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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 28,1997; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from _____
to ____
Commission File Number 0-24828
GRAND HAVANA ENTERPRISES, INC.
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(Name of Small Business Issuer as Specified in its Charter)
Delaware 95-4428370
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1990 Westwood Boulevard, 3rd Floor
Los Angeles, California 90025
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (310) 475-5600
Securities Registered Under Section 12(b) of the Exchange Act:
NONE
Securities Registered Under Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Class A Redeemable Common Stock Purchase Warrants
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(Title of Class)
Class B Redeemable Common Stock Purchase Warrants
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(Title of Class)
Check whether the Issuer (1) filed all Reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such Reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year - $5,076,967
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the last sale price of
such stock as of January 5, 1998: $3,695,505.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at December 31, 1997
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Common Stock, par value $.01 per share 11,799,306 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual
Report on Form 10-KSB.
Transitional Small Business Disclosure Format Yes [ ] No [X]
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Exhibit Index on Page 47
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Grand Havana Enterprises, Inc. is engaged in the business of the
ownership, operation and development of private membership restaurants and cigar
clubs known as "Grand Havana Rooms," and in the ownership, operation and
development of retail cigar stores known as "Grand Havana House of Cigars."
The Company currently owns and operates three Grand Havana Rooms, one
in Beverly Hills, California, one in New York, New York and a third in
Washington, D.C. In addition, the Company currently owns and operates three
Grand Havana House of Cigars locations, one in Beverly Hills, California, one in
Las Vegas, Nevada and one in Washington, D.C. In addition, the Company currently
owns and operates a restaurant known as "On Canon" in Beverly Hills, California.
The Company intends to actively pursue the operation of its existing Grand
Havana Room locations and Grand Havana House of Cigars locations, and to develop
additional locations of these two establishments in major cities in the United
States as its principal business focus.
The Company was incorporated under the laws of the State of Delaware
on April 13, 1993 under the name "United Restaurants, Inc." The Company was
originally formed in order to acquire all of the capital stock of Love's
Enterprises, Inc. ("Love's"), which company is the franchisor, owner and
operator of the Love's restaurant chain. Love's restaurants are mid-priced
family-style restaurants which specialize in barbecued pork and beef, with an
emphasis on ribs. The Company acquired the stock of Love's in May 1993. In
December 1996, due to less than anticipated operating results from the Love's
restaurant chain, the Company adopted a plan of discontinuance with respect to
the Love's restaurant chain. See "Recent Developments-- Sale of Love's
Restaurants and Domestic Franchise Rights."
The Company's principal executive offices are located at 1990 Westwood
Boulevard, 3rd Floor, Los Angeles, California 90025, and its telephone number is
(310) 475-5600. References to the "Company" herein includes Grand Havana
Enterprises, Inc. and its consolidated subsidiaries, unless the context
otherwise requires.
RECENT DEVELOPMENTS
Expansion of Grand Havana Rooms and Grand Havana House of Cigars
During 1997 the Company opened two new Grand Havana Rooms, one in
Washington, D.C. which opened in March 1997 and one in New York, New York which
opened in May 1997. See "Business-- Grand Havana Rooms." In addition, in 1997
the Company opened three Grand Havana House of Cigars, one in the Bally's Hotel
in Las Vegas, Nevada which opened in November, 1997, a second adjacent to the
Company's Grand Havana Room in Washington, D.C. which opened in March, 1997, and
a third adjacent to the Company's Grand Havana Room in Beverly Hills, California
which opened in December, 1997. See "Business-- Grand Havana House of Cigars."
In addition, the Company is currently negotiating the lease for a fourth Grand
Havana House of Cigars location which location would take the form of a kiosk in
the lobby of another major Las Vegas hotel. Further, in May 1997 the Company
entered into a Territory Rights Agreement pursuant to which the Company licensed
the rights to operate Grand Havana Rooms in certain territories in the Far East.
See "Other Operations-- Grand Havana Far Eastern Territory Rights Agreement."
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Sale of Love's Restaurants and Domestic Franchise Rights
In December 1996 the Company adopted a formal plan of discontinuance
of its Love's franchise and restaurant operations. At the time of the adoption
of such plan of discontinuance, the Company operated three Company-owned Love's
restaurants, one in Beverly Hills, California, one in Westchester, California
and a third in San Bernardino, California, and was the franchisor of an
additional 10 Love's restaurants. See Item 7. "Financial Statements and
Supplementary Data-- Note 3 to Consolidated Financial Statements."
Since the adoption of the plan of discontinