take any further
appeal, petition for certiorari, or move for reargument or rehearing shall have
expired; provided, that the possibility that a motion under Rule 59 or Rule 60
of the Federal Rules of Civil Procedure, or any analogous rule under the
Bankruptcy Rules, may be filed with respect to such order shall not cause such
order not to be a Final Order.
49. "Five Percent Cumulative Preferred Stock" means the Equity
Interests in MRI represented by its outstanding shares of 5% Cumulative
Preferred Stock.
50. "Gallagher" means John M. Gallagher, one of the Red Head Debtors.
51. "Governmental Unit" means a governmental unit as such term is
defined in Bankruptcy Code Section 101(27).
52. "Impaired," with respect to the treatment of a Claim or an Equity
Interest, is used herein with the same meaning as in Bankruptcy Code Section
1124.
53. "Impaired Class" means any Class of Claims or Equity Interests
whose treatment under this Plan satisfies the definition of "Impaired."
54. "Insider" means an insider as defined in Bankruptcy Code Section
101(31).
55. "Intercompany Affiliate" means any of the Debtors and any other
direct or indirect Subsidiary of MRI.
56. "Intercompany Affiliate Claim" means any Unsecured Claim held by
any Intercompany Affiliate against any Debtor.
57. "Intercompany Equity Interest" means any Equity Interest in a
Debtor held by another Debtor.
6
<PAGE> 30
58. "Internal Revenue Code" means Title 26 of the United States Code,
as now in effect or hereafter amended.
59. "IRS" means the United States of America, Department of the
Treasury, Internal Revenue Service, in any and all capacities.
60. "Issuing Subsidiaries" means the respective Reorganized Debtors or
other operating subsidiaries of Reorganized MRI that shall issue shares of New
Preferred Stock to holders of certain Allowed Secured Claims under this Plan;
and an individual Reorganized Debtor shall be an "Issuing Subsidiary" in respect
of the holder or holders of Allowed Secured Claims of the particular Subclass in
respect of which such Reorganized Debtor shall so issue shares of its New
Preferred Stock, as set forth in the following table:
Subclass Issuing Subsidiary
-------- ------------------
1B Redheads Bistro Bar at Secaucus, Inc.
1C Redheads Bistro Bar at Yonkers, Inc.
1D Redheads Bistro Bar at Levittown, Inc.
61. "Keybro" means Keybro Enterprises, Inc.
62. "Keybro Prepetition Credit Agreements" means those certain
documents and agreements by and between Keybro (or its assignors) and certain
Debtor(s), with respect to or evidencing certain indebtedness from said
Debtor(s) to Keybro, including but not limited to all promissory notes, security
agreements, assignments, license agreements, and any other agreements entered
into or other documents executed in connection therewith, or as an adjunct or
supplement thereto or required thereby.
63. "Lien" has the meaning assigned to such term in Bankruptcy Code
Section 101(37).
64. "Magic American Cafe, Inc." means Magic American Cafe, Inc., a
Maryland corporation, and one of the Debtors.
65. "Magic American Cafe Unsecured Creditors" means Creditors holding
Unsecured Claims, classified in Subclass 3B of this Plan, against either of the
following entities: Magic American Cafe, Inc. and 10 Columbia Corporate Center,
Inc.
66. "Magic Carmella's Restaurant Inc." means Magic Carmella's
Restaurant Inc., a New Jersey corporation, and one of the Debtors.
7
<PAGE> 31
67. "Magic Enterprises Inc." means Magic Enterprises Inc., a New York
corporation, and one of the Debtors.
68. "Magic Restaurant at Elmsford, Inc." means Magic Restaurant at
Elmsford, Inc., a New York corporation, and one of the Debtors.
69. "Magic Restaurant at Kew Gardens, Inc." means Magic Restaurant at
Kew Gardens, Inc., a New York corporation, and one of the Debtors.
70. "Magic Restaurant at Sayreville, Inc." means Magic Restaurant at
Sayreville, Inc., a New Jersey corporation, and one of the Debtors.
71. "Magic Restaurant at Secaucus, Inc." means Magic Restaurant at
Secaucus, Inc., a New Jersey corporation, and one of the Debtors.
72. "Magic Restaurant at Smithhaven, Inc." means Magic Restaurant at
Smithhaven, Inc., a New York corporation, and one of the Debtors.
73. "Magic Restaurant at Staten Island, Inc." means Magic Restaurant at
Staten Island, Inc., a New York corporation, and one of the Debtors.
74. "Magic Restaurant at Wayne, Inc." means Magic Restaurant at Wayne,
Inc., a New Jersey corporation, and one of the Debtors.
75. "Magic Restaurant at Yonkers, Corp." means Magic Restaurant at
Yonkers, Corp., a New York corporation, and one of the Debtors.
76. "Magic Restaurant of L.I. Corp." means Magic Restaurant of L.I.
Corp., a New York corporation, and one of the Debtors.
77. "Magic Restaurant of N.J. Corp." means Magic Restaurant of N.J.
Corp., a New Jersey corporation, and one of the Debtors.
78. "Magic Restaurants at Kings Plaza, Inc." means Magic Restaurants at
Kings Plaza, Inc., a New York corporation, and one of the Debtors.
79. "Magic Restaurants, Inc." means Magic Restaurants, Inc., a Delaware
corporation, and one of the Debtors.
80. "Magic Restaurants of New York Corp." means Magic Restaurants of
New York Corp., a New York corporation, and one of the Debtors.
8
<PAGE> 32
81. "Magic Rock Bedford, Inc." means Magic Rock Bedford, Inc., a New
York corporation, and one of the Debtors.
82. "Magic Rock Inc." means Magic Rock Inc., a New York corporation,
and one of the Debtors.
83. "Maximum Rate" means 12% per annum simple interest, computed on the
basis of a 365- or 366-day year, as the case may be, and actual days elapsed.
84. "Merchants" means Merchants Bank of New York.
85. "Merchants Prepetition Credit Agreements" means those certain
documents and agreements by and between Merchants and certain Debtor(s), with
respect to or evidencing certain indebtedness from said Debtor(s) to Merchants,
including but not limited to all promissory notes, security agreements,
assignments, license agreements, and any other agreements entered into or other
documents executed in connection therewith, or as an adjunct or supplement
thereto or required thereby.
86. "Model Redheads Location" means the restaurant location at
Levittown, Long Island, New York operated by MRI under the Concept Name pursuant
to a license granted to MRI in the Gallagher Bankruptcy Case.
87. "Monolith" means Monolith Enterprises, Inc.
88. "Monolith Collateral" means all property, real, personal or mixed,
of MRI subject to valid Liens or security interests in favor of Monolith and
constituting collateral security for the Allowed Secured Claim of Monolith under
the Monolith Prepetition Credit Agreements.
89. "Monolith Prepetition Credit Agreements" means those certain
documents and agreements by and between Monolith and MRI, with respect to or
evidencing certain indebtedness from MRI to Monolith, including but not limited
to all promissory notes, security agreements, assignments, license agreements,
and any other agreements entered into or other documents executed in connection
therewith, or as an adjunct or supplement thereto or required thereby.
90. "Monolith Settlement" means any stipulation of settlement of
disputes between the Debtors and Monolith approved by the Bankruptcy Court at or
prior to the Confirmation Hearing.
91. "MRI" means Magic Restaurants, Inc., a Delaware corporation.
92. "MRI Unsecured Creditors" means Creditors holding Unsecured Claims,
classified in Subclass 3A of this Plan, against the following entity: Magic
Restaurants, Inc.
9
<PAGE> 33
93. "MRI Subsidiary Unsecured Creditors" means Creditors holding
Unsecured Claims, classified in Subclass 3AA of this Plan, against any of the
Subsidiaries.
94. "MRI Share Allocation" means 200,000 shares of New Common Stock.
MRI Unsecured Creditors shall receive a Pro Rata share of the MRI Share
Allocation of New Common Stock.
95. "New Common Stock" means the new common stock of Reorganized MRI,
par value $0.001, issued on or after the Effective Date.
96. "New Jersey Bankruptcy Court" means the United States Bankruptcy
Court for the District of New Jersey exercising jurisdiction over the Red Head
Reorganization Cases or, in the event such court ceases to exercise jurisdiction
over the Red Head Reorganization Cases, such other court or adjunct thereof as
exercises jurisdiction over the Red Head Reorganization Cases.
97. "New Preferred Stock" means the new preferred stock of MRI and
Issuing Subsidiaries of Reorganized MRI having terms and conditions
substantially as set forth on Exhibits I.A--1 through 1.A--3 to this Plan,
issued on or after the Effective Date.
98. "New Securities" means, collectively, the New Common Stock, the New
Warrants, and the New Preferred Stock.
99. "New Warrants" mean the New $2.00 Warrants and the New $5.00
Warrants. The New Warrants will be issued pursuant to a warrant agreement that
will be Filed with the Bankruptcy Court at or prior to the Confirmation Hearing.
100. "New $2.00 Warrants" mean the warrants to purchase up to 1.5
million shares of New Common Stock, at a price of $2.00 per share, for the three
(3) year period after the Effective Date, that will be issued to certain Holders
of Administrative Claims under the Plan.
101. "New $5.00 Warrants" mean the warrants to purchase up to 1.5
million shares of New Common Stock, at a price of $5.00 per share, for the five
(5) year period after the Effective Date, that will be issued to certain Holders
of Administrative Claims under the Plan.
102. "Order" means a judgment, order or decree entered by the
Bankruptcy Court, regardless of whether subject to appeal or reconsideration,
the effect of which has not been stayed.
103. "Order Approving Disclosure Statement and Scheduling Confirmation
Hearing" means the order of the Bankruptcy Court approving the Disclosure
Statement and scheduling the Confirmation Hearing.
104. "Paramount" means Paramount Restaurant Supply Corporation.
10
<PAGE> 34
105. "Paramount Prepetition Credit Agreements" means those certain
documents and agreements by and between Paramount and Magic Restaurant Staten
Island, Inc., with respect to or evidencing certain indebtedness from Magic
Restaurant Staten Island, Inc., to Paramount, including but not limited to all
promissory notes, security agreements, assignments, license agreements, and any
other agreements entered into or other documents executed in connection
therewith, or as an adjunct or supplement thereto or required thereby.
106. "Periodic Installments" means, with respect to Tax Claims due the
IRS, quarterly, and with respect to all other Tax Claims, annually.
107. "Person" means any individual, corporation, general partnership,
limited partnership, association, joint stock company, joint venture, estate,
trust, Governmental Unit, Creditors' Committee, unofficial committee, Creditor,
Equity Holder, Claimant, or other entity.
108. "Petition Date" means April 6, 1995 with respect to all Debtors
other than Magic Restaurant at Staten Island, Inc., Magic Restaurant at
Elmsford, Inc., and Magic Restaurant of New York Corp., for each of which the
"Petition Date" means June 6, 1995.
109. "Piedmont" means Piedmont Investment Corporation.
110. "Piedmont Prepetition Credit Agreements" means those certain
documents and agreements by and between Piedmont and certain Debtor(s), with
respect to or evidencing that certain indebtedness from said Debtor(s) to
Piedmont, including but not limited to all promissory notes, security
agreements, assignments, license agreements, and any other agreements entered
into or other documents executed in connection therewith, or as an adjunct or
supplement thereto or required thereby.
111. "Plan" means this "Debtors' Second Amended Plan of
Reorganization", as modified from time to time.
112. "Postpetition Senior Secured Notes" means the Postpetition Series
A Notes and the Postpetition Series B Notes.
113. "Postpetition Series A Notes" means the obligations of the MRI
Group incurred pursuant to those certain orders of the Bankruptcy Court signed
prior to November 1, 1996 authorizing the MRI Group to incur $2.5 million
(principal) postpetition indebtedness pursuant to Bankruptcy Code Section 364
and all loan agreements, promissory notes, security agreements, mortgages, and
other documents evidencing the same or related thereto or entered into in
connection therewith or as an adjunct or supplement thereto or required thereby.
114. "Postpetition Series B Notes" means the obligations of the MRI
Group incurred pursuant to those certain orders of the Bankruptcy Court issued
after November 1, 1996 authorizing the MRI Group to incur $3.3 million
(principal) postpetition indebtedness pursuant to Bankruptcy
11
<PAGE> 35
Code Section 364 and all loan agreements, promissory notes, security agreements,
mortgages, and other documents evidencing the same or related thereto or entered
into in connection therewith or as an adjunct or supplement thereto or required
thereby.
115. "Priority Non-Tax Claim" means a Claim of a kind specified in
Bankruptcy Code Section 507(a)(3), (4), (5), (6), (7) or (9).
116. "Priority Tax Claim" means a Claim of a Governmental Unit of the
kind specified in Bankruptcy Code Section 507(a)(8).
117. "Pro Rata", with respect to an allocation among several Persons of
an aggregate number or amount insufficient to satisfy the competing Claims,
demands or desires of all, denotes an allocation to each such Person of a share
of such aggregate number or amount equal to the product of (a) such aggregate
number or amount, multiplied by (b) a fraction of which the numerator is the
number or amount of such Person's respective Claim, desire or demand, and the
denominator is such aggregate number or amount.
118. "Professional Person" means the following professionals: Andrews &
Kurth, L.L.P., Blank Rome Comisky & McCauley, and Young, Conaway, Stargatt &
Taylor.
119. "Projections" means the projections of the Reorganized Operating
Debtors' operating profit, free cash flows, and certain other items for the
period through June 30, 1998 attached to the Disclosure Statement ("Financial
Projections for Reorganized Operating Debtors").
120. "Red Head Confirmation Order" means the order of the New Jersey
Bankruptcy Court confirming the Red Head Plan.
121. "Red Head Debtors" means, collectively, Red One, Red Three, and
Gallagher, Debtors in Possession in the jointly-administered Red Head
Reorganization Cases.
122. "Red Head Plan" means the plan of reorganization in the Red Head
Reorganization Cases, in the form attached hereto as Exhibit 1.A--4, or as
subsequently amended or confirmed in the Red Head Reorganization Cases.
123. "Red Head Reorganization Cases" means any or all of the jointly
administered cases in respect of each of the Red Head Debtors pending in the New
Jersey Bankruptcy Court, as the context may require.
124. "Red One" means Red One, Inc., a New Jersey corporation.
125. "Red One Common Stock" means the issued and outstanding common
stock of Red One.
12
<PAGE> 36
126. "Red Three" means Red Three, Inc., a New Jersey corporation.
127. "Red Three Common Stock" means the issued and outstanding common
stock of Red Three.
128. "Red Robin" means Red Robin International, Inc.
129. "Red Robin Franchise Agreements" means all franchise, lease,
license, management, development, and other agreements of any type, whether or
not executory, between any of the Debtors and Red Robin.
130. "Red Robin Settlement" means the settlement of the Red Robin
Adversary Proceeding and all other disputes between the Debtor and Red Robin
embodied in the Stipulated Order between the parties approved by the June 27,
1996 Order of the Bankruptcy Court attached to the Disclosure Statement as
Exhibit 8.
131. "Registration Date" means the date on which any registration
statement filed with the SEC registering the offer and sale of such rights and
shares of New Common Stock under the Plan shall have become effective under the
Securities Act.
132. "Record Holder" means the holder of an Existing Equity Interest on
the Existing Equity Interest Record Date.
133. "Reorganization Agreement" means that certain Reorganization
Agreement dated as of May 1, 1996 between MRI and the Ottomanellis.
134. "Reorganization Cases" means any or all of the jointly
administered cases in respect of each of the above-captioned Debtors pending in
the Bankruptcy Court, as the context may require.
135. "Reorganized" means, with reference to any Debtor, such Debtor
from and after the Effective Date.
136. "Reorganized Debtors" means MRI, Magic Restaurant at Secaucus,
Inc.; Magic Restaurant at Yonkers, Corp.; and Magic Restaurants at Kings Plaza,
Inc., from and after the Effective Date.
137. "Reorganized MRI" means MRI, from and after the Effective Date. It
is anticipated that Reorganized MRI will change its name to Redheads Bistro Bar,
Inc.
138. "Reorganized MRI Incentive Plan" means the stock incentive plan of
Reorganized MRI, as more fully described in the Disclosure Statement.
13
<PAGE> 37
139. "Reorganized MRI Restated Certificate of Incorporation" means the
Restated Certificate of Incorporation of Reorganized MRI that will be effective
on the Effective Date under the laws of the State of Delaware, in the form Filed
with the Bankruptcy Court at or before the Confirmation Hearing.
140. "Reorganized MRI Restated Bylaws" means the Bylaws of Reorganized
MRI that will be effective on the Effective Date, in the form Filed with the
Bankruptcy Court at or before the Confirmation Hearing.
141. "Reorganized Other Debtor Restated Certificate of Incorporation"
means the Restated Certificate of Incorporation (or similar organic document) of
each of the several Reorganized Debtors, other than MRI, that will be effective
on the Effective Date under the laws of their respective jurisdictions of
organizations.
142. "Reorganized Other Debtor Restated By-Laws" means the Bylaws of
each of the several Reorganized Debtors, other than MRI, that will be effective
on the Effective Date.
143. "Saxony" means Saxony Ice Company.
144. "Saxony Prepetition Credit Agreements" means those certain
documents and agreements by and between Saxony and certain Debtor(s), with
respect to or evidencing certain indebtedness from said Debtor(s) to Saxony,
including but not limited to all promissory notes, security agreements,
assignments, license agreements, and any other agreements entered into or other
documents executed in connection therewith, or as an adjunct or supplement
thereto or required thereby.
145. "Scheduled" means and refers to information set forth in the
Schedules.
146. "Schedules" means the schedules Filed by the Debtors pursuant to
Bankruptcy Rule 1007(b), as the same may be amended from time to time prior to
the Effective Date.
147. "SEC" means the United States Securities and Exchange Commission.
148. "Series A Preferred Stock" means the Equity Interests in MRI
represented by shares of its outstanding Series A Preferred Stock.
149. "Section 510(b) Claim" means a Claim of the character described in
Section 510(b) of the Bankruptcy Code.
150. "Secured Claim" means a Claim, including interest, fees, and
charges as determined pursuant to Bankruptcy Code Section 506(b), that is
secured by a Lien on property in which the Estate has an interest, or that is
subject to setoff under Bankruptcy Code Section 553, to the extent of the value
of the Claimant's interest in the Estate's interest in such property, or to the
extent of the
14
<PAGE> 38
amount subject to setoff, as applicable, as determined pursuant to Bankruptcy
Code Sections 506(a) and, if applicable, 1129(b). Under no event will
post-petition interest on any Secured Claim be Allowed at a rate in excess of
the Maximum Rate.
151. "Secured Tax Claim" means a Claim of any taxing authority that is
a Secured Claim.
152. "Securities Act" means the Securities Act of 1933, 15 U.S.C.
Sections 77a, et seq., and the rules and regulations promulgated thereunder.
153. "SBLI" means State Bank of Long Island.
154. "SBLI Prepetition Credit Agreements" means those certain documents
and agreements by and between SBLI and certain Debtor(s), relating to or
evidencing certain indebtedness from said Debtor(s) to SBLI, including but not
limited to all promissory notes, security agreements assignments, license
agreements, and any other agreements entered into or other documents executed in
connection therewith, or as an adjunct or supplement thereto or required
thereby.
155. "Shell Companies" means all of the Debtors other than (1) the
Subsidiaries, (2) MRI, and (3) Magic American Cafe, Inc. and 10 Columbia
Corporate Center, Inc.
156. "Shell Company Unsecured Creditors" means Creditors holding
Unsecured Claims, classified in Subclass 3C of this Plan, against any of the
Shell Companies.
157. "Subsidiaries" means Magic Restaurant at Secaucus, Inc., Magic
Restaurants at Kings Plaza, Inc., and Magic Restaurant at Yonkers, Corp.
158. "10 Columbia Corporate Center, Inc." means 10 Columbia Corporate
Center, Inc., a Maryland corporation, and one of the Debtors.
159. "Unsecured Claim" means a Claim against any of the Debtors that is
not an Administrative Claim, Priority Non-Tax Claim, Priority Tax Claim, or
Secured Claim.
160. "USA Signs" means USA Signs of America, Inc.
161. "USA Signs Prepetition Credit Agreements" means those certain
documents and agreements by and between USA Signs and certain Debtor(s), with
respect to or evidencing certain indebtedness from said Debtor(s) to USA Signs,
including but not limited to all promissory notes, security agreements,
assignments, license agreements, and any other agreements entered into or other
documents executed in connection therewith, or as an adjunct or supplement
thereto or required thereby.
15
<PAGE> 39
162. "Voting Record Date" means the date and time fixed by the
Bankruptcy Court as the record date for determining which holders of Claims or
Interests in Impaired Classes eligible to vote on this Plan may vote to accept
or reject this Plan. The Voting Record Date is September 3, 1996.
B. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION OF TIME AND
CHOICE OF LAW
1. The provisions of this Plan shall control over any descriptions
hereof or inconsistencies contained in the Disclosure Statement. Where this Plan
refers to any contract, instrument, or other agreement or document created in
connection with this Plan, the provisions of such contract, instrument, or other
agreement or document shall control in the case of any inconsistency with the
terms of this Plan, and this Plan shall be interpreted to avoid any
inconsistencies with the provisions of such contract, instrument, or other
agreement or document.
2. Any term used in this Plan that is not defined in this Plan but that
is used in the Bankruptcy Code or the Bankruptcy Rules has the meaning assigned
to that term (and shall be construed in accordance with the rules of
construction under) the Bankruptcy Code or the Bankruptcy Rules, as the case may
be. Without limiting the foregoing, the rules of construction set forth in
Bankruptcy Code Section 102 shall apply. The definitions and rules of
construction contained herein do not apply to the Disclosure Statement or to any
of the Exhibits to this Plan except to the extent expressly so stated in the
Disclosure Statement or in such Exhibit to this Plan, as the case may be.
3. The words "herein," "hereof," "hereto," "hereunder" and others of
similar import refer to this Plan as a whole and not to any particular Article,
Section, Subsection, or clause contained in this Plan.
4. Unless specified otherwise in a particular reference, all references
in this Plan to Articles, Sections and Exhibits are references to Articles,
Sections and Exhibits of or to this Plan.
5. Any reference in this Plan to an existing document or Exhibit means
such document or Exhibit as it may have been amended, restated, modified, or
supplemented as of the Effective Date.
6. Captions and headings to Articles and Sections in this Plan are
inserted for convenience of reference only and shall neither constitute a part
of this Plan nor in any way affect the interpretation of any provisions hereof.
7. Whenever from the context it is appropriate, each term stated in
either the singular or the plural shall include both the singular and the
plural.
8. In computing any period of time prescribed or allowed by this Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
16
<PAGE> 40
9. All Exhibits to this Plan are incorporated into this Plan, and shall
be deemed to be included in this Plan, regardless of when Filed.
10. Subject to the provisions of any contract, certificate, bylaw,
instrument, or other agreement or document entered into in connection with this
Plan, or any mandatory provision of law applicable thereto, the rights and
obligations arising under this Plan shall be governed by, and construed and
enforced in accordance with, the federal law of the United States, including the
Bankruptcy Code and Bankruptcy Rules.
II.
DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS
The following is the designation of the Classes of Claims and Equity
Interests under this Plan. Administrative Claims, Priority Tax Claims and
Secured Tax Claims have not been classified and are excluded from the following
Classes in accordance with Bankruptcy Code Section 1123(a)(1). A Claim or Equity
Interest is classified in a particular Class only to the extent that the Claim
or Equity Interest qualifies within the description of that Class and is
classified in a different Class to the extent any remainder of the Claim or
Equity Interest qualifies within the description of such different Class. A
Claim or Equity Interest is in a particular Class only to the extent that the
Claim or Equity Interest is an Allowed Claim or Allowed Equity Interest in that
Class and has not been paid, released, or otherwise satisfied before the
Effective Date or such other date as determined by the applicable Debtor in its
sole discretion.
A. CLASS 1 - SECURED CLAIMS (SUBCLASSES 1A-1K)
Subclass 1A (Other): Allowed Secured Claims against any of the Debtors,
to the extent that they are not included in any of Subclasses 1B through 1K, but
excluding Secured Tax Claims. Each Allowed Secured Claim in Subclass 1A will be
considered to be in its own separate subclass within Subclass 1A, and each such
subclass shall be deemed to be a separate Class for purposes of this Plan.
Claims in Subclass 1A are Impaired under this Plan.
Subclass 1B (Big Apple): Allowed Secured Claims of Big Apple under or
evidenced by the Big Apple Prepetition Credit Agreements. Claims in Subclass 1B
are Impaired under this Plan.
Subclass 1C (Davstar): Allowed Secured Claims of Davstar under or
evidenced by the Davstar Prepetition Credit Agreements. Claims in Subclass 1C
are Impaired under this Plan.
Subclass 1D (Keybro): Allowed Secured Claims of Keybro under or
evidenced by the Keybro Prepetition Credit Agreements. Claims in Subclass 1D are
Impaired under this Plan.
Subclass 1E (Merchants): Allowed Secured Claims of Merchants under or
evidenced by the Merchants Prepetition Credit Agreements. Claims in Subclass 1E
are Impaired under this Plan.
17
<PAGE> 41
Subclass 1F (Extebank): Allowed Secured Claims of Extebank under or
evidenced by the Extebank Prepetition Credit Agreements. Claims in Subclass 1F
are Impaired under this Plan.
Subclass 1G (Monolith): Allowed Secured Claims of Monolith under or
evidenced by the Monolith Prepetition Credit Agreements. Claims in Subclass 1G
are Impaired under this Plan.
Subclass 1H (Paramount): Allowed Secured Claims of Paramount under or
evidenced by the Paramount Prepetition Credit Agreements. Claims in Subclass 1H
are Impaired under this Plan.
Subclass 1I (Piedmont): Allowed Secured Claims of Piedmont under or
evidenced by the Piedmont Prepetition Credit Agreements. Claims in Subclass 1I
are Impaired under this Plan.
Subclass 1J (SBLI): Allowed Secured Claims of SBLI under or evidenced
by the SBLI Prepetition Credit Agreements. Claims in Subclass 1J are not
Impaired under this Plan.
Subclass 1K (USA Signs): Allowed Secured Claims of USA Signs under or
evidenced by the USA Signs Prepetition Credit Agreements. Claims in Subclass 1K
are not Impaired under this Plan.
B. CERTAIN PRIORITY UNSECURED CLAIMS (CLASS 2)
Class 2: Allowed Priority Unsecured Claims of employees against any of
the Debtors that are specified as having priority in Bankruptcy Code Section
507(a)(3) or 507(a)(4), not to exceed $4,000 per individual. Such Claims include
certain Claims against any of the by their employees for unpaid prepetition
wages, salaries, or commissions. Claims in Class 2 are not Impaired under this
Plan.
C. UNSECURED CLAIMS WITHOUT PRIORITY (SUBCLASSES 3A-3C)
Class 3 consists of Subclass 3A, Subclass 3AA, Subclass 3B, and
Subclass 3C, each of which is a separate subclass within Class 3, and each of
which is Impaired under this Plan. Each such separate subclass within Class 3
shall be deemed to be a separate Class for purposes of this Plan.
Subclass 3A: Allowed Unsecured Claims of MRI Unsecured Creditors that
are not cured, paid, released, or waived pursuant to this Plan, assumed by any
of the Reorganized Debtors pursuant to this Plan or agreements incorporated in
this Plan, or classified in any other Class of Claims, including, without
limitation (i) Claims for goods sold and services rendered, (ii) Claims for
monies lent, (iii) Claims based upon guarantees of performance or payment of the
obligations or duties of any Person, (iv) Claims arising under or related to any
Environmental Laws, (v) Claims for contribution, reimbursement or indemnity,
(vi) Claims for fines, penalties, or assessments, (vii) Claims for tort
liability, and (viii) Claims arising from the rejection of executory contracts
and unexpired leases.
18
<PAGE> 42
Subclass 3AA: Allowed Unsecured Claims of MRI Subsidiary Unsecured
Creditors that are not cured, paid, released, or waived pursuant to this Plan,
assumed by any of the Reorganized Debtors pursuant to this Plan or agreements
incorporated in this Plan, or classified in any other Class of Claims,
including, without limitation (i) Claims for goods sold and services rendered,
(ii) Claims for monies lent, (iii) Claims based upon guarantees of performance
or payment of the obligations or duties of any Person, (iv) Claims arising under
or related to any Environmental Laws, (v) Claims for contribution, reimbursement
or indemnity, (vi) Claims for fines, penalties, or assessments, (vii) Claims for
tort liability, and (viii) Claims arising from the rejection of executory
contracts and unexpired leases.
Subclass 3B: Allowed Unsecured Claims of Magic American Cafe Unsecured
Creditors that are not cured, paid, released, or waived pursuant to this Plan,
assumed by any of the Reorganized Debtors pursuant to this Plan or agreements
incorporated in this Plan, or classified in any other Class of Claims,
including, without limitation (i) Claims for goods sold and services rendered,
(ii) Claims for monies lent, (iii) Claims based upon guarantees of performance
or payment of the obligations or duties of any Person, (iv) Claims arising under
or related to any Environmental Laws, (v) Claims for contribution, reimbursement
or indemnity, (vi) Claims for fines, penalties, or assessments, (vii) Claims for
tort liability, and (viii) Claims arising from the rejection of executory
contracts and unexpired leases.
Subclass 3C: Allowed Unsecured Claims of Shell Company Unsecured
Creditors that are not cured, paid, released, or waived pursuant to this Plan,
assumed by any of the Reorganized Debtors pursuant to this Plan or agreements
incorporated in this Plan, or classified in any other Class of Claims,
including, without limitation, (i) claims for goods sold and services rendered,
(ii) Claims for monies lent, (iii) Claims based upon guarantees of performance
or payment of the obligations or duties of any Person, (iv) Claims arising under
or related to any Environmental Laws, (v) Claims for contribution, reimbursement
or indemnity, (vi) Claims for fines, penalties, or assessments, (vii) Claims for
tort liability, and (viii) Claims arising from the rejection of executory
contracts and unexpired leases.
D. EQUITY INTERESTS AND CERTAIN CLAIMS RELATING THERETO;
INTERCOMPANY AFFILIATE CLAIMS (CLASSES 4-8)
Class 4: Equity Interests consisting of the Allowed Series A Preferred
Stock and Allowed Section 510(b) Claims with respect to the Series A Preferred
Stock.
Class 5: Equity Interests consisting of the Allowed Five Percent
Cumulative Preferred Stock and Allowed Section 510(b) Claims with respect to the
Five Percent Cumulative Preferred Stock.
Class 6: Equity Interests consisting of the Allowed Existing Common
Stock and Allowed Section 510(b) Claims with respect to the Existing Common
Stock.
19
<PAGE> 43
Class 7: All other Equity Interests not within Classes 4-6 or 8,
including, without limitation, Allowed Equity Interests consisting of Existing
Stock Options and all Allowed Claims against any of the Debtors arising from any
such Existing Stock Options, including, without limitation, all Section 510(b)
Claims with respect to such Equity Interests, and all Allowed Claims, if any,
arising from the rejection of agreements granting Existing Stock Options, or
rights to acquire any other type of Equity Interest, to the extent, if any, that
they constitute executory contracts.
Class 8: All Equity Interests of MRI in the Subsidiaries.
III.
TREATMENT OF CLAIMS AND EQUITY INTERESTS
A. UNCLASSIFIED CLAIMS
1. ALLOWED ADMINISTRATIVE CLAIMS
a. Professional Persons. All Allowed Administrative Claims of
Professional Persons against the Debtors that have not been satisfied
during the Reorganization Cases will receive, on account of and in full
satisfaction of such Allowed Administrative Claim, Cash equal to the
Allowed amount of such Claim on the latest of (i) the Effective Date,
(ii) the date of entry an Order of the Bankruptcy Court Allowing the
Administrative Claim, or (iii) such other date as may be agreed between
the Reorganized Debtors and the Holders of such Claims.
b. Other General Administrative Claims.
(1) Generally.
Subject to certain provisions contained in this Plan,
and unless any holder thereof agrees or has agreed to
different or less favorable treatment, each holder of an
Allowed Administrative Claim against MRI and the Subsidiaries
that has not been satisfied during the Reorganization Cases
(other than any such Claims which are restructured as
specified elsewhere in this Plan) will receive, on account of
and in full satisfaction of such Allowed Administrative Claim,
Cash equal to the Allowed amount of such Claim on the latest
of (i) the Effective Date, (ii) if disputed, upon entry an
Order of the Bankruptcy Court Allowing the Administrative
Claim, and (iii) the date on which the distribution to the
holder of the Allowed Administrative Claim would have been due
and payable in the ordinary course of business or under the
terms of any agreement giving rise to the Allowed
Administrative Claim.
20
<PAGE> 44
(2) Right to Elect to Receive New Common Stock.
21
<PAGE> 45
In lieu of receiving Cash on account of its Allowed
Administrative Claim, if agreed to by Reorganized MRI in its
sole and absolute discretion, each holder of an Allowed
Administrative Claim against MRI or the Subsidiaries may elect
in writing on or before the Effective Date (or if disputed or
not yet Allowed, within three business days after such
Administrative Claim becomes Allowed) to exchange each $1.65
of its Allowed Administrative Claim for one share of New
Common Stock, subject to the fractional shares provisions of
this Plan. The New Common Stock to be issued as a result of
such exchange election shall be issued by Reorganized MRI and
delivered to the Disbursing Agent for distribution to each
such holder of an Allowed Administrative Claim so electing as
soon as practicable after the Effective Date.
(3) Shell Company and American Cafe Administrative
Claims
No payments are contemplated to be made under this
Plan on account of Administrative Claims against the Shell
Companies, Magic American Cafe, Inc. or 10 Columbia Corporate
Center, Inc. that have not been paid previously.
c. Postpetition Series A Notes. Each Holder of a Postpetition
Series A Note shall exchange each $0.75 of its Allowed Claim for one
share of New Common Stock, subject to the fractional shares provisions
of this Plan. The New Common Stock issued to such Holders will be
subject to agreements restricting such Holders from selling or
transferring 50% of such stock during the 12 months following the
Effective Date. These restrictions on transfer may be waived or
released by Reorganized MRI at any time, in its sole and absolute
discretion. The New Common Stock to be issued to such Holders shall be
issued by Reorganized MRI and delivered to the Disbursing Agent for
distribution to each such holder as soon as practicable after the
Effective Date.
d. Postpetition Series B Notes. The Holder of the Postpetition
Series B Notes shall receive one share of New Preferred Stock issued by
MRI for each $75.00 in Allowed Claim. The New Preferred Stock shall
have the terms set forth in Exhibit 1.A--3. In addition, the Holder
shall receive 1.5 million New $2.00 Warrants, and 1.5 million New $5.00
Warrants.
e. Reorganization Bonus Due Rye Management. Any reorganization
bonus due Rye Management, Inc. ("Rye") under the Consulting Agreement
between Rye and the Debtors shall be deemed an Administrative Claim and
shall be satisfied by the issuance to Rye, subject to the fractional
shares provisions of this Plan, of shares of New Common Stock after the
Effective Date, based on the sustained trading prices achieved for the
New Common Stock over the three year period following the Effective
Date. The reorganization bonus shall be calculated based upon the
highest average trading price achieved by the New Common Stock over the
course of ten consecutive trading days during three years following
22
<PAGE> 46
the Effective Date (with average share volumes traded per day in excess
of 10,000). Such shares shall be issued to Rye within three business
days following the end of such period.
f. Finder's Fee with Respect to Postpetition Series B Notes.
The 10% finder's fee payable for the placement of the Postpetition
Series B Notes shall be satisfied in full by the issuance of New Common
Stock.
2. TAX CLAIMS
Each holder of an Allowed Priority Tax Claim or Allowed Secured Tax
Claim against MRI or the Subsidiaries (collectively, "Allowed Tax Claims") shall
receive deferred Cash payments in equal Periodic Installments over a period
ending six years after the date of assessment in an aggregate amount equal to
the amount of such Allowed Tax Claim, plus interest from the Effective Date on
the unpaid portion thereof, without penalty of any kind, at the Applicable Tax
Interest Rate. Unless otherwise agreed by the holder of an Allowed Tax Claim,
the first such installment payment on each Allowed Tax Claim shall be made one
year following the later of (i) Effective Date, and (ii) the date the Tax Claim
is Allowed. Each installment shall include simple interest on the unpaid balance
of the Allowed Tax Claim, without penalty of any kind.
Notwithstanding the foregoing, Reorganized MRI shall have the right to
pay any Allowed Tax Claim, or any remaining unpaid balance of such Claim, in
full, any time on or after the Effective Date, with interest to the date of
payment but without premium or penalty. Further, no holder of an Allowed Tax
Claim will be entitled to any payments on account of any postpetition,
pre-Effective Date interest accrued on an Allowed Tax Claim or on account of any
penalty arising with respect to, or in connection with, an Allowed Tax Claim. In
addition, as of the Effective Date, all Liens securing said Allowed Tax Claims
shall thereupon be released and extinguished and all property of any Reorganized
Debtor that secures the Allowed Tax Claims shall thereupon be free and clear of
any Liens, Claims, and encumbrances of the holder of such Allowed Tax Claims.
Any such Claim or demand for any such accrued interest or penalty, and all Liens
created in respect of such Allowed Tax Claims, shall be discharged by virtue of
Confirmation of this Plan and Bankruptcy Code Section 1141(d)(1), and the holder
of an Allowed Tax Claim shall not assess or attempt to collect such accrued
interest or penalty from any of the Reorganized Debtors (or their properties or
subsidiaries) or assert any Lien rights against any of the Reorganized Debtors
(or their properties or subsidiaries).
Priority Tax Claims and Secured Tax Claims against Shell Companies and
against Magic American Cafe, Inc. and 10 Columbia Corporate Center, Inc. shall
receive no distribution under this Plan.
23
<PAGE> 47
B. TREATMENT OF CLASSIFIED CLAIMS
The following sets forth the treatment of classified claims under this
Plan:
1. UNIMPAIRED CLAIMS
a. TREATMENT OF ALLOWED PRIORITY UNSECURED CLAIMS OF EMPLOYEES
(CLASS 2).
Claims in Class 2 are not Impaired under this Plan. Except as may be
otherwise agreed with Reorganized MRI, the holder of an Allowed Class 2 Claim
will be paid in Cash by Reorganized MRI on the later of (i) the Effective Date,
(ii) as soon as practicable after such Claim is Allowed by Final Order, or (iii)
the date on which such Allowed Claim is due and payable in the ordinary course
of business or under the terms of any agreement giving rise to such Allowed
Claim.
2. IMPAIRED CLAIMS
The following claims are Impaired under this Plan:
a. TREATMENT OF ALLOWED SECURED CLAIMS
(1) ALLOWED SECURED CLAIMS IN SUBCLASS 1A
Claims in Subclass 1A are Impaired under this Plan. Holders of Allowed
Secured Claims in Subclass 1A shall receive no distributions from any of the
Reorganized Debtors or their Affiliates and all such Claims and all related
Liens, mortgages, deeds of trust, encumbrances, charges, and Claims against the
Reorganized Debtors (or their Affiliates) or against any of their properties by
holders of any such Claims shall be fully and completely discharged, released,
and extinguished.
(2) ALLOWED SECURED CLAIMS IN SUBCLASSES 1B, 1C,
AND 1D
Claims in each of Subclasses 1B, 1C, and 1D are Impaired under this
Plan.
Subject to the third following paragraph, Allowed Secured Claims in
Subclasses 1B, 1C, and 1D shall receive one share of New Preferred Stock, in the
case of Claims of each such Class issued by the respective Issuing Subsidiary in
respect of the Claims of such Class, for every $75 of Allowed Secured Claim. The
New Preferred Stock to be issued shall be issued by the respective Issuing
Subsidiaries as soon as practicable after the Effective Date.
In addition, Holders of Allowed Secured Claims treated in Subclasses
1B, 1C, and 1D will be paid, as soon as practicable after the Effective Date,
simple interest accruing on such Claims from the Petition Date to the Effective
Date, at the lesser of (i) the rate of non-default interest payable under the
Prepetition Credit Documents associated with such claims, or (ii) the Maximum
24
<PAGE> 48
Rate, such payment to be effected by issuance of additional shares of New
Preferred Stock at the rate of one share for each $75 of such interest due.
Upon the Effective Date, except as expressly provided in the following
paragraph, all Liens securing the obligations under the Allowed Secured Claims
in Subclasses 1B, 1C and 1D shall be released and extinguished and all property
of any of the Debtors that secures any such Secured Claim shall thereupon be
free and clear of any Liens, Claims, and encumbrances of the Holder of said
Secured Claims.
(3) ALLOWED SECURED CLAIMS IN SUBCLASS 1G
Claims in Subclass 1G are Impaired under this Plan.
Unless otherwise agreed to between Reorganized MRI and the Holder of
the Subclass 1G claim or as otherwise may be provided in the Monolith
Settlement, the Monolith Collateral shall be liquidated and the proceeds, after
payment of the reasonable administrative fees of liquidation, turned over to
Monolith.
(4) ALLOWED SECURED CLAIMS IN SUBCLASSES 1J
Claims in Subclass 1J are not Impaired under this Plan.
On the Effective Date, the indebtedness underlying the Secured Claim
treated under this Subclass shall be reinstated on its terms, all arrearages (at
the non-default rate) shall be paid and defaults (other than any default of the
kind specified in Bankruptcy Code Section 365(b)(2)) under the applicable
Prepetition Credit Agreements shall be cured by Reorganized MRI or the
applicable Reorganized Debtor, and the holder of each such Secured Claim shall
retain all legal, equitable, and contractual rights and Liens to which such
claim entitles such Holder.
(5) ALLOWED SECURED CLAIMS IN SUBCLASSES 1E
THROUGH 1I
Claims in Subclasses 1E through 1I are Impaired under this Plan.
The Collateral securing each of these Secured Claims shall, at the
election of the Holders of these Claims, (1) be delivered to the Claimants on
the Effective Date, or (2) be liquidated by Reorganized MRI and the proceeds,
after payment of the reasonable administrative fees of liquidation, turned over
to the Claimants.
25
<PAGE> 49
(6) ALLOWED SECURED CLAIM IN SUBCLASSES 1K
This Secured Claim has been paid in full during the pendency of the
Reorganization Cases. The Holder of this Claim shall receive no distribution
under this Plan, and all property of any of the Debtors that previously secured
this Secured Claim shall vest in the applicable Reorganized Debtors free and
clear of any Liens, Claims, and encumbrances of the Holder of said Secured
Claim.
b. TREATMENT OF ALLOWED UNSECURED CLAIMS (SUBCLASSES 3A
THROUGH 3C)
Class 3 consists of Subclass 3A (Allowed Unsecured Claims of MRI
Unsecured Creditors), Subclass 3AA (Allowed Unsecured Claims of MRI Subsidiary
Unsecured Creditors), Subclass 3B (Allowed Unsecured Claims of Magic American
Cafe Creditors), and Subclass 3C (Allowed Unsecured Claims of Shell Company
Creditors), each of which is a separate subclass within Class 3. Each such
separate subclass within Class 3 shall be deemed to be a separate Class for
purposes of this Plan.
If the holders of Allowed Claims in Subclass 3A do not accept or are
deemed to have rejected this Plan, then the Debtors shall seek confirmation of
this Plan with regard to Subclass 3A under Bankruptcy Code Section 1129(b).
If the holders of Allowed Claims in Subclass 3AA do not accept or are
deemed to have rejected this Plan, then the Debtors shall seek confirmation of
this Plan with regard to Subclass 3AA under Bankruptcy Code Section 1129(b).
(1) SUBCLASS 3A (ALLOWED UNSECURED CLAIMS OF
MRI/RED ROBIN UNSECURED CREDITORS)
Holders of Allowed Claims in Subclass 3A shall receive their Pro Rata
share of the MRI Share Allocation of New Common Stock, subject to the fractional
shares provisions of this Plan. The New Common Stock to be issued to such
Holders shall be issued by Reorganized MRI and delivered to the Disbursing Agent
for distribution to each such holder as soon as practicable after the Effective
Date.
(2) SUBCLASS 3AA (ALLOWED UNSECURED CLAIMS OF
MRI SUBSIDIARY UNSECURED CREDITORS)
Holders of Allowed Claims in Subclass 3AA shall receive one share of
New Common Stock for each $10.00 in Allowed Unsecured Claims, subject to the
fractional shares provisions of this Plan; provided, however, that no more than
50,000 shares of New Common Stock, in the aggregate, shall be distributed to
such Holders. The New Common Stock to be issued to such Holders shall be issued
by Reorganized MRI and delivered to the Disbursing Agent for distribution to
each such holder as soon as practicable after the Effective Date.
26
<PAGE> 50
(3) SUBCLASS 3B (ALLOWED UNSECURED CLAIMS OF
MAGIC AMERICAN CAFE UNSECURED CREDITORS).
Holders of Allowed Claims in Subclass 3B shall receive no distribution
under this Plan.
(4) SUBCLASS 3C (ALLOWED UNSECURED CLAIMS OF
SHELL COMPANY CREDITORS)
Holders of Allowed Claims in Subclass 3C shall receive no distribution
under this Plan.
c. TREATMENT OF EQUITY INTERESTS AND CERTAIN CLAIMS
RELATED THERETO (CLASSES 4-8)
(1) ALLOWED SERIES A PREFERRED STOCK EQUITY
INTERESTS AND CERTAIN CLAIMS RELATED THERETO
(CLASS 4)
Allowed Equity Interests and Claims in Class 4 are Impaired under this
Plan.
Holders of Allowed Claims and Equity Interests in Class 4 shall receive
or retain no property or distributions on account of such Allowed Claims or
Allowed Equity Interests. The Debtors are not soliciting the votes of the Class
4 holders and shall seek confirmation of this Plan with respect to Class 4 under
Bankruptcy Code Section 1129(b).
(2) ALLOWED FIVE PERCENT CUMULATIVE PREFERRED
STOCK EQUITY INTERESTS AND CERTAIN CLAIMS
RELATED THERETO (CLASS 5)
Allowed Equity Interests and Claims in Class 5 are Impaired under this
Plan.
Holders of Allowed Claims and Equity Interests in Class 5 shall receive
or retain no property or distributions on account of such Allowed Claims or
Allowed Equity Interests. The Debtors are not soliciting the votes of the Class
5 holders and shall seek confirmation of this Plan with respect to Class 5 under
Bankruptcy Code Section 1129(b).
(3) ALLOWED EXISTING COMMON STOCK EQUITY
INTERESTS AND CERTAIN CLAIMS RELATED THERETO
(CLASS 6)
Allowed Equity Interests and Claims in Class 6 are Impaired under this
Plan.
Holders of Allowed Claims and Equity Interests in Class 6 shall receive
or retain no property or distributions on account of such Allowed Claims or
Allowed Equity Interests. The Debtors are not soliciting the votes of the Class
6 holders and shall seek confirmation of this Plan with respect to Class 6 under
Bankruptcy Code Section 1129(b).
27
<PAGE> 51
(4) OTHER ALLOWED EQUITY INTERESTS AND CERTAIN
OTHER ALLOWED CLAIMS RELATED THERETO (CLASS
7)
Allowed Equity Interests and Claims in Class 7 are Impaired under this
Plan.
Holders of Allowed Claims and Equity Interests in Class 7 shall receive
or retain no property or distributions on account of such Allowed Claims or
Allowed Equity Interests. The Debtors are not soliciting the votes of the Class
7 holders and shall seek confirmation of this Plan with respect to Class 7 under
Bankruptcy Code Section 1129(b).
(5) ALLOWED EQUITY INTERESTS OF MRI IN CERTAIN
OPERATING SUBSIDIARIES (CLASS 8)
Allowed Equity Interests in Class 8 are not Impaired under this Plan.
Holders of Allowed Equity Interests in Class 8 shall retain all their Equity
Interests the following Reorganized Debtors: Magic Restaurant at Secaucus, Inc.;
Magic Restaurant at Yonkers, Corp.; and Magic Restaurants at Kings Plaza, Inc.
IV.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. ASSUMPTIONS GENERALLY
Except as otherwise provided in this Plan, in any Order of the
Bankruptcy Court, or in any contract, instrument, or other agreement or document
incorporated into this Plan or entered into in connection with this Plan or the
Reorganization Cases, pursuant to Bankruptcy Code Section 365, on the Effective
Date each of the executory contracts and unexpired leases listed on the Schedule
of Assumed Contracts attached as Exhibit IV.A hereto and incorporated herein by
this reference shall be assumed and, if applicable, assigned on the terms and
conditions as set forth in said Exhibit IV.A, subject to the same rights as the
Debtors or the Reorganized Debtors held or hold at, on, or after the Petition
Date to modify and/or terminate such agreements under applicable nonbankruptcy
law. Each contract and lease listed on said Exhibit IV.A shall be assumed only
to the extent, if any, that it constitutes an executory contract or unexpired
lease, and the listing of such contract or lease on said Exhibit IV.A shall not
constitute an admission by the Debtors or the Reorganized Debtors that such
contract or lease is an executory contract or unexpired lease or that any of the
Debtors or the Reorganized Debtors has any liability thereunder. Debtors shall
provide notice of any amendment to Exhibit IV.A hereto to the parties to the
executory contracts or unexpired leases affected thereby and to the parties on
the then applicable limited notice service list in the Reorganization Cases.
28
<PAGE> 52
Each executory contract and unexpired lease assumed pursuant to this
Article IV by any of the Reorganized Debtors shall be fully enforceable by such
Reorganized Debtor in accordance with its terms, except as modified by the
provisions of this Plan, any Order of the Bankruptcy Court authorizing and
providing for its assumption, or applicable federal law.
2. APPROVAL OF ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Except as otherwise provided in this Plan, the Confirmation Order shall
constitute an order of the Bankruptcy Court, pursuant to Bankruptcy Code Section
365, approving the assumption as of the Effective Date of the executory
contracts and unexpired leases listed on Exhibit IV.A hereto. To the extent that
assumption of an executory contract or unexpired lease on Exhibit IV.A is
conditioned on the modifications specified in said Exhibit IV.A, the
Confirmation Order shall constitute an Order of the Bankruptcy Court pursuant to
Bankruptcy Code Section 365 approving the assumption as of the Effective Date of
said executory contract or unexpired lease as modified pursuant to the terms
specified in said Exhibit IV.A.
3. OBJECTIONS TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TO THE EXTENT ANY PARTY TO AN EXECUTORY CONTRACT OR UNEXPIRED LEASE
IDENTIFIED FOR ASSUMPTION ASSERTS ARREARS OR DAMAGES PURSUANT TO BANKRUPTCY CODE
SECTION 365(b)(1) IN AN AMOUNT DIFFERENT FROM THE AMOUNT SET FORTH ON EXHIBIT
IV.A HERETO, OR HAS ANY OBJECTION TO THE PROPOSED ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE OR THE PROPOSED ASSUMPTION AND CURE REGARDING THE EXECUTORY
CONTRACTS OR UNEXPIRED LEASES ON THE TERMS AND CONDITIONS PROVIDED FOR IN THIS
PLAN, ALL SUCH ASSERTED ARREARS AND ANY OTHER OBJECTIONS SHALL BE FILED AND
SERVED WITHIN THE SAME DEADLINE AND IN THE SAME MANNER ESTABLISHED FOR FILING
OBJECTIONS TO CONFIRMATION.
Failure to assert any arrearage different in amount from the applicable
amount set forth on Exhibit IV.A hereto, or to File an objection within the time
period set forth above, shall constitute consent to the assumption and cure on
the terms provided for in this Plan and said Exhibit IV.A, including
acknowledgment that (i) the proposed assumption provides adequate assurance of
future performance, (ii) the amount identified for "cure" is the amount
necessary to compensate for any and all outstanding defaults under the
respective executory contract or unexpired lease to be assumed, (iii) no other
defaults exist under such executory contract or unexpired lease, and (iv) to the
extent Exhibit IV.A calls for assumption of an executory contract or unexpired
lease as modified, the party or parties thereto have no objection and
irrevocably consent to the assumption of said executory contract or unexpired
lease as so modified.
If an objection is Filed to assumption based upon lack of adequate
assurance of future performance or otherwise, and the Bankruptcy Court
determines that the applicable Reorganized
29
<PAGE> 53
Debtors shall not assume the executory contract or unexpired lease, then the
executory contract or unexpired lease in question shall automatically thereupon
be deemed to have been included on Exhibit IV.B hereto and rejected pursuant to
Section IV.B hereof.
4. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Any monetary defaults under each executory contract and unexpired lease
to be assumed under this Plan shall be satisfied, pursuant to Bankruptcy Code
Section 365(b)(1), by payment of the default amount in Cash within 60 days
following the Effective Date, unless otherwise provided on Exhibit IV.A or
otherwise agreed to by the parties to such executory contract or unexpired
lease. In the event of a dispute regarding (i) the amount of any cure payment,
(ii) the ability of the Reorganized Debtors to provide adequate assurance of
future performance under the contract or lease to be assumed, or (iii) any other
matter pertaining to assumption, the cure payments required by Bankruptcy Code
Section 365(b)(1) shall be made following entry of a Final Order of the
Bankruptcy Court resolving the dispute and approving assumption.
B. EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
1. GENERALLY
As of the Confirmation Date, each executory contract or unexpired lease
of Debtors that has not been previously assumed pursuant to Order of the
Bankruptcy Court and is not assumed under Section IV.A of this Plan, including,
without limitation, the executory contracts and unexpired leases listed on the
Schedule of Rejected Contracts attached as Exhibit IV.B to this Plan, all
agreements pursuant to which Existing Stock Options were granted, and all
Existing Stock Options, and all Equity Interests or rights to acquire any Equity
Interests, shall be rejected to the extent, if any, that any of the foregoing
constitute executory contracts or unexpired leases, and without conceding that
they constitute executory contracts or unexpired leases or that any of the
Debtors has any liability thereunder.
The Confirmation Order shall constitute an Order of the Bankruptcy
Court approving such rejections, pursuant to Bankruptcy Code Section 365, deemed
entered as of the Effective Date. Any party to an executory contract or
unexpired lease identified for rejection in this Plan shall, within the same
deadline and in the same manner established for Filing objections to
Confirmation, File any objection to such rejection. Failure to File any such
objection within the time period set forth above shall constitute consent to the
rejection. Debtors shall provide notice of any amendment to Exhibit IV.B hereto
to the parties to the executory contracts or unexpired leases affected thereby
and to the parties on the then-applicable limited notice service list in the
Reorganization Cases.
30
<PAGE> 54
2. RED ROBIN
In accordance with the terms of the Red Robin Settlement, all Red Robin
Franchise Agreements not already heretofore terminated or deemed rejected shall
be deemed rejected, as of the Effective Date. Upon and after the Effective Date
the Red Robin Settlement shall be fully implemented and binding, on its terms,
on the Reorganized Debtors.
C. BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant
to Section IV.B of this Plan gives rise to a Claim by the other party or parties
to such contract or lease, such Claim, to the extent that it is timely Filed and
is an Allowed Claim, shall be classified in Class 3 as applicable; provided,
however, that the Unsecured Claim arising from the rejection shall be forever
barred and shall not be enforceable against the Debtors, the Reorganized
Debtors, their successors or properties, unless a proof of Claim is Filed and
served on the applicable Reorganized Debtor against whom such Claim is asserted
within thirty (30) days after the date of notice of the entry of an Order of the
Bankruptcy Court rejecting the executory contract or unexpired lease, including,
if applicable, the Confirmation Order.
V.
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. IMPLEMENTATION OF THE RED HEAD PLAN
On, prior to, and after the Effective Date, MRI is expressly authorized
to take all actions it deems appropriate to obtain confirmation and
implementation of the Red Head Plan, to acquire the stock or assets of Red One
or Red Three, and/or to succeed to all rights and interests of any of the Red
Head Debtors to the Concept, without further corporate action by any of the
Reorganized Debtors of any type or any further approval of the Bankruptcy Court.
In this regard, MRI is expressly authorized hereunder to, as it deems
appropriate:
1. Obtain confirmation of the Red Head Plan, and acquire all of the
outstanding Red One Common Stock and Red Three Common Stock pursuant thereto;
2. Purchase the assets of Red One or Red Three;
3. Assume and pay or discharge, or cause to be discharged, all
obligations of MRI, Red One, or Red Three under the Red Head Plan; and/or
4. Purchase or acquire all rights and interests of Gallagher to the
Concept.
31
<PAGE> 55
B. CORPORATE ACTION
1. The entry of the Confirmation Order shall constitute an Order of the
Bankruptcy Court authorizing and approving of the Reorganized Debtors, through
their present Chief Executive Officer (and without the need for any further
action by the Bankruptcy Court or any officers or directors of the Reorganized
Debtors), taking all actions necessary or appropriate to complete, enter into,
implement, and consummate the contracts, instruments, and other agreements or
documents created in connection with this Plan or to be executed and delivered
pursuant to this Plan before, on, or after the Effective Date, including,
without limitation, effecting any change of name of any of the Reorganized
Debtors, adopting the Reorganized MRI Restated Certificate of Incorporation and
the Reorganized MRI Restated Bylaws, or the applicable Reorganized Other Debtor
Restated Certificate of Incorporation and the applicable Reorganized Other
Debtor Bylaws, as the case may be, incorporating and adopting organizational
documents for Finance, adopting the Reorganized MRI Incentive Plan, selecting
the initial directors and officers for the Reorganized Debtors, removing the
existing directors and officers of the Reorganized Debtors, distributing Cash
and issuing and distributing New Common Stock, and implementing such other
matters provided for under or contemplated by this Plan involving the corporate
affairs or structure of the Reorganized Debtors and the corporate action to be
taken by or required by the Reorganized Debtors. Entry of the Confirmation Order
further constitutes an Order of the Bankruptcy Court authorizing and granting
attorney-in-fact powers to the present Chief Executive Officer of the Debtors to
file or cause to be filed such termination statements, releases, or such other
documentation with any applicable public agency deemed necessary in their sole
discretion to effect releases as authorized by this Plan of Liens, mortgages,
claims, and encumbrances against any of the Reorganized Debtors (or their
Affiliates) and their properties.
2. On the Effective Date, the Reorganized Debtors shall adopt the
Reorganized MRI Restated Certificate of Incorporation, the Reorganized Other
Debtor Certificate of Incorporation, the Reorganized MRI Restated Bylaws and the
Reorganized Other Debtor Restated Bylaws, which shall contain provisions
consistent with Bankruptcy Code provisions prohibiting the issuance of nonvoting
equity securities. Following the Effective Date, each of the Reorganized Debtors
shall retain the right to merge, consolidate, dissolve, or take any other
corporate action in accordance with applicable nonbankruptcy law, including
amending their organic documents pursuant to applicable nonbankruptcy law to
provide for the issuance of nonvoting equity securities.
3. Each restaurant operation and the associated assets of each of the
Debtors shall be held, on and after the Effective Date, in a subsidiary of
Reorganized MRI formed or continued to hold the assets for that restaurant,
including the Reorganized Subsidiaries. To the extent the Concept or any lease,
furniture, fixtures, equipment, inventory, license (including liquor licenses)
or other assets, tangible or intangible, or rights used in an MRI restaurant are
not presently held in the name of the particular subsidiary, those assets, or
the right to use those assets, will, on the Effective Date, be assigned by MRI
(or the other applicable Debtor entity) into the applicable Reorganized
Subsidiary which will operate that restaurant. All such assignments shall be
made without further action by the officers or board of directors of the
Reorganized Debtors, or further
32
<PAGE> 56
approval of the Bankruptcy Court, and shall be made irrespective of any legal or
contractual restriction on assignment or transfer pertaining to any such assets,
consistent with Section 365(f) of the Bankruptcy Code.
C. FUNDING OF THE PLAN
Cash payments required by this Plan shall be provided from the funds of
the Estate, from funds generated by operation of the Debtors, and the
Reorganized Debtors's business, and from (i) funds borrowed through the issuance
on or prior to the Effective Date of Postpetition Senior Secured Notes, (ii)
funds raised from a private placement of the New Common Stock under this Plan,
or (iii) funds received from the exercise of New Warrants.
D. MANAGEMENT OF THE REORGANIZED DEBTORS
The Disclosure Statement identifies the individuals who are
contemplated to serve initially as the directors and the executive officers of
the Reorganized Debtors commencing on the Effective Date. The listing set forth
in the Disclosure Statement may be modified at or before the Confirmation
Hearing, on such notice to Creditors as the Bankruptcy court may direct. The
directors and officers of the Reorganized Debtors shall be authorized to assume
their offices on or before the Effective Date and shall be authorized to
continue to serve in such capacities thereafter pending further action of the
Board of Directors or stockholders of the Reorganized Debtors in accordance with
applicable state law and the Reorganized Debtors' then-in effect certificates of
incorporation and bylaws.
E. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to Bankruptcy Code Section 1146(c), the issuance, transfer, or
exchange of New Securities; the creation of any mortgage, deed of trust or other
security interest; and the making or delivery of any deed or other instrument of
transfer under, in furtherance of, or in connection with, this Plan (including
any deeds, bills of sale or assignments executed in connection with this Plan,
agreements entered into in connection therewith, or the Confirmation Order)
shall not be subject to any stamp tax, real estate transfer tax, or similar tax,
and the Confirmation Order shall constitute an Order of the Bankruptcy Court to
that effect.
F. CANCELLATION AND SURRENDER OF INSTRUMENTS, SECURITIES, AND
OTHER DOCUMENTATION
On the Effective Date, except as otherwise expressly provided in this
Plan through specific identification and designation, all instruments,
securities, and other documentation or agreements representing or giving rise to
Claims against or Equity Interests in the MRI and the Subsidiaries and any
rights to acquire Equity Interests in MRI and the Subsidiaries shall be deemed
canceled and of no further force or effect, without any further action on the
part of the Bankruptcy Court or any Person. The holders of such canceled
instruments, securities, and other documentation shall have
33
<PAGE> 57
no rights arising from or relating to such instruments, securities, or other
documentation or the cancellation thereof, except the rights expressly provided
pursuant to this Plan through specific identification and designation.
Except to the extent, if any, otherwise provided in this Plan,
agreements entered into in connection therewith, and the Confirmation Order, as
a condition to participation under this Plan a holder of a note that desires to
receive property to be distributed on account of an Allowed Claim based on such
note shall surrender the note to the Disbursing Agent.
Entry of the Confirmation Order shall constitute an Order of the
Bankruptcy Court approving the foregoing provisions of this Section F.
G. APPLICABILITY OF BANKRUPTCY CODE SECTIONS 1125 AND 1145 TO NEW
SECURITIES AND REPLACEMENT NOTES ISSUED UNDER THIS PLAN
The protection afforded by Bankruptcy Code Section 1125 with regard to
the solicitation of acceptances or rejections of this Plan and with regard to
the offer, issuance, sale, or purchase of the replacement notes, Postpetition
Senior Secured Notes and the New Securities issued and distributed to holders of
Claims and Administrative Claims under or in connection with this Plan and the
Confirmation Order, shall apply to the Debtors and the Reorganized Debtors and
their officers, directors, employees, attorneys and agents. The entry of the
Confirmation Order shall constitute the determination by the Bankruptcy Court
that the Reorganized Debtors, the Debtors, and all of their respective officers,
directors, partners, employees, members, attorneys or agents, and each
Professional Person, attorney, accountant, or other professional employed by any
of them, shall have acted in good faith and in compliance with the applicable
provisions of the Bankruptcy Code pursuant to Section 1125 and the federal
securities laws. In addition, entry of the Confirmation Order shall constitute
an Order of the Bankruptcy Court that the exemption from the requirements of
Section 5 of the Securities Act and any state or local law requiring
registration for the offer or sale of a security provided for in Bankruptcy Code
Section 1145 shall apply to the New Securities (including any New Common Stock
issued as a result of exercise of New Warrants) to be issued under this Plan.
H. DISCHARGE AND INJUNCTION
Entry of the Confirmation Order shall constitute an Order of the
Bankruptcy Court that, except as otherwise provided in this Plan or in
agreements or Orders entered in connection therewith, on and after the Effective
Date,
a. the rights afforded in this Plan, and the treatment of all
Claims and Equity Interests thereunder, (i) shall be in exchange for,
and in complete satisfaction, discharge, and release of all Claims
(including without limitation, all Administrative Claims, Secured
Claims, Priority Tax Claims, other Priority Claims, and Unsecured
Claims (including any interest accrued on such Claims from and after
the applicable Petition Date)), against MRI,
34
<PAGE> 58
the Subsidiaries, and the Reorganized Debtors, or any of their assets
or properties and any liability thereunder, and (ii) shall terminate
all Equity Interests in MRI of any nature whatsoever;
b. all substantive rights or obligations of MRI under any
Equity Interests shall be terminated, and MRI and the Subsidiaries
shall be deemed discharged and released to the fullest extent permitted
by Bankruptcy Code Section 1141 from all Claims or Equity Interests
that arose prior to the Effective Date against them, their property or
assets (including without limitation, all Administrative Claims,
Intercompany Claims, Secured Claims, Priority Tax Claims, other
Priority Claims, and Unsecured Claims (including any interest accrued
on such Claims from and after the applicable Petition Date)), and all
debts of the kind specified in Bankruptcy Code Sections 502(g), 502(h),
or 502(i) of the Bankruptcy Code. This discharge and release shall be
effective in each case whether or not: (i) a proof of Claim or proof of
interest based on such Claim or Equity Interest is Filed or deemed
Filed pursuant to Bankruptcy Code Section 501, (ii) a Claim or Equity
Interest is Allowed pursuant to the Bankruptcy Code, or (iii) the
holder of a Claim or Equity Interest has accepted this Plan;
c. all Persons and Governmental Units shall be permanently
enjoined by Bankruptcy Code Section 524 from asserting against the
Reorganized Debtors, their successors, or their assets or properties,
any other or further Claims or Equity Interests based upon any act or
omission, transaction, or other activity of any kind or nature that
occurred prior to the Effective Date. The discharge shall void any
judgment against any of MRI, the Subsidiaries, or the Reorganized
Debtors any time obtained to the extent that it relates to a Claim or
Equity Interest that has been discharged or terminated;
d. all Persons and Governmental Units who have held, currently
hold, or may hold a Claim or Equity Interest against MRI or the
Subsidiaries, discharged or terminated pursuant to the terms of this
Plan shall be permanently enjoined by Bankruptcy Code Section 524 from
taking any of the following actions on account of any such discharged
Claim or terminated Equity Interest: (i) commencing or continuing in
any manner any action or other proceeding against any of MRI, the
Subsidiaries, or the Reorganized Debtors, their successors, assets, or
properties; (ii) enforcing, attaching, collecting, or recovering in any
manner any judgment, award, decree, or order against any of MRI, the
Subsidiaries, or the Reorganized Debtors, their successors, assets, or
properties; (iii) creating, perfecting, or enforcing any Lien or
encumbrance against any of MRI, the Subsidiaries, or the Reorganized
Debtors, their successors, assets, or properties; (iv) asserting any
setoff, right of subrogation, or recoupment of any kind against any
obligation due to any of MRI, the Subsidiaries, or the Reorganized
Debtors, their successors, assets, or properties; and (v) commencing or
continuing any action, in any manner or place, that does not comply
with or is inconsistent with the provisions of this Plan or the
Confirmation Order. Any Person or Governmental Unit violating such
injunction may be liable for actual damages, including costs and
attorneys' fees and, in appropriate circumstances, punitive damages;
and
35
<PAGE> 59
e. all Persons and Governmental Units who have held, currently
hold, or may hold a Claim or Equity Interest discharged or terminated
pursuant to the terms of this Plan shall be permanently enjoined by
Bankruptcy Code Section 524 from commencing or continuing in any manner
any action or other proceeding against any party on account of a Claim
or cause of action that was property of the Estate, including, without
limitation, any derivative Claims capable of being brought on behalf of
any of MRI, the Subsidiaries, or the Reorganized Debtors, and all such
Claims and causes of action shall remain exclusively vested in the
Reorganized Debtors to the maximum extent such Claims and causes of
action were vested in any of MRI or the Subsidiaries. This Plan shall
be binding upon and govern the acts of all Persons including, without
limitation, all holders of Claims and Equity Interests, all filing
agents or officers, title agents or companies, recorders, registrars,
administrative agencies, Governmental Units and departments, agencies
or officials thereof, secretaries of state, and all other Persons who
may be required by law, the duties of their office, or contract to
accept, file, register, record, or release any documents or
instruments, or who may be required to report or insure any title or
state of title in or to any of the assets of any of MRI, the
Subsidiaries, or the Reorganized Debtors.
I. REVESTING OF PROPERTY OF THE ESTATE AND RELEASE OF LIENS
Except as otherwise provided in this Plan, any contract, instrument, or
other agreement or document created in connection with this Plan, or the
Confirmation Order, on the Effective Date, all property of the Estate of MRI and
the Subsidiaries, including all permits issued by Governmental Units shall
revest in the Reorganized Debtors free and clear of all Claims, mortgages, deeds
of trust, Liens, security, interests, encumbrances, and other interests of any
Person, and the Reorganized Debtors may thereafter operate their businesses and
may use, acquire, and dispose of property and compromise or settle any Claims or
Equity Interests without the supervision or approval of the Bankruptcy Court,
free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, the Local
Bankruptcy Rules of the United States Bankruptcy Court for the District of
Delaware, and the guidelines and requirements of the Office of the United States
Trustee for the District of Delaware. From and after the Effective Date, the
Reorganized Debtors may use, acquire, and dispose of property without the
supervision or approval of the Bankruptcy Court, free of any restrictions of the
Bankruptcy Code, other than those restrictions expressly imposed by this Plan,
any contract, instrument, or other agreement or document created in connection
with this Plan, or the Confirmation Order. Notwithstanding anything to the
contrary in this Plan, the Confirmation Order shall constitute an Order of the
Bankruptcy Court that the Reorganized Debtors shall not have any liabilities
under or obligations or remediation or other responsibilities in respect of any
property that does not revest in the Reorganized Debtors on the Effective Date.
Except as otherwise provided in this Plan or in any contract,
instrument or other agreement or document created in connection with this Plan,
on the Effective Date, all mortgages, deeds of trust, Liens, or other security
interests against property of the Estate shall be released, and all right,
36
<PAGE> 60
title, and interest of any holder of such mortgages, deeds of trust, Liens, or
other security interests shall revert to the Reorganized Debtors and their
successors and assigns.
J. SETOFFS
Except as otherwise provided in this Plan, agreements entered into in
connection therewith, the Confirmation Order, or in agreements previously
approved by Final Order of the Bankruptcy Court, the Reorganized Debtors may,
pursuant to Bankruptcy Code Section 553 or applicable nonbankruptcy law, set off
against any Allowed Claim (before any distribution is made on account of such
Claim) any and all of the claims, rights and causes of action of any nature that
any of the Debtors or the Reorganized Debtors may hold against the holder of
such Allowed Claim; provided, however, that neither the failure to effect such a
setoff nor the allowance of any such Claim shall constitute a waiver or release
by any of the Debtors or the Reorganized Debtors of any such claims, rights, and
causes of action that any of the Debtors or the Reorganized Debtors may possess
against such holder. To the extent any of the Reorganized Debtors fails to set
off against a third party and seeks to collect a claim from such third party
after a distribution to such third party pursuant to this Plan on account of its
Allowed Claim, such Reorganized Debtor shall be entitled to full recovery on its
claim against such third party.
K. OBJECTIONS TO CLAIMS; ADEQUACY OF NOTICE OF BAR DATE ORDERS
AND SCHEDULES OF LIABILITIES
All objections to Disputed Claims shall be Filed and served on the
holders of such Claims by the later of (i) one year after the Effective Date or
(ii) one year after the particular proof of Claim has been Filed, except as
extended by an agreement between the Claimant and the applicable Reorganized
Debtor or by Order of the Bankruptcy Court upon an application Filed by the
applicable Reorganized Debtor. After the Effective Date, only the Reorganized
Debtors, by and through any of their attorneys (whose representation before the
Bankruptcy Court on behalf of the Debtors or the Reorganized Debtors after the
Effective Date need not be approved in advance by Order) shall have authority to
File objections, or settle, compromise, withdraw, or litigate to judgment
objections to or proceedings to estimate Claims. Notwithstanding any prior Order
of the Bankruptcy Court or the provisions of Bankruptcy Rule 9019, from and
after the Effective Date, the Reorganized Debtors may settle or compromise any
Disputed Claim without the approval of the Bankruptcy Court.
In order to effectuate and expedite the distributions to be made on or
after the Effective Date, the Reorganized Debtor may seek the entry of one or
more Claims Estimation Orders. Upon the entry of a Claims Estimation Order by
the Bankruptcy Court respecting any Disputed Claim, regardless of whether such
Claims Estimation Order becomes a Final Order, unless a stay of distribution is
obtained, the Disbursing Agent may proceed with distribution based upon the
estimated amount of any such Claim. The initiation of distributions under the
Plan prior to the completion of any appeal of or further proceedings with
respect to any Claim that is the subject of a Claims Estimation Order shall
render any such appeal or further proceeding moot.
37
<PAGE> 61
If the Bankruptcy Court enters an Order determining or disallowing, in
whole or in part, any Disputed Claim, regardless of whether such Order becomes a
Final Order, unless a stay of distribution is obtained pending appeal, the
Disbursing Agent may proceed with distribution based upon the Bankruptcy Court's
Order determining such Claim. The initiation of distributions under the Plan
prior to the completion of any appeal of or further proceedings with respect to
any Claim that has been determined by Order of the Bankruptcy Court shall render
any such appeal or further proceeding moot.
The Confirmation Order shall constitute an Order of the Bankruptcy
Court that the notice of the Bar Date Orders was adequate to notify all known
and unknown claimants of the last day to File proofs of Claim with the
Bankruptcy Court or be barred from asserting any Claim (including any
Administrative Claim) against the Debtors, the Reorganized Debtors, and their
respective properties or assets, or from voting on or receiving distributions
under this Plan. In addition, based on the condition of the Debtors' books and
records at the time the Schedules were due to be Filed, the Debtors were unable
to verify the amounts of owing in respect of certain Unsecured and Priority
Claims as of the Petition Date. Accordingly, certain such Claims were scheduled
as Disputed. Entry of the Confirmation Order constitutes an Order of the
Bankruptcy Court approving the adequacy of the Schedules without the need for
amendment.
L. PRESERVATION OF RIGHTS OF ACTION
Except as provided in any other contract, instrument, or other
agreement entered into in connection with this Plan, in accordance with
Bankruptcy Code Section 1123(b), the Reorganized Debtors shall retain and may
enforce any Claims, rights, and causes of action, including rights and causes of
action arising under the Bankruptcy Code which are commenced prior to the
closing of the Reorganization Cases, that any Debtors or its Estate may hold
against any Person. Only the Reorganized Debtors or their respective
successor(s) may pursue such retained Claims, rights or causes of action, as
appropriate, in each case in accordance with the best interests of the
applicable Reorganized Debtor or its successor(s). Entry of the Confirmation
Order shall be deemed to constitute an Order of the Bankruptcy Court that any
Debtor's failure to take any action prior to the Effective Date to enforce any
such Claims, rights, and causes of action did not in any manner whatsoever
constitute a waiver (whether under the doctrine of estoppel, laches, res
judicata or otherwise) of any of such Debtors' or Reorganized Debtors' rights in
respect thereof.
The Confirmation Order shall be deemed to constitute an Order of the
Bankruptcy Court, as is authorized under Bankruptcy Code Section 502(d),
disallowing in full any Claim of (i) any entity from which property is
recoverable under Bankruptcy Code Sections 542, 543, 550, or 553 or (ii) that is
a transferee of a transfer avoidable under Bankruptcy Code Section 544, 545,
547, 548 or 549, unless such entity or transferee has paid the amount or turned
over any such property for which such entity or transferee is liable under
Bankruptcy Code Sections 542, 543, 550, or 553.
38
<PAGE> 62
M. INCLUSION OF NEW EQUITY SECURITIES IN NASDAQ
The Reorganized Debtors shall use reasonable efforts to cause the New
Common Stock to be included in the National Association of Securities Dealers,
Inc. automated Quotation System.
VI.
DISTRIBUTIONS UNDER THE PLAN
A. GENERAL MATTERS CONCERNING THE DISTRIBUTION OF CONSIDERATION
1. THE DISBURSING AGENT(S)
The Reorganized Debtors and such other Person(s) as may be approved by
any one of the Reorganized Debtors or the Bankruptcy Court, shall act as
Disbursing Agent(s) under this Plan. Any such Disbursing Agent may, with the
prior approval of the Reorganized Debtors, employ or contract with other Persons
to assist in or to perform the distribution required. Each third party hired as
a Disbursing Agent shall receive from the Reorganized Debtors, and on terms
acceptable to the Reorganized Debtors without the need for further Bankruptcy
Court approval, reasonable compensation for distribution services rendered
pursuant to this Plan and reimbursement of reasonable out-of-pocket expenses
incurred in connection with such services.
2. CASH PAYMENTS
Cash payments made pursuant to this Plan will be in U.S. dollars by
wire transfer from a domestic bank, at the option of the Reorganized Debtors.
However, Cash payments to foreign Claimants may be made, at the option of the
Reorganized Debtors, in such currency and by such means as are necessary or
customary in a particular foreign jurisdiction.
3. TRANSMITTAL OF DISTRIBUTIONS
Notwithstanding anything in this Plan or any agreement, document, or
instrument contemplated under this Plan, all non-Cash distributions shall be
deemed made at the time such distribution is deposited in the United States
mail, postage prepaid. Except as otherwise agreed with the holder of an Allowed
Claim or Allowed Equity Interest, any property to be distributed on account of
an Allowed Claim or Allowed Equity Interest shall be distributed by mail to (i)
the latest mailing address Filed of record for the party entitled thereto or to
a holder of a power of attorney designated by such holder to receive such
distributions or (ii) if no such mailing address has been so Filed, the mailing
address reflected on the Filed Schedules of Assets and Liabilities or in the
Reorganized Debtors' books and records.
39
<PAGE> 63
4. UNDELIVERABLE DISTRIBUTIONS
If any distribution is returned to a Disbursing Agent as undeliverable,
no further distributions shall be made to the holder of the Allowed Claim or
Allowed Equity Interest on which such distribution was made unless and until the
Disbursing Agent or the Reorganized Debtors are notified in writing of such
holder's then-current address. Undeliverable distributions shall remain in the
possession of the Disbursing Agent until such time as a distribution becomes
deliverable or is deemed canceled (as hereinafter provided). Any unclaimed
distribution held by a Disbursing Agent shall be accounted for separately, but
the Disbursing Agent shall be under no duty to invest any such unclaimed
distribution in any manner. Any holder of an Allowed Claim or Allowed Equity
Interest that does not present a claim for an undeliverable distribution within
one year after the date upon which a distribution is first made available to
such holder shall have its right to such distribution discharged and shall be
forever barred from asserting any such Claim or Equity Interest against any of
the Reorganized Debtors or its property or against any other Person, including
the Disbursing Agent(s). All unclaimed or undistributed distributions shall,
pursuant to Bankruptcy Code Section 347(b), be the property of the Reorganized
Debtors and shall be treated and allocated as determined by the Reorganized
Debtors in their sole and absolute discretion.
B. FRACTIONAL SHARES
Notwithstanding any other provision of this Plan, only whole numbers of
shares of New Securities (including shares issued pursuant to any augmentation
provision of this Plan) shall be issued. As a result, if the calculated
distribution on account of Allowed Claims and Allowed Equity Interests based
upon the record holders thereof on the Distribution Record Date, or pursuant to
any augmentation provision of this Plan, would otherwise result in the issuance
to any Person of a number of shares of New Securities that is not a whole
number, then the actual distribution of shares of New Securities to such Person
shall be rounded up (if the fraction equals or exceeds one-half) or down (if the
fraction is less than one-half). No consideration shall be provided in lieu of
fractional shares of New Securities that are rounded down. Any surplus of
fractional shares of New Common Stock existing as a result of the rounding
process shall be retained by Reorganized MRI as treasury stock.
C. DISTRIBUTION ON DISPUTED CLAIMS OR DISPUTED EQUITY INTERESTS
THAT BECOME ALLOWED CLAIMS OR ALLOWED EQUITY INTERESTS
Within thirty (30) days following the allowance by Final Order of all
or a portion of a Disputed Claim or Disputed Equity Interest, the Reorganized
Debtors shall deliver, and the Disbursing Agent shall distribute, in accordance
with the provisions of this Plan regarding the treatment of such Allowed Claim
or Allowed Equity Interest, the consideration to which the holder of such newly
Allowed Claim or Allowed Equity Interest is entitled under the terms of this
Plan, as though such Claim had been Allowed as of the Effective Date.
Concurrently with such distribution, the Reorganized Debtors shall pay (without
interest) or issue to the holder of the newly Allowed Claim or Allowed Equity
Interest an amount, if any, equal to the allocable portion of any
40
<PAGE> 64
consideration distribution on, received for, with respect to, or on account of
previously issued New Common Stock.
D. SUBORDINATED CLAIMS
Any Claim equitably subordinated to the Claims of Class 3A or Class 3AA
Creditors under this Plan by judgment or Order of the Bankruptcy Court (which
judgment or Order need not become a Final Order), shall receive no distribution
under this Plan, provided, however, that in the event the Bankruptcy Court Order
or judgment of subordination specifies an alternative treatment of such Claim
under this Plan, the Claim shall receive the treatment specified by the
Bankruptcy Court Order or judgment. Any Allowed Claim (or portion thereof),
whether secured or unsecured, for any fine, penalty or forfeiture, or for
multiple, exemplary, or punitive damages, to the extent that such fine, penalty,
forfeiture, or damages are not compensation for actual pecuniary loss, and all
Tax Claims for penalties, shall be automatically subordinated to Claims in
Subclasses 3A and 3AA, and shall receive no distribution under this Plan.
VII.
CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN
A. CONDITIONS PRECEDENT.
This Plan shall become effective for all purposes on the date (the
"Effective Date") that is the first business day after each of the following
conditions are met:
(i) this Plan shall have been confirmed in form and substance
satisfactory to MRI;
(ii) at least $2.5 million, in the aggregate, of financing
shall have been funded under the Postpetition Series B Notes;
(iii) the Red Head Plan shall have been confirmed in form and
substance satisfactory to MRI, and MRI shall have assumed its
obligations thereunder;
(iv) no stay of the Confirmation Order shall be in effect;
(v) no stay of the Red Head Confirmation Order shall be in
effect;
(vi) the closing ("Closing") of the transactions described in
Section V.A. above shall have occurred;
(vii) the fees under 28 U.S.C. Section 1930 of the United
States Trustee then owing by the Debtors shall have been paid in full;
41
<PAGE> 65
(viii) a registration statement, if one shall be required,
shall have been filed with the SEC registering the New Common Stock
under the Plan and shall have become effective under the Securities
Act.
The Reorganized Debtors retain the right to withdraw or revoke this
Plan, in its entirety or as to any particular Debtor, in their sole discretion
at any time prior to the Confirmation Date. MRI may, in its sole discretion and
without any further notice, waive the conditions set forth in subsections (iii),
(v), and/or (vi) above.
VIII.
CONFIRMATION REQUEST
A. CONFIRMATION REQUEST
This Plan incorporates the cramdown provisions of the Bankruptcy Code.
In the event any Impaired Class does not accept this Plan in accordance with the
provisions of Bankruptcy Code Section 1126, the Debtors reserve the right to
request that the Bankruptcy Court confirm this Plan in accordance with
Bankruptcy Code Section 1129(b). In addition, the Debtors request Confirmation
of this Plan under Bankruptcy Code Section 1129(b) with respect to Subclasses
3A, 1F through 1I, and Classes 4,5, 6, and 7.
IX.
RETENTION OF JURISDICTION
A. RETENTION OF JURISDICTION
Following Confirmation, the Bankruptcy Court shall retain such
jurisdiction as is legally permissible, including, without limitation, for the
following purposes:
(i) to determine the allowability, classification, or priority
of Claims or Equity Interests;
(ii) to construe and to take any action to enforce and execute
this Plan, the Confirmation Order, or any other Order of the Bankruptcy
Court;
(iii) to issue such Orders as may be necessary for the
implementation, interpretation, execution, performance, and
consummation of this Plan;
(iv) to protect the property of the Estate revesting in the
Reorganized Debtors from Claims against, or interference with, such
property, including actions to quiet or otherwise clear title to such
property based upon the terms and provisions of this Plan;
42
<PAGE> 66
(v) to determine any and all applications for allowance of
compensation and expense reimbursement of Professional Persons;
(vi) to determine any other request for payment of
Administrative Claims;
(vii) to determine all applications, motions, adversary
proceedings, contested matters, and any other litigated matters
instituted prior to the closing of the Reorganization Cases (regardless
of whether initiated prior to or after the Effective Date), including
litigation commenced to set aside or avoid any transfers pursuant to
Bankruptcy Code Sections 544, 545, 547, 548, 549, 550, and 553;
(viii) to hear and determine all applications for assumption
or rejection of executory contracts or leases pending as of the
Effective Date or incorporated in this Plan;
(ix) to hear and determine all disputes or controversies
arising from or under, or relating to, the Reorganization Agreement;
(x) to modify this Plan under Bankruptcy Code Section 1127, to
remedy any defect or omission in this Plan, or to reconcile any
inconsistency in this Plan so as to carry out its intent and purposes;
and
(xi) to issue injunctions or take such other actions or make
such other Orders as may be necessary or appropriate to aid the
consummation of an restrain interference with this Plan.
X.
MISCELLANEOUS PROVISIONS
A. AMENDMENT AND MODIFICATION OF THIS PLAN
This Plan may be amended or modified before the Effective Date only by
MRI, or following the Effective Date, only by the Reorganized Debtors, to the
extent provided in Bankruptcy Code Section 1127.
B. WITHDRAWAL OR REVOCATION OF THIS PLAN
The Debtors reserve the right to revoke or withdraw this Plan, in its
entirety or as to any particular Debtor, at any time prior to the Confirmation
Date for any reason whatsoever.
43
<PAGE> 67
C. DISMISSAL, LIQUIDATION, OR CONVERSION
This Plan is confirmed as to MRI and the Subsidiaries, and not as to
the Shell Companies, Magic American Cafe, Inc., or 10 Columbia Corporate Center,
Inc. At or after the Confirmation Hearing the Reorganization Cases involving
those entities may be dismissed or converted to cases under a different Chapter
of the Bankruptcy Code, as MRI may determine or as may otherwise be Ordered by
the Bankruptcy Court. Alternatively, those entities may be dissolved in
accordance with the laws of their respective states of incorporation. Except as
specifically provided in this Plan with respect to claims of Professional
Persons or Holders of Postpetition Senior Secured Notes, Holders of Claims
against and Interests in the Shell Companies, Magic American Cafe, Inc., or 10
Columbia Corporate Center, Inc. shall receive no distributions under this Plan
on account of those Claims or Interests. Furthermore, the classification herein
of certain Claims against those entities (e.g., Subclass 3B Claims) does not
confer a right to payment under this Plan, and does not imply that the entity in
question has been reorganized under this Plan. Rather, such classification is
included in this Plan for clarification purposes, to illustrate the exclusion of
certain Claims from classes that will receive distributions under this Plan.
D. SUCCESSORS AND ASSIGNS
The rights, benefits, and obligations of any Person named or referred
to in this Plan shall be binding on, and shall inure to the benefit of, the
heirs, executors, administrators, successors, or assigns of such Person,
including any successor to or assign of any of the Reorganized Debtors.
E. SEVERABILITY OF PROVISIONS OF THIS PLAN
The provisions of this Plan shall not be severable unless such
severance is agreed to by the Debtors or the Reorganized Debtors, and such
severance would constitute a permissible modification of this Plan pursuant to
Bankruptcy Code Section 1127.
F. CREDITORS' COMMITTEE
Following the Effective Date, the Creditors' Committee shall continue
as a representative body on behalf of Unsecured Creditors to monitor the
Reorganized Debtors' compliance with the terms of this Plan in respect of
Allowed Class 3A and 3AA Claims. The Creditors' Committee shall continue to
retain its counsel, Blank Rome Comisky & McCauley, to assist it in carrying out
these responsibilities. The Reorganized Debtors shall be responsible for payment
of all reasonable and necessary attorneys' fees and expenses incurred by the
Creditors' Committee after the Effective Date. Blank Rome Comisky & McCauley
shall not be required to file any fee applications with the Bankruptcy Court or
obtain an order approving any such post-Effective Date fees and expenses,
provided that any dispute between the Reorganized Debtors and counsel regarding
the reasonableness or necessity of any fees or expenses incurred by counsel for
the Creditors' Committee shall be submitted to the Bankruptcy Court for
determination.
44
<PAGE> 68
G. CONTRIBUTION BAR
The Confirmation Order shall constitute an Order forever barring Claims
for contribution, reimbursement, subrogation or indemnity against MRI or the
Subsidiaries by any holder of a Claim for indemnity, contribution, reimbursement
or subrogation or any Person or entity who was named as a defendant, who could
have been named as a defendant, or who otherwise may claim contribution,
reimbursement, subrogation or indemnity rights in the future against MRI or the
Subsidiaries in connection with the facts and claims asserted, or that could
have been asserted within the scope of res judicata, in any lawsuit that was
pending or could have been pending on the Effective Date. All such Claims shall
be automatically discharged and forever barred upon entry of the Confirmation
Order, without the necessity of the filing or adjudication of any objection to
such Claims.
H. EXONERATION AND RELIANCE
The present and former affiliates, officers, directors, shareholders,
members, representatives, attorneys, accountants, financial advisors, and agents
of the Debtors, the Reorganized Debtors, and the Creditors' Committee shall not
be liable to any holder of a Claim or Equity Interest, or any other party with
respect to any action, forbearance from action, decision, or exercise of
discretion taken at any time through the Effective Date in connection with (a)
the operation of the Debtors or the Reorganized Debtors; (b) the proposal or
implementation of any of the transactions provided for, or contemplated in, this
Plan or the Disclosure Statement; (c) any act taken or omission made in
connection with or related to the Reorganization Cases, or in connection with or
related to formulating, distributing, implementing, confirming, or consummating
this Plan (including soliciting acceptances or rejections thereof), the
Disclosure Statement, or any contract, instrument, or other agreement or
document entered into in connection with this Plan for any act taken or not
taken in connection with or relating to the Reorganization Cases, (d) the
administration of this Plan or the Assets and property to be distributed
pursuant to or as contemplated by this Plan and the Disclosure Statement, other
than for recklessness, willful misconduct or fraud, or (e) any action (breach of
fiduciary duty or otherwise) the same basic facts of which would be relied upon
in any action against any of the Debtors asserting a Claim under Bankruptcy Code
Section 510(b). Furthermore, the foregoing limitation of liability shall be in
addition to the "safe harbor" from liability provided by Section 1125(e) of the
Bankruptcy Code and Section V.F. of this Plan,
The Debtors, the Reorganized Debtors, the Creditors' Committee, and
their respective affiliates, officers, directors, shareholders, members,
representatives, attorneys, financial advisors, and agents may rely upon the
opinions of counsel, certified public accountants, and other experts or
professionals employed by any of them, and such reliance shall conclusively
establish good faith.
45
<PAGE> 69
ANDREWS & KURTH L.L.P.
John A. Lee
Peter S. Goodman
A. Sidney Holderness, Jr.
425 Lexington Avenue
New York, New York 10017
(212) 850-2800
- and -
YOUNG, CONAWAY, STARGATT & TAYLOR
Laura Davis Jones (No. 2436)
Robert S. Brady (No. 2847)
Mark I. Duedall (No. 3346)
11th Floor, Rodney Square North
PO Box 391
Wilmington, Delaware 19899-0391
(302) 571-6642
Co-Counsel to the Debtors and the Debtors in
Possession
MAGIC RESTAURANTS, INC., for itself and for
each of the Debtors
---------------------------------
By: Charles Olson, Jr.
Its: Chief Executive Officer
<PAGE> 70
EXHIBIT I.A--1
REORGANIZED MAGIC RESTAURANTS, INC.
SUBSIDIARY PREFERRED STOCK
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
CONCEPT: Certain assets of MRI that currently constitute
collateral security for Secured Claims against MRI will be transferred by
Reorganized MRI to certain of its subsidiaries that are Reorganized Debtors (the
"Issuing Subsidiaries"). Such Secured Claims will be paid in full by issuance,
in each case by the Issuing Subsidiary to which the assets securing a particular
Secured Claim are transferred to the Secured Creditor holding such Secured
Claim, of 8% Cumulative Exchangeable Preferred Stock of such Issuing Subsidiary,
all as more fully described below.
<TABLE>
<S> <C>
ISSUERS: Each Issuing Subsidiary
ISSUES: 8% Cumulative Exchangeable Preferred Stock of the
respective Issuing Subsidiaries ("8% Preferred")
ISSUE VALUATION: One share of 8% Preferred for each $75 of Allowed Secured
Claim
LIQUIDATION PREFERENCE: $75 per share, plus accrued and unpaid dividends, before any
payment made on common stock of the Issuing Subsidiary
(See also "Issuing subsidiary Indebtedness" below)
DIVIDEND RATE: 8% per annum, payable semi-annually (to the extent of funds
legally available therefor); may at the election of the
respective Issuing Subsidiary (and with the consent of
Reorganized MRI) be paid by issuance to the registered
holders of its 8% Preferred of shares of Common Stock of
Reorganized MRI (valued for this purpose at the closing (bid)
price as of the 10th business day next preceding declaration
of the dividend)
MANDATORY REPURCHASE: To the extent of funds legally available therefor, at end of
each of third, fourth and fifth years following issuance,
Issuing Subsidiary will offer to purchase (at a Cash price in
each case equal to Liquidation Preference plus accrued and
unpaid dividends, one-sixth, one-third, and one-half,
respectively, of the shares of 8% Preferred initially issued by
it (a "Mandatory Repurchase"); provided, however, that if the
closing (bid) price of the Common Stock of Reorganized MRI shall
exceed $10 per share for any period of 40 consecutive
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
trading days following issuance, all rights of holders of the 8%
Preferred to any Mandatory Repurchase (past or future) not yet
consummated shall cease (and any director then serving as
provided in "Voting Rights" below by reason of a prior passed
Mandatory Repurchase shall resign)
CALLABILITY: Subject to there being funds legally available therefor, Issuing
Subsidiaries may at their option call the 8% Preferred at any
time at a price equal to Liquidation Preference plus accrued
and unpaid dividends
EXCHANGEABILITY: At the election of holders of the 8% Preferred, and with the
consent of Reorganized MRI, the shares of 8% Preferred will be
exchangeable for shares of Common Stock of Reorganized MRI as
follows:
- During first year after issuance: One share of 8%
Preferred = 10 shares of Reorganized MRI Common Stock
- During second year after issuance: One share of 8%
Preferred = 7.5 shares of Reorganized MRI Common Stock
- During third year after issuance: One share of 8%
Preferred = 6 shares of Reorganized MRI Common Stock
- Thereafter, 8% Preferred not exchangeable at holder
option
VOTING RIGHTS: None, except that if Issuing Subsidiary passes three
consecutive semiannual dividends or one Mandatory
Repurchase, holders of the 8% Preferred, voting as a single
class, shall be entitled to elect one director to the Board of the
Issuing Subsidiary (who shall, subject to the proviso to
"Mandatory Repurchase" above, continue to serve until all
accrued dividends and Mandatory Repurchases have been
brought current)
ISSUING SUBSIDIARY
INDEBTEDNESS: Issuing Subsidiaries will covenant not to create, incur, assume
or otherwise become or be liable for any indebtedness for
borrowed money or for the deferred purchase price of
property except to Reorganized MRI or another subsidiary of
Reorganized MRI
</TABLE>
2
<PAGE> 72
* * *
3
<PAGE> 73
EXHIBIT I.A--2
REORGANIZED MAGIC RESTAURANTS, INC.
SUBSIDIARY PREFERRED STOCK -- LEVITTOWN
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
CONCEPT: Reorganized MRI at Levittown (the "Issuing
Subsidiary") will own the assets at the Levittown Red Head restaurants (the
"Subject Assets"). As provided in the Plan and the Confirmation Order, the
Issuing Subsidiary will issue 8% Cumulative Exchangeable Preferred Stock, as
more fully described below.
<TABLE>
<S> <C>
ISSUER: The Issuing Subsidiary
ISSUE: 8% Cumulative Exchangeable Preferred Stock of the Issuing
Subsidiary ("8% Preferred")
ISSUE VALUATION: One share of 8% Preferred for each $75 of Allowed Secured
Claim
LIQUIDATION PREFERENCE: $75 per share, plus accrued and unpaid dividends, before any
payment made on common stock of the Issuing Subsidiary
(See also "Issuing Subsidiary Indebtedness" below)
DIVIDEND RATE: 8% per annum, payable semi-annually in Cash (to the extent
of funds legally available therefor)
MANDATORY REPURCHASE: To the extent of funds legally available therefor, beginning on
first anniversary of the Effective Date and monthly thereafter,
Issuing Subsidiary will offer to purchase (at a Cash price in
each case equal to Liquidation Preference plus accrued and
unpaid dividends), one forty-eighth (1/48) of the shares of 8%
Preferred initially issued by it as may be agreed between the
parties (a "Mandatory Repurchase"), so that if all such offers
to purchase are made and accepted the 8% Preferred would be
retired within 5 years.
CALLABILITY: Subject to there being funds legally available therefor, Issuing
Subsidiary may at its option call the 8% Preferred at any time
(in whole or in part) at a price equal to Liquidation Preference
plus accrued and unpaid dividends
</TABLE>
4
<PAGE> 74
<TABLE>
<S> <C>
EXCHANGEABILITY: At the election of holders of the 8% Preferred, and with the
consent of Reorganized MRI, the shares of 8% Preferred will be
exchangeable for shares of Common Stock of Reorganized MRI as
follows:
- During first year after issuance: One share of 8%
Preferred = 10 shares of Reorganized MRI Common Stock
- During second year after issuance: One share of 8%
Preferred = 7.5 shares of Reorganized MRI Common Stock
- During third year after issuance: One share of 8%
Preferred = 6 shares of Reorganized MRI Common Stock
- Thereafter, 8% Preferred not exchangeable at holder
option
See also "Conversion Events" below
VOTING RIGHTS: None, except that if the Issuing Subsidiary passes three
consecutive semiannual dividends or one Mandatory Repurchase,
holders of the 8% Preferred, voting as a single class and by
majority vote, shall be entitled to elect one director to the
Board of the Issuing Subsidiary (who shall, subject to the
proviso to "Mandatory Repurchase" above, continue to serve until
all accrued dividends and Mandatory Repurchases have been
brought current
ISSUING SUBSIDIARY
INDEBTEDNESS AND
OWNERSHIP OF ASSETS: Issuing Subsidiary's charter will block ability to create, incur,
assume or otherwise become or be liable for any indebtedness
for borrowed money or for the deferred purchase price of
property. Further, the charter(s) will provide that Issuing
Subsidiary will not sell, transfer or dispose of the Subject
Assets except for cash in the ordinary course of business at
then fair market value, or pledge same to secure any
indebtedness for borrowed money or deferred purchase price
of property (which it is not permitted to have in any event).
MERGERS, ETC. Issuing Subsidiary's charter provisions will block merger or
consolidation in which it is not the survivor, and certain asset
</TABLE>
5
<PAGE> 75
<TABLE>
<S> <C>
sales, without consent of holders of a majority of the shares
of the 8% Preferred, voting as a single class
CONVERSION EVENTS: Holders of 8% Preferred (acting by majority vote) shall have
the contractual right against Reorganized MRI, if a
Conversion Event shall occur and have been continuing for
at least 60 days, in respect of the Issuing Subsidiary, to
require Reorganized MRI to deliver to such 8% Preferred
holders, ratably, all outstanding shares of common stock of
the Issuing Subsidiary held by Reorganized MRI (which shall
be all such common stock) in exchange for the 8% Preferred
of such Issuing Subsidiary; in such event such 8% Preferred
shall be delivered to such Issuing Subsidiary and canceled.
"Conversion Events" in respect of the Issuing Subsidiary shall
consist of its (1) failure to timely pay a semi-annual Cash
dividend on its 8% Preferred, or failure to make a required
Mandatory Repurchase (whether or not, in either such case,
there are funds legally available therefor), or (2) breach of the
covenant on Indebtedness and Ownership of Assets. The
common stock of each Reorganized Debtor constituting the
Issuing Subsidiary shall be placed in escrow with an
independent third-party escrow agent for release upon the
earlier of (i) there being no 8% Preferred of such Reorganized
Debtor outstanding and all sums owing in connection
therewith having been paid, or (ii) exercise of the right to
convert such shares of 8% Preferred into the common stock
of such Reorganized Debtor following occurrence of a
Conversion Event as specified above.
</TABLE>
* * *
6
<PAGE> 76
EXHIBIT I.A--3
REORGANIZED MAGIC RESTAURANTS, INC.
PARENT PREFERRED STOCK -- POSTPETITION SERIES B NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
CONCEPT: Reorganized MRI will issue 10% Cumulative
Exchangeable Preferred Stock, as more fully described below.
<TABLE>
<S> <C>
ISSUER: Reorganized MRI
ISSUE: 10% Cumulative Exchangeable Preferred Stock ("10%
Preferred")
ISSUE VALUATION: One share of 10% Preferred for each $75 of Allowed Secured
Claim
LIQUIDATION PREFERENCE: $75 per share, plus accrued and unpaid dividends, before any
payment made on common stock of the MRI
DIVIDEND RATE: 10% per annum, payable annually in New Common Stock
issued at a price equal to 80% of the average bid price for the
New Common Stock during the preceding 12 months
REPURCHASE OPTION: To the extent of funds legally available therefor, beginning on
third anniversary of the Effective Date and annually
thereafter, MRI will have the option to purchase (at a Cash
price in each case equal to Liquidation Preference plus
accrued and unpaid dividends), portions of the 10% Preferred
(a "Repurchase Option"), so that if all such offers to purchase
are accepted the 10% Preferred would be retired within 7
years:
- On the third anniversary: 15.15% of the 10% Preferred
- On the fourth anniversary: 15.15% of the 10% Preferred
- On the fifth anniversary 22.73% of the 10% Preferred
- On the sixth anniversary: 22.73% of the 10% Preferred
</TABLE>
7
<PAGE> 77
<TABLE>
<S> <C>
- On the seventh anniversary: 24.24% of the 10% Preferred
CALLABILITY: Subject to there being funds legally available therefor, MRI
may at its option call all or any outstanding portion the 10%
Preferred at any time at a price equal to Liquidation
Preference plus accrued and unpaid dividends
EXCHANGEABILITY: At the election of the Holder of the 10% Preferred, and with the
consent of Reorganized MRI, the shares of 10% Preferred may be
exchanged for shares of New Common Stock of Reorganized MRI as
follows:
- During first year after issuance: One share of 10%
Preferred = 10 shares of New Common Stock
- During second year after issuance: One share of 10%
Preferred = 7.5 shares of New Common Stock
- During third year after issuance: One share of 10%
Preferred = 6 shares of New Common Stock
- Thereafter, 10% Preferred not exchangeable at holder
option
VOTING RIGHTS: None, except that if the MRI passes any annual dividends,
holders of the 10% Preferred, voting as a single class and by
majority vote, shall be entitled to elect one director to the
Board of MRI, who shall continue to serve until all accrued
dividends have been brought current
MERGERS, ETC. MRI's charter provisions will block merger or consolidation
in which it is not the survivor, and certain asset sales, without
consent of holders of a majority of the shares of the 10%
Preferred, voting as a single class
CONVERSION EVENTS: MRI, at its sole option, will have the right to convert all or
any portion of the 10% Preferred to a debt instrument, at a
conversion price equal to Liquidation Preference plus accrued
and unpaid dividends, with such debt instrument bearing
interest at a rate of no less than 10% per annum, and having
amortization, collateral, security and payment terms as may
be agreed between MRI and the holder of the 10% Preferred.
</TABLE>
8
<PAGE> 78
EXHIBIT I.A--4
RED HEAD PLAN
[As attached to Disclosure Statement, or as may be otherwise
modified with the consent of Reorganized MRI]
<PAGE> 1
Exhibit 2.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: )
) Chapter 11
)
Magic Restaurants, Inc., et al., ) Case Nos. 95-376
) through 95-392
Debtors. ) and Case Nos. 95-674
) 95-676(HSB)
ORDER APPROVING IMMATERIAL MODIFICATIONS
TO THE SECOND AMENDED PLAN OF REORGANIZATION
The Motion by Magic Restaurants, Inc. and its affiliated debtors
(the "Debtors") to approve immaterial modifications to the Second Amended Plan
of Reorganization ("Amended Plan") is granted.
Accordingly, the Court Orders that the December 31, 1996 Order
Confirming the Amended Plan and the Amended Plan are modified as follows:
1. Paragraph 23(g) of the Order Confirming the Amended Plan is
modified to state that "...Monolith, Grace, and Grace Culinary shall receive an
interim distribution of 25,000 shares (total) of New Common Stock from the MRI
Share Allocation, within 60 days of the Effective Date."
2. Section I.A.94 of the Amended Plan is modified to state: "`MRI
Share Allocation' means 100,000 shares of New Common Stock...."
3. Section I.A.99 of the Amended Plan is modified to state: "`New
Warrants' mean the New $4.00 Warrants and the New $10.00 Warrants..."
4. Section I.A.100 of the Amended Plan is modified to state: "`New
$4.00 Warrants' mean the warrants to purchase up to 750,000 shares of New Common
Stock, at a price
<PAGE> 2
of $4.00 per share, for the three (3) year period after the Effective Date, that
will be issued to certain Holders of Administrative Claims under the Plan."
5. Section I.A.101 of the Amended Plan is modified to state: "`New
$10.00 Warrants' mean the warrants to purchase up to 750,000 shares of New
Common Stock, at a price of $10.00 per share, for the five (5) year period after
the Effective Date, that will be issued to certain Holder, of Administrative
Claims under the Plan."
6. One Dollar and 65 cents ($1.65) in Section III.A.1.b.(2) of the
Amended Plan is modified to three dollars and thirty cents ($3.30).
7. Seventy five cents ($0.75) in Section III.A.1.c. of the Amended
Plan is modified to one dollar and fifty cents ($1.50).
8. The last sentence of Section III.A.1.d. of the Amended Plan is
modified to state: "In addition, the Holder shall receive 750,000 New $4.00
Warrants, and 750,000 New $10.00 Warrants."
9. Ten thousand (10,000) in Section III.A.1.e. of the Amended Plan
is modified to five thousand (5,000).
10. Ten dollars ($10.00) in Section III.B.2.b.2 of the Amended Plan
is modified to twenty dollars ($20.00).
11. Fifty thousand (50,000) is Section III.B.2.b.2 of the Amended
Plan is modified to twenty thousand (25,000).
12. Ten dollars ($10.00) in Amended Plan Exhibit I.A-1 Mandatory
Repurchase is modified to twenty dollars ($20.00).
13. Ten (10) shares in Amended Plan Exhibit I.A-1 Exchangeability is
modified to five (5) shares.
-2-
<PAGE> 3
14. Seven and one half (7.5) shares in Amended Plan Exhibit I.A-1
Exchangeability is modified to three and three-quarter (3.75) shares.
15. Six (6) shares in Amended Plan Exhibit I.A-1 Exchangeability is
modified to three (3) shares.
16. Ten (10) shares in Amended Plan Exhibit I.A-2 Exchangeability is
modified to five (5) shares.
17. Seven and one half (7.5) shares in Amended Plan Exhibit I.A-2
Exchangeability is modified to three and three-quarter (3.75) shares.
18. Six (6) shares in Amended Plan Exhibit I.A-2 Exchangeability is
modified to three (3) shares.
19. Ten (10) shares in Amended Plan Exhibit I.A-3 Exchangeability is
modified to five (5) shares.
20. Seven and one half (7.5) shares in Amended Plan Exhibit I.A-3
Exchangeability is modified to three and three-quarter (3.75) shares.
21. Six (6) shares in Amended Plan Exhibit I.A-3 Exchangeability is
modified to three (3) shares.
The Court further Orders that any currently outstanding settlement
offers of the Debtors, any unconsummated settlements, and any other provision of
any other decree, order, or agreement pertaining to this case and which involve
New Common Stock of Reorganized MRI, including the offer and counter-offer to
and from GMB Management, Inc., are hereby proportionately reduced to reflect the
50% decrease in the number of shares of common stock to be issued by the
Reorganized Debtors.
-3-
<PAGE> 4
The Court further Orders that the Amended Plan, as modified by this
Order pursuant to 11 U.S.C. ss. 1127, is confirmed.
Dated: Wilmington, Delaware
January 28, 1997
/s/ Helen S. Balick
--------------------------
Helen S. Balick
United States Bankruptcy Judge
-4-
<PAGE> 1
Exhibit 3.1
RESTATED
(with amendments)
CERTIFICATE OF INCORPORATION
of
MAGIC RESTAURANTS, INC.
MAGIC RESTAURANTS, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Act"), DOES HEREBY CERTIFY:
First. The current name of the Corporation is Magic Restaurants,
Inc. The date of filing of its original Certificate of Incorporation with the
Secretary of State was July 14, 1988, under the name Wetherly Ventures
Associates, Inc. The name of the Corporation was changed to Magic Restaurants,
Inc. in a filing with the Secretary of State dated October 28, 1988. After the
filing of the attached Restated (with amendments) Certificate of Incorporation,
the Corporation's name shall be changed to Redheads, Inc.
Second. Pursuant to Section 303 of the General Corporation Law of
the State of Delaware, the Certificate of Incorporation is amended and restated
by an Order dated December 31, 1996 of the United States Bankruptcy Court for
the District of Delaware, In re Magic Restaurants, Inc., et al., Case No. 95-376
(Chapt. 11). The anticipated date of confirmation of said Order is December 31,
1996.
Redhead, Inc. Certificate of Incorporation
<PAGE> 2
Third: The Certificate of Incorporation of the Corporation is hereby
amended in its entirety and superseded by the Restated Certificate of
Incorporation attached hereto as Exhibit A.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation,
which has been duly adopted in accordance with the provisions of Section 303 of
the General Corporation Law of the State of Delaware, has been executed by
President of the Corporation and attested by its Secretary on this 12th day of
March, 1997.
MAGIC RESTAURANTS, INC.
By: /s/ Charles Olson, Jr.
-----------------------------
Charles Olson, Jr., President
ATTEST:
Sharon Lopez
- ------------------------
Sharon Lopez, Secretary
-2-
Redhead, Inc. Certificate of Incorporation
<PAGE> 3
Exhibit A
RESTATED
CERTIFICATE OF INCORPORATION
of
REDHEADS BISTRO BAR, INC.
FIRST: The name of the Corporation is Redheads Bistro Bar, Inc.
SECOND: The address of its registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation are: (i) to engage in any act or activity in
furtherance of and consistent with the Plan of Reorganization of the Corporation
confirmed by an Order dated December 31, 1996 of the United States Bankruptcy
Court for the District of Delaware, Case No. 95-376 (Chapt. 11), until such time
as said Court enters a final order or decree to the effect that the Corporation
is no longer required to operate under the Plan; and (ii) to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Laws of the State of Delaware.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 25,000,000, of which
5,000,000 shares shall be Preferred
-1-
<PAGE> 4
Stock, par value $.01 per share, and 20,000,000 shares shall be Common Stock,
par value $.001 per share.
A. Preferred Stock. (1) The Preferred Stock may be issued from time
to time in one or more series and in such amounts as may be determined by
the Board of Directors or by order or decree of a court of competent
jurisdiction over this Corporation administering any applicable statute of
the United States relating to plans of reorganization of corporations. The
voting powers, designations, preferences and relative, participating,
optional or other special rights, if any, and the qualifications,
limitations or restrictions thereof, if any, of the Preferred Stock of
each series shall be such as are fixed by the Board of Directors or fixed
by such court, authority so to do being hereby expressly granted, and as
are stated and expressed in a resolution or resolutions adopted by the
Board of Directors or in an order or decree of such court providing for
the issue of such series of Preferred Stock (herein called the "Preferred
Stock Statement"). The Preferred Stock Statement as to any series shall
(a) designate the series, (b) fix the dividend rate, if any, of such
series, the payment dates for dividends on shares of such series and the
date or dates, or the method of determining the date or dates, if any,
from which dividends on shares of such series shall be cumulative, (c) fix
the amount or amounts payable on shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation, (d) state the price or prices or rate or rates, and
adjustments, if any, at which, the time or times and the terms and
conditions upon which, the shares of such series may be redeemed at the
option of the Corporation or at the option of the holder or holders of
shares of such series or upon the
-2-
<PAGE> 5
occurrence of a specified event, and state whether such shares may be
redeemed for cash, property or rights, including securities of the
Corporation or another entity; and such Preferred Stock Statement may (i)
limit the number of shares of such series that may be issued, (ii) provide
for a sinking fund for the purchase or redemption of shares of such series
and specify the terms and conditions governing the operations of any such
fund, (iii) grant voting rights to the holders of shares of such series,
provided that each share shall not have more than one vote per share, (iv)
impose conditions or restrictions upon the creation of indebtedness of the
Corporation or upon the issuance of additional Preferred Stock or other
capital stock ranking on a parity therewith, or prior thereto, with
respect to dividends or distribution of assets upon liquidation, (v)
impose conditions or restrictions upon the payment of dividends upon, or
the making of other distributions to, or the acquisition of, shares
ranking junior to the Preferred Stock or to any series thereof with
respect to dividends or distributions of assets upon liquidation, (vi)
state the time or times, the price or prices or the rate or rates of
exchange and other terms, conditions and adjustments upon which shares of
any such series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence of a
specified event, shares of any other class or classes or of any other
series of Preferred Stock or any other class or classes of stock or other
securities of the Corporation, and (vii) grant such other special rights
and impose such qualifications, limitations or restrictions thereof as
rights and impose such qualifications, limitations or restrictions thereon
as shall be fixed by the Board of Directors or such court, to the extent
not inconsistent with this Article FOURTH and to the full extent now or
hereafter permitted by the laws of the State of Delaware.
-3-
<PAGE> 6
(2) Except as by law expressly provided, or except as may be
provided in any Preferred Stock Statement, the Preferred Stock shall have
no right or power to vote on any question or in any proceeding or to be
represented at, or to receive notice of, any meeting of stockholders of
the Corporation.
(3) Preferred Stock that is redeemed, purchased or retired by
the Corporation shall assume the status of authorized and unissued
Preferred Stock and may thereafter, subject to the provisions of any
Preferred Stock Statement providing for the issue of any particular series
of Preferred Stock, be reissued in same manner as authorized and unissued
Preferred Stock.
B. Common Stock. All shares of the Common Stock of the Corporation
shall be identical and, except as otherwise required by law or as
otherwise provided in the Preferred Stock Statement with respect to any
series of Preferred Stock, the holders of the Common Stock shall
exclusively possess all voting power, and each share of Common Stock shall
have one vote.
FIFTH: The number of directors constituting the Board of Directors
shall be fixed as specified in the Bylaws of the Corporation, but shall not be
less than three or more than 15. The directors shall be divided into three
classes, designated Class I, Class II and Class III. The initial term for
directors in Class I shall expire at the annual meeting of stockholders to be
held in 1997; the initial term for directors in Class II shall expire at the
annual meeting of stockholders to be held
-4-
<PAGE> 7
in 1998; and the initial term for directors in Class III shall expire at the
annual meeting of stockholders to be held in 1999. Each class of directors shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors.
At the expiration of the initial term of each class of directors,
and of each succeeding term of each class, each class of directors shall be
elected to serve until the annual meeting of stockholders held three years from
such expiration and until their successors are elected and qualified or until
their earlier death, resignation, removal or retirement. Any increase or
decrease in the number of directors constituting the Board shall be apportioned
among the classes so as to maintain the number of directors in each class as
near as possible to one-third the whole number of directors as so adjusted. Any
director elected or appointed to fill a vacancy shall hold office for the
remaining term of the class to which such directorship is assigned. No decrease
in the number of directors constituting the Corporation's Board of Directors
shall shorten the term of any incumbent director. Any vacancy in the Board of
Directors, whether arising through death, resignation or removal of a director,
or through an increase in the number of directors of any class, shall be filled
by the majority vote of the remaining directors. The Bylaws may contain any
provision regarding classification of the Corporation's directors not
inconsistent with the terms hereof.
A director of the Corporation may be removed only for cause and only
upon the affirmative vote of the holders of a majority of the outstanding
capital stock of the Corporation entitled to vote at an election of directors,
subject to further restrictions on removal, not inconsistent with this Article
FIFTH, as may be contained in the Bylaws.
-5-
<PAGE> 8
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
SIXTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The Board of Directors is authorized to alter, amend or repeal
the Bylaws or adopt new Bylaws of the Corporation. The stockholders shall
not repeal or change the Bylaws of the Corporation unless such repeal or
change is approved by the affirmative vote of the holders of not less than
80% of the total voting power of all shares of stock of the Corporation
entitled to vote in the election of directors, considered for the purposes
of this paragraph A as a single class.
B. Election of directors need not be by written ballot unless the
Bylaws so provide.
-6-
<PAGE> 9
C. In addition to the powers herein or by statute expressly
conferred upon the Corporation's directors, the Corporation's directors
are hereby empowered to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the statutes of Delaware, any plan of
reorganization administered under an applicable statute of the United
States relating to reorganizations of corporations and ordered or decreed
by a court of competent jurisdiction, this Restated Certificate of
Incorporation, and any Bylaws adopted by the stockholders; provided,
however, that no Bylaws hereafter adopted shall invalidate any prior act
of the directors which would have been valid if such Bylaws had not been
adopted.
D. No action shall be taken by the stockholders except at any annual
or special meeting with prior notice and a vote. No action shall be taken
by the stockholders by written consent.
SEVENTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
EIGHTH: The Board of Directors is hereby authorized to create and
issue, whether or not in connection with the issuance and sale of any of its
stock or other securities, rights (the "Rights") entitling the holders thereof
to purchase from the Corporation shares of capital stock or other securities.
The times at which and the terms upon which the Rights are to be issued will be
-7-
<PAGE> 10
determined by the Board of Directors and set forth in the contracts or
instruments that evidence the Rights. The authority of the Board of Directors
with respect to the Rights shall include, but not be limited to, determination
of the following:
(a) The initial purchase price per share of the capital stock or
other securities of the Corporation to be purchased upon exercise of
the Rights.
(b) Provisions relating to the times at which and the circumstances
under which he Rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other
securities of the Corporation.
(c) Provisions that adjust the number of exercise price of the
Rights or amount or nature of the securities or other property
receivable upon exercise of the Rights in the event of a
combination, split or recapitalization of any capital stock of the
Corporation, a change in ownership of the Corporation's securities
or a reorganization, merger, consolidation, sale of assets or other
occurrence relating to the Corporation or any capital stock of the
Corporation, and provisions restricting the ability of the
Corporation to enter into any such transaction absent an assumption
by the other party or parties thereto of the obligations of the
Corporation under such Rights.
-8-
<PAGE> 11
(d) Provisions that deny the holder of a specified percentage of the
outstanding securities of the Corporation the right to exercise the
Rights and/or cause the Rights held by such holder to become void.
(e) Provisions that permit the Corporation to redeem the Rights.
(f) The appointment of a Rights Agent with respect to the Rights.
NINTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article NINTH
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article NINTH shall apply to, or have any effect
on, the liability or alleged liability of any director of the Corporation for or
with respect to any facts or omissions of such director occurring prior to such
amendment or repeal. If the General Corporation Law of the State of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
-9-
<PAGE> 12
TENTH: The provisions set forth in Article FIFTH hereof may not be
amended, altered, changed, repealed or rescinded in any respect unless such
action is approved by the affirmative vote of the holders of not less than 80
percent of the total voting power of all shares of stock of the Corporation
entitled to vote in the election of directors, considered for purposes of this
Article TENTH as a single class; the amendment, alteration, change, repeal or
rescission of this Article TENTH and Articles SIXTH, EIGHTH and NINTH hereof
shall require the affirmative vote of holders of not less than 80 percent of the
total voting power of all shares of stock of the Corporation entitled to vote on
amendments to this Certificate of Incorporation. The voting requirements
contained in this Article TENTH and in Article SIXTH hereof shall be in addition
to voting requirements imposed by law, other provisions of this Restated
Certificate of Incorporation or any designation of preferences in favor of
certain classes or series of shares of capital stock of the Corporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may
-10-
<PAGE> 13
be, agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
-11-
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
REDHEADS BISTRO BAR, INC.
(Formerly Magic Restaurants, Inc.)
Adopted By Order of the United States Bankruptcy Court for the District
of Delaware dated December 31, 1996, In re Magic Restaurant, Inc. et al.,
Case No. 95-376 (Chapt. 11)
<PAGE> 2
REDHEADS BISTRO BAR, INC.
AMENDED AND RESTATED BYLAWS(1)
ARTICLE I
Offices
Section 1.1 Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware
Section 1.2 Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Stockholders' Meetings
Section 2.1 Annual Meeting. The annual meeting of the holders of
shares of each class or series of stock who are entitled to notice thereof and
to vote thereat pursuant to applicable law and the Corporation's Certificate of
Incorporation for the purpose of electing directors and transacting such other
proper business as may come before it shall be held in each year, at such time,
on such day and at such place, within or without the State of Delaware, as may
be designated by the Board of Directors.
Section 2.2 Special Meetings. In addition to such special meetings
as are provided by law or the Corporation's Certificate of Incorporation,
special meetings of the holders of any class or series or of all classes or
series of the Corporation's stock for any purpose or purposes, may be called at
any time by the Board of Directors and may be held on such day, at such time and
at such place, within or without the State of Delaware, as shall be designated
by the Board of Directors. Stockholders may not call a special meeting.
Section 2.3 Notice of Meetings and Adjourned Meetings. Except as
otherwise provided by law, written notice of any meeting of Stockholders (i)
shall be given either by personal delivery or by mail to each Stockholder of
record entitled to vote thereat, (ii) shall be in such form as is approved by
the Board of Directors, and (iii) shall state the date, place and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Except when a Stockholder attends a meeting for
the
- ----------
(1) In the form approved by a Confirmation Order dated December 31, 1996
of the United States Bankruptcy Court for the District of Delaware, Case No.
95-376 (Chapt. 11).
-1-
<PAGE> 3
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened, presence in person or by proxy of a Stockholder shall
constitute a waiver of notice of such meeting. Further, a written waiver of any
notice required by law or by these Bylaws, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Except as otherwise provided by law, the business that may
be transacted at any such meeting shall be limited to and consist of the purpose
or purposes stated in such notice. If a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Stockholder of record
entitled to vote at the meeting.
Section 2.4 Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of the Stockholders, a complete list of Stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares of each such
Stockholder as shown on the stock transfer records maintained for such purposes,
which list, for a period of ten (10) days before each meeting of Stockholders,
shall be kept on file either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of meeting, or if not so
specified, at the place where the meeting is to be held and such list shall be
subject to inspection by the Corporation's Stockholders as required by law. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any of the Corporation's Stockholders
for the duration of the meeting. The Corporation's original stock transfer books
shall be prima facie evidence as to who are the Stockholders entitled to examine
such list or transfer books or to vote at any meeting of Stockholders.
Section 2.5 Quorum. Except as otherwise provided by law or by the
Corporation's Certificate of Incorporation, the holders of a majority of the
Corporation's stock issued and outstanding and entitled to vote at a meeting,
present in person or represented by proxy, without regard to class or series,
shall constitute a quorum at all meetings of the Stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the Stockholders, the holders of a majority of
such shares of stock, present in person or represented by proxy, may adjourn any
meeting from time to time without notice other than announcement at the meeting,
except as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 2.6 Organization. Meetings of the Stockholders shall be
presided over by the Chairman of the Board of Directors, if one shall be
elected, or in his absence, by the President or by any Vice President, or, in
the absence of any of such officers, by a chairman to be chosen by a majority of
the Stockholders entitled to vote at the
-2-
<PAGE> 4
meeting who are present in person or by proxy. The Secretary, or, in his
absence, any Assistant Secretary or any person appointed by the individual
presiding over the meeting, shall act as secretary at meetings of the
Stockholders.
Section 2.7 Voting. Each Stockholder of record, as determined
pursuant to Section 2.8, who is entitled to vote in accordance with the terms of
the Corporation's Certificate of Incorporation and in accordance with the
provisions of these Bylaws, shall be entitled to one vote, in person or by
proxy, for each share of stock registered in his name on the books of the
Corporation. Every Stockholder entitled to vote at any Stockholders' meeting may
authorize another person or persons to act for him by proxy duly appointed by
instrument in writing subscribed to by such Stockholder, provided that no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only so long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
Stockholder's attendance at any meeting, when such Stockholder has previously
given a proxy, shall not have the effect of revoking a previously granted proxy
unless such Stockholder shall in writing so notify the Secretary of the meeting
prior to the voting of the proxy. Unless otherwise provided by law, no vote on
the election of directors or any question brought before the meeting need be by
ballot unless the chairman of the meeting shall determine that it shall be by
ballot or the holders of a majority of the shares of stock present in person or
by proxy and entitled to participate in such vote shall so demand. In a vote by
ballot, each ballot shall state the number of shares voted and the name of the
Stockholder or proxy voting. Except as otherwise provided by law, by the
Corporation's Certificate of Incorporation or these Bylaws, all elections of
directors and all other matters before the Stockholders shall be decided by the
vote of the holders of a majority of the shares of stock present in person or by
proxy at the meeting and entitled to vote in the election or on the question. In
the election of directors, votes may not be cumulated.
Section 2.8 Stockholders Entitled to Vote. The Board of Directors
may fix a date not more than sixty (60) days nor less than ten (10) days prior
to the date of any meeting of Stockholders, or, in the case of corporate action
by written consent in accordance with the terms of Section 2.10(b), not prior to
the date upon which the resolution of the Board of Directors fixing the record
date is adopted and not more than ten (10) days after the date upon which the
resolution of the Board of Directors fixing the record date is adopted, as a
record date for the determination of the Stockholders entitled to notice of and
to vote at such meeting and any adjournment thereof. In each case such
Stockholders and only such Stockholders as shall be Stockholders of record on
the date so fixed shall be entitled to notice of and to vote at such meeting and
any adjournment thereof notwithstanding any transfer of any stock on the books
of the Corporation after such record date fixed as aforesaid.
Section 2.9 Order of Business. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.
-3-
<PAGE> 5
Section 2.10 Action by Written Consent. No action required or
permitted to be taken by the Stockholders of the Corporation may be taken except
at an annual or special meeting of Stockholders with proper prior notice and a
vote. No action shall be taken by the Stockholders by written consent.
Section 2.11 Authorization of Proxies. Without limiting the manner
in which a Stockholder may authorize another person or persons to act for him as
proxy, the following are valid means of granting such authority. A Stockholder
may execute a writing authorizing another person or persons to act for him as
proxy. Execution may be accomplished by the Stockholder or his authorized
officer, director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. A Stockholder may also authorize another
person or persons to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic transmission
to the person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
Section 2.12 Inspectors and Voting Procedures.
(a) The Corporation shall, in advance of any meeting of
Stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of Stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
-4-
<PAGE> 6
(c) The date and time of the opening and closing of the polls for
each matter upon which the Stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
Stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors may examine and consider such records or factors as allowed by
the General Corporation Laws of the State of Delaware.
Section 2.13 Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.13 shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of the Corporation's stockholders (a) by or at the direction of the
Board of Directors, or (b) by any stockholder of the Corporation entitled to
vote for the election of directors at such meeting who complies with the
procedures set forth in this Section 2.13. All nominations by stockholders shall
be made pursuant to timely notice in proper written form to the Secretary of the
Corporation. To be timely, a stockholders' notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 30 days nor more than 60 days prior to the meeting; provided, however,
that if less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. To be in proper written form, such
stockholder's notice to the Secretary shall set forth in writing (a) as to each
person whom such stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including without limitation, such person's written
consent to being named in the proxy statements as a nominee and to serving as a
director if elected; and (b) as to such stockholder (i) the name and address, as
they appear on the Corporation's books, of such stockholder, and (ii) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director unless nominated in accordance with
the procedures set forth in these Bylaws of the Company. The chairman of the
stockholders meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws of the Company, and if he shall so determine, he
shall announce such determination to the meeting and the defective nomination
shall be disregarded.
Section 2.14 Stockholder Proposals. At any special meeting of the
Corporation, stockholders only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of
-5-
<PAGE> 7
Directors. At any annual meeting of the stockholder, only such business shall be
conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors, or (b) by any stockholder who complies with
the procedures set forth in this Section 2.14. For business properly to be
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
30 days nor more than 60 days prior to the meeting; provided, however, that if
less than 40 days notice or prior public disclosure of the date of the meeting
is given or made to the Corporation's stockholders, notice by the stockholder to
be timely must be received not later than the close of business on the 10th day
following the day on which such notice of the date of the Corporation's annual
meeting was mailed or such public disclosure was made. To be in proper written
form, such stockholder's notice to the Secretary shall set forth in writing as
to each matter such stockholder proposes to bring before the annual meeting (a)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of such
stockholder, (c) the class and number of shares of the Corporation's stock which
are beneficially owned by such stockholder, and (d) any material interest of
such stockholder in such business. Notwithstanding anything in these By-Laws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.14. The chairman of
an annual stockholder's meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.14, and, if he should so
determine he shall so announce such determination to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III
Directors
Section 3.1 Management. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things that are not by law, by the Corporation's Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
Stockholders.
Section 3.2 Number and Term. The number of directors is 5. The
number of directors may be increased or decreased from time to time by
resolution of the Board of Directors adopted by the affirmative vote of a
majority of the members of the entire Board of Directors, but shall consist of
not less than one (1) member who shall be elected annually by the Stockholders
except as provided in Section 3.4. Directors need not be Stockholders. No
decrease in the number of directors shall have the effect of shortening the term
of office of any incumbent director.
-6-
<PAGE> 8
Section 3.3 Quorum and Manner of Action. At all meetings of the
Board of Directors a majority of the total number of directors holding office
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law, by the Corporation's Certificate of Incorporation
or these Bylaws. When the Board of Directors consists of one director, the one
director shall constitute a majority and a quorum. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at such adjourned meeting. Attendance by a director at a meeting shall
constitute a waiver of notice of such meeting except where a director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
Section 3.4 Vacancies. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, in the case of any increase in the
authorized number of directors or of any vacancy in the Board of Directors,
however created, the additional director or directors may be elected, or, as the
case may be, the vacancy or vacancies may be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of: (i) the
unexpired term of the directorship to which he is appointed; (ii) until his
successor is elected and qualified; or (iii) until his earlier resignation or
removal.
Section 3.5 Resignations. A director may resign at any time upon
written notice of resignation to the Corporation. Any resignation shall be
effective immediately unless a certain effective date is specified therein, in
which event it will be effective upon such date and acceptance of any
resignation shall not be necessary to make it effective.
Section 3.6 Removals. Any director or the entire Board of Directors
may be removed, with or without cause, and another person or persons may be
elected to serve for the remainder of his or their term by the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors. In case any vacancy so created shall not be filled by the
Stockholders at such meeting, such vacancy may be filled by the directors as
provided in Section 3.4.
Section 3.7 Annual Meetings. The annual meeting of the Board of
Directors shall be held, if a quorum be present, immediately following each
annual meeting of the Stockholders at the place such meeting of Stockholders
took place, for the purpose of organization and transaction of any other
business that might be transacted at a regular meeting thereof, and no notice of
such meeting shall be necessary. If a quorum is not present, such annual
-7-
<PAGE> 9
meeting may be held at any other time or place that may be specified in a notice
in the manner provided in Section 3.9 for special meetings of the Board of
Directors or in a waiver of notice thereof.
Section 3.8 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such places and times as shall be
determined from time to time by resolution of the Board of Directors. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
Section 3.9 Special Meetings. Special meetings of the Board of
Directors may be called by the President, or by the Secretary on the written
request of one-third (1/3) of the members of the whole Board of Directors
stating the purpose or purposes of such meeting. Notices of special meetings, if
mailed, shall be mailed to each director not later than two (2) days before the
day the meeting is to be held or if otherwise given in the manner permitted by
these Bylaws, not later than the day before such meeting. Neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in any notice or written waiver of notice unless so required by the
Corporation's Certificate of Incorporation or by these Bylaws. Any and all
business may be transacted at a special meeting, unless limited by law, the
Corporation's Certificate of Incorporation or by these Bylaws.
Section 3.10 Organization of Meetings. At any meeting of the Board
of Directors, business shall be transacted in such order and manner as such
Board of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum except as otherwise provided by these Bylaws or required
by law.
Section 3.11 Place of Meetings. The Board of Directors may hold
their meetings and have one or more offices, and keep the books of the
Corporation, outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
Section 3.12 Compensation of Directors. Directors shall not receive
any stated salary for their services as directors, but by resolution of the
Board of Directors a fixed honorarium or fees and expenses, if any, of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
such committee meetings.
Section 3.13 Action by Unanimous Written Consent. Unless otherwise
restricted by law, the Corporation's Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case maybe,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or the committee.
Section 3.14 Participation in Meetings by Telephone. Unless
otherwise restricted by the Corporation's Certificate of Incorporation or these
Bylaws, members of the Board of Directors or of any committee thereof may
participate in a meeting of such Board of Directors or committee by means of
conference telephone or
-8-
<PAGE> 10
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting in such manner shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the meeting is not lawfully called or convened.
ARTICLE IV
Committees of the Board
Section 4.1 Membership and Authorities. The Board of Directors may,
by resolution or resolutions passed by a majority of the whole Board of
Directors, designate one (1) or more Directors to constitute an Executive
Committee and such other committees as the Board of Directors may determine,
each of which committees to the extent provided in said resolution or
resolutions or in these Bylaws, shall have and may exercise all the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, except in those cases where the authority of the Board of Directors
is specifically denied to the Executive Committee or such other committee or
committees by law, the Corporation's Certificate of Incorporation or these
Bylaws, and may authorize the seal of the Corporation to be affixed to all
papers that may require it. The designation of an Executive Committee or other
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
Section 4.2 Minutes. Each committee designated by the Board of
Directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.
Section 4.3 Vacancies. The Board of Directors may designate one (1)
or more of its members as alternate members of any committee who may replace any
absent or disqualified member at any meeting of such committee. If no alternate
members have been appointed, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. The Board of Directors shall have the power at any time to fill
vacancies in to change the membership of and to dissolve any committee.
Section 4.4 Telephone Meetings. Members of any committee designated
by the Board of Directors may participate in or hold a meeting by use of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
-9-
<PAGE> 11
Section 4.5 Action Without Meeting. Any action required or permitted
to be taken at a meeting of any committee designated by the Board of Directors
may be taken without a meeting if a consent in writing, setting forth the action
so taken, is signed by all the members of the committee and filed with the
minutes of the committee proceedings. Such consent shall have the same force and
effect as a unanimous vote at a meeting.
ARTICLE V
Officers
Section 5.1 Number and Title. The elected officers of the
Corporation shall be chosen by the Board of Directors and shall be a President,
a Vice President, a Secretary and a Treasurer. The Board of Directors may also
choose a Chairman of the Board, who must be a Board member of the Board of
Directors, and additional Vice Presidents, Assistant Secretaries and/or
Assistant Treasurers. One person may hold any two or more of these offices and
any one or more of the Vice Presidents may be designated as an Executive Vice
President or Senior Vice President.
Section 5.2 Term of Office; Vacancies. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
Section 5.3 Removal of Elected Officers. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.
Section 5.4 Resignations. Any officer may resign at any time upon
written notice of resignation to the President, Secretary or Board of Directors
of the Corporation. Any resignation shall be effective immediately unless a date
certain is specified for it to take effect, in which event it shall be effective
upon such date, and acceptance of any resignation shall not be necessary to make
it effective, irrespective of whether the resignation is tendered subject to
such acceptance.
Section 5.5 The Chairman of the Board. The Chairman of the Board, if
one shall be elected, shall preside at all meetings of the Stockholders and
Board of Directors. In addition, the Chairman of the Board shall perform
whatever duties and shall exercise all powers that are given to him by the Board
of Directors.
Section 5.6 President. The President shall be the chief executive
officer of the Corporation; shall (in the absence of the Chairman of the Board,
if one be elected) preside at meetings of the Stockholders and Board of
Directors; shall be ex officio a member of all standing committees; shall have
general and active management of business of the corporation; shall implement
the general directives, plans and policies formulated by the Board of
-10-
<PAGE> 12
Directors; and shall further have such duties, responsibilities and authorities
as may be assigned to him by the Board of Directors. He may sign, with any other
proper officer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the President, his duties
shall be performed and his authority may be exercised by a Vice President of the
Corporation as may have been designated by the President with the right reserved
to the Board of Directors to designate or supersede any designation so made.
Section 5.7 Vice Presidents. Vice Presidents shall have such powers
and duties as may be assigned to them by these Bylaws and as may from time to
time be assigned to them by the Board of Directors and may sign, with any other
proper officer, certificates for shares of the Corporation.
Section 5.8 Secretary. The Secretary, if available, shall attend all
meetings of the Board of Directors and all meetings of the Stockholders and
record the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for any committee of the Board of Directors as shall
designate him to serve. He shall give, or cause to be given, notice of all
meetings of the Stockholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. He shall have custody of the corporate seal
of the Corporation and he, or any Assistant Secretary, or any other person whom
the Board of Directors may designate, shall have authority to affix the same to
any instrument requiring it, and when so affixed it may be attested by his
signature or by the signature of any Assistant Secretary or by the signature of
such other person so affixing such seal.
Section 5.9 Assistant Secretaries. Each Assistant Secretary shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as may be assigned to him by the Board of Directors, the
President or the Secretary. The Assistant Secretary or such other person as may
be designated by the President shall exercise the powers of the Secretary during
that officer's absence or inability to act.
Section 5.10 Treasurer. The Treasurer shall have the custody of and
be responsible for the corporate funds and securities, shall keep full and
accurate accounts of receipts and disbursements in the books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation and he shall perform all other duties incident to the position of
Treasurer, or as may be prescribed by the Board of Directors or the President.
If required by the Board of Directors, he shall give the Corporation a bond in
such sum and with such surety or sureties as shall be
-11-
<PAGE> 13
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 5.11 Assistant Treasurers. Each Assistant Treasurer shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as may be assigned to him by the Board of Directors, the
President or the Treasurer. The Assistant Treasurer or such other person
designated by the President shall exercise the power of the Treasurer during
that officer's absence or inability to act.
Section 5.12 Subordinate Officers. The Board of Directors may (i)
appoint such other subordinate officers and agents as it shall deem necessary
who shall hold their offices for such terms, have such authority and perform
such duties as the Board of Directors may from time to time determine, or (ii)
delegate to any committee or officer the power to appoint any such subordinate
officers or agents.
Section 5.13 Salaries and Compensation. The salary or other
compensation of officers shall be fixed from time to time by the Board of
Directors. The Board of Directors may delegate to any committee or officer the
power to fix from time to time the salary or other compensation of subordinate
officers and agents appointed in accordance with the provisions of Section 5.12.
ARTICLE VI
Capital Stock
Section 6.1 Certificates of Stock. Certificates of stock shall be
issued to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
If the Corporation shall be authorized to issue more than one (1)
class of stock or more than one (1) series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided by statute, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent
-12-
<PAGE> 14
such class or series of stock, a statement that the Corporation will furnish
without charge to each Stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 6.2 Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
Section 6.3 Fixing Date for Determination of Stockholders of Record
for Certain Purposes. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days prior to the date of payment of such
dividend or other distribution or allotment of such rights or the date when any
such rights in respect of any change, conversion or exchange of stock may be
exercised or the date of such other action. In such a case, only Stockholders of
record on the date so fixed shall be entitled to receive any such dividend or
other distribution or allotment of rights or to exercise such rights or for any
other purpose, as the case maybe, notwithstanding any transfer of any stock on
the books of the Corporation after any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 6.4 Dividends. Subject to the provisions of the
Corporation's Certificate of Incorporation, if any, and except as otherwise
provided by law, the directors may declare dividends upon the capital stock of
the Corporation as and when they deem it to be expedient. Such dividends may be
paid in cash, in property or in shares of the Corporation's capital stock.
Before declaring any dividend there may be set apart out of the funds of the
Corporation available for dividends, such sum or sums as the directors from time
to time in their discretion think proper for working capital or as a reserve
fund to meet contingencies or for equalizing dividends, or for such other
purposes as the directors shall think conducive to the interests of the
Corporation and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 6.5 Registered Stockholders. Except as expressly provided by
law, the Corporation's Certificate of Incorporation or these Bylaws, the
Corporation shall be entitled to treat registered Stockholders as the only
holders and owners in fact of the shares standing in their respective names and
the Corporation shall not be bound to
-13-
<PAGE> 15
recognize any equitable or other claim to or interest in such shares on the
part of any other person, regardless of whether it shall have express or
other notice thereof.
Section 6.6 Transfer of Stock. Transfers of shares of the capital
stock of the Corporation shall be made only on the books of the Corporation by
the registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.
ARTICLE VII
Indemnification
Section 7.1 Indemnification of Directors and Officers. (a) The
Corporation shall indemnify any Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that such
person is or was, at any time prior to or during which this Article VII is in
effect, a director, officer, employee or agent of the Corporation, or is or was,
at any time prior to or during which this Article VII is in effect, serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan against reasonable expenses (including attorneys' fees),
judgments, fines, penalties, amounts paid in settlement and other liabilities
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with, respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was, at any time prior to
or during which this Article VII is in effect, a director, officer, employee or
agent of the Corporation, or is or was, at any time prior to or during which
this Article VII is in effect, serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith an in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation;
-14-
<PAGE> 16
provided, that no indemnification shall be made under this sub-section (b) in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery, or other court of appropriate jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity of such expenses which the Delaware Court of Chancery, or
other court of appropriate jurisdiction, shall deem proper.
(c) Any indemnification under sub-sections (a) or (b) (unless
ordered by the Delaware Court of Chancery or other court of appropriate
jurisdiction) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of such person is proper
in the circumstances because he has met the applicable standard of conduct set
forth in sub-sections (a) and (b). Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel, in written opinion, selected by the Board
of Directors, or (3) by the Stockholders. In the event a determination is made
under this sub-section (c) that the director, officer, employee or agent has met
the applicable standard of conduct as to some matters but not as to others,
amounts to be indemnified may be reasonably prorated.
(d) Expenses incurred by a person who is or was a director or
officer of the Corporation in appearing at, participating in or defending any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, shall be paid by the Corporation at
reasonable intervals in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized by this Article VII.
(e) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VII is in effect. The indemnification
and advancement of expenses provided by this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be or become entitled under any law, the Certificate
of Incorporation, these Bylaws, agreement, the vote of Stockholders or
disinterested directors or otherwise, or under any policy or policies of
insurance purchased and maintained by the Corporation on behalf of any such
person, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
(f) The indemnification provided by this Article VII shall be
subject to all valid and applicable laws, and, in the event this Article VII or
any of the provisions hereof or the indemnification contemplated hereby are
-15-
<PAGE> 17
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control and this Article VII shall be regarded as modified
accordingly, and, as so modified, to continue in full force and effect.
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 Corporate Seal. If one be adopted, the corporate seal
shall have inscribed thereon the name of the Corporation and shall be in such
form as may be approved by the Board of Directors. Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
Section 8.2 Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 8.3 Checks, Drafts, Notes. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents of the Corporation, and in such manner as shall from time to
time be determined by resolution (whether general or special) of the Board of
Directors or may be prescribed by any officer or officers, or any officer and
agent jointly, thereunto duly authorized by the Board of Directors.
Section 8.4 Notice and Waiver of Notice. Whenever notice is required
to be given to any director or Stockholder under the provisions of applicable
law, the Corporation's Certificate of Incorporation or these Bylaws, such notice
shall be in writing and delivered either (i) personally, or (ii) by registered
or certified mail, or (iii) by telegram, telecopy, or similar facsimile means
(delivered during the recipient's regular business hours). Such notice shall be
sent to such director or Stockholder at the address or telecopy number as it
appears on the records of the Corporation, unless prior to the sending of such
notice he has designated, in a written request to the Secretary of the
Corporation, another address or telecopy number to which notices are to be sent.
Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by telex,
telecopy or other facsimile means); and when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service, or sent by
certified or registered mail. Whenever notice is required to be given under any
provision of law, the Corporation's Certificate of Incorporation or these
Bylaws, a waiver thereof in writing, by telegraph, cable or other form of
recorded communication, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special
-16-
<PAGE> 18
meeting of the Stockholders, directors, or members of a committee of directors
need be specified in any written waiver of notice unless so required by the
Corporation's Certificate of Incorporation or these Bylaws.
Section 8.5 Examination of Books and Records. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to inspection) or any of them
shall be open to inspection by the Stockholders, and the Stockholders' rights in
this respect are and shall be restricted and limited accordingly.
Section 8.6 Voting Upon Shares Held by the Corporation. Unless
otherwise provided by law or by the Board of Directors, the Chairman of the
Board of Directors, if one shall be elected, or the President, if a Chairman of
the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.
ARTICLE IX
Amendments
Section 9.1 Amendment. Except as otherwise expressly provided in the
Certificate of Incorporation, the directors, by the affirmative vote of a
majority of the entire Board of Directors and without the assent or vote of the
Stockholders, may at any meeting, provided the substances of the proposed
amendment shall have been stated in the notice of the meeting, make, repeal,
alter, amend or rescind any of these Bylaws. The Stockholders shall not make,
repeal, alter, amend or rescind any of the provisions of these Bylaws except by
the holders of not less than 80% of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article XI as one class.
ARTICLE X
Plan of Reorganization
Section 10.1 Limitations Imposed by Plan and Certificate of
Incorporation. All acts and activities of the Corporation shall be in
furtherance of and consistent with the Corporation's Plan of Reorganization (the
"Plan") confirmed by order of the United States Bankruptcy Court for the
District of Delaware, Case No. 95-376 (Chapter 11) and the Corporation's
Certificate of Incorporation. In the event of any conflict between the
provisions of the Plan and the Bylaws of the Corporation, the Plan shall
control.
-17-
<PAGE> 1
LEASE SUMMARY
LESSOR: KINGS PLAZA SHOPPING CENTER of Flatbush Avenue, Inc. and KINGS PLAZA
SHOPPING CENTER of Avenue U, Inc. 5100 Kings Plaza Brooklyn, New York 10001
LESSEE: Magic Restaurant at Smithhaven, Inc. (d/b/a Red Robin Burger & Spirits
Emporium) 1110 First Avenue New York, New York 10021
PREMISES: As defined Exhibit "A" of the lease = 7634.5 square feet in building
"A" of Kings Plaza Shopping Center (include 201.6 sq. ft. for tenant's share in
vestibule) (See Rider #2)
TERM: 18 years
COMMENCEMENT DATE: May 22, 1986 as provided in sec. 2.2. There is a two month
rent postponement because of a dispute with the lessor about electricity. This
restaurant opened December, 1986.
TERMINATION DATE: January 31, 2005 (midnight)
PERMITTED USE: Full service restaurant including service of alcoholic beverages.
BASE RENT: $137,421.00/year for first 5 years of lease term based on $18/sq.
ft./year 11451.75 $167,959.00/year for second 5 year of lease term based on
$22/sq. ft./year, $13,996.59/month $190,862.50 for third 5 years of lease term
based on $25/sq. ft./year; $15,905.21/month
$229,035.00/year for the balance of the lease based on $30/sq. ft./year;
$19,086.25/month
All rent shall be payable on the first of each calendar month of lease term.
PERCENTAGE RATE: 6% of Gross sales defined in section 4.3(B) above the minimum
estimated amounts.
5% above $2,290,350.00 for first 5 years
5% above $2,799,316.60 for second 5 years
5% above $3,181,041.60 for third 5 years
5% above $3,817,250.00 for remainder of lease
Percentage Rent is to be paid in full within 15 days of the end of each quarter
(February 1, May 1, August 1, November 1) of the lease year. With the submission
to Landlord of an annual statement of Tenant's Gross Sales an adjustment will be
made to total rent (Base plus Percentage) to determine whether Tenant
<PAGE> 2
owes Landlord money or is due a refund.
ADDITIONAL
RENTS:
Water and Electric: Sec. 6.1 provides Landlord shall supply necessary water and
electrical connections to Premises and Tenant shall pay all costs of usage
pursuant to a meter installed at Tenant's expense.
Heating and Cooling: Landlord shall provide at its own cost mediums to demised
premises for heating and cooking for which tenant shall pay a utility service
charge which may include a minimum charge (See schedule E to lease).
Common Area Charges: Sec. 5.3 costs include operating, managing, equipping etc.
Common Areas and facilities. Tenant costs will be the total costs for the
building multiplied by the fraction.
Tenants demised area (sq. ft.) whole demised area of building
These charges are to be paid in monthly installments within 90 days after the
first day of each month. At the end of each fiscal year, Lessor shall furnish to
Tenant a certified statement of common charges and adjustments for these charges
will then be made.
Merchants Association/Fund: Lessor, Tenant's Contribution will be $3,817.25
($.50/sq.ft.) to be adjusted for cost of living increases adjusted by the CPI
using 1967 + 100 and a base number from January 1981. sec. 8.3(B)(iii)
Advertising requirements: must advertise in 2 papers or tabloids/year sponsored
by association. Tenant agrees the size of ad or cash equivalent will be 1/2
page. Merchants Association can be converted in a Landlord's Mkt. Association
with the same terms as above.
TAX RENT: Includes Real Estate Tax, assessments, water and sewer rents and all
other governmental charges levied against the shopping center, excluding
department store parcels times the proportion of tenants square footage to total
shopping center sq. footage excluding department store parcels. Includes taxes
assessed and Tenant shall pay 1/12 of annual tax monthly
INSURANCE: Section 8.1(I)
Liability: Comprehensive general liability for all claims, demands or actions
for personal injury or death and property in an amount of not less than
$1,000,000.00 for each occurrence.
Fire: Insurance covering at least 80% of insurable value of stock in trade,
fixtures, furnishings, etc. Loss recovery to be
<PAGE> 3
adjusted jointly with Landlord.
Other: Plate Glass Steam and Boiler up to $500,000.00 such equipment is on
demised premises.
Landlord may request Tenant from time to time, at Landlord's sole discretion, to
obtain additional or different types of insurance (excluding rent or use
occupancy insurance in favor of the Landlord). Certificates of policies and
payment receipts are to be deposited with Landlord. Landlord and any of its
designees shall be named as additional insureds on all policies.
ASSIGNMENT/SUBLET:
None allowed without express prior written consent of Landlord. Any transferal
or sale of the stock or interest of a majority owner which causes that owner to
become a non-majority holder, shall be deemed an assignment. Section 8.4(c)
details the necessary documents to be submitted to Landlord in order for
Landlord to consider an assignment or sublet.
RENOVATIONS and ALTERATIONS:
Tenant is obligated to make all repairs in the demised premises to keep it
clean, neat in good order, repair and condition and in compliance with all laws,
rules and regulations. Landlord maintains the right to enter premises to make
repairs. Improvements are property of landlord. (See 10.8)
BROKERAGE: Great American Brokerage, Inc. served as Broker
NOTICES: To be personally served or sent either registered or certified mail
return receipt requested, to addresses above or as otherwise may be requested
from time to time. Notice to take effect upon service on party or receipt of the
notice. (Section 11.1)
GUARANTY: Personal guarantees by Gary Rogers and Stephen Rogers for payments of
all rents. The guaranty ends on the third anniversary of the commencement of the
lease except as to any obligations incurred before the end of the 3rd
anniversary.
NEGATIVE COVENANTS:
a. Sell alcoholic beverages for off premises consumption
b. except as to purchase money encumbrance, not to encumber FF&E
c. harm premises including nuisance to other tenants
d. make alterations without landlord's consent or obstruct view of
store from mall area
e. operate coin operated vending machine except tenant may operate two
pay phones two video games and one cigarette machine
<PAGE> 4
f. exterminate; launder; clean exterior windows and surrounding by a
person other than as designated by landlord
g. use forklift or mechanical devices to handle freight
h. operate "elephant trains"
i. alter exterior of building 3. install signs with 1/2 mile of
premises without landlord approval
k. exceed floor loan per sq. foot
l. overload the electrical system
<PAGE> 5
LEASE
Kings Plaza
Brooklyn, New York
LANDLORD: Kings Plaza Shopping Center of Flatbush Avenue, Inc.
and
Kings Plaza Shopping Center of Avenue U, Inc.
TENANT: MAGIC RESTAURANT OF KINGS CORP.
DATE:
<PAGE> 6
KINGS PLAZA SHOPPING CENTER
BROOKLYN, NEW YORK
EXHIBIT "C"
DESCRIPTION OF LANDLORD'S WORK AND OF
TENANT'S WORK
TABLE OF CONTENTS
I. Purpose
II. Landlord's Work 1
A. Common Facilities 1
B. Buildings 1
III. TENANT'S WORK 2
A. Store Interior Finish Work 2
B. Tenant Signs 3
C. Store Fixturing and Merchandising 3
<PAGE> 7
INDEX
Section LEASE PAGE
ARTICLE I.
FUNDAMENTAL LEASE PROVISIONS AND EXHIBITS.
1.1 Fundamental Lease Provisions 1
1.2 Effect of Reference to a
Fundamental Lease Provision 2
1.3 Definitions 2
1.4 Exhibits 2
ARTICLE II
PREMISES AND TERMS.
2.1 Demised Premises 2
2.2 Term 3
2.3 Statement 3
ARTICLE III.
PREPARATION OF DEMISED PREMISES.
3.1 Landlord's Work 3
3.2 Tenant's Work 4
3.3 Time for Commencement and Completion
of Tenant's Work 4
3.4 Security for Tenant's Work 4
3.5 Remedies for Tenant's Failure or
Delay to Submit Plans or Perform Work 5
3.6 Obligations of Tenant Before Lease
Term Begins 5
3.7 Waiver 5
3.8 Completion of Tenant's Work 5
3.9 Ownership of Improvements 6
ARTICLE IV.
RENT.
4.1 Payment 6
4.2 Fixed Minimum Rent 6
4.3 Percentage Rent 6
4.4 Definition of Lease Year 8
4.5 Gross Sales of Completing Store 8
4.6 Tax Rent 8
<PAGE> 8
INDEX i
SECTION PAGE
L. Gross Sales 33
M. Guarantor 33
N. Landlord 33
O. Landlord's Work 33
P. Lease Year 33
Q. Marketing Charge 33
R. Marketing Fund 33
S. Percentage Rent 33
T. Person 33
U. Rent 33
V. Shopping Center 33
W. Taxes 34
X. Tax Rent 34
Y. Tenant 34
Z. Tenant's Work 34
AA. Utility Service Charge 34
11.12 Construction on Adjacent Premises 34
11.13 Effect of Unavoidable Delays 34
11.14 Office Buildings 34
11.15 No Oral changes 34
11.16 No Representations by Landlord 35
Signatures 35
Acknowledgments 36
Guaranty 37
Acknowledgments 38
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
<PAGE> 9
INDEX iii
SECTION PAGE
G. Payment for and Performance of Work 16
H. Indemnity 16
I. Insurance 16
J. Increase in Insurance Premium 17
K. Property Loss or Damage 17
L. Right of Entry 17
M. Fees and Expenses 18
N. Mechanics' Liens 18
O. End of Lease Term 18
P. Subordination 19
Q. Attornment 19
R. Reference to Shopping Center 19
S. Continuing Liability 19
T. Permits and Licenses 19
U. Signs 19
V. Rules and Regulations 19
8.2 Negative Covenants 20
A. Alcoholic Beverages 20
B. Encumbrances 20
C. Use 20
D. Alterations 20
E. Vending Machines 20
F. Outside Services 20
G. Freight Handling 20
H. Elephant Trains 21
L. Changes in Exterior 21
J. Signs 21
K. Floor Loads 21
L. Electrical "Overloads" 21
8.3 Merchants' Association; Marketing Fund 21
8.4 Assignment, etc.; Control of Tenant 23
ARTICLE IX
DESTRUCTION; CONDEMNATION.
9.1 Fire or Other Casualty 24
9.2 Eminent Domain 25
<PAGE> 10
INDEX iv
ARTICLE X.
DEFAULTS AND REMEDIES.
Section PAGE
10.1 Bankruptcy 26
10.2 Default 26
10.3 Remedies of Landlord 27
10.4 Waiver of Trial by Jury;
Tenant Not to Counterclaim 28
10.5 Holdover by Tenant 28
10.6 Landlord's Right to Cure Defaults 29
10.7 Effect of Waivers of Default 29
10.8 Security Deposit 29
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1 Notices from One Party to the Other 29
11.2 Brokerage 29
11.3 Tenant's Acknowledgment of Mortgage 30
11.4 Relationship of the Parties 31
11.5 Estoppel Certificates 31
11.6 Applicable Law and Construction 31
11.7 Joint and Several Obligations 31
11.8 Short Form Lease 32
11.9 Binding Effect of Lease 32
11.10 Refinancing 32
11.11 Definitions 32
A. Affiliate 32
B. Association 32
C. Central Utility Plant 32
D. Common Areas 32
E. Common Area Charge 32
F. Concessionaire 32
G. Covered Mall 32
H. Demised Premises 33
I. Department Store Parcels 33
J. Fixed Minimum Rent 33
K. Floor Space 33
<PAGE> 11
KINGS PLAZA
BROOKLYN, NEW YORK
LEASE
ARTICLE I. FUNDAMENTAL LEASE PROVISIONS AND EXHIBITS.
SECTION 1.1 Fundamental Lease Provisions.
DATE: October , 1985
LANDLORD: KINGS PLAZA SHOPPING CENTER OF FLATBUSH AVE, INC., a New York
corporation with offices at 500 Seventh Avenue, New York, New York 10018 and
KINGS PLAZA SHOPPING CENTER OF AVENUE, INC., a New York corporation with offices
at 151 West 34th Street, New York, New York 10001.
LANDLORD'S ADDRESS: 5100 Kings Plaza, Brooklyn, N.Y. 11234.
TENANT: Magic Restaurant of Kings Corp., a New York corporation
TENANT'S ADDRESS: 1100 First Avenue, New York, New York
TENANT'S TRADE NAME: Red Robin Burger and Spirits Emporium
DEMISED PREMISES (Section 2.1): Located in the Building designated" A" on the
Site Plan attached hereto as Exhibit A and containing approximately 7336 square
feet of Floor Space as shown on the Space Plan attached hereto as Exhibit B
(subject to adjustment and determination pursuant to Section 2.3).
LEASE TERM (Section 2.2): 18 Lease Years (plus a Partial Lease Year, if any,
prior to the first Lease Year).
FIXED MINIMUM RENT (Section 42): $132,048 per annum for the first five Lease
Years; $161,392 per annum for the next five Lease Years; $183,400 per annum for
the next five Lease Years; $220,080 per annum for the balance of the Lease Term.
Such amount(s) being computed at the respective rate(s) of $18.00, $22.00,
$25.00 and $30.00 per annum per square foot of Floor Space of the Demised
premises; being subject to adjustment and determination pursuant to Section 2.3;
and being further subject to adjustment pursuant to Section 4.5, if it becomes
applicable.
1
<PAGE> 12
PERCENTAGE RENT RATE (Section 4.3A): 6% until Gross Sales multiplied thereby
equal Fixed Minimum Rent and thereafter 5%.
PERCENTAGE RENT PERIODS (Section 4.3D): Quarterly. (Commencing February 1, May
1, August 1 and November 1).
PERMITTED USES (Section 8.1B): A full service restaurant, including the serving
of alcoholic beverages, provided all necessary licenses therefor are procured by
Tenant and for no other use or purpose.
Landlord will cooperate with Tenant in procuring any such licenses, at Tenant's
expense.
TIME FOR COMPLETION OF TENANT'S WORK (Sections 3.3): 210 days.
RETAIL COMPETITIVE AREA (Section 4.5): The area bounded on the west by Gravesend
Bay, on the south by the Atlantic Ocean, on the east by Cross Bay Boulevard and
on the north by the rear lines of the lots fronting on the side farthest from
the Demised Premises of the following streets: Linden Boulevard, Kings Highway
and Bay Parkway.
SECURITY DEPOSIT (Section 10.8)
GUARANTOR (Section 10.1 and page 37): Steven Rogers and Gary Rogers
SECTION 1.2 Effect of References to a Fundamental Lease Provision. Each
reference in this Lease to any of the Fundamental Lease Provisions contained in
Section 1.1 shall be construed to incorporate all of the terms provided under
each such Fundamental Lease Provision.
Section 1.3 Definitions. Reference is made to Section 11.11 which contains
definitions of certain terms therein set forth. Other terms are defined in
various Sections of this Lease. Defined terms are printed with initial capital
letters in this Lease and are used as so defined, except where otherwise
indicated.
Section 1.4 Exhibits. The exhibits listed in this Section and attached to this
Lease are hereby incorporated in and made a part of this Lease.
EXHIBIT A. Site Plan.
EXHIBIT B. Space Plan showing Demised Premises.
EXHIBIT C. Description of Landlord's Work and of Tenant's Work.
EXHIBIT D. Design Criteria for Landlord's Work and for Tenant's work.
EXHIBIT F. Utility Service Charges Rate Schedules.
2
<PAGE> 13
ARTICLE II. PREMISES AND TERM.
Section 2.1 Demised Premises. Landlord hereby leases to Tenant and Tenant hereby
hires and takes from Landlord, the premises (herein referred to as "the Demised
Premises"), located in the Shopping Center situated in the Borough of Brooklyn,
County of Kings, City of New York and State of New York, shown on the Site Plan
attached hereto as Exhibit A (the bull ding in which the Demised Premises are
located being shown on said Exhibit A and the Demised Premises being shown on
the Space Plan attached hereto as Exhibit B) extending to the exterior faces of
all exterior walls (including, without limitation, walls between the Demised
Premises and the Covered Mall or other Common Areas) or to the line shown on
Exhibit B where there is no wall or to the center line of those walls (or
prolongations thereof) separating the Demised Premises from other premises in
the Shopping Center;
Subject to and with the benefit of the terms, covenants, conditions and
provisions of this Lease;
Together with the appurtenances specifically granted in this Lease, including
the use in common with others of the Common Areas as hereinafter more fully
provided, but reserving and excepting to Landlord (i) the use of (a) the
exterior faces of the aforesaid walls, (b) the roof and (c), if the Demised
Premises are located only on the Lower Mall, the lower surface of the floor slab
of the Upper Mall and (ii) the right to install, maintain, use, repair, and
replace pipes, ducts, cables, conduits, vents, plumbing and wires leading
through the Demised Premises, in locations which will not materially interfere
with Tenant's use thereof, and serving other parts of the Shopping Center.
Exhibit A sets forth the general layout of the Shopping Center but shall not be
deemed to be a warranty, representation or agreement on the part of Landlord
that said Shopping Center is or will continue to be as indicated on Exhibit A.
Without limiting any other rights Landlord may have, Landlord hereby reserves
the right at any time and from time to time to make alterations or additions to,
to build additional stories on, and to demolish, any building in the Shopping
Center and to build other buildings or improvements in the Shopping Center and
to make alterations or additions to, to build additional stories on, and to
demolish, any such buildings and to construct deck or elevated parking
facilities.
Section 2.2 Term. TO HAVE AND TO HOLD the Demised Premises unto Tenant for a
term commencing on the earlier of (i) the day following the expiration of the
Time for Completion of Tenant's Work (see Section 3.3) or (ii) the day Tenant
opens for business in the Demised Premises,* and ending at midnight on January
31st of the last Lease Year of the Lease Term unless sooner terminated as
hereinafter provided.
* or (iii) April 1, 1986,
3
<PAGE> 14
Section 2.3 Statement. When the commencement and expiration dates of the Lease
Term have been determined, as provided in Section 22, Landlord and Tenant shall
execute and deliver a written statement, which shall be acknowledged by Tenant,
specifying the commencement and expiration dates of the Lease Terata, the actual
number of square feet of Floor Space in the Demised Premises as certified to by
Landlord's architect or engineer, the exact amount of the annual Fixed Minimum
Rent as determined from such certification, and, if there shall have herein any
change in either Exhibit A or Exhibit B with respect to the Demised Premises, as
provided in Section 3.1 hereof, the same shall be modified to reflect such
change or changes. Such statement, when so executed, acknowledged and delivered,
will be deemed to be incorporated in and become part of this Lease.
ARTICLE III. PREPARATION OF DEMISED PREMISES.
Section 3.1 Landlord's Work. Landlord shall, to the extent not in place at the
date of this Lease, perform Landlord's Work with respect to the Demised Premises
in such manner as to comply with the requirements of Exhibits C and D hereof.
The location of the building in which the Demised Premises is to be located
within the Shopping Center is shown on Exhibit A and the location of the Demised
Premises within such building is shown on Exhibit B. Notwithstanding the
foregoing the location of the Demised Premises within, and on the same level(s)
of, such building, Landlord's Work in Exhibit C and the design criteria therefor
in Exhibit D, and the nature and identity of the occupants of the adjoining
premises shall each be subject to such changes (whether ordinary or
extraordinary, foreseen or unforeseen) as Landlord shall, at any time and from
time to time, deem to be desirable for the benefit of the Shopping Center;
provided, however, that the resulting Demised Premises shall be substantially as
equivalent in usefulness for Tenant's purposes as it was prior to such changes,
and provided further, that no such changes with respect to the Demised Premises
may be made after Tenant has entered thereon pursuant to Section 33 hereof. No
such changes, or any of them, shall invalidate or affect his Lease, except that
Landlord and Tenant shall, on request by either, modify Exhibits A, B, C and/or
D, to such extent as an architect or engineer selected by Landlord certifies to
be proper to accord with such changes. Landlord's Work shall be deemed approved
by Tenant in all respects when Tenant opens or business in the Demised Premises
except for items of Landlord's work which are not completed or do not conform to
Exhibits C and D and as to which Tenant shall have given notice to Landlord
within 30 day after Tenant opens for business.
[Alternative to the above. If the following is used, in addition to deleting the
above, the matter in brackets in Sections 32, 3.3 and 3.5 will be deleted.
Otherwise, the following sentence should be deleted.]
4
<PAGE> 15
Tenant acknowledges that Landlord has fully performed all of Landlord's Work as
described in Exhibits C and D.
Section 3.2 Tenant's Work. All work shall accomplished by Tenant at Tenant's
sole expense and in accordance with the plans and specifications hereinafter
referred to in this Section 3.2 prepared by Tenant's architect and/or engineer
in conformity with the description of Tenant's Work and design criteria therefor
set forth respectively in Exhibits C and D attached hereto. Tenant's architect
and/or engineer must be duly licensed by the State of New York Tenant shall
prepare and submit to Landlord for approval *within 15 days from the date of
this Lease, four sets of preliminary plans and specifications covering Tenant's
Work, prepared in conformity with the applicable provisions of Exhibits C and D.
If Landlord shall notify Tenant of any objections to such plans and
specifications, Tenant shall make necessary revisions and resubmit the same
within 15 days after such notice. Landlord's approval, if and when granted, will
be evidenced by endorsement to that effect on two sets of the preliminary plans
and specifications, one set to be retained by Landlord and one set by Tenant.
Within 15 days after the approval of preliminary plans and specifications,
Tenant shall deliver to Landlord six sets of working plans and specifications
prepared in conformity with the approved preliminary plans and specifications,
one of which sets shall have been initialed on behalf of Tenant, thereby
evidencing Tenant's approval thereof. Landlord shall notify Tenant of the
manner, if any, in which said working plans and specifications as submitted by
Tenant fail to conform with said preliminary plans and specifications and with
the applicable provisions of Exhibits C and D. Within 15 days after such notice,
Tenant shall revise or correct said working plans and specifications and shall
submit such revisions or corrections to Landlord similarly initialed. Landlord's
approval will be evidenced by endorsement to that effect on one set ,of the
working plans and specifications and the return of such signed set to Tenant one
copy of all plans submitted by Tenant will be reproducible. Tenant will perform
and complete Tenant's Work in accordance with the approved working plans and
specifications and Exhibits C and D and in compliance with such rules and
regulations as Landlord and its architect or engineer and contractor, or
contractors, may make and in accordance with all applicable laws, orders,
regulations and requirements of all governmental authorities and board of fire
underwriters having jurisdiction. Any disagreement which may arise between
Landlord and Tenant with reference to the work to be performed by Tenant
pursuant to Exhibits C and D shall be resolved by the decision of Landlord's
said architect or engineer. the cost of whose services shall be borne equally by
Landlord and Tenant Any plans Or specifications not disapproved by Landlord
within 30 days of its receipt thereof from Tenant shall be deemed approved by
Landlord.
Section 3.3 Security for Commencement and Completion of Tenant's Work. Tenant
will commence construction of Tenant's Work promptly after the following: (i)
Landlord's approval of
5
<PAGE> 16
working plans and specifications, and (ii) the date determined by Landlord when
Tenant's Work can be commence Tenant's Work shall be completed within the Time
for Completion of Tenant's Work, subject in any event to Section 11.13, and
Tenant shall open the Demised Premises for its business prior to the expiration
of such period. Upon completion of Tenant's Work. Tenant shall furnish Landlord
with a reproducible copy of all working plans revised to show "as built"
conditions.
Section 3.4 Security for Tenant's Work. Landlord may require Tenant, before
entering on. Demised Premises for such purpose, to give Landlord proof
satisfactory to Landlord, of Tenant's financial ability to complete and fully
pay for Tenant's Work prior to opening for business, in lieu thereof, either (i)
to furnish to Landlord a bond in an amount satisfactory to Landlord written by a
surety company acceptable to Landlord or other security acceptable to Landlord,
guaranteeing the Completion of Tenant's Work free of mechanics' liens or (ii) to
deposit with Landlord in escrow Landlord's estimate of the sum required to
complete Tenant's Work. If such a deposit shall be made, upon the satisfactory.
Completion of all work and installations and the submission of proof that all
bills in connection therewith have been paid, Landlord shall release such funds
from escrow. Landlord, in its sole discretion, may release portions of such
escrow deposit to pay bills as the work and installations progress.
*which approval shall not be unreasonably withheld or delayed
Section 3.5 Remedies for Tenant's Failure or Delay to Submit Plans or Perform
Work. If Tenant fails or omits to make timely submission to Landlord of any
plans or specifications or delays in submitting or supplying information, or in
giving authorizations or in performing or completing Tenant's Work, Landlord, in
addition to any other right or remedy it may have at law or in equity, may
pursue any one or more of the following remedies:
(i) Until Tenant shall have commenced Tenant's Work, Landlord may
give Tenant at least 20 days' notice that if a specified failure, omission or
delay is not cured by the date therein stated this Lease shall be deemed
cancelled and terminated. If such notice shall not be complied with this Lease
shall, on the date stated in such notice; ipso facto be cancelled and
terminated, without prejudice to Landlord's rights hereunder;
(ii) Landlord may, in its intention to do so, at Tenant's cost and
expense, including, without limitation, expense for such overtime as Landlord's
architect or engineer may deem necessary, proceed with the completion of any
such plans or specifications or Tenant's Work, as the case may be, and such
performance by Landlord shall have the same effect hereunder as if the plans,
specifications, information, approval, authorization, work or other action
required of Tenant had been furnished or provided as herein provided; and
6
<PAGE> 17
(iv) Landlord may provided the notice required by clause (ii) above
has been given, require Tenant to pay to Landlord as additional rent hereunder,
the cost to Landlord of completing the construction of the Demised Premises in
accordance with the terms of this Lease over and above what would have been such
cost had there been no such failure, omission or delay.
In exercising any of the foregoing remedies, Landlord shall be
entitled to retain and have recourse to (a) any bond or escrow deposit provided
by Tenant under Section 3.4 hereof or (b) the Security Deposit provided by
Tenant under Section 10.8 hereof.
Section 3.6 Obligations of Tenant Before Lease Term Begins. Tenant shall perform
promptly such of its obligations contained in Exhibits C and D as are to be
performed by it prior to the beginning of the Lease Term; and Tenant shall also
observe and perform all of its obligations under this Lease (including, without
limitation, its obligation to pay charges for temporary water, heating, cooling
and lighting pursuant to Exhibits C and D, but excepting its obligations to pay
Fixed Minimum Rent, Percentage Rent, Tax Rent, Common Area Charges, dues and
assessments of Kings Plaza Merchants' Association Inc. and Marketing Charges)
from the date determined by Landlord that the Demised Premises will be available
for Tenant's Work (or from the date when Tenant commenced to perform Tenant's
Work, if earlier) until the actual commencement date of the Lease Term in the
same manner as though the Lease Term began on the date determined by Landlord
that the Demised Premises were available for Tenant's Work or when Tenant
commenced performing Tenant's Work, if earlier.
Section 3.7 Waiver. The parties hereto agree that Article II and Article III
hereof constitute express provisions as to the time at which Landlord shall
deliver possession of the Demised Premises to Tenant, and Tenant hereby waives
any rights to rescind this Lease which Tenant might otherwise have pursuant to
Section 223-a of the Real Property Law of the State of New York or pursuant to
any other law of like import now or hereafter in force.
Section 3.8 Completion of Tenant Before Lease Term Begins. Tenant shall not be
deemed completed unless Tenant shall have (i) completed Tenant's Work described
in Exhibits C and D in all respects in accordance with the provisions of this
Lease, (ii) furnished evidence satisfactory to Landlord that all of Tenant's
Work has been completed and paid for in full (and Tenant's Work has been
accepted by Landlord which acceptance shall not be unreasonably withheld), that
any and all liens therefor that have been or might be filed have been discharged
of record (by payment, bond, order of a court of competent jurisdiction or
otherwise) or waived and that no security interests relating hereto are
outstanding, (iii) reimbursed Landlord for the cost of any Tenant's Work done
for Tenant by Landlord. (iv) furnished to Landlord all certifications and
approvals with respect to
7
<PAGE> 18
Tenant's Work that may be required from any governmental authority and any board
of five underwriters or similar body for the use and occupancy of the Demised
Premises, (v) furnished to Landlord the insurance required by Section 8.1(I)
hereof, (vi) opened its store for business, fully staffed and adequately
stocked, and (vii) executed and delivered the statement provided for in Section
2.3 hereof.
Section 3.9 Ownership of Improvements. All installations, alterations, additions
or improvements upon the Demised Premises, made by either party, including all
equipment and fixtures, pipes, ducts, conduits, plumbing, wiring, lighting
fixtures, partitions, railings, mezzanine floors, galleries and the like shall,
unless Landlord otherwise elects (which election shall be made by giving a
notice pursuant to the provisions of Section 11.1 hereof not less than three
day's prior to the expiration or other termination of this Lease), become the
property of Landlord and shall remain upon and be surrendered with the Demised
Premises as a part thereof at the expiration or sooner termination of the Lease
Term. Movable office furniture and trade fixtures, which are installed by Tenant
at its expense, shall remain its be removed at any time, subject to the
provisions of Paragraph O of Section 8.1.
*but excluding panelling and decorations installed by Tenant, which may be
removed at any time, subject to the provisions of Paragraph O of Section 8.1
ARTICLE IV. RENT.
Section 4.1 Payment. All Rent and other charges payable to Landlord under any
provision of this Lease shall be paid to "Kings Plaza", or as Landlord may
otherwise designate, in lawful money of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, at Landlord's Address or at such other place as Landlord may by notice
to Tenant, from time to time, direct, without (except as may be otherwise herein
expressly provided) any set-off or deduction whatsoever and without any prior
demand the therefor.
Section 4.2 Fixed Minimum Rent. Tenant shall pay the annual Fixed Minimum Rent
(as the same may be adjusted and specified in the statement provided for in
Section 2.3 and further adjusted pursuant to Sections 4.5 and 4.11) for each
Lease Year or Partial Lease Year (as hereinafter defined), in equal monthly
installments in advance on the first day of each calendar month included in the
Lease Term.
Section 4.3 Percentage Rent.
A. Tenant shall also pay, as Percentage Rent for each Lease Year or
Partial Lease Year (as hereinafter defined), included in the Lease Term, payable
as hereinafter provided, the amount, if any, by which Tenant's Gross Sales (as
hereinafter
8
<PAGE> 19
defined) transacted during such Lease Year or Partial Lease Year, multiplied by
the Percentage Rent Rate, shall exceed the Fixed Minimum Rent payable for the
same period.
B. The term "Gross Sales" as used herein is defined to mean the total
amount in dollars of the actual prices charged, whether for cash or on credit or
partly for cash and partly on credit, for all sales or leases of merchandise,
food, beverages and services, gift or merchandise certificates, and all other
receipts (including finance charges on credit sales), of business conducted at,
in, on about or through the Demised Premises, including, but not limited to, all
orders received or filled at, in, on about or from the Demised Premises, whether
by mail, telephone, closed circuit television or otherwise, and including all
deposits not refunded to purchasers, all orders taken at, in, on, about or from
the Demised Premises, whether or not said orders are filled elsewhere, total
receipts of sales through any vending machine or other coin or token operated
device and total sales by any Concessionaire or otherwise at, in, on, about or
from the Demised Premises, and sales and receipts occurring or arising as a
result of solicitation off the Demised Premises conducted by personnel operating
from, or reporting to, or under the supervision of, any employee of Tenant
located at the Demised Premises. Gross Sales shall not, however, include any
sums collected and paid out for any retail sales tax or retail sales tax imposed
by any duly constituted governmental authority and separately stated, nor shall
they include any exchange of goods or merchandise between the stores of Tenant
where such exchange of goods or merchandise is made solely for the convenient
operation of the business of Tenant and neither for the purpose of consummating
a sale which has theretofore been made at, in, on, about or from the Demised
Premises nor for the purpose of depriving Landlord of the benefits of a sale
which otherwise would be made at, in, on, about or from the Demised Premises,
nor the amount of returns to shippers or manufacturers, nor the amount of any
cash or credit refund limited to the sales price, made upon any sale where the
merchandise sold, or some part thereof, is thereafter returned by the purchaser
and accepted by Tenant, nor sales of fixtures which are not a part of Tenant's
stock in trade, nor the net amount of discounts (not to exceed 3% of Gross
Sales) actually allowed to any customer or employee pursuant to any customers
and reasonable discount policy regularly adopted by Tenant from time to time
during the Lease Term and notice of which was furnished to Landlord in advance.
Each sale upon installment, credit or layaway shall be treated as a sale for the
full price in the month during which such sale shall be made, irrespective of
the time when Tenant shall receive payment from its customer, and no deduction
shall be allowed for uncollectible credit accounts. Each lease of merchandise
shall be treated as a sale in the month in which made for a price to total rent
payable during the term of the lease. Notwithstanding anything in this section
contained with respect to inclusion in "Gross Sales" of all receipts of sales
made through any vending machine or other coin or token operated device, the
operation of any such device shall be subject to the prior written consent of
9
<PAGE> 20
Landlord, as provided in Section 8.2E hereof. (See Addendum)
C. Tenant shall utilize, and cause to be utilized only cash registers
equipped with sealed continuous totals or such other operating machines and
equipment or devices for recording sales as may be appropriate to the business
of Tenant and all Concessionaires and, if necessary or desirable in order to
keep accurate records of Gross Sales and as Landlord shall approve. Tenant
further agrees to operate (and cause all Concessionaires to operate) such
registers, machines, equipment and devices in any reasonable manner directed by
Landlord to the end that all Gross Sales shall be properly accounted for. Tenant
shall keep (and shall cause all Concessionaires to keep) on the Demised Premises
or at some other place in the Metropolitan New York area, for at least 36 months
after expiration of each Lease Year, full, true, and accurate books of account
and records conforming to generally accepted accounting principles showing all
of the Gross Sales transacted at, in, on, about or from the Demised Premises for
such Lease Year, including all tax reports, dated cash register tapes; sales
checks, sales books, bank deposit records and such other supporting data as
Landlord may request, which shall be conveniently segregated from other records
of Tenant and each Concessionaire; provided, however, that if at any time
Landlord shall contend that fraud may exist with respect to any of Tenant's
reports with respect to Gross Sales for any Lease Year, then such 36 month
period shall be deemed extended until such contention of Landlord has been
finally determined. Within 15 days after the end of each calendar month, or
portion thereof, included in the Lease Term, Tenant shall furnish to Landlord a
statement signed and verified by Tenant (or by an authorized officer if Tenant
be a corporation) of Tenant's Gross Sales transacted during such month or
portion thereof; and on or before April 1 in each calendar year included in the
Lease Term and within 90 days after the end of the Lease Term Tenant shall
furnish to Landlord a statement, hereinafter called the annual statement,
certified to Landlord by an independent Public Accountant approved by Landlord,
of Tenant's Gross Sales transacted during the immediately preceding Lease Year.
The certification by said accountant shall expressly state that the Gross Sales
shown on said statement conform with and are computed in compliance with the
definition thereof contained in Section 4.313 hereof. Landlord shall have the
right from time to time by its accountants or representatives to audit all
statements of Gross Sales and, whether or not any such statement shall have been
furnished when herein required, to examine all of Tenant's records of Gross
Sales (including all supporting data and any other records from which Gross
Sales may be tested or determined) and Tenant shall make all such records
readily available for such examination. Tenant shall forthwith pay to Landlord
such Percentage Rent or Rent as or additional percentage Rent as may be shown to
be payable by any such audit or examination and, if the Gross Sales additional
Rent disclosed by an audit shall be more than $1,000, or, if Tenant shall have
failed to keep and maintain or make available the records and other information
herein required or to furnish any such
10
<PAGE> 21
statement when required,
*On reasonable notice to Tenant and at reasonable times KP ~/
**2% greater than the Gross Sales reported by Tenant.
Tenant shall also pay the cost of such audit or examination. Any information
obtained by Landlord pursuant to the provisions of this Paragraph C shall be
treated as confidential, except in any litigation or arbitration proceedings
between the parties and, except further, that Landlord may disclose such
information to prospective buyers, to prospective or existing lenders, to any
governmental agency and in any registration statement filed with the Securities
and Exchange Commission or other similar body.
D. On or before the 15th day after the expiration of each Percentage Rent
Period included in the Lease Term, and on or before the 15th day after the
expiration or earlier termination of the Lease Term, Tenant shall pay to
Landlord as Percentage Rent a sum equal to - the amount, if any, by which the
cumulative Gross Sales transacted during the then current Lease Year to and
including the expiration date of such Percentage Rent Period, multiplied by the
Percentage Rent Rate exceeds the aggregate of the Fixed Minimum Rent and
Percentage Rent theretofore paid for the then current Lease Year. Upon receipt
by Landlord of each initial statement of Tenant's Gross Sales to be furnished as
herein provided in Section 4.3C there shall be an adjustment between Landlord
and Tenant, with payment to or repayment by Landlord, as the case may be, to
the end that Landlord shall receive the entire amount of Percentage Rent payable
under this Lease for the preceding Lease Year and no more.
E. If Tenant shall default, at any time during the Lease Term. in the
timely performance of any of Tenant's obligations under this Section 4.3 (in
addition to any other remedies Landlord may have under this Lease), Tenant shall
pay to Landlord upon demand, as additional rent, for each month or part thereof
that Tenant is in default hereunder, a sum equal to 1% of the monthly
installment of Fixed Minimum Rent payable during the month immediately preceding
such default Tenant's obligations under Paragraphs C and D of this Section 4.3
to furnish statements and pay Percentage Rent after the end of the Lease Term
shall survive the expiration or sooner termination of the Lease Term.
Section 4.4 Definition of Lease Year. The term "Lease Year" is defined to mean a
period of 12 consecutive calendar months, the first Lease Year to commence on
the first day of February following the commencement date of the Lease Term (or
on February 1 if such commencement date shall be February 1) and each succeeding
Lease Year to commence on the anniversary date of the first Lease Year. Any
portion of the Lease Term which is less than a Lease Year as hereinbefore
defined (that is, from the
11
<PAGE> 22
commencement date of the Lease Term (if other than February 1) through the
following January 31; and from the last February 1 falling within the Lease Term
to the end of the Lease Term (if the end of the Lease Term does not fall on
January 31) shall be deemed a "Partial Lease Year". Any reference in this Lease
to a "Lease Year" shall, unless the context clearly indicates otherwise, be
deemed to be a reference to a "Partial Lease Year" if the period in question
involves a Partial Lease Year.
Section 4.5 Gross Sales of Competing Store. Tenant agrees that in the event
Tenant or any Affiliate of Tenant shall directly or indirectly own, operate,
manage or have any interest in any other store under Tenant's Trade Name or for
the sale of like classifications of merchandise at retail within the Retail
Competitive Area (except for stores presently open and in operation within such
area), then the annual Fixed Minimum Rent shall be increased to an amount equal
to 125% of the sum of the Fixed Minimum Rent then payable by Tenant pursuant to
Section 1.1 of this Lease and the Percentage Rent payable by Tenant for the
Lease Year immediately preceding the date on which such other store opened for
business. Such increase shall be effective from and after the date on which such
other store opened for business and shall be adjusted upwards at the same
time(s) and in the same amount(s) as the Fixed Minimum Rent set forth in Section
1.1 is subject to upward adjustment(s). Notwithstanding the foregoing, for the
purpose of computing the amount of Percentage Rent payable by Tenant for any
period following such increase, the Fixed Minimum Rent shall be deemed to be
that provided for in Section 1.1 and not the increased amount provided, for in
this Section 4.5.
Section 4.6 Tax Rent.
A. For the purposes of this section the term "taxes" shall include all
real estate taxes, assessment, water and sewer rents and other governmental
impositions and charges of ever" kind and nature whatsoever, extraordinary as
well as ordinary, foreseen and unforeseen, and each and ever" installment
thereof, which shall or may during the Lease Term, be levied, assessed, imposed.
become due and payable, or liens upon, or arise in connection with the use,
occupancy or possession at, or grow due or payable out of, or for, the Shopping
Center or any part thereat, or any land, buildings or other improvements
therein, excluding, however, any of the foregoing relating to the Department
Store Parcels so long as they comprise separate tax lots for the purpose of
assessment for real estate taxes. Such term shall not include any charge, such
as a water meter charge and the sewer rent based thereon, which is measured by
the consumption by the actual user of the item or service for which the charge
is made. wether or not Landlord shall take the benefit of the provisions of any
statute or ordinance permitting any assessment for public betterments or
improvements to be paid over a period of time, Landlord shall, nevertheless, be
deemed to have taken such benefit so that the term "taxes," shall include only
the current
12
<PAGE> 23
annual installment of any such assessment and the interest on unpaid
installments. A tax bill or copy thereof submitted by Landlord to Tenant shall
be conclusive evidence of the amount of a tax or installment thereof.
B. On the first day of each month during the Lease Term Tenant shall
pay to Landlord, as additional rent (hereinafter called "Tax Rent") in advance,
the amount obtained by (i) adding 1/12 of all taxes payable during each 'ax year
in which the month in question falls and (ii) multiplying the sum resulting from
the computation in step (i) by a fraction, the numerator of which shall be the
Floor Space of the Demised Premises and the denominator of which shall be the
Floor Space of all leased or occupied space in the Shopping Center, excluding
space in any building on either Department Store Parcel so long as it comprises
a separate tax lot, the status of Floor Space to be determined as of the first
day of the month in question. If, on the first day of the month in question the
amount of any tax payable during the then current tax year shall not have been
determined by the existing authority, then the Tax Rent then payable shall be
based on the amount of the corresponding tax for the immediately preceding tax
year, subject to immediate adjustment when the amount of such tax shall be
determined and payment of such adjustment upon billing by Landlord. If any tax
shall be levied, assessed or imposed for any fiscal period which does not
contain 12 months, then, in making the computation of Tax Rent for each month in
such fiscal period, there shall be included in the addition under step (i) of
such computation, in lieu of 1/12 of such tax, that amount arrived at by
dividing such sax by the number of months in such fiscal period.
C. Nothing herein contained shall be construed to include as a "tax"
which shall be the basis of Tax Rent, any inheritance, estate, succession,
transfer, gift, franchise, corporation, income or profit tax or capital levy
that is or may be imposed upon Landlord; provided, however that, if at any time
during the Lease Term the methods of taxation prevailing at the commencement of
the Lease Term shall be altered so that in lie'~ of or as an addition to or as a
substitute for the whole or any part of the taxes now levied, assessed or
imposed on real estate as such there shall be levied, assessed or imposed (i) a
tax on the rents received from such real estate, or (ii) a license fee measured
by the rent receivable by Landlord from the Shopping Center or any portion
thereof, or (iii) a tax or license fee imposed upon Landlord which is otherwise
measured by or based in whole or in part upon the Shopping Center or any portion
thereof, then the same shall be included in the computation of Tax Rent
hereunder, computed as if the amount of such tax or fee so payable were that due
if the Shopping Center were the only property of Landlord subject thereto.
D. If, after Tenant shall have made a payment of Tax Rent, Landlord
shall receive a refund or any portion of the taxes on which such payment shall
have been based. Landlord shall pay to Tenant that proportion of the net refund,
after
13
<PAGE> 24
deducting all expenses (including, reasonable attorneys and appraisers' fees)
incurred in obtaining such refund, which the portion of the tax in question paid
by Tenant bears to the entire amount of such tax. Tenant shall not institute any
proceedings with respect to the assessed valuation of the Shopping Center or any
part thereof for the purpose of securing a tax reduction. If, however, in any
tax year or other tax fiscal period, tenants occupying 73% of the floor Space of
the Shopping Center (excluding the Department Store Parcels) shall desire to
have such proceedings instituted and shall give Landlord notice of such desire
at least 20 days prior to the last day for the filing of the same, Landlord
shall file with the Tax Commission or any successor to its functions as
assessor, application for reduction and correction of the tax assessment for
such year or fiscal period. Thereafter. upon written request from at least the
same amount Or tenants, served on Landlord at least 30 days prior to the last
day for the institution or court proceedings to review such assessment, Landlord
shall, at the cost and expense of all tenants of the Shopping Center, institute
and diligently prosecute such proceeding. Landlord may, nevertheless, settle any
such application or proceeding without the consent of Tenant.
E. Tenant at all times shall be responsible for and shall pay,
before delinquency, all municipal, county, state or federal taxes levied,
assessed or unpaid on any leasehold interest, any investment of Tenant in the
Demised Premises, or any personal property of any kind owned, installed or used
by Tenant or on Tenant's right to occupy the Demised Premises.
Section 4.7 Interest. Interest shall accrue at the higher of (i) a rate per
annum equal to 3 percentage points above the "base rate" established at the
time by Citibank, N.A., or (ii) the rate of 1-1/2% per month from and after the
due date of any payment of Fixed Minimum Rent, Percentage Rent, Tax Rent, Common
Area Charge, Utility Service Charge or any additional rent hereinabove or
hereinafter described.
Section 4.8 Rent. All payments, including Fixed Minimum Rent, to be made
hereunder by Tenant, whether to Landlord or to Kings Plaza Merchants
Association, Inc., shall be included in the term "Rent" whichever used in this
Lease. All such payments, other than Fixed Minimum Rent, shall be deemed to be
and shall become additional rent hereunder, whether or not the same shall be
designated as such (notwithstanding that in some cases the words "additional
rent" are used with specific charges included in the term "Rent" or with the
general use of such term, but such use is not made in other cases); and, unless
another time shall be herein expressly provided for the payment thereof, the
same shall be due and payable on demand or together with the next succeeding
installment of Fixed Minimum Rent, whichever shall first occur, together with
interest thereon; and Landlord shall have the same remedies for failure to pay
the same as - for non-payment of Fixed Minimum Rent.
Section 4.9 Rent for a Partial Month. For any portion of a
14
<PAGE> 25
calendar month included at the beginning or end of the Lease Term, Tenant shall
pay 1/30 of each monthly installment of Rent for each day of such portion
payable in advance at the beginning of such portion, except that Percentage Rent
and Utility Service Charges for such portion shall be computed and paid as
provided respectively in Sections 4.3 and 6.3 hereof.
Section 4.10 Notice Charge. Landlord may impose a Notice Charge of $25.00 for
each notice that Landlord sends as a result of Tenant's failure to make timely
payment of any Rent or other charge due under the Lease or Tenant's failure to
perform any other covenant on its part to be performed hereunder. Such Notice
Charge shall be deemed to be additional rent and shall be paid upon demand
therefor.
Section 4.11 Adjustment of Fixed Minimum Rent. If, in each of at least two of
the fifth, and seventh Lease Years of the Lease Term, Tenant shall not have been
obligated to pay Percentage Rent in an amount equal to at least 10% of the Fixed
Minimum Rent then payable hereunder Landlord may terminate this Lease by notice
to Tenant given at any time within six months after the earlier of the receipt
by Landlord of Tenant's annual statement of Gross Sales from second of such
Lease Years in which Tenant shall not have been obligated to pay Percentage
Renewal such amount or the due date of such statement for the seventh Lease
Year, and upon the date specified in such notice this Lease and the lease Term
shall terminate and come to an end, and Tenant shall vacate and surrender the
Demised Premises to Landlord: provided, however, that Tenant may render such
notice of termination inoperative, if, within 30 days after receipt of such
notice, Tenant shall enter into an agreement with Landlord increasing, for each
Lease Year of the remainder of the Lease Term, the Fixed Minimum Rent to an
amount equal to l25% of the amount of Minimum Rent otherwise due hereunder.
ARTICLE V. COMMON AREAS.
Section 5.1 Common Areas. Landlord shall make available within the Shopping
Center such areas and facilities (referred to in this Lease as "Common Areas"),
including but not limited to the parking facilities, driveways, exterior and
interior ramps. sidewalks, roofs and roof areas (subject to Section 2.1)
truckways, delivery facilities, truck-loading areas, roads, walkways, the
Covered Mall and other enclosed courts, malls, elevators between roof receiving
areas and common corridors, landscaped and planted areas, and public rest rooms,
as Landlord shall deem appropriate. Landlord shall operate, manage, equip,
police, light, repair and maintain the Common Areas for their intended purposes
in such manner as Landlord shall in its sole discretion determine. Tenant agrees
that Landlord may, at any time and from time to time, increase, reduce or change
the number, type, size, location, elevation, nature and use of any of the Common
Areas, make installations therein, move arid remove the same and erect buildings
and other improvements not shown on Exhibit A anywhere in the Shopping Center.
If the Corrirnon
15
<PAGE> 26
Areas be changed, altered or diminished, Landlord shall not be subject to any
liability to Tenant and Tenant shall not he entitled to any compensation or
diminution or abatement of Rent, nor shall any such change, alteration or
diminution be deemed to be a constructive or actual eviction (the term "Common
Areas" shall at any time facilities as shall be in existence). The foregoing
shall not, however, permit Landlord to do anything that would materially
interfere with access to the Demised Premises.
Section 5.2 Use of Common Areas. Tenant and its Concessionaires, officers,
employees, agents, customers and invitees shall have the nonexclusive right, in
common with Landlord and all others to whom Landlord has granted or may
hereafter grant such right, to use the Common Areas, subject to such reasonable
rules and regulations as Landlord may from time to time impose, including the
designation of specific areas in which vehicles owned or operated by Tenant, its
Concessionaires, officers, employees and agents must be parked and the
prohibition of the parking of any such vehicles in any other part of the Common
Areas and in the parking facilities. Tenant understands and agrees that persons
u~""dlg the Marina adjoining the Shopping Center and fronting on Mill Basin
shall also be permitted to use the Common Areas. Landlord may cause to he towed
away any such vehicles which are parked in Common Areas in violation of such
rules and regulations, and Tenant waives liability of Landlord to Tenant in the
event that such towing is done. Tenant further agrees, after notice thereof, to
abide by such rules and regulations and to use its best efforts to cause its
Concessionaires, officers, employees, agents, customers and invitees to conform
thereto. Landlord may at any time close temporarily any Common Area to make
repairs or changes therein or to effect construction, repairs or changes within
the Shopping Center, to prevent the acquisition of public rights in such area,
or to discourage non customer parking, and do such other acts in and to the
Common Areas as in its judgment may be desirable to improve the appropriate
utilization thereof. Tenant shall upon request promptly furnish to Landlord the
license numbers of the cars operated by Tenant and its Concessionaires, officers
and employees. Tenant shall not at any time interfere with the rights of
Landlord and other occupants of the Shopping Center, its and their
Concessionaires, officers, employees, agents, customers and invitees, to use any
part of the parking areas and other Common Areas. Landlord reserves the right to
impose parking charges (determined by meters or otherwise). If any vehicle of
Tenant, or of any Concessionaire, or of any of their respective officers, agents
or employees, is parked in any part of the Shopping Center other than the
employee parking area(s) designated therefor by Landlord, Tenant shall pay to
Landlord an amount equal to the daily rate therefor established by Landlord from
time to time (which rate is initially established at 5 for each such vehicle for
each day, or part thereof, it is so parked in such other part of the Shopping
Center). All amounts due under the provisions of this Section 5.2 shall be
payable by Tenant as additional rent within 10 days after demand therefor.
16
<PAGE> 27
Section 5.3 Charge for Use of Common Areas. Tenant shall pay to Landlord as
additional rent for each of Landlord's fiscal years (July 1 to June 30) Tenant's
pro rata have, as defined in Paragraph C of this Section 5.3, of the sum of the
amounts described in Paragraphs A and B of this Section 5.3:
A. All costs and expenses of every kind and nature (including
appropriate reserves) as may be paid or incurred by Landlord during the Lease
Term in operating, managing, equipping, repairing, replacing, cleaning and
maintaining the Common Areas, common facilities and related services and in
policing the Shopping Center and affording protection thereof against fire (if
and to the extent that such policing and/or fire protection is provided), all as
determined in accordance with generally accepted accounting principles and
allotted to that particular fiscal year on the accrual method of accounting,
such costs and expenses to include, but not be limited to: operating the Covered
Mall and other Common Areas; snow and ice removal; costs and expenses of
planting, replanting and replacing flowers and landscaping; costs and expenses
of repairing and/or replacing sidewalks and roof areas; costs and expenses of
removing trash and refuse from the Common Areas, the Demised Premises and other
areas and space in the Shopping Center: water and sewerage charges; premiums for
liability, property damage and work eni compensation insurance; wages,
unemployment taxes and social security taxes; personal property taxes; fees for
required licenses and permits; supplies; operation of loudspeakers and any other
equipment supplying music to the Common Areas: reasonable depreciation of
equipment used in the operation, repair and maintenance of the Common Areas,
common facilities and related services; and administrative costs equal to 15% of
the foregoing costs and expenses paid or incurred by Landlord under this Section
5.3; but there shall be excluded costs of i\ed equipment properly chargeable to
capital account and depreciation of the original costs of constructing, erecting
and installing the Common Areas, common facilities and related services and no
credit shall be given or deduction made for any revenues derived from any
parking charges that Landlord may impose pursuant to Section 52 hereof.
B. Those costs and expenses for providing heating, cooling and air
handling ("HVAC"), lighting and electricity to the Common Areas, common
facilities and related services as determined by Landlord in accordance with the
following method of computation: (i) lighting and electricity costs and expenses
shall be computed by applying the provisions of Exhibit E to a monthly
consumption of 540,000 kwhr and a monthly demand of 1,392 kw which may be
adjusted from time to time by Landlord to reflect changes in these estimated
values; (ii) HVAC costs and expenses shall be computed based upon a charge of
$.60 per square foot of the Common Areas for heating cooling and air handling
plus charges for heating adjustment and cooling adjustment as provided for in
Exhibit E, in each case based upon a Common Area of 146,377 sq. ft., as the same
may be adjusted to take into account changes in the actual square footage
thereof.
17
<PAGE> 28
C. Tenant's pro rata share of the amount computed in accordance with the
preceding Paragraphs A and B of this Section 5.3 shall be that portion of the
whole which the Floor Space of the Demised Premises bears to the total Floor
Space from time to time occupied by other tenants and occupants in the Shopping
Center, except that for this purpose mezzanines and/or upper floor areas having
no direct customer access to the Covered Mall or parking areas other than by
stairways, elevators, escalators or enclosed non-public passageways shall be
reduced by 50% (such computation being the "weighted floor area"). The charge to
Tenant for each fiscal year, or partial fiscal year if the Lease Term shall
commence or expire during such fiscal year, shall be paid in monthly
installments on the first day of each calendar month in such fiscal year or
partial year, in advance, in an amount estimated by Landlord within 90 days
after the end of each fiscal year, Landlord shall furnish to Tenant a certified
statement in reasonable detail of the computation of such amount computed in
accordance with this Section 5.3 by Landlord's accountant, using generally
accepted accounting principles in respect of the accrual method of accounting,
consistently applied and thereupon there shall be an adjustment between Landlord
and Tenant, with payment to or repayment by Landlord, as the case may require,
to the end that Landlord shall receive the entire amount of Tenant's pro rata
share, as above provided, of such amount for such fiscal year or partial fiscal
year and no more. Such statement, so certified, shall be conclusive between the
parties. Changes in any Floor Space occurring during any month within such
fiscal year shall be effective on the first day of the succeeding month and the
amount of any Floor Space in effect for the whole of such fiscal year or partial
fiscal year, shall be the average of the total amounts in effect on the first
day of each month thereto. The foregoing provisions shall survive the expiration
or sooner termination of the Lease Term.
D. The amount so to be paid by Tenant, computed under this Section 3.3, is
herein called the "Common Area Charge."
ARTICLE VI. UTILITY SERVICES
Section 6.1 Water and Electricity. Landlord shall cause the necessary mains,
conduits and other facilities to be provided and maintained to supply water and
electricity to the Demised Premises in accordance with and subject to Exhibits C
and D. Tenant shall pay for all water and electricity used in the Demised
Premises and, at its own cost and expense and with its own equipment installed
in accordance with Exhibit C and the Design Criteria set forth in Exhibit D,
shall heat or chill domestic water and water for process purposes to meet its
requirements other than those described in Section 6.2.
Section 6.2 Heating and Cooling. Landlord shall, at its own cost and expense,
maintain the Central Utility Plant installed by it to furnish a heating medium
and a cooling medium to the Demised Premises, which may also include the
production and distribution to the occupants of the Shopping Center of
18
<PAGE> 29
electrical energy. Tenant shall accept and use the heating and cooling media
furnished by landlord to the Demised Premises and shall utilize the same in such
mariner as snaIl not waste heating or cooling effect and in accordance with the
Design Criteria set forth in Exhibit D.
Section 6.3 Utility Service Charges. If Landlord shall elect or is required to
supply any one or more or all of the utility and related services described in
Sections 6.1 and 6.2, Tenant shall purchase and use such services as are
tendered by Landlord and3 upon being billed therefor by Landlord, shall pay
Utility Services Charges computed at the rates (including any established
minimum charges) established by Landlord for heating, cooling, electricity or
water, as the case may be, in accordance with the Utility Service Charges Rate
Schedules annexed hereto as Exhibit Landlord may discontinue furnishing such
services if the same are not so paid for, upon not less days' notice and no such
discontinuation shall be deemed to an eviction or render Landlord liable to
Tenant for damages or relieve Tenant from performance of its obligations
hereunder.
Section 6.4 Furnishing of Utility Service. Any or related service which Landlord
is required or elects to provide or cause to be provided to the Demised Premises
pursuant to Sections 6.1 and 62 may be furnished by any agent employed by
Landlord, and Tenant shall accept the same therefrom to the exclusion of all
other suppliers. Landlord shall not be liable to Tenant in damages or otherwise
if any one or more of said services is interrupted, impaired or terminated
because of failures, repairs, installations or improvements nor shall any such
interruption, impairment or termination, release Tenant from the performance of
Landlord shall, however, use its best efforts to promptly restore such services,
and if Tenant is totally usable to conduct business in the Demised Premises for
more than three business days Fixed Minimum Rent shall*
Section 6.5 Rates If Central Utility Plant is Public Utility. If Landlord's
operation of the Central Utility Plant to furnish any utility or related service
to the Demised Premises and the other premises served thereby shall be
determined to be a public utility service and rates therefor shall he fixed or
approved by the public authority having jurisdiction, then such rates for such
service shall supersede the provisions of this article with respect to the
determination of the rates to be paid by Tenant for such services, and Tenant
shall pay therefor at such rates. nthing contained in this Lease shall be deemed
to prevent Landlord from furnishing any utility service by means of the Central
Utility Plant to any premises located outside the Shopping Center if it so
elects, but in such case all premises to which such services are furnished by
means of the Central Utility Plant shall, for the purposes of this Article VI
only, he deemed to be located within the Shopping Center.
Section 6.6 Substitute Facilities for Central Utility Plant. Landlord may, after
30 days' notice to Tenant, cease to furnish
19
<PAGE> 30
any one or more of the utility or related services to the Demised Premises,
whether furnished front the Central Utility Plant or Otherwise, without any
responsibility to Tenant, except to connect Tenant's distribution facilities
therefor with another source for the supply of the energy required for the
service so discontinued Landlord agrees that the charges to Tenant for the
supply of substitute energy, if not provided by a public utility corporation,
shall be reasonable. In any such event, the provisions of Exhibits C, D and E
shall, commencing on the date when Landlord provides such substitute supply, be
ineffective with respect to the service in question.
ARTICLE VII. LANDLORD'S ADDITIONAL COVENANTS.
Section 7.1 Repairs by Landlord. Landlord covenants to keep, or cause to be
kept, in good order, repair and condition, the foundations, roof and downspouts
of the Demised Premises, the structural soundness of the floors and walls
thereof installed as part of Landlord's Work, and the pipes, ducts, conduits and
wires running through the Demised Premises and installed therein as part of
Landlord's Work (but not including Tenant's service connections therewith),
except as affected by Tenant's Work or Tenant's negligence. Landlord shall not
be required to commence any such repair until after notice from Tenant that the
same is necessary which notice, except in the case of an emergency, shall be in
writing and shall allow Landlord 10 days in which to commence such repair. The
provisions of this paragraph shall not apply in the case of damage or
destruction by tire or other casualty or by eminent domain, in which events the
obligations of Landlord shall be controlled by Article IX. Except as provided in
Sections 6.1 and 6.2 and this Section 7.1, Landlord
*thereafter abate until such services shall be restored
shall not be obligated to make repairs, replacements or improvements of any kind
upon the Demised Premises or upon any equipment, facilities or fixtures'
contained therein, all of which shall be the responsibility of Tenant as
provided in Section 8.1E.
Section 7.2 Quiet Enjoyment. Landlord covenants that Tenant on paying the Rent
and performing all of Tenant's obligations in this Lease shall, peacefully and
quietly have, hold and enjoy the Demised premises and the appurtenances
throughout the Lease Term without hindrance, ejection or molestation by any
Person(s) lawfully daitning under Landlord, subject to the other terms and
provisions of this Lease and to all mortgages and underlying leases of record to
which this Lease may be or become subject and subordinate.
Section 7.3 Landlord's Liability.
A. In the event of a sale or transfer of all or any portion of the
Shopping Center, exclusive of the Department Store Parcels, or any undivided
interest therein, or in the event of the making of a lease of all or
substantially all of the Shopping
20
<PAGE> 31
Center, other than the Department Store Parcels, or in the event of a sale or
transfer of the leasehold estate under any such lease, the grantor, transferor
or lessor, as the case may be, shall thereafter be entirety relieved of all
terms, covenants and obligations thereafter to be performed by Landlord under
this Lease to the extent of the interest or portion so sold, transferred or
leased, and it shall be deemed and construed, without further agreement between
the parties and the purchaser or transferee on any such sale or transfer, or the
lessee under any such lease, as the case may be, that the said purchaser,
transferee or lessee, as the case may be, has assumed and agreed to carry out
any and all covenants of Landlord hereunder; provided that (i) any amount then
due and payable to Tenant or for which Landlord or the then grantor, transferor
or lessor would otherwise then be liable to pay to Tenant (it being understood
that the owner of an undivided interest in the fee or any such lease shall be
liable only for his or its proportionate share of such amount) shall be paid to
Tenant; (ii) the interest of the grantor, transferor or lessor, as Landlord, in
any funds then in the hands of Landlord or the then grantor, transferor or
lessor in which Tenant has an interest, shall be turned over, subject to such
interest, to the then grantee, transferee or lessee; and (iii) notice of such
sale, transfer or lease shall be delivered to Tenant. Upon the termination of
any such lease, the lessor thereunder shall become and remain personally liable
as Landlord hereunder only so long as there shall not be
21
<PAGE> 32
made another such lease. As long as any such lease shall be in force and effect,
it is expressly understood and agreed that there shall be no personal liability
hereunder on the lessor thereunder.
B. No recourse shall be had on any of the terms, covenants or obligations
to be performed by Landlord under this Lease or for any claim based thereon or
otherwise in respect thereof against any incorporator, subscriber of the capital
stock, stockholder, officer, director or employee as such, past. present or
future, of any corporation which shall be Landlord hereunder or included in the
term "Landlord" or of any successor of any such corporation, or against any
principal, disclosed or undisclosed, or any Affiliate of any party which shall
be Landlord or included in the term "Landlord". whether directly or through
Landlord or through any receiver, assignee, trustee in bankruptcy or through any
other Person, whether by virtue of any constitution, statute or rule of law or
by enforcement of any assessment or penalty or otherwise, all such liability
being expressly waived and released by Tenant.
ARTICLE VIII. TENANT'S ADDITIONAL COVENANTS.
Section 8.1 Affirmative Covenants. Tenant covenants at its expense at all times
during the Lease Term and such further time as Tenant occupies the Demised
Premises or any part thereof:
A. To perform promptly all of the obligations of Tenant set forth in this
Lease and in the Exhibits attached hereto; and to pay when due the Fixed Minimum
Rent, Percentage Rent, Tax Rent, Common Area Charges, Utility Service Charges,
Merchants' Association dues and assessments or Marketing Charges, as the case
may be, and all other charges which by the terms of this Lease are to be paid by
Tenant.
B. To use the Demised Premises only for the Permitted Uses; to operate its
business in the Demised Premises under the Tenant's Trade Name provided in
Section 1.1 and to conduct its business at all times in accordance with this
Lease and in such mariner as to produce the minimum volume Sales and to help
establish and maintain a high reputation for the Shopping Center. (See
Addendum)
C. Except when, and to the extent that the Demised Premises, other than
such minor portions thereof as are reasonably required for storage and office
purposes, for the sale of merchandise at retail or the furnishing of services;
to use such storage and once space only in connection with the business
conducted by Tenant in the Demised Premises; to furnish and install all trade
fixtures and permitted signs; to carry a full and complete stock of seasonable
merchandise; to maintain adequate trained personnel for efficient service to
customers; to open for business and reopen during the entire Lease Term during
all business hours on all business days when the Shopping Center
22
<PAGE> 33
is to be open for business to the public determined by Landlord, and to light
its display windows and signs during those hours and on those days when the
Covered Mall is kept illuminated by Landlord (but Tenant shall not be obligated
to keep the same illuminated beyond 11:00 P.M. on any day).
D. To store in the Demised Premises only such merchandise as is to be
offered for sale at retail within a reasonable time after receipt; to Store all
trash and refuse in appropriate containers within the Demised Premises and to
attend to the daily disposal thereof in the manner and by the agency designated
by- Landlord, the cost and expense of which shall be paid by Tenant, at
Landlord's option, either directly to such agency or as part of the Common Area
Charge; to keep all drains inside the Demised Premises open; and to receive and
deliver goods and merchandise only in the manner and areas and at times
designated by Landlord.
E. Except for repairs required in Sections 6.1, 62 and 7.1 to be performed
by Landlord, to keep the Demised Premises, including equipment, facilities and
fixtures therein, and the entire store front including store front metal work,
at Tenant's expense, clean, neat and in good order, repair and condition
(including all necessary painting and decorating) and free of vermin, and at
Tenant's to keep all glass, including that in windows, doors and skylights, dean
and in good condition, and to replace any glass which may be damaged or broken
with glass of the same quality; provided, however, that Tenant shall repair any
damage included within Landlord's such obligation if caused by any act, omission
or negligence of Tenant, any Concessionaire or their respective employees,
agents, invitees or contractors. All work required to be performed by Tenant
under the provisions of this Paragraph E or Paragraphs F or G of this Section
8.1 (if appropriately approved by Landlord) shall be performed in a firstclass
workmanlike manner, and with new and first-class materials, and shall not weaken
or damage the Demised Premises, and shall be at least substantially equal in
quality to the original work and, to the extent that it involves any alteration,
improvement, addition or replacement, Tenant shall give notice to Landlord and
shall not proceed therewith until Landlord shall have consented thereto.* When
used in this Section 8.1, the term "repair" shall include all necessary
alterations, improvements, additions and replacements. Tenant hereby waives the
provisions of any present or future law permitting repairs by a tenant at the
expense of a landlord. If Tenant shall fail to make any of the repairs required
by the provisions of this Paragraph or the following Paragraph F or to commence
the performance of any of its obligations hereunder within five days after
notice by Landlord that Tenant has so failed to make or perform the same and
thereafter prosecute such work diligently to completion, Landlord shall have the
right (but shall not be obligated) to make any such repairs or perform any such
obligation by and on behalf of Tenant. In such event, Tenant shall pay to
Landlord, on demand, after the completion thereof, Landlord's cost and expense
in doing the same and there shall not be any allowance to Tenant or diminution
or abatement of Rent, or any liability on the part
23
<PAGE> 34
of Landlord by reason of inconvenience, annoyance or injury to Tenant's business
arising out of the actions of Landlord in making any such repairs or performing
any such obligation.
F. To make all repairs, alterations, additions or replacements to the
Demised Premises, including equipment, facilities and fixtures therein, required
because of Tenant's use or occupancy of the Demised Premises by any present or
future law or ordinance or any present or future order or regulation of any
governmental authority or board of fire underwriters having jurisdiction, or of
any other body or organization exercising functions affecting the Demised
Premises and the cleanliness, safety, use and occupancy thereof, or of any
insurance company providing coverage on any part of the Shopping Center to keep
the Demised Premises equipped with all safety appliances so required because, of
days use; and otherwise to comply with the laws, ordinances, orders and
regulations of all such governmental authorities, boards of fire underwriters,
bodies, organizations and insurance companies.
*which consent shall be deemed given 15 days after the giving of such notice if
Landlord has not disapproved the same within said period.
G. To pay promptly when due the entire cost of any work to the Demised
Premises, including equipment, facilities and fixtures therein, undertaken by
Tenant when permitted to do so under the provisions of Paragraph D of Section
8.2 hereof, so that the Demised Premises shall at all times be free of liens for
labor and materials; to provide all necessary permits before undertaking such
work; to do all such work in a good and workmanlike manner acceptable to
Landlord, employing materials of good quality; to perform such work in such
manner as to insure proper maintenance of good and harmonious labor relationship
with all governmental requirements relating thereto. The provisions of this
Paragraph G shall be inapplicable to any property of Tenant described in Section
III.C of Exhibit C.
H. To indemnify, defend and hold Landlord harmless against and from all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Landlord arising, directly or
indirectly, out of or in connection with the business conducted on the Demised
Premises or (without limiting the foregoing) any of the following occurring
during the Lease Term: (i) any work or thing done in, on or about the Demised
Premises or any part thereof; (ii) any use, non-use, possession, occupation,
condition, operation, maintenance or management of the Demised
24
<PAGE> 35
Premises or any part thereof or of Tenant's business; (iii) any negligence on
the part of Tenant or any of its Concessionaires, agents, contractors, employees
or invitees; (iv) any injury or damage to any person or property occurring in,
on or about the Demised Premises or any part thereof; (v) any loss which would
have been covered by any insurance which shall be cancelled by the insurance
carrier by reason of the occupancy, abandonment or failure of Tenant to occupy
the Demised Premises as herein provided; (vi) delay by Tenant in surrendering
the Demised Premises as required by Paragraph O of this Section 8.1, including,
without limitation, any claims founded on such delay made by any succeeding
occupant of the Demised Premises or any part thereof; or (vii) any failure on
the part of Tenant to perform or comply with any of the other covenants,
agreements, terms and conditions contained in this Lease on its part to be
performed or complied with in case any action or proceeding is brought against
Landlord by reason of any such claim, Tenant, upon written request from
Landlord, will at Tenant's expense resist or defend such action or proceeding by
counsel approved by Landlord, such approval not to be unreasonably withheld or
delayed (except that no such approval shall be necessary where counsel is
selected by an insurance company approved by Landlord).
I. To maintain in responsible companies approved by Landlord (i)
comprehensive general liability insurance, with contractual liability
endorsement covering the matters set forth in clauses (i), (ii), (iii) and (iv)
of Paragraph H above, against all claims, demands or actions for personal injury
or death and for damage to property in an amount of not less $1,000,000 for each
occurrence, made by or on behalf of any Person(s) arising from, related to, or
connected with the conduct and operation of Tenant's or any Concessionaire's
business in the Demised Premises, or caused by actions or omissions to act,
where there is a duty to act, of Tenant, its Concessionaires, agents,
contractors, employees or invitees; (ii) Steam Boiler and Machinery Insurance to
the limit of $500,000 if there is a boiler or pressure object or other similar
equipment in the Demised Premises; (iii) plate glass insurance covering all
plate glass in the Demised Premises; (iv) fire insurance, with such extended
coverage endorsements as Landlord reasonably may from time to time require,
covering all of Tenant's stock in trade, fixtures, furnishings, floor coverings,
equipment, signs, store front and all other installations and improvements made
by Tenant in, on or about the Demised Premises to the event of at least 80% of
their insurable value but in any event in an amount sufficient to prevent
Landlord and Tenant from becoming co-insurers under provisions of applicable
policies. Whenever, in Landlord's judgment, good business practice indicates
the need for additional insurance coverage or different types of insurance
(excluding rent or use and occupancy insurance in favor of landlord), Tenant
shall, upon request, obtain such insurance at its of said insurance shall be in
form satisfactory to Landlord and shall provide that it shall not be subject to
25
<PAGE> 36
cancellation, termination or change except after at least 10 days' prior written
notice to Landlord insurance provided by Tenant as required by this Paragraph I
shall name as insured parties Landlord and Tenant and any Person(s) designated
by either of as their respective interests may appear. In the case of insurance
against damage by fire or other casualty, the policy or policies shall provide
that loss shall be adjusted jointly with Landlord and Tenant and, at Landlord's
election, shall be payable either to a bank or trust company doing business in
the City of New York with assets of $10,000,000 or more as Insurance Trustee, to
be held and disbursed as provided in Section 9.1D hereof, or to the holder of
any mortgage on the fee or on any underlying leasehold, under a standard
mortgagee clause. The policy or policies, or duly executed certificate or
certificates for the same, together with satisfactory evidence of the payment of
the premium thereof, shall be deposited with Landlord before Tenant begins
Tenant's renewals of such policies shall be so deposited not less than 13 days
prior to the incaption of the term of such coverage. If Tenant fails to comply
with such requirements, Landlord may, but shall not be obligated to, obtain such
insurance and keep the same in effect, and Tenant shall pay Landlord the premium
cost thereof upon demand. It is intended that if a fire or other casualty
covered by the insurance required by this Paragraph I shall occur, Tenant will
look solely to its insurer for reimbursement, and, to that end, Tenant shall
cause such insurance to be so written that (except for any cause of action
Tenant's insurer might have against Tenant because of Tenant's actions or
inactions) the insurer thereunder waives all rights of subrogation and will have
no caution against Landlord, its agents and employees as a result of such fire
or casualty, no matter how caused; Landlord and Tenant each hereby releases and
waives all right of recovery which it might otherwise have against the other
agents and employees any reason of any loss or damage or casualty, no matter how
caused, to the extent that same is covered by the insurance covering Landlord or
Tenant as the case may be, or which would cover Landlord or Tenant if Landlord
or Tenant, as the case may be, complied with the requirements of this Paragraph
I.
J. To pay on demand any increase in premiums that may be charged on
insurance carried by Landlord or for which Landlord may be obligated to make
reimbursement to other tenants or occupants of the Shopping Center under the
terms of their respective leases or occupancy agreements, resulting from
Tenant's use or occupancy of the Demised Premises or the Shopping Center, or
from any vacancy of the Demised Premises, whether or not Landlord has consented
to the same. In determining whether increased premiums are the result of
Tenant's use or occupancy or vacancy of the Demised Premises, a schedule or
"make-up" rate of the organization issuing the fire insurance, extended
coverage, vandalism and malicious mischief, special extended coverage or any
all-risk insurance rates for said premises or any rule books issued by the
rating organization or similar bodies or by rating procedures or rules of
Landlord's insurance companies shall be
26
<PAGE> 37
conclusive evidence of the several items and charges which make up the insurance
rates and premiums on the Demised Premises and the Shopping Center. Tenant also
shall pay any increase in premiums on such rent insurance as may be carried by
Landlord for its protection against rent loss through fire or other casualty, if
such increase shall result from the occupancy, abandonment, or Tenant's failure
to occupy the Demised Premises as herein provided.
K. That Landlord and Landlord's agents and employees shall not be liable
for, and Tenant waves all claims for; loss or damage to Tenant's business or
damage to person or property sustained by Tenant or any person claiming through
Tenant resulting from any accident or occurrence (unless caused by or resulting
from the negligence of Landlord, its agents. servants or employees) in or upon
the Demised Premises or the building of which they shall he a part, or any other
part of the Shopping Center, including but not limited to claims for damage
resulting from: (i) any equipment or appurtenances be coming out of repair; (ii)
injury done or occasioned by wind (iii) any defect in or failure of plumbing,
heating or air conditioning equipment, electric wiring or installation thereof,
gas, water, and steam pipes, stairs, porches, railings or walIs; (iv) broken
glass; (v) the backing up of any sewer pipe or downspout; (vi) the bursting,
leaking or running of any tank, tub, washstand, water closet, waste pipe, drain
or any other pipe or tank in, upon or about such building or the Demised
Premises; (vii) the escape of Steam or hot water; (viii) water, snow or ice
being upon or coming through the roof, skylight, trapdoor, stairs, doorways,
show windows, with or any other place upon or near such building or the Demised
Premises or otherwise; (ix) the falling of any fixture, plaster, tile or stucco;
and (x) any act, omission or negligence of other tenants, licensees or of any
other persons or occupants of said building or of adjoining or contiguous
buildings or of owners of adjacent or contiguous property. The provisions of
this Paragraph shall no be deemed to relieve Landlord of its obligations under
Sections 6.1 and 7.1 hereof.
L. That Landlord or Landlord's agents shall have the right to enter upon
the Demised Premises at all reasonable times to examine same and to make such
repairs, alterations, improvements or additions in the Demised Premises or in
the building of which they are a part as may be necessary, and Landlord shall be
allowed to take all materials into and upon the Demised Premises that may be
required therefor without the same constituting an eviction of Tenant, in whole
or in part, and the Rent shall in nowise abate while such repairs, alterations,
improvements or additions are being made by reason of loss or interruption of
the business of Tenant because of the prosecution of any such work. Landlord or
Landlord's agents shall also have the right to enter upon the Demised Premises
at reasonable ies to show them to prospective purchasers or lessees of said
building. During the 60 days prior to the expiration of the term of this Lease,
Landlord may show the Demised Premises to prospective tenants.
27
<PAGE> 38
During said period Landlord may also place upon the Demised Premises the usual
notices "To Let" or "For Rent", which notices Tenant shall permit to remain
thereon without molestation. If, during the last month of the term, Tenant shall
have removed all or substantially all of Tenant's property therefrom, Landlord,
may immediately enter and alter, renovate and redecorate the Demised Premises
without elimination or abatement of Rent or other compensation and such action
shall have no effect upon this Lease. Nothing herein contained, however, shall
be deemed or construed to impose upon Landlord any obligation, responsibility or
liability whatsoever for the care, supervision or repair of said building or of
the Demised Premises, other than as in 'his Lease otherwise provided. (see
Addendum)
M. To pay on demand Landlord's expenses, including reasonable attorneys'
fees, incurred forcing, or determining the extent of, any obligation of Tenant
under this Lease, whether by summary proceeding, plenary action or otherwise, or
in curing any default by Tenant under this Lease, as provided in Sections 10.3
and 10.6.
N. Forthwith to cause to be discharged of record (by payment, bond, order
of a court of competent jurisdiction or otherwise) any mechanic's lien at
anytime filed against the Demised Premises for any work, labor, services or
materials claimed to have been performed at, or furnished to, the Demised
Premises, for or on behalf of Tenant, or anyone holding the Demised Premises
through or under Tenant. If Tenant shall fail to cause such lien to he
discharged upon demand, then, in addition to any other right or remedy of
Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due or by bonding or other proceeding deemed
appropriate by Landlord, and the amount so paid by Landlord and/or all costs and
expenses, including reasonable attorneys' fees, incurred by Landlord in
providing the discharge of such lien, shall be deemed to be Rent. Nothing in
this Lease contained shall be construed as a consent on the part of Landlord to
subject Landlord's estate in the Demised Premises to any lien or liability under
the Lien Law of the State of New York.
O. Upon the expiration or other termination of the Lease Term to quit and
surrender to Landlord the Demised Premises, broom clean, in good order,
condition and repair (ordinary wear and tear and damage by fire or other
casualty covered by Landlord's insurance excepted) and at Tenant's expense. to
remove all property of Tenant and each alteration, addition and improvement made
by Tenant as to which Landlord shall have made the election provided for in
Section 3.9 hereof, to repair all damages to the Demised Premises caused by such
removal and ~tore the Demised Premises to the condition in which they were prior
to the installation of the articles so removed. Any property not so removed and
as to which Landlord shall not have made said election, shall be deemed to have
been abandoned by Tenant and may be retained or disposed of by Landlord, as
Landlord ~hail desire. Tenant's obligation to observe or perform this covent
28
<PAGE> 39
shall survive the expiration or termination of the Lease Term. Immediately upon
the failure of Tenant to perform any covenant of this Paragraph O, Landlord may,
without notice, do so, and shall be entitled to receive from Tenant as
liquidated damages the then cost of performance of such covenant, such damages
to be paid in addition to and separate and independently from damages acnring by
reason of breach of any other covenant of the Lease.
If the Demised Premises be not surrendered as required in this Paragraph O
at the end of the Lease Term, Tenant shall pay to Landlord for each month or
fraction thereof that the Demised Premises are not so surrendered at the end of
the Lease Term. an amount computed in accordance with Section 10.5 of this
Lease.
*remove from the Demised Premises any installations that are peculiar to
Tenant's operation.
P. That this Lease is and all of Tenant's rights hereunder are subject and
subordinate to any existing ground or underlying lease of any part of the
Shopping Center and the same are and shall be subject and subordinate to any
mortgages or deeds of trust that now exist or may hereafter be placed upon the
Shopping Center or any part thereof and to any and all advances to be made
thereunder, and to the interest thereon, and all renewals, replacements,
modifications: consolidations and extensions thereof; provided the mortgagee or
trustee named in any mortgage or deed of trust hereafter made shall agree
therein, or in a separate agreement in recordable form delivered to Tenant, that
so long as Tenant is not in default hereunder, in the event of foreclosure, this
Lease shall not be terminated thereby and Tenant's possession hereunder shall
not be disturbed; that Tenant will attorn to and recognize the purchaser at any
foreclosure sale or at any sale under a power of sale contained in any such
mortgage or deed of trust, as the case may be, as Landlord under this Lease for
the balance then remaining of the Lease Term, subject to all of the terms of
this Lease; that Tenant shall execute and deliver whatever instruments may be
required to acknowledge such subordination and agreement to attorn in recordable
form, and in die event Tenant fails so to do within 10 days after demand in
writing, Tenant does hereby make, constitute and irrevocably appoint Landlord as
its attorney in fact and in its name, place and stead so to do. Any mortgagee or
trustee under any such mortgage or deed of trust or the lessor under any such
ground or underlying lease may elect that this Lease shall have priority over
its mortgage, deed of trust or lease and upon notification of such election by
such mortgagee, trustee or lessor to Tenant, this Lease shall be deemed to have
priority over said mortgage, deed of trust or ground or underlying lease whether
this Lease is dated prior to or subsequent to the date of said mortgage, deed of
trust or lease. Tenant will give prompt written notice to the mortgagee or
trustee under any such mortgage or deed of trust and the lessor under any such
ground or underlying lease of any default of Landlord in its obligations under
this Lease, if such default is
29
<PAGE> 40
of such a nature as to give Tenant a right to (i) terminate this Lease, (ii)
reduce the Rent or any other sum due hereunder or (iii) credit or offset any
amounts against future Rents payable hereunder, provided that Tenant shall not
be obligated to give such notice to any such Person who shall not have advised
Tenant in writing of his status as mortgagee, trustee or lessor, as the case may
be, and of the address to which such notices should be sent.
Q. In the event any proceedings are brought for the termination of any
ground or underlying lease affecting die Demised Premises, upon such
termination, if the lessor thereunder elects or is obligated to recognize
Tenant, to attorn to such lessor and to recognize such lessor as Landlord under
this Lease.
Except during the last 90 days of the Lease Term, to
R. /refer to the Shopping Center as Kings Flasa, Brooklyn, New York, in
designating the location of the Demised Premises in all newspaper or other
advertising, stationery or other printed material and all other references to
die location of the Demised Premises; to include the address, identity and
telephone number of the business activity in the Demised Premises in all
advertisements in any manner, in any medium (including, without limitation,
press, radio, television, catalogs, handbills, and telephone listings), made by
Tenant in which the address, identity and telephone number of any other business
activity of like character conducted by Tenant in the City of New York shall be
mentioned and to use in such advertising only Tenant's Trade Name specified in
Section 1.1 hereof, unless otherwise permitted by Landlord in writing. The
foregoing requirements shall not apply to advertising of any particular location
or store.
S. To remain fully obligated under this Lease notwithstanding any
assignment or sublease or any indulgence, granted by Landlord to Tenant or to
any assignee or sublessee.
T. To obtain all permits or licenses necessary to conduct business in the
Demised Premises.
U. To provide a suitable identification sign or signs of such size, design
and character as Landlord shall approve and install the same at a place or
places designated by Landlord. Tenant shall maintain any such sign or other
installation in good condition and repair.
V. To conform to all reasonable rules and regulations which Landlord may
make for the management and use of the Shopping Center, requiring such
conformance by Tenant and Tenant's employees.
Section 8.2 Negative Covenants. Tenant covenants at all times during the Lease
Term and such further time as Tenant occupies
30
<PAGE> 41
the Demised Premises or any part thereof:
A. Not to sell, display, or distribute any alcoholic liquors or beverages
for consumption off the Demised Premises.
B. Not to permit any building apparatus, fixtures, appliances or similar
equipment placed in or on the Demised Premises and affixed to the realty to be
or become subject to any mortgages, liens, security agreements or encumbrances
as the result of any action or failure to act by Tenant, except as permitted
under Section 8.1G hereof. (See Addendum)
C. Not to injure, overload, deface or otherwise harm the Demised Premises
or any part thereof or any equipment or installation therein; nor commit any
nuisance; nor permit the emission of any objectionable noise or odor; nor burn
any trash or refuse within the Shopping Center; nor install or cause to be
installed any automatic garbage disposal equipment; nor flake any use of the
Demised Premises or of any part thereof or equipment therein which is improper,
offensive or contrary to any law or ordinance or to reasonable rules and
regulations of Landlord as such may be promulgated from time to time; nor use
any advertising medium that may constitute a nuisance, such as loudspeakers,
sound amplifiers or phonographs in a manner to be heard outside the Demised
Premises; nor conduct any auction, fire, "going out of business" or bankruptcy
sales except under reasonable conditions approved by Landlord in writing; nor do
any act tending to injure the reputation of the Shopping Center; nor sell or
display merchandise on, or otherwise obstruct, the Common Areas or anywhere else
in the Shopping Center outside the confines of the Demised Premises; nor permit
any of Tenant's officers or employees, any Concessionaire or any of its officers
or employees to use any parking facility other than those designated by Landlord
for such use; nor use the malls, courts and walks for any purpose other than
pedestrian traffic.
D. Not to make any alterations or additions to the Demised Premises, nor
permit the making of any holes in the walls, ceilings or floors thereof
installed as part of Landlord's Work, without on each occasion obtaining the
prior written consent of Landlord;* nor attach interior signs, placards, or
other advertising media or other objects to the windows, doors, valances or
ceilings or locate the same either outside of or within the Demised Premises in
such manner as to obstruct the view of Tenant's store from the mall area or from
the outside other than insubstantially.
E. Not to operate any coin or token operated vending machine or similar
device for the sale of any goods, wares, merchandise, food, beverages, or
services, including, but not limited to, pay telephones, pay lockers, pay
toilets, scales, amusement devices and machines for the sale of beverages,
foods, candy, cigarettes or other commodities, without the prior written consent
of Landlord. Landlord hereby consents to the operation of two pay telephones,
one cigarette vending machine and two
31
<PAGE> 42
video games not visible from the Covered Mall, but the same shall be subject to
the provisions of Section 4.3B hereof.
F. Not to permit (i) the extermination of vermin to be performed in, on or
about the Demised Premises except by a Person, if any, designated by Landlord;
or (ii) laundry accumulated in Tenant's operations or on the Demised Premises to
be collected and serviced except by the Person, if any, designated by Landlord
but in each case Landlord agrees that the prices to be charged therefore by the
Person so designated shall be competitive; or (iii) Window cleaning, janitorial
services in and for the Demised Premises and such work as is performed by or on
behalf of Tenant on the exterior of the Demised Premises in connection with the
cleaning, maintenance and upkeep thereof to be performed except by its own
employees or an outside person or company designated by Landlord and during
reasonable hours designated from time to time for such purposes by Landlord.
G. Not to permit the use of any forklift truck, tow truck or any other
mechanically powered machine or equipment for handling freight in the Demised
Premises or other portions of die Shopping Center (except in the roof top truck
delivery area thereof). All equipment and devices hauling freight in the Demised
Premises or portions of the Shopping Center other than in the said roof too
delivery area thereof shall be propelled by hand and shall be provided with
rubber-tired wheels.
*except to the extent contemplated by the plans and specifications approved by
Landlord pursuant to Section 3.2 hereof.
H. Not to operate or cause to be operated any "elephant trains" or other
means of transportation.
I. Not to change the exterior color or architectural treatment of the
Demised Premises or of the building in which the same is located, or any part
thereof.
J. Not to place or install or suffer to be placed or installed or maintain
any sign upon or outside the Demised Premises or in the Shopping Center unless
approved by Landlord pursuant to Paragraph L of Section 8.1 hereof, nor any sign
within a half of the Shopping Center; nor any awrang, canopy, banner, flag;
pennant, aerial, antenna or the like in or on the Demised Premises; nor shall
Tenant place in the windows or display windows any sign, decoration, lettering,
advertising matter, shade or blind or other thing of any kind, other than neatly
lettered signs of reasonable site placed on the floor thereof identifying
articles offered for sale and the price thereof, without first obtaining
Landlord's written approval and consent in each instance.
J. Not to place a load upon any floor of the Demised Premises which
exceeds the floor load per square foot area which
32
<PAGE> 43
such floor was designed to carry. If Tenant shall desire a floor load in excess
of that for which the floor or any portion of the Demised Premises is designed,
upon submission to Landlord of plans showing the location of and the desired
floor live load for the area in question, Landlord shall, if feasible,
strengthen and reinforce the same, at Tenant's sole expense, so as to the live
load desirei Business machines and mechanical equipment used by Tenant which
cause vibration or noise that may be transmitted to the building structure or to
any leased space to such a degree as to be reasonably objectionable to Landlord
or to any tenants in the building shall be placed and maintained by Tenant, at
its expense, in settings of cork, rubber or spring-type vibration eliminators
sufficient to eliminate such vibration or noise.
L. Not to install, operate or maintain in the Demised Premises any
electrical equipment which will "overload" the electrical system therein, or
any part thereof, beyond its reasonable capacity for proper, efficient and safe
operation (as determined by Landlord taking into consideration the overall
system and requirements there for in the Shopping Center) or which does not bear
underwriter's approval.
Section 8.3 Merchant's Association; Marketing Fund.
A. (i) Concurrently with the execution of this Lease, Tenant has paid to
Kings Plaza Merchants' Association, Inc. (the "Association") the sum of $100 in
payment of the initiation fee payable by new members of the Association Tenant
agrees to join and to maintain membership in good standing in the Association
throughout the Lease Term, to pay to the Association dues in an amount equal to
the greater of (a) $400 per annum, or (b) 50 cents per annum per square foot of
Floor Space of the Demised Premises, subject in either case to the same
adjustments as are provided in subparagraph (iii) of Paragraph B below in
respect of the Marketing Charge, to pay all assessments as may be fixed and
determined from time to time by the Association in accordance with its By-Laws,
to comply with the provisions of said By-Laws, and to cooperate in all of the
activities of the Association. The provisions of this subparagraph (I) shall
take precedence over any inconsistent or contrary provision contained in said
By-Laws.
(ii) Tenant further agrees, at Tenant's expense, to advertise
Tenant's business in the Demised Premises in at leastA~ newspaper sections or
tabloids per year sponsored by die Association for advertising by tenants of the
Shopping Center; and Tenant agrees that each of its advertisements shall be at
least the minimum display size hereinafter set forth. if Tenant's Floor Space is
(a) 10,000 square feet or more, one full page; (b) less than 10,000 but at least
5,000 square feet, one-half page; (c) less than 5,000 square feet, one quarter
page. If Tenant shall fail timely to submit its copy for such advertising, the
Association, at its election, shall have the right (but not the obligation) to
submit copy consisting of only Tenant's Trade Name and Address to the printer
for the inclusion
33
<PAGE> 44
of such printed advertising media on behalf of and for the account of Tenant. If
in any quarter-annual period, such section or tabloid is not published, Tenant
shall nevertheless pay to the Association an amount equivalent to the cost in
the last such section or tabloid, as determined by the Association in its sole
discretion, to the minimum display site advertisement required of Tenant
hereunder, such payment to be used for the purposes of advertising and promoting
the Shopping Center. If Tenant shall refuse or neglect to pay such sums of money
to the Association, Landlord may, in its discretion, pay said sums and in such
event, Tenant agrees to reimburse and pay Landlord upon demand all sums so
expended which shall be deemed to be additional rent under this Lease.
B. (i) Landlord reserves the right and option at any time to cause a
Marketing Fund (the "Marketing Fund") to be formed in lieu of the Association
for the purpose of paying for advertising arid sales promotions for the Shopping
Center. In such event, Tenant agrees to pay to Landlord a "Marketing Charge" as
described in subparagraph (ii) below and the Marketing Charge paid by Tenant
arid other tenants of the Shopping Center will be deposited into the Marketing
Fund. The Marketing Fund will be used by Landlord to pay all costs and expenses
for the operation of a program for the promotion of the Shopping Center, which
program may include, without limitation, special events, shows, displays, signs,
seasonal events, institutional advertising for the Shopping Center, promotional
literature and other activities designed to attract customers to the Shopping
Center. The Marketing Fund may also be used to pay the costs and expenses of
administration of the Marketing Fund including, without limitation, the salary
of the marketing director and related administrative personnel, rent and
insurance Landlord shall have the right to employ or cause to be employed all
promotional services and personnel which, in Landlord's judgment, are necessary
to administer the Marketing Fund and operate such promotional activities; such
personnel shall be under the exclusive control and supervision of Landlord which
shall have the sole authority to employ and discharge such personnel. Landlord
shall have no obligation to pay for any costs or expenses in excess of the sums
contributed, as above set forth, to the Marketing Fund A committee, comprised of
a representative of Landlord, a representative of each of the occupants of the
Department Store Parcels, and no less than four representatives of the other
tenants of the Shopping Center, will be formed to discuss the activities
sponsored by the Shopping Center.
(ii) Tenant shall pay to Landlord, as additional rent, in equal
monthly installments in advance on the first day of each calendar month of the
Lease Term as a Marketing Charge, the greater of (a) $400 per annum, or (b) 50
cents per annum per square foot of Floor Space of the Demised Premises, in
either case adjusted as provided in subparagraph (iii) hereof.
34
<PAGE> 45
(iii) The Consumer Price Index for All Urban Consumers, United
States City Average, All Items (1967 = 100), issued by the Bureau of Labor
Statistics of the United States Department of Labor (hereinafter called the
"Index") for the month of January, 1981 is hereinafter called the "Base Number".
The term "Current Number applicable to any Lease Year" as used herein means the
latest Index published for the month of January immediately preceding the
commencement of the particular Lease Year by the Bureau of Labor Statistics or
other governmental agency then publishing the Index (or if the Index is no
longer published, the index of consumer prices reasonably deemed by Landlord to
be comparable to the Index), after tnaliing such adjustments as may be
prescribed by the agency publishing the same or as otherwise so deemed to be
required to compensate for changes subsequent to January 1, 1967 in the base,
items included or me period of compilation thereof. Except for the purpose of
initially determining the amount of the Marketing Charge, the term "Lease Year"
as used in this subparagraph (iii) shall not include a Partial Lease Year. If
the latest Current Number applicable to any Lease Year exceeds the Base Number,
then in lieu of the figure of $400 per annum used in clause (a) of subparagraph
(ii) hereof, or in lieu of the figure of 50 cents used in clause (b) of
subparagraph (ii) hereof, in either case adjusted as provided in this
subparagraph (iii), there shall be used an amount equal to $400 or 50 cents
multiplied by a fraction, the numerator of which is the Current Number and the
denominator of which is the Base Number; but in no event shall the figures to be
utilized herein increase the Marketing Charge after the first Lease Year more
than 10% above, or reduce the Marketing Charge below, the Marketing Charge for
the Lease Year immediately preceding the particular Lease Year.
(iv) Tenant further agrees, at Tenant's expense, to advertise
Tenant's business in the Demised Premises in at least newspaper sections or
tabloids per year sponsored by Landlord for advertising by tenants of the
Shopping Center; and Tenant agrees that each of its advertisements shall be at
least the minimum display size hereinafter set forth: if Tenant's Floor Space is
(a) 10,000 square feet or more, one full page; (b) less than 10,000 but at
least 5,000 square feet, one-half page; (c) less than 5,000 square feet, one
quarter page. If Tenant shall fail timely to submit its copy for such
advertising, Landlord, at its election, shall have the right (but not the
obligation) to submit copy consisting of only Tenant's Trade Name and Address to
the printer for inclusion in such printed advertising media on behalf of and for
the account of Tenant. If, in any annual period, such section or tabloid is not
published, Tenant shall nevertheless pay to the Marketing Fund an amount
equivalent to the cost (as determined by Landlord in Landlord's sole discretion)
of the minimum display size required of Tenant hereunder, such payment to be
used for the purposes set forth in subparagraph (i) of this Paragraph B. If
Tenant shall refuse or neglect to pay such sums of money, Landlord may pay such
sums and, in such event, Tenant agrees to reimburse and pay Landlord
35
<PAGE> 46
upon demand all sums 50 expended which shall be deemed to be additional rent
under this Lease.
C. Landlord reserves the right and option at any time and from time to
time to alternately establish either a Marketing Fund or an Association. Upon
the establishment of either a Marketing Fund or an Association, Tenant will
comply with all of its obligations with respect thereto as set forth in either
Paragraph A or Paragraph B of this Section 8.3, as the case may be.
Section 8.4 Assignment, etc.; Control of Tenant.
A. Tenant shall not assign, sell, mortgage, pledge or in any manner
transfer or enter this Lease or any interest therein, or sublet the Demised
Premises or any part or parts thereof, or grant any concession or license or
otherwise permit occupancy of all or any part thereof by others without the
prior written consent of Landlord. Neither the consent by Landlord to an
assignment, subletting, concession or license nor the references in Sections
4.3B, 4.3C, 5.2 and 8.2C hereof to Concessionaires shall in any way be construed
to relieve Tenant from obtaining the express consent of Landlord to any further
assignment, whether of this Lease or of a permitted sublease, or subletting or
to the granting of any concession or license for the use of any part of the
Demised Premises, nor shall the collection of Rent by Landlord from any
assignee, subtenant or other occupant, after default by Tenant, be deemed a
waiver of this covenant or the acceptance of the assignee, subtenant or occupant
as Tenant or a release of Tenant from the further performance by Tenant of the
covenants in this Lease on Tenant's part to be performed.
(See Addendum)
B. If Tenant is a corporation or partnership, it shall be deemed an
assignment or transfer of this Lease if at any time the Lease Term the Person(s)
which, at the time of the execution of this Lease or at the time of a permitted
assignment, as the case may be, own(s) a majority of such corporation's voting
shares or the general partners' interest in such partnership, as the case may be
cease(s) to owe a majority of such shares or general partners' interests, as the
case may be (except as the result of transfers by bequest or inheritance). This
Paragraph B shall not apply whenever Tenant is a corporation the outstanding
voting stock of which is listed as a recognized security exchange (not including
the over-the-counter market). For the purposes of this Paragraph B, stock
ownership shall be determined in accordance with the principles set forth in
Section 544 of the Internal Revenue Code of 1954 as the same existed on November
15, 1981, and the "voting stock" shall refer to shares of stock regularly
entitled to vote for the election of directors of the corporation.
C. In the event Tenant shall desire Landlord's consent to the assignment
of this Lease or the subletting or the granting of any concession or license for
the use of all or any part of the
36
<PAGE> 47
Demised Premises, Tenant shall give Landlord prior written notice thereof, such
notice to contain the name and business of the proposed assignee or
Concessionaire and a copy of all the proposed documentation for such
transaction. Upon receipt of such notice Landlord shall have, within 90 days
after receipt thereof, the right to grant or refuse such consent or the option
to terminate this Lease (the "option" effective on the date elected. by
Landlord, which shall not be after the 120th day after Landlord's exercise of
the option, and of such effective date of termination (after adjusting Rent and
other charges as of such effective date), Landlord and Tenant shall be relieved
of any further liability to each other under this Lease and Tenant shall
forthwith vacate the Demised Premises. If Landlord grants such consent or fails
to exercise the option within the 90 day period, then Tenant may consummate such
transaction on the same terms and conditions as set forth in the notice to
Landlord. In the event Tenant does so assign sublet or such concession or
license, Tenant agrees to it thereafter shall pay to Landlord as "added
additional rent" any difference between the Rent plus all other additional rent,
and payments (however denominated in any such case) paid or payable to Tenant
by the assignee or Concessionaire pursuant to Tenant's assignment, sublease,
concession or license, such "added additional rent" to be paid to Landlord on
the earlier of the date received by Tenant or monthly on the first day of each
calendar month during the Lease Term. After any assignment, subletting,
concession or license, the Demised Premises shall continue to be operated only
in accordance with Section 8.1B. Within five days after any assignment,
subletting, concession or license, Tenant shall deliver to Landlord counterpart
originals of all instruments evidencing the assignment, subletting, concession
or license, including, in the case of an assignment, a duly executed and
acknowledged instrument pursuant to which the assignee has agreed to assume and
be bound by all of the terms, provisions and conditions of this Lease (See
Addendum)
ARTICLE IX. DESTRUCTION; CONDEMNATION.
Section 9.1 Fire or Other Casualty.
A. Tenant shall give prompt notice to Landlord in case of fire or other
damage to the Demised Premises or the building in which they are located.
B. If (i) either the Demised Premises or buildings containing Floor Space
(taken in aggregate in the Shopping Center shall be damaged to the extent of
more than 25% of the cost of replacement thereof, respectively, or (ii) the
proceeds of Landlord's insurance recovered or recoverable as a result of the
damage shall be insufficient to pay fully for the cost of replacement of so much
of the Demised Premises and the building in which they are located as was
included in the Landlord's Work provided for in Section 3.1 hereof, or (iii) the
Demised Premises or said building shall be damaged as a result of a risk which
is
37
<PAGE> 48
not covered by Landlord's insurance, or (iv) the Demised Premises shall be
damaged in whole or in part during the last three years of the Lease Term or of
any renewal term hereof, or (v) the building of which the Demised Premises are a
part shall be damaged to the extent of 50% or more of the cost of replacement
thereof, whether or not the Demised Premises shall be damaged; then in any such
event, Landlord may terminate this Lease by notice to Tenant given within 90
days after such event and upon the date specified in such notice which shall be
not less than 30 days nor more than 60 days after the giving of said notice,
this Lease and the Lease Term shall terminate and come to an end, and Tenant
shall vacate and surrender the Demised the casualty, repairing, or building
shall render the Demised Premises untenantable or inaccessible, in whole or in
part, a proportionate abatement of the Fixed Minimum Rent shall be allowed from
the date when the damage occurred until completion of the repairs or rebuilding
or, in the event Landlord elects to terminate this Lease, until said date of
termination. Said proportion shall be computed on the basis of the ratio which
the amount of Floor Space rendered untenantable bears to the total Floor Space
of the Demised Premises.
C. If this Lease shall not be terminated as provided in Paragraph B
hereof, Landlord shall, at its expense, proceed with so much of the repair or
restoration of the Demised Premises and the building in which they are located
as was included in Landlord's Work provided for in Section 3.1 hereof. All
repairs and restoration of the Demised Premises not included in Landlord's Work
shall be performed by Tenant at its expense. All work of restoration by either
party shall be done in conformity with Exhibits C and D hereto.
D. Unless the insurance carried by Tenant as required by Paragraph I (iv)
of Section 8.1 hereof shall be payable to an Insurance Trustee or a mortgage as
therein provided, the proceeds of such insurance shall be deposited in a special
bank account to be opened and maintained by landlord* for the purpose of the
casualty in question and shall be distributed therefrom in payment of the cost
of repair or restoration performed by Tenant as the work progresses, against
certificates, in form and substance and by a person satisfactory to Landlord,
showing that the disbursement to be made represents 85% of the value of work and
materials described in the certificate and that the estimated cost of
completion does not exceed the undisbursed balance of such proceeds. The balance
of such proceeds shall be paid to Tenant upon a like certificate and other
evidence satisfactory to Landlord showing, among other things, that the repair
or restoration has been completed and paid for in full, that all necessary
governmental approvals have been obtained, Tenant has reopened for business in
the Demised Premises and
38
<PAGE> 49
that there are no mechanics' or other liens outstanding relating thereto.
Disbursements by an Insurance Trustee or a mortgagee in a similar manner. If
Tenant shall fail to proceed with the repairs or restoration which it is
obligated to make under Paragraph C hereof, Tenant shall have no right or claim
~ the said insurance proceeds which may then be disposed of as Landlord, in its
sole discretion, may determine.
*or by Landlord's attorney, if Landlord herein named is not Landlord at the time
in question
E. The "cost of replacement," as such term is used in Paragraph B hereof,
shall be determined by the company or companies selected by Landlord insuring
Landlord against the casualty in question, or if there shall be no insurance,
then as the parties hereto shall agree, or in the absence of an insurance
company determination or an agreement, as shall be determined by arbitration
according to the rules and practice of the American Arbitration Association.
Section 9.2 Eminent Domain.
A. If the whole of the Demised Premises shall be taken by any public or
quasi-public authority under the power of condemnation, eminent domain or
expropriation, or in the event of conveyance in lieu thereof, the Lease Term
shall cease as of the day possession shall be taken by such authority.
B. If 25% or less of the Floor Space of the Demised Premises shall be so
taken or conveyed, the Lease Term shall cease only with respect to the part so
taken or conveyed, as of the day possession shall be taken by such authority.
C. If more than 25% of the Floor Space of the Demised Premises shall be so
taken or conveyed, the Lease Term shall cease only with respect to the part so
taken or conveyed, as of the day possession shall be taken by such authority,
and either party shall have the right to terminate this Lease upon notice in
writing within 30 days after such taking of possession.
D. In the event of any such taking or conveyance of the Demised Premises
or any portion thereof, Tenant shall pay Rent to the day when possession thereof
shall be taken by such authority with an at propriate refund by Landlord of such
Rent as may have been paid in advance for a period subsequent to such date. If
this Lease shall continue in effect as to any portion of the Demised Premises
not so taken or conveyed, the Fixed Minimum Rent shall be reduced to an amount
computed according to Section 1.1 hereof applied to the Floor Space of the
Demised Premises remaining and the Tax Rent, Common Area Charges and Association
dues and assessments or Marketing Charges, as the case may be shall thereafter
be computed on the basis of such Floor Space If this Lease shall so continue,
Landlord shall, at its expense but only to the extent of an equitable proportion
of the award or other compensation for the portion taken or conveyed
39
<PAGE> 50
of the building in which the Demised Premises are located and consequential
damages to the remainder thereof not taken (excluding any award or other
compensation for land), make all necessary repairs or alterations so as to
constitute the remaining Demised Premises a complete architectural and
tenantable unit; and Tenant shall, at its expense, make all other necessary
repairs or alterations to constitute the remaining Demised Premises a tenantable
unit. All work of repair or alteration by either party shall be done in
conformity with Exhibits C and D.
E. If more than 50% of the Floor Space of the building in which the
Demised Premises are located shall be so taken or conveyed, whether or not any
portion of the Demised Premises shall be taken or conveyed, or if more than 25%
of the total Floor Space in the Shopping Center shall be so taken or conveyed,
or if so much of the parking facilities shall be so taken or conveyed that a
reasonable number of parking spaces necessary, in Landlord's judgment, for the
continued operation of the Shopping Center shall not be available for use by
patrons of the Shopping Center, or if any means of ingress to and egress from
the Shopping Center shall be so taken or conveyed that, in Landlord's judgment.
reasonable means of ingress and egress for continued operation of the Shopping
Center shall not be available for use by patrons of the Shopping Center, then,
in any such event, Landlord may, by notice in writing to Tenant delivered on or
before the day of surrendering possession to the authority, terminate this
Lease, and Rent shall be paid or refunded as of the date of termination.
F. All compensation awarded for any such taking or conveyance, whether for
the whole or a part of the Demised Premises or otherwise, shall be the property
of Landlord, whether such damages shall be awarded as compensation for
diminution in the value of the leasehold or to the fee of- the Demised Premises,
and Tenant hereby assigns to Landlord all of Tenant's right, title and interest
in and to any and all such compensation. Tenant shall be entitled to claim,
prove and receive in the condemnation proceeding such awards as may be allowed
for trade fixtures or for loss of business, "good will,' depreciation or Injury
to and cost of removal of stock in trade. but only if such awards shall be made
by the condemnation court in addition to, and shall not result in a reduction
of, the award for the land and buildings so taken.
ARTICLE X. DEFAULTS AND REMEDIES.
Section 10.1 Bankruptcy.
A. (i) If Tenant or Guarantor shall: (a) commence a voluntary case for
relief as a debtor under the United States Bankruptcy Code or file a petition to
take advantage of any other present or future insolvency act or other applicable
law relating to bankruptcy, insolvency, reorganization or relief of debtors; (b)
make an assignment for the benefit of creditors; or
40
<PAGE> 51
(c) consent to, or acquiesce in, the appointment of a receiver; liquidator,
trustee, custodian or other similar official of itself or of the whole or any
substantial part of its properties or assets, or (ii) if, without Tenant's or
Guarantor's consent or acquiescence, (a) a court of competent jurisdiction shall
enter an order, judgment or decree appointing a receiver, liquidator, trustee,
custodian or other similar official of Tenant or Guarantor, or of the whole or
any substantial part of the property or assets of Tenant or Guarantor and such
order, judgment or decree shall remain unvacated, or not set aside, or unstayed,
for 30 days, or (b) an involuntary case under said Bankruptcy Code shall be
commenced against Tenant or Guarantor or a petition shall be filed against
either seeking similar relief under any other present or future insolvency act
or other applicable law relating to bankruptcy, insolvency, reorganization or
relief of debtors and such case or petition shall remain undismissed for 30
days, or (c) under the provisions of any other law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
Tenant or Guarantor or not the whole or any substantial part of the property or
assets of either and such custody or control shall remain unterminated or
unstayed for 30 days; then, in any such event, this Lease, at the option of
Landlord, may be cancelled and terminated, in which event neither Tenant nor any
Person claiming through or under Tenant by virtue of any statute or of an order
of any court, as the case may he, shall be entitled to acquire or remain in
possession of the Demised Premises but shall forthwith quit and surrender the
Demised Premises and Landlord shall have no further liability hereunder to
Tenant. If this Lease shall be so cancelled or terminated, Landlord, in addition
to the other rights and remedies of Landlord by virtue of any other provisions
herein or elsewhere in this Lease contained or by virtue of any Statute or rule
of law, may retain as liquidated damages any Rent, Security Deposit or moneys
received by Landlord from Tenant or others in behalf of Tenant,
B. It is stipulated and agreed that in the event of the termination of
this Lease pursuant to Paragraph A hereof, Landlord shall forthwith,
notwithstanding any other provision of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between: (x) the sum of (a) the annual Fixed Minimum Rent, (b) the
average annual Percentage Rent payable hereunder for the three Lease Years
immediately preceding (Or for the entire preceding portion of the Lease Term if
less than three Lease Years), (c) the Tax Rent payable in the Lease Year
immediately preceding such termination. (d) the Utility Service Charges payable
in such Lease Year. (e) the annual Common Area Charge last payable. and (f)
Association dues and assessments or Marketing Charges, as the case may be, last
payable for one year, all multiplied by the number of years and fraction of a
year then constituting the unexpired portion of the Lease Term, and (y) the
rental value of the Demised Premises at the tune of termination for such
unexpired term or portion thereof, both discounted at the rate of 4% per annum
to present worth. If the Demised
41
<PAGE> 52
Premises or any part thereof be relet by Landlord for the unexpired portion of
the Lease Term, or any part thereof, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon such reletting shall be deemed facing to be the fair and
reasonable rental due for the part or the whole of the Demised Premises so relet
during the term of the reletting. Nothing herein contained shall limit or
prejudice the right of Landlord to prove for and Obtain as liquidated damages by
reason of such termination an amount equal to the maximum allowed by any statute
or rule of law in effect at the time when, and governing the proceedings in
which, such damages are to be proved, whether or not such amount be greater
than, equal to or less than the amount of the difference referred to above.
Section 10.2 Default.
A. (i) If Tenant defaults in the payment of any Rent when due and such
default shall continue for 15 days after notice from Landlord to Tenant, or (ii)
if Tenant defaults in fulfilling any of the other covenants, terms, provisions
or conditions of this Lease on Tenant's part to be performed hereunder and such
default shall continue for the period within which performance is required to be
made by specific provision of this Lease or, if no such period is so provided,
for 15 days after notice from Landlord to Tenant specifying the nature of said
default, or, if the default so specified shall be of such a nature that the same
cannot be reasonably cured or remedied within such 15 day period if Tenant shall
not in good faith have commenced the airing or remedying of such default within
such 15 day period and shall not thereafter diligently proceed therewith to
completion, or (iii) if any execution or attachment shall be issued against
Tenant or any of Tenant's property and shall not be discharged or vacated within
10 days after the issuance thereof, or (iv) if Tenant shall between Landlord and
Tenant and such default shall not have been cured within such period of grace as
shall be provided, (v) if Tenant shall fail to open for business on the
commencement date of the Lease Term assigned by the provisions of Sections 2.2
and 3.3 hereof, or (vi) should any two out of three consecutive annual
statements of the Gross Sales furnished by Tenant understate the amount of Gross
Sales by more than 2% after notice by Landlord to Tenant of the first such
understatement, then in any one or more of such events, (if the Lease Term shall
not have commenced) Landlord may cancel this Lease by written notice to Tenant,
or (if the Lease Term shall have commenced) Landlord may serve upon Tenant a
written notice that this Lease and the Lease Term will terminate on a date to be
specified therein, which shall be not less than three days after the giving of
such notice, and upon the date so specified, this Lease and the Lease Term shall
terminate and come to an end as fully and completely as if such date were the
day herein definitely named for the end and expiration of this Lease and the
Lease Term, and Tenant shall then quit and surrender the Demised Premises to
Landlord but Tenant shall remain liable as hereinafter set forth; provided,
however, that if Tenant shall default (a) in the timely
42
<PAGE> 53
payment of Fixed Minimum Rent, Percentage Rent, Common Area Charges, Utility
Service Charges, or either Association dues or assessments or Marketing Charges,
whichever shall be payable, or in the timely reporting of Gross Sales as
required by Section 4.3 hereof, or any of them, and any such default shall
continue or be repeated for two consecutive months or for a total of four months
in any period of 12 months or (b) in performance of any other particular
covenant of this Lease more than six times in any period of 12 months, then,
notwithstanding that such defaults shall have each been cured within the period
after notice as above provided, any further similar default shall be deemed to
be deliberate and Landlord thereafter may serve the said written three days
notice of termination without affording to Tenant an opportunity to cure such
further default.
B. If the notice provided for in Paragraph A hereof shall have been given
and this Lease shall be terminated; or if the Demised Premises become vacant or
deserted; then, in either of such events, Landlord may without notice terminate
all services, re-enter the Demised Premises either by force or other means, and
by summary proceedings or otherwise, dispossess Tenant and the legal
representative of Tenant or other occupant of the Demised Premises, and remove
their effects and hold the premises as if this Lease had not been made.
C. Nothing in Paragraph A hereof shall be deemed to require Landlord to
give the notices therein provided for prior to the commencement of a summary
proceeding for non-payment of rent or a plenary action for the recovery of rent
on account of any default in the payment of rent, it being intended that such
notices are for the sole purpose of creating a conditional limitation hereunder
pursuant to which this Lease shall terminate and Tenant shall become a holdover
tenant.
Section 10.3 Remedies of Landlord.
A. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (i) the Rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration; (ii) Tenant
shall pay to Landlord all expenses, including court costs and attorneys' fees
and disbursements, incurred by Landlord in recovering possession of the Demised
Premises and all costs and charges for the care of the Demised Premises while
vacant; (iii) Landlord may relet the Demised Premises or any part or parts
thereof, either in the name of Landlord or otherwise, for a term which may at
Landlord's option be less than or exceed the period which would otherwise have
constituted the balance of the Lease Term, and may grant concessions or free
rent; and (iv) Tenant or the legal representative of Tenant shall also pay
Landlord, as liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, for each month of the period which
would otherwise have constituted the balance of the Lease Term, any deficiency
between (x) the sum of (a) one monthly installment of Fixed Minimum Rent, (b)
one-twelfth of
43
<PAGE> 54
the average Percentage Rent payable hereunder for the three Lease Years
immediately preceding (or for the entire preceding portion of the Lease Term if
less than three Lease Years), (c) the Tax Rent that would have been payable for
the month in question but for such re-entry or termination, (d) the Utility
Service Charges payable for such month computed on the basis of the average
monthly consumption for the said preceding Lease Years or portion of the Lease
Term, (e) the current monthly Common Area Charge and (f) the current Association
dues and assessments or Marketing Charges, as the case may be, computed on a
monthly basis and (y) the net amount, if any, of the rents collected on account
of the lease or leases of the Demised Premises. The refusal or failure of
Landlord to relet the Demised Premises or any part or parts thereof shall not
release or affect Tenant's liability for damages. In computing such liquidated
damages there shall be added to the said deficiency such expenses as Landlord
may incur in connection with reletting, such as attorneys' fees and
disbursements, brokerage and for putting and keeping the Demised Premises in
good order or for preparing the same for reletting as hereinafter provided. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this Lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of
Landlord to collect the deficiency for any subsequent month by a similar
proceeding. Landlord at Landlord's option may make such alterations, repairs,
replacements and/or decorations in the Demised Premises as Landlord in
Landlord's sole judgment considers advisable and necessary for the purpose of
reletting the Demised Premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid Landlord shall in no event be liable in any way
whatsoever for failure to relet the Demised Premises, or in the event that the
Demised Premises are relet, for failure to collect the rent thereof under such
reletting.
B. In any of the circumstances mentioned in the foregoing Paragraph A in
which Landlord shall have the right to hold Tenant liable upon the several rent
days as therein provided, Landlord shall have the election, in place and instead
of holding Tenant so liable, forthwith to recover against Tenant, as damages for
loss of the bargain and not as a penalty, the liquidated damages provided for in
Paragraph B of Section 10.1 hereof.
C. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy at law or in equity.
D. Tenant hereby expressly waives the service of notice of intention to
re~ter or to institute legal proceedings to that end and any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or
44
<PAGE> 55
dispossessed for any cause, or in the event of Landlord obtaining possession of
the Demised Premises by reason of the violation by Tenant of any of the
covenants and conditions of this Lease or otherwise. The words "re-enter" and
"re-entry" as used in this Lease are not restricted to their technical legal
meaning. The foregoing shall not relieve Landlord of the obligations to provide
articles hereinabove required to the given to Tenant.
Section 10.4 Waiver of Trial by Jury; Tenant Not to Counterclaim. It is mutually
agreed by and between Landlord and Tenant that the respective parties hereto
shall and they hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on any
matters not relating to personal injury or property damage but otherwise arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Demised Premises and any emergency
statutory or any other statutory remedy, including without limitation any
summary proceeding to recover possession of the Demised Premises or any action
based on non-payment of Rent or any other payment required of Tenant hereunder.
Tenant further agrees that it shall not interpose any counterclaim or
counterclaims in any such summary proceeding or action.
Section 10.5 Holdover by Tenant. In the event Tenant remains in possession of
the Demised Premises after the expiration of the tenancy created hereunder
without the execution of a new lease. Tenant, at the option of Landlord, shall
be deemed to be occupying said Demised Premises as a tenant from month to month,
at a monthly rental equal to twice the sum of (i) the monthly installment of
Fixed Minimum Rent payable during the last month of the Lease Term, (ii) 1/12th
of the average Percentage Rent payable here under for the last three Lease
Years, (ill) the Tax Rent payable for the last month of the Lease Term, (iv) the
Utility Service Charges payable for such month, (v) the monthly Common Area
Charge payable for such month and (vi) the current Association dues and
assessments or Marketing Charges, as the case may be, computed on a monthly
basis, subject to all the other conditions, provisions and obligations of this
Lease insofar as the same are applicable to a month-to-month tenancy.
Section 10.6 Landlord's Right to Cure Defaults. Landlord may, but shall not be
obligated to, cure, at any time, without notice, any default by Tenant under
this Lease; and whenever Landlord so elects, all cost, and expenses incurred by
Landlord in curing a default, including, without limitation, reasonable
attorneys' fees, together with interest on the amount of costs and expenses so
incurred at the rate stipulated in Section 4.7 hereof, shall be paid by Tenant
to Landlord on demand, and shall be recoverable as additional rent.
Section 10.7 Effect of Waivers of Default. No consent or waiver, landlord or of
any breach of any covenant, condition or duty of Tenant shall be construed as a
consent or waiver to or of any
45
<PAGE> 56
other breach of the same or any other covenant, condition or duty, unless in
writing signed by Landlord. The failure of Landlord to insist in any one or more
cases upon the performance of any of the provisions, covenants, agreements or
conditions of this Lease or to exercise any option herein contained shall not be
construed as a waiver or a relinquishment for the future of any such provision,
covenant, agreement, condition or option.
[crossed out]
Section 10.8 Security Deposit. Tenant has deposited with Landlord the Security
Deposit as security for the punctual performance by Tenant of each and every
obligation of it under this Lease. In the event of any default by Tenant,
Landlord may apply or retain all or any part of such security to cure the
default or to reimburse Landlord for any sum which Landlord may spend by reason
of the default. In the case of every such application or retention Tenant shall,
on demand, pay to Landlord the sum so applied or retained which shall be added
to the Security Deposit so that the same shall be restored to its original
amount, If at the end of the Lease Term Tenant shall not be in default under,
the Lease, but not otherwise, the Security Deposit, or any balance thereof,
shall be returned to Tenant, without interest within 30 days after the
furnishing of the last certified annual statement and the payment of any
Percentage Rent or additional Percentage Rent shown thereby to be due disclosed
by an audit or examination as provided in Paragraphs C and D of Section 4-3
hereof. This Section 10 shall in any event be subject to the provisions of
Section 7-103 of the General Obligations Law of the State of New York, as
amended; and, to the extent that this Section 10.8 be inconsistent therewith,
the said Section 7-103 of the General Obligations Law shall supersede.
ARTICLE XI. MISCELLANEOUS PROVISIONS
Section 11.1 Notices From One Party to Another. All notices, statements,
demands, requests; consents, approvals, authorizations, offers, communications,
appointments or designations hereunder by either party to the other shall be
deemed to be given to the other party for the purposes of this Lease only if in
writing and, if to Tenant, either personally served or sent by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to Tenant at Tenant's Address or at the Demised Premises or at such
other place as Tenant may from time to time designate: if to Landlord. sent by
United States certified or registered mall, return receipt requested, postage
prepaid, addressed to Landlord at Landlord's Address or at such other place as
Landlord may from time to time designate. If served or sent, any such matter
shall be deemed given for all purposes hereunder at the time of such service, or
if mailed, at the time of depositing the same in a branch Post Office of Notices
by Landlord may be given on Landlord's behalf by the general manager of the
Shopping Center or by Landlord's attorneys.
46
<PAGE> 57
Section 11.2 Brokerage. Tenant warrants that it has had no dealings with any
broker or agent in connection with this Lease and covenants to pay, hold
harmless and indemnify Landlord from and against any compensation, commissions
and charges claimed by any broker or agent with respect to this Lease or the
negotiation thereof.
*received by the addressee or rejected
Section 11.3 Tenant's Acknowledgment of Mortgage. Tenant acknowledges notice of
a mortgage covering the Shopping Center, recorded on June 30, 1969 in the Office
of the Register of the City of New York, County of Kings, State of New York, in
Reel 344, page 153, a Modification and Extension Agreement, dated as of January
20, 1971, between Landlord and John Hancock Mutual Life Insurance Company as
holder of said mortgage, recorded on January 20, 1971 in said Office in Reel
460, page 175, spreading, modifying and extending said mortgage in its entirety,
a Modification and Waiver Agreement dated as of June 29,1973 between said
parties, recorded on October 12, 1973 in said Office in Reel 664, page 1529 and
a Modification Agreement dated October 12, 1976 between said parties. Copies of
said Agreements are available for inspection at the office of Landlord at 5100
Kings Plaza, Brooklyn, N. Y. 11234. Tenant further acknowledges the rights of
the holder of said mortgage, including, without limitation:
(a) The following provisions restricting Landlord's right or power,
as against the holder of such mortgage without its consent, to cancel, abridge,
or otherwise modify tenancies, subtenancies, leases or subleases of the
mortgaged real property or to accept prepayments of installments of rent to
become due thereunder:
"7.02.2. Maintenance of Validity, Amendment, Waiver, etc. Mortgagors
*** will not, without the prior written consent of Mortgagee.
(a) terminate or cancel any Space Lease or consent to or accept any
termination, cancellation or surrender thereof, or permit any condition or event
to exist or occur which would, or would entitle the Space Tenant thereunder, to
terminate or cancel the same;
(b) amend, modify, or otherwise change any term of any Space Lease;
(c) waive any default under or breach of any Space Lease;
(d) give any waiver, consent or approval under any Space Lease;
(e) consent to or permit any prepayment or discount of rent or
payment of advance rent under any Space Lease covering a
47
<PAGE> 58
period of more than one month;
(f) make an election under Section 3.9 of any Space Lease to cause
any installation, alteration, addition or improvement upon the Property to
become the property of any Person other than Mortgagors upon the expiration or
sooner termination of such Space Lease; or
(g) take any other action in connection with any Space Lease which
would have the effect of impairing the value of Mortgagors' interest therein or
rights thereunder or of the Property, or of impairing in any material respect
the position or interests of Mortgagee or of the holders of the Notes under this
Mortgage or the Notes;
***
(b) The following provisions relating to the subordination of this Lease
to said mortgage:
"9.05. Subordination of Space Leases to Mortgage; Recognition, etc.
The Space Leases and all rights of Space Tenants thereunder are and shall be
subject and subordinate to this Mortgage and the rights of Mortgagee and the
holders of the Notes hereunder, provided that, by acceptance of this Mortgage,
Mortgagee agrees with each Space Tenant that, upon any foreclosure of this
Mortgage or any exercise of the power of sale contained herein, if and so long
as the Space Tenant under any Space Lease is not in default thereunder for
longer than the applicable period given to cure such default pursuant to the
terms thereof, such Space Lease shall not be terminated thereby and Mortgagee
shall not disturb the possession of such Space Tenant and, if Mortgagee shall be
the purchaser at the foreclosure sale or at the sale under such power of sale,
Mortgagee will accept the attornment of such Space Tenant thereafter if and so
long as such Space Tenant is not in default under such Space Lease. ***
Mortgagee's obligation to accept the attornment of such Space Tenant, as
provided by this section 9.05, shall not be construed to mean that Mortgagee
shall be liable for, or assume any liability with respect to, any act or
omission of Mortgagor as landlord under such Space Lease or be subject to any
offset or right of payment which shall have accrued to such Space Tenant against
Mortgagor as landlord under such Space Lease and Mortgage or any such purchaser
ball not and shall not be deemed to have assumed or be subject to any such
liability, obligation, offset or right of payment.
As used in said Agreement, the terms "Mortgagor" and "Mortgagors" refer to
Landlord, the term "Mortgagee" refers to said John Hancock Mutual Life Insurance
Company or, if its interest in said mortgage shall have been assigned, the
assignee at the time holding such interest, the terms "Space Lease" and "Space
Leases" refer to leases by Landlord of any portion of the Property (as defined
in said Agreement), including this Lease, the terms "Space Tenant" and "Space
Tenants" refer to tenants under Space Leases, including Tenant, the term
"Property" refers to the
48
<PAGE> 59
property subject to said mortgage and the term "Notes" refers to the evidences
of the indebtedness secured by said mortgage.
Tenant further acknowledges that Landlord has assigned to said John
Hancock Mutual Life Insurance Company its right to receive all rent and other
sums payable by Tenant to Landlord pursuant to this Lease, provided, however,
that Tenant shall continue to pay all rents and sums so assigned to Landlord
until such time as a default under said mortgage shall have occurred and be
continuing.
By the execution of this Lease, Tenant hereby consents to the said
mortgage in its entirety, as so spread, modified and extended.
Section 11.4 Relationship of the Parties. Nothing contained herein shall be
deemed or construed by the parties hereto, or by any third party, as creating
the relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of Rent nor any other provision contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of landlord and tenant Whenever
herein the singular number is used, the same shall include the plural, and the
neuter gender shall include the masculine and feminine genders
Section 11.5 Estoppel Certificate. Tenant agrees that it will, at any time and
from time to time, within 10 business days following written notice by Landlord
specifying that it is given pursuant to this Section 11.5, execute, acknowledge
and deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if there shall have been
modifications, that the same is in full force and effect as modified and stating
the modifications); the dates to which the Rent and other charges have been paid
in advance, if any; whether or not the Landlord is in default in performance of
an? covenant, agreement or condition contained in this Lease, and, if so,
specifying each such default of which the signer may have knowledge; and whether
Tenant has any lasting defenses or offsets against the enforcement of this Lease
by Landlord; it being intended that any such statement delivered pursuant to
this Section may be relied upon by any prospective purchaser of the fee or any
leasehold or the mortgagee, beneficiary or grantee of any security or other
interest, or any assignee of any thereof, under any mortgage, deed of trust or
conveyance for security purposes now or hereafter upon or made with respect to
the fee of or any leasehold interest in the Shopping Center, or a proposed
purchaser or lessee of all or substantially all of the Shopping Center.
The failure of Tenant to execute, acknowledge and deliver to Landlord a
statement in accordance with the foregoing provisions of this Section within
said 10 business day period shall constitute an acknowledgment by Tenant to any
Person entitled as
49
<PAGE> 60
aforesaid to rely thereon, that this Lease is unmodified and in full force and
effect, that the Rent and other charges have been duly and fully paid to and
including the respective due dates immediately preceding the date of such notice
and shall constitute, as to any Person entitled as aforesaid to rely upon such
statements, a waiver of any defaults, defenses or offsets which may exist prior
to the date of such notice.
Section 11.6 Applicable Law and Construction. The laws of the State of New York
shall govern the validity, performance and enforcement of this Lease. The
invalidity or unenforceability of any provision of this Lease shall not affect
or impair any other provision. The submission of this document for examination
does not constitute an offer to lease, or a reservation of or option for the
premises, and becomes effective only upon execution and delivery thereof by
Landlord and Tenant. All negotiations. considerations, representations and
understandings between the parties are incorporated in this Lease. The index
preceding this Lease and the headings of the several articles and sections
contained herein are for convenience only and do not define, limit or construe
the contents of such articles or sections.
Section 11.7. Joint and Several Obligations. If at any time the term "Tenant"
shall include more than one Person, the obligations of all such Persons shall be
joint and several.
Section 11.8 Short Form Lease. Tenant agrees not to record this Lease. Either
party shall, at the request of the other, execute, acknowledge and deliver, at
any time after the date of this Lease, a memorandum of lease pursuant to Section
291 of the Real Property Law prepared by the requesting party; but the
provisions of this Lease shall control the rights and obligations of the
parties.
Section 11.9 Binding Effect of Lease. The covenants, agreements, and obligations
herein contained, except as herein Otherwise specifically provided, shall extend
to, bind and inure to the benefit of, the parties hereto and their respective
personal representatives, heirs, successors and permitted assigns. In
particular, the provisions of Section 8A shall bind the executors,
administrators or other personal representatives of Tenant, if an individual, or
its successors, if Tenant is a corporation or partnership. Each covenant,
agreement, obligation or other provision herein contained shall be deemed and
construed as a separate and independent covenant of the party bound by,
undertaking or making the same, not dependent on any other provision of this
Lease unless otherwise expressly provided.
Section 11.10 Refinancing. If any lending institution with which Landlord may
negotiate mortgage refinancing for the Shopping Center does not approve or
disapproves the financial and credit rating of Tenant for purposes of such
refinancing, or if any such lending institution shall require or suggest a
change or changes
50
<PAGE> 61
in, this Lease as a condition or one of the conditions of its approval of this
Lease for such refinancing; and if, within 30 days after notice from Landlord,
(i) Tenant fails or refuses to supply or execute assurances and/or guarantees
which are stated by Landlord as indicated to be necessary to secure the approval
of Tenant's financial and credit rating by any such lending institution, or (ii)
Tenant fails or refuses to execute with Landlord the amendment or amendments to
this Lease accomplishing the change or changes which are stated by Landlord to
be needed in connection with approval of this Lease for purposes of such
refinancing, Landlord shall have the right to cancel this Lease at any tune
prior to the time for the commencement of Tenant's Work pursuant to Section 3.3
hereof. In the event of cancellation by Landlord hereunder, this Lease shall be
and become null and void and both parties shall automatically be released as of
the date of Landlord's cancellation notice from any and all liability or
obligation under the Lease, except that Landlord shall return any Security
Deposit or money payment made by Tenant. Nothing in the foregoing shall require
Tenant to make any changes in Section 1.1 hereof.
Section 11.11 Definitions. Whenever used in this Lease the following terms shall
have the indicated meanings in addition to any meaning attributed to any such
terms which are also Fundamental Lease Provisions:
A. Affiliate: Any Person which controls or is controlled by the Person in
question or is controlled by the same Persons which shall then control the
Person in question and any Person which is a member with the Person in question
in a relationship of joint venture (other than the joint venture between the
parties herein named as Landlord), partnership or other form of business
association concerning or which in any way affects the subject matter involved:
the term "control" means, with respect to a corporation the ownership of stock
possessing, and of the right to exercise, at least 23% of the total combined
voting power of all classes of stock of the controlled corporation, issued,
outstanding and entitled to vote for the election of directors, whether such
ownership be direct ownership or indirect ownership through control of another
corporation or corporations.
B. Association: As defined in Section 8.3A(i).
C. Central Utility Plant: the structure erected above the Upper Mall for
the purpose of providing the utility services to be furnished pursuant to
Article VI hereof.
D. Common Areas: As defined in Section 5.1.
F. Common Area Charge: As defined in Section 5.3D.
F. Concessionaire: Any Person who or which conducts any business in any
portion of the Demised Premises as lessee, or sublessee of Tenant or under any
concession or license from Tenant, or as a sublessee of, or under any concession
or license
51
<PAGE> 62
from, any such lessee or sublessee or person holding such concession or license,
whether or not Tenant was authorized under the provisions of this Lease to make
or grant any such lease, sublease, license or concession.
G. Covered Mall: The portion of the Shopping Center which are shown by
cross hatching on Exhibit A and which consist of two levels to be shown as the
"Lower Mail" at the street level and the "Upper Mall" at the second floor level.
H. Demised Premises: As defined in Sections 1.1 and 2.1 and as shown on
the Exhibits referred to therein.
I. Department Store Parcels: The two portions of the Shopping Center each
indicated by the words "Department Store" on Exhibit A.
J. Fixed Minimum Rent: As defined in Sections 1.1 and 4.2.
K. Floor Space: The actual number of square feet of floor space in the
Demised Premises or in other leased, subleased (if Landlord shall be a lessee)
or otherwise occupied premises in the Shopping Center (excluding any parking
facilities but including, without limitation, space on mezzanines, other than
mezzanines erected by the occupant or tenant not constituting building
construction and intended to increase the usability of the space for stock
purposes) within the exterior faces of the walls (including, without limitation,
walls between the premises in question and the Covered Mall or other Common
Area) surrounding all floors, or parts of any thereof, with respect to the
premises in question, except that with respect to a wail or partition between
space available for occupancy by two or more separate occupants the center of
the wall or partition in question shall be used instead of the exterior face
thereof, or if the Demised Premises are not surrounded by walls, then the space
within and up to the line of the Demised Premises shown on Exhibit B shall be
included in the computation. For the purpose of this definition store fronts
shall not be deemed to be walls. No deduction or exclusion shall be made from
Floor Space otherwise computed by reason of stairs, elevators, escalators,
interior partitions or other interior construction or equipment.
L. Gross Sales: As defined in Section 4.3B.
M. Guarantor: The Person or Persons executing the guaranty attached to
this Lease.
N. Landlord: The parties named as "Landlord" in Section 1.1 hereof until a
sale, transfer or lease by either of them, and thereafter the person or persons,
collectively, who shall, for the time being, be liable for the obligations of
Landlord under the provisions of Section 7.3 hereof.
O. Landlord's Work: The work and installations performed or to be
performed by Landlord prior to the commencement of the
52
<PAGE> 63
Lease Term as provided in Section 3.1 and Exhibits C and D.
P. Lease Year: As defined in Section 4.4.
Q. Marketing charge: As defined in Section 8.3B(i).
R. Marketing Fund: As defined in Section 8.3B (i).
S. Percentage Rent: As defined in Section 4.3.
T. Person: A natural person, firm, association or corporation, as the case
may be.
U. Rent: As defined in Section 4.8.
V. Shopping Center: The parcel(s) of land shown on Exhibit A hereto,
including the Department Store Parcels, plus (i) any other parcel(s) of land,
whether or not occupied by Landlord, at any time used or available for use for
Shopping Center or related purposes, including, but not limited to, access to
and from any public street, parking, or the furnishing to the Shopping Center of
any utility or other service, or for any other improvement appropriate or
related to the operation or functioning of the Shopping center; together with
(ii) all buildings on and improvements to any such parcel(s) of land. The term
"Shopping Center" also means, when used not solely to designate the geographical
location thereof, the operation and functioning thereof primarily as a general
shopping center for the sale of goods, wares, merchandise, food, beverages and
services at retail, together with such services and facilities as are incident
to or advisable in connection with the operation thereof, including, but not
limited to, medical, dental and other service uses and office. No road, way,
street, easement, utility or facility otherwise included within the Shopping
Center shall be deemed for any purpose to be partially or wholly excluded
therefrom by reason of the fact that the same may also serve or be used by the
occupant of any other premises or the customers thereof. Any portion of the
Shopping Center which is condemned or dedicated to public use or ceded or
conveyed to any governmental authority for street or related purposes shall be
thereupon excluded from the Shopping Center.
W. Taxes: As defined in Section 4.6A and C.
X. Tax Rent: As defined in Section 4.6B.
Y. Tenant: As defined in Section 1.1, and also (notwithstanding that the
term is used throughout this Lease in singular form) each Person to whom or to
which any of the rights of Tenant created by this Lease may at any time or from
time to time be assigned, transferred or conveyed, lawful and not in violation
of the provisions of Section 8.4, provided, however, that with respect to any
Person occupying the Demised Premises under an assignment, transfer or
conveyance which is in violation of Section 8.4 such Person shall be deemed to
be included within
53
<PAGE> 64
the term Tenant only with respect to the obligations of Tenant under this Lease,
but not with respect to the rights of Tenant under this Lease.
Z. Tenant's Work: The work and installations to be performed by Tenant
prior to the commencement of the Lease Term as provided in Section 3.2 and
Exhibits C and D.
AA. Utility Service Charges: Any charges payable by Tenant pursuant to
Article VI hereof.
Section 11.12 Construction on Adjacent Premises. If any excavation or other
building operation shall be about to be made or shall he made on any premises
adjoining or above or below the Demised Premises or on any other premises in the
Shopping Center, Tenant shall permit Landlord, or the adjoining owner, and their
respective agents, employees, licensees and contractors, to enter the Demised
Premises and to shore the foundations and/or walls thereof, and to erect
scaffolding and/or protective barricades around and about the Demised Premises
(but not so as to preclude entry thereto) and to any act or thing necessary for
the safety or preservation of the Demised Premises. Tenant's obligations under
this Lease shall not be affected by any such construction or excavation work,
shoring up, scaffolding or barricading. Landlord shall not be liable in any such
case for any inconvenience; disturbance, loss of business or any other annoyance
arising from any such construction, excavation, shoring-up, scaffolding or
barricading, but Landlord shall use its best efforts so that such work will
cause as little inconvenience, annoyance and disturbance to Tenant as possible
consistent with accepted construction practice in the vicinity and so that such
work shall be expeditiously completed.
Section 11.13 Effect of Unavoidable Delay. The provisions of this Section shall
be applicable if there shall occur, during the Lease Term, or prior to the
commencement thereof, any (i) strike(s), lock-out(s) or labor dispute(s); (ii)
inability to obtain labor or materials, or reasonable substitutes therefor; or
(iii) acts of God, governmental restrictions, regulations or controls, enemy or
hostile governmental action, civil commotion, fire or other casualty, or other
conditions similar or dissimilar to those enumerated in this item (iii) beyond
the reasonable control of the party obligated to perform. If Landlord or Tenant
shall, as the result of any of the above-described events, fail punctually to
perform any obligation on its part to be performed under this Lease, then such
failure shall be excused and not be a breach of this lease by the party in
question, but only to the extent occasioned by such event. If any right or
option of either party to take any action under or with respect to this Lease is
conditioned upon the same being exercised within any prescribed period of time
or at or before a named date, then such prescribed period of time and such named
date shall be deemed to be extended or delayed, as the case may be, for a period
equal to the period of the delay occasioned by any above-described event.
Notwithstanding anything herein contained, however, (a) the
54
<PAGE> 65
provisions of this Section shall not be applicable to Tenant's obligation to pay
Rent under the provisions of Article W or its obligations to pay any other sums,
moneys, costs, charges or expenses required to be paid by Tenant hereunder, and
(b) with respect to Tenant's obligations under the provisions of Section 8.1C
only the events described in item (iii) of the first sentence of this Section
shall be deemed to be applicable for the purpose of this Section.
Section 11.14 Office Buildings. Nothing contained in this Lease shall be deemed
to prevent the erection by the Landlord in the Shopping Center of one or more
office buildings, or the use of any other building or space in the Shopping
Center for office use.
Section 11.15 No Oral Changes. This Lease may not be changed or terminated
orally, but only by an agreement in writing signed by the parties hereto.
Section 11.16 No Representation by Landlord. Tenant acknowledges that neither
Landlord nor its Affiliates or agents have made any agreements, representations,
warranties or promises with respect to the Demised Premises or the building of
which they are a part or with respect to present or future rents, expenses,
operations, tenancies or any other matter, except as herein expressly set forth;
and that, except as herein expressly set forth, Tenant relied on no statement of
Landlord, its Affiliates or agents for that purpose.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease
as of the day and year first above written.
KINGS PLAZA SHOPPING CENTER
OF FLATBUSH AVENUE, INC.
By
--------------------------------
Vice President
KINGS PLAZA SHOPPING CENTER
By
--------------------------------
Vice President
Attest:
MAGIC RESTAURANT OF KINGS CORP.
- --------------------
Secretary By
--------------------------------
Vice President
55
<PAGE> 66
(Acknowledgment for Corporate Tenant)
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the day of October 1985, before me personally came GARY ROGERS to me
known, who, being by me duly sworn, did depose and say that he resides at
that he is the President of Magic Restaurant of Kings Corp.
the corporation described in and which executed the foregoing instrument as
Tenant; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of such corporation, and that he signed his name thereto by
like order.
/s/
-------------------------------
Notary Public
(Acknowledgment for Individual or Partnership Tenant)
STATE Of )
:ss.:
COUNTY OF )
On the day of 198 , before me came to me known and known to me
to be the individual described in and who executed the foregoing instrument as
Tenant, and acknowledged to me that he executed the same.
/s/
-------------------------------
Notary Public
56
<PAGE> 67
GUARANTY
In consideration of, and as an inducement for the granting, execution and
delivery of the foregoing lease, dated October, 1985 (hereinafter called the
"Lease"), by Kings Plaza Shopping Center of Flatbush Avenue, Inc. and Kings
Plaza Shopping Center of Avenue U, Inc., collectively the Landlord therein named
hereinafter called "Landlord") to Magic Restaurant of Kings Corp., the Tenant
therein named (hereinafter called "Tenant"), and in further consideration of the
sum of One ($1.00) Dollar and other good and valuable consideration paid by
Landlord to the undersigned, the receipt and sufficiency of which are hereby
acknowledged, the undersigned, Steven Rogers and Gary Rogers collectively
(hereinafter and in the Lease called the "Guarantor"), hereby guarantees to
Landlord, its successors and assigns, the full and prompt payment or Rent,
including, but not limited to, the Fixed Minimum Rent, Percentage Rent, Common
Area Charge, Tax Rent, Utility Service Charges, Association dues and assessments
or Marketing Charges, whichever shall be payable, and any and all other sums and
charges payable by Tenant, its successors and assigns, under said Lease, and
hereby further guarantees the full and timely performance and observance of all
the covenants, terms, conditions and agreements therein provided to be performed
and observed by Tenant, its successors and assigns; and the Guarantor hereby
covenants and agrees to and with Landlord, its successors and assigns, that if
default shall at any time be made by Tenant, its successors or assigns, in the
payment of any such Rent, or if Tenant should default in the performance and
observance of any of the terms, covenants. provisions or conditions contained in
said Lease, the Guarantor shall and will forthwith pay such Rent to Landlord,
its successors and assigns, and any arrears thereof, and shall and will
forthwith faithfully perform and fulfill all of such terms, covenants,
conditions and provisions, and will forthwith pay to Landlord, all damages that
may arise in consequence of any default by Tenant, its successors or assigns,
under the Lease, including, without limitation, all reasonable attorney's fees
and disbursements incurred by Landlord or caused by any such default and/or by
the enforcement of this Guaranty.
This Guaranty is an absolute and unconditional Guaranty of payment and of
performance. It shall be enforceable against the Guarantor, its successors and
assigns, without the necessity for any suit or proceedings on Landlord's part of
any kind or nature whatsoever against Tenant, its successors and assigns, and
without the necessity of any notice of non-payment, non-performance or
non-observance or of any notice of acceptance of this Guaranty or of any other
notice or demand to which the Guarantor might otherwise be entitled, all of
which the Guarantor hereby expressly waives; and the Guarantor hereby expressly
agrees that the validity of this Guaranty and the obligations of the Guarantor
hereunder shall in nowise be terminated, affected, diminished or impaired by
reason of the assertion or the failure
57
<PAGE> 68
to assert by Landlord against Tenant, or against Tenant's successors or assigns,
of any of the rights or remedies reserved to Landlord pursuant to the provisions
of the said Lease.
This Guaranty shall be a continuing Guaranty, and the liability of the
Guarantor hereunder shall in no way be affected, modified or diminished by
reason of any assignment, renewal, modification or extension of the Lease or by
reason of any modification or waiver of or change in any of the terms,
covenants, conditions or provisions of the Lease by Landlord and Tenant, or by
reason of any dealings or transactions or matter or thing occurring between
Landlord and Tenant, its successors or assign, or by reason of any bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit of
creditors, receivership or trusteeship affecting Tenant, whether or not notice
thereof or of any thereof is given to the Guarantor. Notwithstanding the
foregoing, this Guaranty shall terminate on the third anniversary;*
All of Landlord's rights and remedies under the said Lease and under this
Guaranty are intended to be distinct, separate and cumulative and no such right
or remedy therein or herein mentioned is intended to being exclusion of or a
waiver of any of the others.
*of the commencement of the Lease Term, except that the undersigned shall remain
liable for any obligations accrued under the Lease prior to said date.
As a further inducement to Landlord to make and enter into the Lease and
in consideration thereof, Landlord and the Guarantor covenant and agree that in
any action or proceeding brought on, under or by virtue of this Guaranty,
Landlord and the Guarantor shall and do hereby waive trial by jury. This
Guaranty shall be governed by and construed in accordance with the laws of the
State of New York. Terms printed with initial capital letters in this Guaranty
shall have the same meaning as defined in the Lease.
Dated:__________________________
------------------------(L.S.)
STEVEN ROGERS
Attest:
------------------------
GARY ROGERS
- --------------------------------
Secretary
58
<PAGE> 69
(Acknowledgment for Individual Guarantor)
STATE OF )
:ss.:
COUNTY OF )
On this day of 1985, before me personally came Steven Rogers
and Gary Rogers to me known and known to me to be the individuals described in
and who executed the foregoing instrument, and duly acknowledged that they
executed the same.
(Acknowledgment for Corporate Guarantor)
STATE OF )
:ss.:
COUNTY OF )
On this day of 198 , before me personally came to me known, who being by
me duly sworn, did depose and say that he resides at that he is the of the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal: that it was so affixed by order of the Board of Directors
of said corporation and that he signed his name thereto by like order.
-------------------------
59
<PAGE> 1
EXHIBIT 10.4.1
SECOND AMENDMENT OF LEASE
-------------------------
This Amendment of Lease made as of this 1st day of March, 1996 by and
between CRESCENT LAND DEVELOPMENT ASSOCIATES, having an address at 7 Penn
Plaza, New York, New York 10001 (hereinafter referred to as the "Owner") and
MAGIC RESTAURANTS, INC., having an address at One Executive Boulevard, Yonkers,
NY 10701, (hereinafter referred to as the "Tenant").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Owner and Tenant have entered into a lease dated December 23,
1992 and Amendment of Lease dated October 8, 1993 (hereinafter referred to as
the "Lease") for the building situated on 3535 Hempstead Turnpike, Levittown,
NY (hereinafter referred to as the "Demised Premises") in the shopping center
known as Caldor Plaza, Levittown, NY (hereinafter referred to as the "Shopping
Center").
WHEREAS, Owner and Tenant desire to amend the Lease as hereinafter
provided.
NOW THEREFORE, in consideration of these premises, mutual covenants and
agreements contained herein and other good and valuable consideration, receipt
of which is hereby acknowledged the parties hereby agree as follows:
I. On April 6, 1995 the Tenant filed with the United States Bankruptcy court,
District of Delaware, Case #95-376, a petition for relief from the Chapter 11
of the Bankruptcy Code.
II. Owner and Tenant hereby agree that as of December 31, 1995 the Tenant owed
the Owner $105,055.89.
III. Owner hereby agrees that in consideration of the Tenant (a) executing
this Second Amendment of Lease (and the Guarantor executing the Limited
Personal Guaranty, attached hereto and marked Exhibit "A"); (b) simultaneously
herewith filing a motion in the Bankruptcy Court indicating Tenant's desire to
assume the Lease; and (c) provided that the Bankruptcy Court approves this
Second Amendment of Lease, Owner shall apply the $75,000.00 Security Deposit
the Owner is holding, pursuant to Article 49 of the Lease,
1
<PAGE> 2
and credit same against the total balance due through December 31, 1995.
IV. Owner hereby agrees, upon completion of items (a)-(c) in Article III
above, to waive the payment of the balance of $30,055.89 due from the Tenant.
V. Tenant hereby acknowledges and agrees that Tenant is currently in arrears
to the Owner in the amount of $54,139.57 representing the February and March
Rent and additional rent due. Simultaneously with the execution of this Second
Amendment of Lease and Limited Personal Guaranty, Tenant hereby agrees to remit
to Owner said amount representing all Rent and additional rent due through
March 31, 1996.
VI. Article 5(c) of the Lease is hereby amended so that in the first sentence
on the second line the language "separate carry-out business" shall be deleted.
In addition, the reference in line 5 to "the attached Exhibit "B" which
indicated the nature of the limited foot items that the Lessee shall be
permitted to sell shall be replaced with the menu attached hereto and marked
Exhibit "B". On the seventh line of said subparagraph, after the word "pizza",
the following sentence should be added, "Lessee shall be permitted to operate a
separate carry-out business as an incidental part of Lessee's business". In the
last line of said subparagraph after the word "chicken" the following words
should be added "and a separate carry-out business"
VII. (a) In lieu of Tenant being required to post an additional $75,000.00
as the Security Deposit, Owner agrees that the principals of Tenant shall be
permitted to execute the attached Limited Personal Guaranty and same shall
fulfill Tenant's obligation under said Article 49.
The Limited Guaranty attached hereto and marked Exhibit "A" is
incorporated into and made a part of this Lease and shall be in full force and
effect through the remainder of the term of this Lease unless or until such
time as (a) Tenant, at its option, remits to owner $75,000.00 in cash as the
Security Deposit, pursuant to the aforementioned Article 49 and at the time of
such
2
<PAGE> 3
remittance; (b) Tenant is not then in default after the date of this Second
Amendment of Lease, of any of the terms, covenants and conditions of the Lease.
Upon Tenant fulfilling items (a)-(b) above, the Limited Personal Guaranty will
be null and void and of no further force and effect.
(b) In addition and only after the confirmation of Tenant's plan of
reorganization is approved by the Bankruptcy Court ("Confirmation Date"), if
Tenant has not yet posted the $75,000.00 in cash as the Security Deposit,
Tenant shall have the option of submitting to Owner a replacement Limited
Personal Guaranty in the same form as the Limited Personal Guaranty, attached
hereto, which must be prior approved in writing by Owner, and executed by a
principal of Tenant (i.e. President, Vice-President, Secretary, etc.) at that
time. Upon receipt and written approval of Owner of said replacement Limited
Personal Guaranty, same shall be incorporated into and become a part of the
Lease and the Limited Personal Guaranty, originally executed, shall be of no
further force and effect.
VIII. Owner and Tenant agree that after the Confirmation Date, Tenant shall
have the right throughout the remainder of the term of the Lease to post
$75,000.00 in cash as the Security Deposit, pursuant to Article 49 of the Lease.
Upon receipt of said $75,000.00 by Owner, and provided Tenant is not then in
default of any of the terms, covenants and conditions of this Lease, Owner
agrees that the scheduled reductions of the Security Deposit stated in Article
49, shall be effective, except that the scheduled anniversary dates for the
reduction of such Security Deposit shall be from the date of receipt of the
$75,000.00 by Owner, after the Confirmation Date, and not the Commencement Date
of the Lease.
IX. This Amendment shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, legal representatives, successors and
permitted assigns.
X. Except as herein expressly modified, all terms, covenants and conditions
of the Lease are hereby ratified and certified in all respects thereto.
3
<PAGE> 4
IN WITNESS WHEREOF the parties hereto have executed this instrument as of
the day first above written.
CRESCENT LAND DEVELOPMENT
ASSOCIATES
By: /s/ [Illegible]
----------------------
MAGIC RESTAURANTS, INC.
By: /s/ Steven Jakubowski
----------------------
4
<PAGE> 5
EXHIBIT "A"
LIMITED GUARANTY
The undersigned, Charles Olson, Jr. ("Guarantor") as additional
consideration for Crescent Land Development Associates, Owner, entering into
this Second Amendment of Lease with Magic Restaurants, Inc., as Tenant, with
respect to premises located in building situated on 3535 Hempstead Turnpike,
Levittown, NY, more fully described in the Second Amendment of Lease of even
date herewith, hereby personally guarantees to Owner the payment of all Rent
and additional rent and other charges due to Owner under the Lease or
otherwise, which accrues up to and until the date on which the Demised Premises
are vacated and available for re-renting provided, however, that Tenant has
given Owner thirty (30) days' prior written notice of the date on which the
Demised Premises will be so vacated and that all items of repair and
maintenance of the Demised Premises under the Lease to be performed by the
Tenant have been performed. Guarantor hereby agrees that any repair and
maintenance necessary to be performed to the Demised Premises due to the
willful misconduct or gross negligence of Tenant, shall be performed by the
Guarantor, prior to the vacating of the Demised Premises.
The Guarantor executes this Guaranty knowing that the Owner will rely upon
the same in entering into said Agreement of Lease.
Guarantor further understands and agrees that:
1. Owner may (but is not obligated to) first look to the Guarantor for any
Annual Rent, additional rent, or other guaranteed obligations of Tenant,
before applying any security monies held under this Lease. In such event,
Guarantors would be obligated to pay to Owner any Annual Rent and/or
additional rent, and perform any of the above obligations prior to Owner's
applying any security held.
2. The Guarantor may, at Owner's option, be joined in any action or proceeding
commenced by Owner against Tenant in connection with and based upon any
covenants and obligations in said Lease, which have been guaranteed by
guarantor, and that the undersigned hereby waives any demand by Owner
and/or prior action by Owner of any nature whatsoever against Tenant.
3. This Guaranty shall remain and continue in full force and effect
notwithstanding the alteration of the said Lease by the parties thereto
whether prior to or subsequent to the execution hereof and as to any
renewal, extension, modification or amendment of said Lease and as to any
assignee of Tenant's interest in said Lease, and the Guarantors do hereby
waive notice of any of the foregoing and agree that the liability of the
Guarantors hereunder shall not be discharged, in whole or in part thereby,
and shall be based upon the obligations set forth in the said Lease as the
same may be altered, renewed, extended, modified, amended, or assigned.
4. Guarantor's obligations hereunder shall remain fully binding although Owner
may have waived one or more defaults by Tenant, extended the time of
performance by Tenant, released, returned or misapplied other collateral
given later as additional security (including other guarantees) and
released Tenant from the performance of its obligations under such Lease.
5. This Guaranty shall remain in full force and effect notwithstanding the
institution by or against Tenant of bankruptcy, reorganization,
readjustment, receivership or insolvency proceedings of any nature, or the
disaffirmance of said Lease in any such proceedings or otherwise.
<PAGE> 6
6. If this Guaranty is signed by more than one party, their obligations shall
be joint and several and the release of one of such guarantors shall not
release any other of such guarantors.
7. This Guaranty shall be applicable to and binding upon the heirs,
representatives, successors and assigns of Owner, Tenant and Guarantors.
8. This Guaranty shall be interpreted in accordance with the laws of the State
of New York. Guarantors agree to submit to the jurisdiction of the State of
New York.
9. Notwithstanding anything contained herein, this Guaranty shall become null
and void and of no further force and effect provided that (a) Tenant
fulfills its obligations under Article VII of the Second Amendment of
Lease and forwards to Owner $75,000.00 in cash as the Security Deposit,
pursuant to Article 49 of the Lease, and at the time of said remittance;
(b) Tenant is not then in default after the date of said Second Amendment
of Lease, of any of the terms, covenants and conditions of the Lease or (c)
if Tenant fulfills the conditions of VI(b) in providing to Owner a
replacement Limited Personal Guaranty as required therein.
Signed by Guarantor this 14th day of March, 1996
/s/ Charles Olson, Jr.
------------------------------
Charles Olson, Jr.
Social Security #: ###-##-####
------------
Address: 2524 Marongal
----------------------
- ----------------------------
Witness
<PAGE> 1
Exhibit 10.6
[LETTERHEAD OF MAGIC RESTAURANTS, INC.]
December 27, 1996
Teleferscot International Limited
26 Vivian Way
Hamsted London N20AE
Re: In re: Magic Restaurants, Inc., et al; Case No. 95-376, etc., in the
United States Bankruptcy Court for the District of Delaware
Dear Sirs:
This letter will confirm the agreement ("Agreement") and firm
commitment by Teleferscot International Limited ("Teleferscot") to provide
permanent financing to Magic Restaurants, Inc. ("MRI") and certain of its
subsidiaries, in connection with the contemplated confirmation of MRI's Second
Amended Plan of Reorganization (as presently filed or as subsequently amended,
the "Plan"). We have agreed as follows:
1. Teleferscot has previously advanced $400,000 to MRI pursuant to a
debtor-in-possession loan (the "DIP Loan"). The DIP Loan was approved, on
an interim basis, by the United States Bankruptcy Court for the District
of Delaware ("Bankruptcy Court") by Order dated November 27, 1996. A final
hearing to approve the DIP Loan is scheduled to take place in the
Bankruptcy Court on December 30, 1996. MRI will seek authorization at that
hearing to borrow up to US $3.3 million from Teleferscot pursuant to the
DIP Loan.
2. If the Bankruptcy Court approves the DIP Loan on a final basis
and MRI is authorized to borrow US $3.3 million thereunder, Teleferscot
agrees that it will promptly advance to MRI such amounts as MRI may
request be advanced from time to time, up to a total principal advance
(counting the $400,000 outstanding on this date) of US $3.3 million.
3. All advances committed to be made by Teleferscot to MRI hereunder
shall be made so as to be received by MRI in available domestic funds no
later than January 20, 1997.
4. The terms of the DIP Loan to Teleferscot shall be those terms set
forth in the credit agreement and order signed by the Bankruptcy Court on
November 27, 1996, with such other amendments or modifications as may be
made to the credit agreement at the final
<PAGE> 2
hearing on the DIP Loan. You have previously been provided a copy of the
November 27, 1996 order of the Bankruptcy Court, including the
accompanying credit agreement.
5. You have previously been provided and have reviewed a copy of the
Plan, including all technical amendments and modifications made to the
Plan through and including December 5, 1996. The DIP Loan you have made
and have committed to make in the future constitutes the "Post-petition
Series B Notes" referred to under the Plan. You agree to consent to the
treatment of your claims from the DIP Loan set forth in Article III.A.1.d.
of the Plan.
6. Exclusive venue regarding any dispute between you and MRI arising
out of or relating to this Agreement, the Plan, or the DIP Loan shall lie
in the Bankruptcy Court. You agree to submit to the jurisdiction of the
Bankruptcy Court for any action arising out of or relating to this
Agreement, the Plan, or the DIP Loan.
7. You acknowledge and agree that MRI and its creditors are relying
on your commitment to fully fund the DIP Loan, and that the interests of
MRI and its creditors may be materially adversely affected if you fail to
fulfill your commitment.
Please counter-sign this letter to indicate your acknowledgment and
agreement to the terms of this Agreement, and return a copy to me at the
earliest possible time.
Yours very truly,
/S/
Charles Olson, Jr., Chief Executive Officer
Magic Restaurants, Inc.
AGREED:
TELEFERSCOTT INTERNATIONAL LIMITED
By: /S/
------------------------------
<PAGE> 1
Exhibit 10.7
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made this ___ day of May 1997 among RED ONE, INC., a New
Jersey corporation ("Seller") as debtor and debtor-in-possession, JOHN M.
GALLAGHER, as debtor and debtor-in-possession ("Gallagher") (Red One and
Gallagher being hereinafter referred to from time to time as "Sellers") and
MAGIC RESTAURANTS, INC., a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, the Red One is a debtor and debtor-in-possession under chapter 11 of
title 11 U.S.C., ss. 101 et seq. (the "Bankruptcy Code") in a case pending in
the United States Bankruptcy Court for the District of New Jersey, Trenton
Division (the "Bankruptcy Court"), case number 96-32119; and
WHEREAS, Gallagher is a debtor and debtor-in-possession under chapter 11 of the
Bankruptcy Code in a case pending before the Bankruptcy Court, case number
96-32120; and
WHEREAS, Red One operates a restaurant owns and operates a restaurant (the
"Restaurant") doing business under the name "Redheads" at premises commonly
known as 500 Highway 35, Union Square, Middletown, New Jersey 07701; and
WHEREAS, Sellers own all right, title and interest to the Concept (as
hereinafter defined); and
WHEREAS, Buyer wishes to purchase certain of the assets owned and used by Red
One in the operation of the Restaurant on the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, Sellers intend to sell the assets that are the subject of the this
Agreement to Buyer pursuant to a sale of asset of assets under Section 363 of
the Bankruptcy Code;
WHEREAS, Buyer and Red One have entered into an escrow agreement (the "Escrow
Agreement") pursuant to which Buyer has deposited with the Escrow Agent the sum
of $75,000;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties herein contained, and subject to the
conditions hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Sellers hereby agree to sell, assign, convey, transfer and
deliver to Buyer on the Closing Date (as hereafter defined), and
Buyer hereby agrees to purchase and acquire on the Closing Date,
the following:
1.1.1 Seller's interest in the lease used in the operation of
the Restaurant (the "Lease");
1.1.2 Sellers' right, title and interest in and to the name
"Redheads", and all derivatives thereof, and all other
trademarks, trademark rights, trade names, trade name
<PAGE> 2
rights, trade styles, brand names, service marks,
patents, logos, copyrights, characterizations, and all
other intangible rights and properties (and all
applications with respect to all of the foregoing),
which are owned or used by Seller in connection with the
Business, as set forth on Schedule 1.1.2 hereto
(collectively, the "Concept"); provided, however, that
in connection with the sale of the Purchased Assets, Red
Three, Inc. shall be granted a royalty-free perpetual
and non-transferable license to use the name "Redheads"
and the Concept in connection with the operation of a
restaurant in Eatontown, New Jersey;
1.1.3 a11 menus, interior design schemes, specifications,
renderings, prototypes, drawings, plans, system manuals,
training guides, methods and processes relating to the
products and services offered by the Restaurant and
other similar or related items used in connection with
the operation of the Restaurant or the Concept, as set
forth on Schedule 1.1.3 hereto;
1.1.4 a11 machinery, equipment, tools, handling equipment,
vehicles, furniture, and other assets, as set forth on
Schedule 1.1.4 hereto (the "Fixed Assets"); provided,
however, that in no event shall the Seller sell to the
Buyer the Excluded Assets (as hereinafter defined);
1.1.5 a11 designs, plans, specifications, renderings,
prototypes, methods and processes relating to the
products and services offered by the Restaurant, as
described on Schedule 1.1.6 hereto;
1.1.6 a11 customers, customer lists, and all written
information, files, correspondence and documents
relating to the Restaurant, as set forth on Schedule
1.1.6 hereto;
1.1.7 a11 right, title, interest, obligation and liability of
Seller as lessee or licensee, with respect to the
personal property leases and licenses set forth on
Schedule 1.1.7 hereto;
1.1.8 a11 stationery, office supplies, catalogues, product
descriptions, advertising materials, forms and other
similar supplies and materials used by the Restaurant;
1.1.9 liquor license number 1331-33-025-005 (the "Liquor
License") issued by the State of New Jersey used in the
operation of the Restaurant; and
1.1.10 any and all goodwill associated with the Restaurant;
wherever the same shall be located (collectively, the
"Purchased Assets").
1.2 It is the intent of this Agreement that the Purchased Assets
shall constitute all of the assets, properties and business of
Seller which are necessary or appropriate to enable Buyer to
continue to operate the Restaurant as heretofore conducted by
Seller; provided, however, that the Purchased Assets shall not
include (i)
<PAGE> 3
cash on hand of Red One on or prior to the Closing date, (ii)
claims or causes of action of either Seller, whether arising
under chapter 5 of the Bankruptcy Code or otherwise, and (iii)
any furniture, equipment or fixtures listed on Schedule 1.2
hereto, and/or on which a creditor of Red One has a valid and
perfected Lien (as hereinafter defined), which items are
hereinafter collectively referred to as the "Excluded Assets."
1.3 It is understood and agreed that the Purchased Assets shall be
acquired by (i) Buyer free and clear of all Liens (as
hereinafter defined) pursuant to a Final Order (as hereinafter
defined) of the Bankruptcy Court, and (ii) except as expressly
set forth in this Agreement, "as is" and "where is." As used in
this Agreement:
1.3.1 "Final Order" means an order or judgment of the
Bankruptcy Court that has not been reversed, stayed or
vacated and as to which the time to appeal, petition for
certiorari or seek reargument or rehearing has expired
and as to which no appeal, reargument, petition for
certiorari or rehearing is pending or as to which any
right to appeal, reargue, petition for certiorari or
seek rehearing has been waived in writing, or, if an
appeal, reargument, writ or certiorari or rehearing
thereof has been sought, the order or judgment of the
Bankruptcy Court has been affirmed by the highest court
to which the order was appealed or from which the
reargument or rehearing was sought, or by which the
petition for writ of certiorari has been denied, and the
time to take any further appeal or to seek certiorari or
further reargument or rehearing has expired.
1.3.2 "Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien,
charge, claim, security interest, easement or
encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any
lease or title retention agreement, any financing lease
having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give,
any financing statement perfecting a security interest
under the New Jersey Uniform Commercial Code or
comparable law of any jurisdiction).
2. LIABILITIES
2.1 Buyer does not assume or agree to pay, perform or discharge any
other liability or obligation of either Seller of any nature
whatsoever, whether known or unknown, direct or indirect,
contingent or accrued, matured or unmatured, including, without
limitation, any of the following liabilities or obligations of
<PAGE> 4
Sellers whether or not relating to the Purchased Assets or the
Restaurant, which shall remain the sole liabilities and
obligations of Sellers:
2.1.1 Any obligations or liabilities of either Seller in
respect of any Federal, state, local or foreign income,
sales, franchise, excise, withholding, payroll or any
other taxes for the current or any other fiscal period;
2.1.2 Any obligations or liabilities which are incurred in
violation of this Agreement or which are inconsistent
with any representation, warranty or covenant contained
in this Agreement;
2.1.3 Any obligations of either Seller to perform under this
Agreement;
2.1.4 Any cost, expense or tax liability of either Seller
incident to the preparation of this Agreement or the
consummation of the transactions contemplated hereby;
2.1.5 Any obligations or liabilities of either Seller arising
by reason of any default, breach, penalty or delinquency
under any agreement, commitment or obligation of either
Seller or to which either Seller is a party;
2.1.6 Any obligations or liabilities of either Seller, or
asserted against Buyer or the Purchased Assets, arising
from any claim, demand or Lien based upon noncompliance
with any applicable bulk sales or bulk transfer law;
2.1.7 Any obligations or liabilities of either Seller or with
respect to the Restaurant which are incurred on or after
the Closing Date;
2.1.8 Any cost, expense or other obligations or liabilities of
either Seller relating to or arising from current or
future pension, retirement, profit sharing, bonus, group
health insurance, group life insurance, or other similar
plans for the benefit of either Seller's employees;
2.1.9 Any obligations or liabilities relating to (i) any
employee wages, salaries or benefits incurred prior to
the Closing Date; (ii) any collective bargaining
agreement or other labor or union agreement or
commitment, or any employee benefit arising thereunder,
or (iii) compliance with the WARN Act or similar
Federal, state or local laws and regulations, or (iv)
any other applicable statute, rule, decision, regulation
or ordinance;
2.1.10 Any obligations or liabilities of either Seller under
any contracts, agreements, commitments, or purchase
orders for finished goods, raw materials or services,
except as set forth on Schedule 2.2.10 hereto.
2.1.11 Any obligations or liabilities of either Seller for
amounts owing in respect of the Excluded Assets.
<PAGE> 5
2.1.12 After the Closing Date, Buyer shall have no obligation
to continue the employment of any employee of Red One or
the Restaurant for any length of time, and shall have
the right to terminate the employment of any employees.
Red One represents that it is not a party to any
employment agreements.
3. CONSIDERATION
3.1 The consideration (the "Purchase Price") to be paid to Seller
for the Purchased Assets is Two Hundred Seventy-Five Thousand
Dollars ($275,000):
3.2 The Purchase Price shall be payable as follows:
3.2.1 Up to One Hundred Fifty Thousand Dollars ($150,000) by
delivery by Buyer on the Closing Date by wire transfer
of immediately available funds to Red One; provided,
however, that the amount payable under this Section
3.2.1 shall be reduced dollar for dollar by any amount
deposited into the Tax Escrow (as hereinafter defined);
3.2.2 Seventy-Five Thousand Dollars ($75,000) by delivery by
the Escrow Agent on the Closing Date, by wire transfer
of immediately available funds to Red One, in accordance
with the Indemnity Agreement among Red One, Buyer and
Karasic, Stone & Marvel dated May 9, 1997; and
3.2.3 Fifty Thousand Dollars ($50,000) by delivery by Buyer on
the Closing Date by wire transfer of immediately
available funds to Gallagher, for distribution (i) as
Sellers shall agree, or (ii) pursuant to a Final Order.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER
Sellers, jointly and severally, hereby represent and warrant to, and
agree with, Buyer that as of the Closing Date:
4.1 Red One is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey. Red One
has the corporate power and authority to own and/or lease its
properties and to conduct the Business in the manner and in the
places where such properties are now owned, leased or operated
or the Business is now conducted.
4.2 Sellers have has not granted any option or other right, nor has
either Seller entered into any agreement, to sell or otherwise
dispose of any of the Purchased Assets, or to convey any
interest therein.
4.3 Except for the Concept, which is owned by Red One and Gallagher,
Red One is the owner of and has valid and marketable title to
each item constituting the Purchased Assets, free and clear of
all claims, charges, Liens, security interests, pledges and
encumbrances whatsoever.
4.4 Each item of Equipment that is not an Excluded Asset is owned by
Red One.
<PAGE> 6
4.5 (i) Each Seller has timely filed, or will timely file, all tax
reports and returns (the "Tax Returns") in accordance with the
Internal Revenue Code of 1986, as amended (the "Code")) which
have become due for all post-petition taxable periods ending on
or before the Closing Date, and each Seller has paid or withheld
all taxes due to Federal, state or local taxing authorities
required to be paid or withheld in respect of the periods
covered by such Tax Returns. Except as set forth on Schedule
4.5, neither Seller is delinquent in the payment of any
post-petition tax, penalty or interest required to be paid by
such Seller and no unpaid deficiencies for any tax have been
assessed against either Seller. All Federal, state and local Tax
Returns filed by or on behalf of each Seller were true and
correct when filed and no event has occurred subsequent to such
filing which would require the filing of an amended or corrected
Tax Return; (ii) neither Seller is undergoing any tax audits, is
not contesting any tax claimed to be due, and has not granted an
extension of any statute of limitations, or similar law, to any
taxing authority for the assessment of any post-petition taxes.
On or before the Closing Date, either (A) each Seller will
furnish Buyer with reasonably satisfactory evidence of payment
of all post-petition taxes (including, but not limited to, real
estate and personal property taxes) due for all periods prior to
the Closing Date, or (B) Buyer and the Sellers shall agree on an
amount to be deposited in escrow pursuant to a mutually
satisfactory escrow agreement (the "Tax Escrow") on the Closing
Date, which fund shall be disbursed solely to pay post-petition
taxes of Red One.
4.6 Except as set forth on Schedule 4.6 hereto, Red One is not a
party to any collective bargaining or other agreement with labor
unions, labor representatives or any other employee groups.
4.7 Except as set forth on Schedule 4.7 hereto, Red One is not a
party to any written or oral:
4.7.1 lease, license or other agreement with respect to
personal property, and Schedule 4.7 lists all of the
material terms of each such lease, license or other
agreement;
4.7.2 contract of employment or other outstanding contract
with any officer, employee, agent, consultant, salesman,
advisor, sales representative, supplier, distributor or
dealer;
4.7.3 contract or commitment with respect to advertising
services;
4.7.4 contract or commitment amounting to or involving more
than $10,000;
4.7.5 contract or commitment with any customer, or
4.7.6 any other contract, commitment or instrument which is
material to the Restaurant or the Purchased Assets.
To Sellers' knowledge, all contracts, commitments, agreements
<PAGE> 7
or leases listed on Schedule 4.7 hereto are in full force and
effect without any default or breach thereof by Red One which
cannot be cured under such contract or the Bankruptcy Code (and
all of which shall be cured on and as of the Closing Date), or,
to the best knowledge of Sellers, by any other party thereto,
and the benefit, enforcement or validity of all such contracts,
commitments, agreements or leases are not affected by the
transactions contemplated by this Agreement. Accurate and
complete copies of all such contracts have been delivered to
Buyer.
4.8 Schedule 1.1.2 hereto is a complete and correct list of all
trademarks, trade names (registered or unregistered), service
marks, brand names, copyrights, patents (and applications for
any of the foregoing) logos, designs or other intangible rights
or properties of a similar nature (the "Intangible Properties")
used by, useful to, owned by, or licensed by or to, Sellers.
Except as set forth on Schedule 1.1.2, Sellers are the lawful
owners or licensees of all of the aforesaid and have the right
to use the same in the conduct of the Restaurant. No proceedings
have been instituted or are pending for royalties in respect
thereof or which challenge the exclusive or perpetual rights in
respect thereto or the validity thereof and none of the
aforesaid is subject to any outstanding order, decree, judgment,
stipulation or charge; the enforceability and validity of, and
the obligations of the parties provided in, any agreement
granting or relating to the Intangible Properties are not
affected by the transactions contemplated by this Agreement and
no consent of any party thereto is necessary or required by the
transactions contemplated by this Agreement.
4.9 Schedule 4.9 hereto is a list of all employees of Red One and
the compensation, benefits and all perquisites paid and afforded
to such employees as of April 30, 1997, including all changes
made to compensation and benefits from April 30, 1997 to the
Closing Date. Except as set forth on Schedule 4.9, there are no
bonuses in respect of work done prior to the date hereof, due to
or expected by present or former employees of Red One.
4.10 Annexed hereto as Schedule 4.10 is a list and brief description
of all policies of insurance maintained by Red One. All premiums
due to the date hereof on such insurance policies have been paid
in full, and, except as set forth on Schedule 4.10, all of such
policies are currently in effect. No insurance company has ever
denied, or attempted to deny, coverage based upon any allegation
that Red One has violated or breached the terms of coverage, or
violated any law or regulation, or failed to meet any standards,
governing or relating to the sale of products or the rendering
of services by Red One. All claims made against Red One which
are covered by insurance are being defended by such insurance
<PAGE> 8
companies.
4.11 Except as set forth on Schedule 4.11 hereto, Red One does not
have any group health insurance, group life insurance, current
or future pension, retirement, profit sharing, bonus, or any
other "employee benefit" plan as defined in Section 3(3) of the
Employee Retirement Security Act of 1974, as amended, whether or
not such plans or obligations are of a legally binding nature or
are in the nature of informal understandings. All obligations
due to, or for the benefit of, all employees of Red One pursuant
thereto are the sole liability of Red One and have been, or
shall be promptly, satisfied by Seller for all periods ending on
the Closing Date.
4.12 Except as set forth on Schedule 4.12 hereto, Red One has no
obligation to file with the Pension Benefit Guaranty Corporation
any notice of a reportable event arising out of the transactions
contemplated herein with respect to any employee benefit plan of
Red One now in effect or to comply with other requirements of
the Internal Revenue Service, Department of Labor and Pension
Benefit Guaranty Corporation arising out of the transactions
contemplated herein with respect to any such employee benefit
plan. With respect to all pension plans maintained by Red One,
Red One has satisfied the minimum funding standard of Section
412 of the Code, and the regulations promulgated thereunder, and
the filing requirements of Section 6058 of the Code through the
last plan year of each such plan, and there is no funding
deficiency under Section 412 of the Code for any such plan.
4.13 Except as set forth on Schedule 4.13 hereto, neither the
execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in any violation
of, or be in conflict with, the terms of, or require the consent
of any party to, any contract, agreement, lease, license
agreement, instrument, commitment or understanding applicable to
either Seller or will result in the creation of any Lien on, or
claim to, any of the Purchased Assets.
4.14 To the best knowledge of Sellers, Red One is in compliance with
all terms of any instrument and any law, order, rule or
regulation of the United States, or any state or political
subdivision, or any agency thereof (including, but not limited
to, the Federal Occupational Safety and Health Agency,
Environmental Protection Agency and Department of
Transportation, and their equivalent state and local agencies)
which is applicable to Red One, and no complaint or order has
been filed against Red One by or with, and no notice has been
issued to Red One by, any such agency in respect of its business
or operations; Red One is not liable for any arrears, damages,
taxes or penalties for failure to comply with any of the
foregoing.
<PAGE> 9
4.15 Except as set forth on Schedule 4.15 hereto, the real estate
leased by Red One and, to the best knowledge of Red One, the
land and the buildings in proximity hereto, are not, and have
not been in the past, the site of any activity or condition
(currently or in the past) which is in violation of Federal,
state or local statutes, rules, regulations, ordinances,
administrative orders or rulings relating to the protection of
the environment or governing or prohibiting the storage, use,
disposal or transport of pollutants, hazardous substances or
toxic materials (as such terms are described in such statutes,
rules, regulations, ordinances, orders or rulings), including,
but not limited to, in respect of underground storage tanks.
4.16 Red One holds all governmental licenses, permits and other
authorizations necessary for the conduct of the Restaurant,
including good and valid title to the Liquor License, and all
such licenses, permits and other authorizations to the extent
that they can be assigned will be duly assigned and transferred
to Buyer in connection with the transactions contemplated
herein. Schedule 4.16 hereto is a true and complete list of all
such licenses, permits and authorizations setting forth the
issuing entity and the subject matter thereof. All such
governmental licenses, permits and other authorizations are
valid and sufficient in all material respects for the Restaurant
as it is presently conducted by Red One, and Red One does not
know of any threatened suspension, cancellation or invalidation
of any such license, permit or other authorization or any threat
of any proceeding for the suspension, cancellation or
invalidation of any such license, permit or authorization.
4.17 Except for the approval of the Bankruptcy Court, no consent,
approval or authorization of any governmental agency is required
in connection with the execution and delivery of this Agreement
by Sellers or the consummation of the transactions contemplated
herein. Buyer acknowledges and agrees that the sale of the
Purchased Assets will be subject to higher and better offers,
and that Sellers shall have no liability to Buyer (i) if the
Purchased Assets are sold pursuant to a higher and better offer,
or (ii) the Bankruptcy Court does not approve the sale of the
Purchased Assets to Buyer.
4.18 The execution and delivery of this Agreement, and the
consummation of the transactions contemplated herein, have been
duly authorized by the Board of Directors and shareholders of
Red One and no other proceedings on the part of Red One is
necessary to authorize this Agreement, nor the carrying out of
the transactions contemplated herein.
4.19 The execution, delivery, and performance of this Agreement, and
the consummation of the transactions contemplated herein, will
<PAGE> 10
not violate, or result in a breach of, with, or constitute (with
or without due notice or lapse of time or both) a default or
give rise to any right of termination, cancellation or
acceleration under any charter or by law, or agreement,
instrument, judgment, or decree to which either Seller is a
party or to which either Seller is subject or bound. This
Agreement, upon the approval of the Bankruptcy Court, shall be
the valid and binding obligation of each Seller, enforceable
against each Seller in accordance with its terms.
4.20 All persons who have executed this Agreement on behalf of Red
One are the duly elected, qualified and acting incumbents of the
corporate offices under authority of which they have purported
to act, and each of them has been authorized by all necessary
corporate action of Red One to execute and deliver this
Agreement and bind Red One to the engagements undertaken by it
in this Agreement, and the other transactions contemplated
herein.
4.21 Except as set forth on Schedule 4.21 hereto, all agreements
between Sellers and any officer, director or employee of Sellers
or any of its affiliates relating to the Restaurant shall
terminate on the Closing Date without liability or obligation of
Buyer to any of such persons.
4.22 No representation or warranty made by Sellers in this Agreement,
or in any document, Schedule, certificate, or other instrument
delivered or deliverable pursuant to the terms hereof, contains
or will contain, any untrue statement of a material fact or
omits, or will omit, to state a material fact necessary in order
to make the statements made, in light of the circumstances under
which they were made, not misleading.
4.23 Sellers may attach, amend or supplement any schedule hereto at
any time prior to the Closing Date; provided, however, that (1)
all schedules shall have been completed and delivered at least
seven days prior to the Closing Date, and (2) Buyer may
temrinate this Agreement without liability if any schedule
delivered after the date hereof demonstrates a material adverse
change in the condition of the Purchased Assets, taken as a
whole.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BUYER
Buyer hereby represents and warrants to, and agrees with Seller that on
the date hereof and the Closing Date:
5.1 Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has
full corporate power and authority to own, operate and lease its
properties and conduct its business as now owned, operated,
leased and conducted.
5.2 The execution and delivery of this Agreement, and the
consummation
<PAGE> 11
of the transactions contemplated herein, have been duly
authorized by Buyer, and no other proceedings on the part of
Buyer are necessary to authorize this Agreement and, nor the
carrying out of the transactions contemplated herein. Buyer is
not required to obtain bankruptcy court approval in connection
with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
5.3 The execution delivery and performance of this Agreement, and
the consummation of the transactions contemplated herein, will
not violate, or result in a breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration)
under any charter or by-law, or agreement, instrument, judgment,
or decree to which Buyer is a party, or to which it is subject
or bound.
5.4 This Agreement will be, upon execution and delivery thereof by
Buyer, the valid and binding obligations of Buyer, and will be
enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency or other laws affecting the
enforcement of creditors rights generally.
5.5 Buyer has performed its own due diligence of the Purchased
Assets, and by execution of this Agreement, has accepted the
condition of the Purchased Assets as of the date hereof. Buyer
has reviewed the terms of the Lease, and the terms of the Lease
is acceptable to Buyer.
5.6 Buyer has the financial capacity to consummate the acquisition
of the Purchased Assets.
5.7 Buyer is current in the payment of all licensing fees owed to
Red One as of the date of this Agreement; if there are any
outstanding licensing fees due on the Closing Date to Red One,
Buyer shall make payment of all amounts due on the Closing Date.
Nothing contained in this Agreement shall affect Buyer's
obligation to continue to pay licensing fees to Red One through
and until the Closing Date pursuant to that certain License
Agreement dated _________, 1996 between Red One and Buyer. Upon
Buyer's performance in full of its obligations under this
Section 5.7, on the Closing Date the licensing fees payable by
Buyer to Red One shall terminate.
6. SURVIVAL OF REPRESENTATIONS
Notwithstanding any investigation or opportunity to investigate by or on
behalf of Buyer or Seller, all representations and warranties made in
this Agreement or in any Schedule, Exhibit, certificate, statement or
other document delivered or deliverable in connection with this
Agreement, shall remain in full force and effect and shall survive the
consummation of the transactions contemplated herein.
7. CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are, at the option of Buyer, subject
<PAGE> 12
to and conditioned upon the satisfaction, at or prior to the Closing
Date, of each of the following conditions:
7.1 All of the representations and warranties of Sellers contained
herein or otherwise made in writing in connection with the
transactions contemplated hereby shall be true and correct as of
the Closing Date, and Sellers shall have complied with and
performed all of the agreements and conditions on Sellers' part
to be complied with or performed pursuant to this Agreement on
or before the Closing Date. Without limitation of the foregoing,
Sellers shall have paid all post-petition taxes on or prior to
the Closing Date and shall have provided Buyer with satisfactory
evidence of such payment.
7.2 Buyer shall receive all of the documents required pursuant to
Section 9 hereof.
7.3 The Bankruptcy Court shall have issued a Final Order approving
the sale of the Purchased Assets to Buyer on terms acceptable to
Buyer. The Final Order shall contain a finding that Red Three
has no interest in the Concept.
7.4 Prior to the Closing Date, there shall not have occurred any
event or condition that would make the premises subject to the
Lease unfit, in whole or in substantial part, for operation as a
restaurant. Without limitation of the foregoing, prior to the
Closing Date, the Restaurant shall not have suffered or
experienced any fire, flood, tornado or other similar and
substantial catastrophe or act of God.
7.5 No litigation shall be pending or, to the knowledge of Seller,
threatened, involving or affecting the Purchased Assets.
8. DELIVERIES OF SELLER
The closing of the transactions contemplated herein (the "Closing")
shall take place on or about June 2, 1997 (the "Closing Date"). In the
event the Closing does not occur on said date, the Closing shall occur
on such other date within three days following satisfaction of all of
the conditions to Closing as Buyer and Seller shall mutually agree;
provided, however, that in no event shall the Closing Date occur after
June 16, 1997. In such event, the terms "Closing" or "Closing Date"
shall mean such other date on which the closing occurs. If the closing
occurs on the date of execution of this Agreement, the term "Closing
Date" shall mean the date hereof. On the Closing Date, Seller shall
deliver, or cause to be delivered, to Buyer:
8.1 All conveyances, deeds, assignments, bills of sale,
confirmations, powers of attorney, approvals, consents,
agreements and any and all further instruments as may be
necessary, expedient or proper in order to complete any and all
conveyances, transfers and assignments herein provided for and
to convey to Buyer such title to the Purchased Assets as Sellers
are obligated hereunder to convey,
<PAGE> 13
8.2 Certified copies of the resolutions adopted by the Board of
Directors of Red One authorizing this Agreement and the
transactions contemplated hereby,
8.3A certificate of an executive officer of Red One, certifying that
the representations and warranties made hereunder are true and
correct on and as of the Closing Date,
8.4 Possession of the Purchased Assets.
9. BROKERS
9.1 Except for Equity Enterprises Inc. whose fee shall be paid by
Sellers, the parties represent and warrant to each other that no
broker or finder was retained or used by any of them in
connection with the transactions contemplated herein.
9.2 Except as set forth in Section 10.1, the parties each agree to
indemnify and hold the other harmless from and against any and
all loss, cost, damage, claim and expense (including reasonable
attorneys' fees) which the other may sustain or which may be
asserted against the other by reason of any claim for
compensation by any person, firm or corporation hired, retained
or introduced by the indemnifying party in connection with the
transactions contemplated hereby.
10. INDEMNIFICATION
10.1 Sellers agree to and do hereby indemnify and hold harmless
Buyer, and its respective officers, directors, stockholders,
affiliates, agents and employees, and their successors and
assigns, from and against any claim against Buyer and against
any other loss, cost, liability, judgment, damage or expense
(including, without limitation, all expenses, reasonable
attorneys' fees and court costs) incurred by Buyer as a result
of, or which involves, (i) the inaccuracy of any representation
or the breach of any warranty made by Sellers or the failure of
Sellers to perform any covenants contained in this Agreement or
in any other document or agreement delivered or deliverable
pursuant hereto, or (ii) any failure of Sellers at any time
after the petition date and prior to the Closing Date to comply
with any applicable law, order and regulation of any Federal,
state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, having
jurisdiction over it or its operations including, but not
limited to, any law, order or regulation relating to wages,
hours, prices, collective bargaining, the payment of
withholding, payroll and social security taxes, the environment,
or (iii) any liability of any form or nature asserted against
Buyer relating to Red One's operation of the Restaurant on or
prior to the Closing.
10.2 Buyer agrees to and does hereby indemnify and hold harmless
Gallagher and Red One, and Red One's officers, directors,
parent, affiliate, agents and employees, and their successors
and
<PAGE> 14
assigns, from and against any claim against Sellers and against
any other loss, cost, liability, judgment, damage or expense
(including without limitation, all expenses, reasonable
attorneys' fees and court costs) incurred by Seller as a result
of, or which involves, (i) the inaccuracy of any representation
or the breach of any warranty made by Buyer in this Agreement,
or (ii) the failure of Buyer to perform any covenants or
agreements in this Agreement, or in any other document or
agreement delivered or deliverable pursuant hereto, or (iii) the
use of the Purchased Assets or the operation of the Restaurant
on and after the Closing Date.
10.3 Promptly after receipt by an indemnified party pursuant to the
provisions of this Section 11 of notice of the commencement of
any action or the assertion of any claim, such indemnified party
will notify the indemnifying party if a claim thereto is to be
made against the indemnifying party. In the event that any
action is commenced against an indemnified party by a third
party and the indemnified party promptly notifies the
indemnifying party of the commencement thereof, the indemnifying
party will have the option, exercisable by sending written
notice to the indemnified party, within ten (10) days of receipt
of the indemnified party's notice, of either (i) approving the
claim and authorizing payment of the amount set forth in such
notice; or (ii) assuming the defense of such action with counsel
satisfactory to the indemnified party; and after notice from the
indemnifying party to the indemnified party of its election to
assume the defense of such action, the indemnifying party will
not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in
connection with the defense of such action, other than
reasonable costs of investigation.
11. ADDITIONAL PROVISIONS
11.1 Buyer and Sellers shall execute and deliver or cause to be
executed and delivered to the other such further instruments,
documents and conveyances and shall take such other action as
may be reasonably required to more effectively carry out the
terms and provisions of this Agreement.
11.2 This Agreement shall be binding upon and inure to the benefit of
Buyer and Sellers and their successors and assigns. This
Agreement shall not be assignable by Sellers or Buyer without
the prior written consent of the other. Buyer may assign its
rights pursuant to this Agreement to an entity which is under
common control with Buyer, or which Buyer controls ("Assignee");
provided, however, that any such assignment shall not affect,
the obligations of Buyer to Sellers as set forth herein.
11.3 This Agreement and the documents referred to herein constitute
the
<PAGE> 15
whole agreement among the parties, and there are no terms other
than as are contained herein or therein. No variation hereof or
thereof shall be deemed valid unless by full performance by the
parties hereto or by a writing signed by the parties hereto.
11.4 This Agreement shall be governed by the laws of the State of New
Jersey, without giving effect to the principles of conflicts of
laws.
11.5 All notices and other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person by recognized
courier, telegram, telex, facsimile or other standard form of
telecommunication, or by registered or certified post-paid mail,
return receipt requested, and addressed as follows, or to such
other address as any party may notify the other in accordance
with the provisions hereof:
To Buyer: Magic Restaurants, Inc.
One Executive Boulevard
Yonkers, New York 10701
Attention: Charles Olson, Jr.
-copy to-
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, N.Y. 10036
Attention: Stephen B. Selbst, Esq.
To Red One: Red One, Inc.
c/o Karasic, Stone & Marvel
255 Monmouth Road
Oakhurst, New Jersey 07755
Attention: Joseph Castelluccia. Esq.
To Gallagher: John M. Gallagher
c/o Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attention: Larry Lesnik, Esq.
1.1 This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall be deemed to be one
and the same instrument.
1.2 The headings in this Agreement are for the convenience of
reference only, and shall not affect in any manner any of the
terms or provisions hereof. For purposes of this Agreement,
where applicable, the masculine gender shall also include the
feminine gender.
1.3 Whether or not the transactions contemplated herein are
consummated, each of parties hereto shall be solely liable for
the fees and expenses incurred by such party's attorneys,
accountants and other representatives in connection with the
preparation of
<PAGE> 16
this Agreement, the documents deliverable hereunder and any
investigation or examination authorized herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
MAGIC RESTAURANTS, INC.
By:__________________________________
Title: Chief Financial Officer
RED ONE, INC., as debtor and
debtor-in-possession
By:__________________________________
Title: ______________________________
_____________________________________
John Michael Gallagher, as debtor and
debtor-in-possession
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of June __, 1997, by and between
REDHEADS, INC., a Delaware corporation having its principal place of business at
One Executive Boulevard, Yonkers, New York 10701 (hereinafter referred to as the
"Company"), and DAVID SEDERHOLT, an individual residing at 9 Brookside Road,
Ridgefield, Connecticut 06877 (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employee has experience in the restaurant industry;
WHEREAS, the Company desires to employ Employee, and Employee desires to
accept such employment, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows;
1. EMPLOYMENT AND TERM.
(a) The Company hereby employs Employee, and Employee hereby
accepts employment with the Company, upon the terms and subject to the
conditions contained in this Agreement.
(b) The term of Employee's employment hereunder (the
"Employment Period") shall commence on the date hereof and shall continue for a
period of one (1) year, unless sooner terminated as hereinafter provided. The
Employment Period shall automatically renew for one-year periods unless either
party gives notice at least sixty (60) days prior to the expiration of the
current Employment Period that such party elects to terminate this Agreement at
the end of such Employment Period.
2. DUTIES AND RESPONSIBILITIES OF EMPLOYEE.
(a) Employee shall serve as the Company's executive vice
president and chief operating officer. During the term hereof, Employee shall
perform the duties associated with his office and such other duties of an
executive, managerial or administrative nature, all as shall be specified and
designated from time to time by the Board of Directors of the Company in
accordance with the job description.
(b) Employee will serve the Company faithfully to the best of
his ability, and shall devote substantially all of his business time, energy and
skills to the performance of his duties hereunder. Employee shall not, without
the prior written consent of the Company,
<PAGE> 2
engage, directly or indirectly, in (i) any compensated activity for any person
or entity other than the Company, or (ii) any business or professional activity
other than for the benefit of the Company, except for personal business and
professional activities disclosed to the Company upon the execution and
delivery of this Agreement.
3. BASE SALARY.
(a) For all services rendered by Employee under this Agreement, the
Company shall pay to Employee a salary of $100,000 per annum ("Base Salary").
Base Salary shall be payable in accordance with the Company's payroll
practices, as in effect from time to time. The Company agrees to review
Employee's Base Salary on an annual basis, but the decision to adjust such Base
Salary shall be in the Company's sole discretion and Employee shall have no
right or entitlement to any annual or other salary increase.
(b) The Company agrees to consider payment of a bonus to Employee at
any time when it pays a bonus generally to its senior executives, it being
understood and agreed, however, that the determination of whether to pay a
bonus to Employee shall be in the sole discretion of the Company and Employee
shall have no right or entitlement to any bonus at any time.
(c) Employee shall receive a monthly automobile expense payment of
$750 per month. Any reasonable and necessary out of pocket expense incurred by
Employee in connection of his duties hereunder shall be reimbursed to Employee
upon submission of expense reports supported by appropriate documentation and
receipts.
4. OPTIONS. Concurrently with the execution and delivery of this
Agreement, the Company shall grant to Employee the right to purchase a number
of options (the "Employee Options") equal to 1.75% of its issued and
outstanding shares of its common stock at an exercise price of $1.50. The
Employee Options shall be subject to customary anti-dilution provisions, and
the exercise price thereof shall be subject to adjustment for certain other
events, such as stock splits, reverse stock splits and recapitalizations. The
Employee Options will vest 25% on each anniversary of the date hereof, and will
be fully vested on the fourth anniversary of the date hereof.
5. BENEFITS.
(a) During the Employment Period, Employee shall be entitled to
participate, to the extent eligible thereunder, in any group insurance or other
similar plan or plans which may be instituted by the Company for the benefit of
its executive employees generally, upon such terms as may be therein provided.
(b) During the Employment Period, Employee shall be entitled to four
(4) weeks paid vacation per year.
-2-
<PAGE> 3
6. TERMINATION. Employee's employment hereunder may be terminated prior
to the expiration of the Employment Period as follows:
(a) (i) Automatically upon the death of Employee; or (ii) at the
option of the Company, by written notice to Employee or his personal
representative in the event of the Permanent Disability (as defined below) of
Employee. In the event of such written notice, Employee's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by Employee. As used herein, the term "Permanent Disability" shall mean a
physical or mental incapacity or disability which renders Employee unable to
substantially render the services required hereunder for sixty (60) days in any
365-day period, as certified by either Employee's attending physician or a
licensed physician retained by the Company for the purposes of making such
determination.
(b) At the option of the Company, by written notice to Employee upon
the occurrence of any one or more of the following events:
(i) any action by Employee constituting fraud, embezzlement or
dishonesty in the course of his employment hereunder;
(ii) any conviction of Employee of any felony or any crime
involving moral turpitude, as determined by the Company;
(iii) gross neglect or willful refusal by Employee to perform
his duties hereunder; or
(iv) failure by Employee to devote substantially all of his
business time to the performance of his duties hereunder.
(c) At the option of Employee, by written notice to the Company, only
in the event of a material breach by the Company of the terms hereof.
(d) At the option of the Company, by written notice to Employee in
the event that the Company shall (i) cease its operations or otherwise stop
doing business, (ii) dissolve or commence any proceeding for dissolution,
liquidation or the winding up of its affairs, or (iii) continence any
proceeding under any bankruptcy, reorganization, readjustment of debt,
arrangement or similar statute of any jurisdiction.
(e) At the option of the Company, on ninety (90) days' notice.
7. EFFECT OF TERMINATION.
(a) In the event of the termination of Employee's employment
hereunder prior to the expiration of the Employment Period for any reason, the
Company shall have no liability or obligation to Employee under this Employment
Agreement or otherwise in connection with his employment, other than as
specifically set forth in this Section 7.
-3-
<PAGE> 4
(b) Upon the termination of Employee's employment hereunder
pursuant to Section 6(a), the Company shall pay to Employee's estate or
beneficiary, in the event of a termination pursuant to clause (i) of Section
6(a), or to Employee or his legal representative, in the event of a termination
pursuant to clause (ii) of Section 6(a), all Base Salary through the date of
termination, payable in one lump payment in cash within 30 days of termination.
(c) Upon the termination of Employee's employment hereunder
either: (i) by the Company pursuant to Section 6(b), 6(d), 6(e); or (ii) by
Employee for any reason other than pursuant to Section 6(c), then Employee
shall be entitled to receive all Base Salary through the date of termination,
payable in one lump payment in cash within 30 days of termination.
(d) Upon the termination of Employee's employment hereunder
either: (A) by the Company for any reason other than pursuant to Section 6(a),
6(b), 6(d), 6(e); or (B) by Employee pursuant to Section 6(c), then the sole
liability of the Company to Employee shall be to pay to Employee all Base Salary
which would have been payable to Employee during the balance of the Employment
Period had his employment not been so terminated. The amounts payable pursuant
to this Section 7(d) shall be payable at the same time as Base Salary would have
been paid to Employee had he not been so terminated.
8. COVENANTS AGAINST COMPETITION.
(a) During the period of Employee's employment with the Company
and for a period of one (1) year thereafter, Employee shall not, directly or
indirectly, anywhere within a ten (10) mile radius of the geographical areas or
territories in which the business of the Company or any subsidiary is presently
being conducted or may from time to time be conducted during Employee's period
of employment with the Company: (i) engage for his own account in any
Competitive Business (as defined below); (ii) render any services in any
capacity to any person or entity engaged in a Competitive Business; or (iii)
own, manage, control, participate in, consult with, endorse, render services
for, lend money to, guarantee the debts or obligations of, or otherwise become
economically interested, whether as a partner, shareholder, director, officer,
employee, consultant, principal, member, manager, agent, trustee, consultant or
in any other relationship or capacity, in any entity or person engaged in a
Competitive Business.
(b) Nothing contained herein shall prevent Employee from being
a passive owner of any publicly-traded stock of a corporation which is engaged
in a Competitive Business; provided that (i) Employee does not have any other
participation in the management, operations or business of such corporation,
and (ii) Employee is not a controlling person of, or a member of a group which
controls, such corporation.
(c) For purposes of this Agreement, "Competitive Business"
shall mean any restaurant in the casual dining segment other than a fast food
restaurant.
4
<PAGE> 5
(d) During the Employment Period and for a period of one (1)
year thereafter, Employee shall not, directly or indirectly, on behalf of
himself or any other person or entity: (i) solicit or encourage any employee of
the Company, or any subsidiary of the Company to leave the employ of the
Company, or such subsidiary; or (ii) solicit any customer of the Company or any
subsidiary.
(e) The provisions of this Section 9 shall be effective
commencing on the first anniversary of the date of this Agreement and thereafter
during the balance of the Employment Period, and shall continue in effect
thereafter for the periods provided above, regardless of the manner or reasons
for the termination of employment.
(f) The parties recognize that a remedy at law for a breach of
the provisions of this Section 9 may be inadequate and any breach or threatened
breach thereof will cause irreparable injury to the Company and its
subsidiaries. Accordingly, for their complete protection, the Company shall have
the right to obtain injunctive relief, whether mandatory or restraining, to
enforce the provisions hereof, without being required to post any bond or other
security. Such remedy shall not be exclusive and shall be in addition to any
other remedy, at law or in equity, which the Company may have for any breach or
threatened breach of this Section 9 by Employee.
(g) If a court of competent jurisdiction determines that any of
the provisions of this Section 8, or any part thereof, is unenforceable because
of the scope, duration or area of applicability of such provision(s), it is the
intention of the parties that the court making such determination shall; (i)
modify such scope, duration or area, or all of them, only to the extent required
to cause such provision(s) to be deemed enforceable; and (ii) that such
provision(s) as so modified shall then be deemed by such court to be applicable
and enforceable in such modified form and shall be enforced.
9. NOTICES. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class registered mail, return receipt requested, or by
commercial courier or delivery service, or by facsimile, addressed to the
parties at the addresses set forth below (or at such other address as any party
may specify by notice to all other parties given as aforesaid):
(a) If to the Company:
Redheads, Inc.
One Executive Boulevard
Yonkers, New York 10701
Attention: President
-5-
<PAGE> 6
(b) If to the Employee
David Sederholt
9 Brookside Drive
Ridgefield, Connecticut 06877
(10) MISCELLANEOUS.
(a) This writing constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified,
amended or terminated except by a written agreement signed by all of the parties
hereto.
(b) This Agreement shall not be assignable by Employee, but it
shall be binding upon, and shall inure to the benefit of, his heirs, executors,
administrators and legal representatives. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors and assigns.
(c) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
(d) Subject to Section 8(g) hereof, if any provision of this
Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render invalid or unenforceable any other severable provision of this
Agreement, and this Agreement shall be carried out as if any such invalid or
unenforceable provision were not contained herein, unless the invalidity or
unenforceability of such provision substantially impairs the benefits of the
remaining portions of this Agreement.
(e) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
sections.
(f) This Agreement may be executed in two or more counterparts,
all of which taken together shall be deemed one original.
(g) This Agreement shall be deemed to be a contract under the
laws of the State of New York and for all purposes shall be construed and
enforced in accordance with the internal laws of said state without regard to
the principles of conflicts of law.
(h) This Agreement shall not confer any rights or remedies upon
any person or entity other than the parties hereto and their respective
successors and permitted assigns.
(i) Each party hereby irrevocably consents to the sole and
exclusive jurisdiction and venue of the courts of the State of New York located
in New York County and
-6-
<PAGE> 7
of any Federal court located in New York County in connection with any action
or proceeding arising out of or relating to this Agreement, or the breach
thereof. Each party hereby irrevocably waives any objection to the laying of
venue in New York County or based on the grounds of forum non conveniens, which
such party may now or hereafter have to the bringing of any action or
proceeding in such jurisdiction in respect of this Agreement.
(j) Employee represents and warrants that he is not bound by any
agreement and is not subject to any restrictive covenant which precludes his
employment by the Company as provided for herein.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized, and Employee
has hereunto set his hand, as of the date first above written.
REDHEADS, INC.
By: /s/ Charles Oliorf
------------------------------
Title: C.E.O.
------------------------------
/s/ David C. Sederholt
------------------------------
David Sederholt
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS<F1>
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 58,332
<SECURITIES> 0
<RECEIVABLES> 256,832
<ALLOWANCES> 0
<INVENTORY> 80,840
<CURRENT-ASSETS> 396,005
<PP&E> 5,101,012
<DEPRECIATION> 3,266,021
<TOTAL-ASSETS> 2,785,639
<CURRENT-LIABILITIES> 22,348,071
<BONDS> 0
0
1,980,107
<COMMON> 7,244
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,785,639
<SALES> 7,700,920
<TOTAL-REVENUES> 7,700,920
<CGS> 2,279,267
<TOTAL-COSTS> 2,741,441
<OTHER-EXPENSES> 5,472,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,699
<INCOME-PRETAX> (3,126,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,126,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,126,413)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
<FN>
RESULTS COVER 26 WEEKS OF ACTIVITY.
</FN>
</TABLE>
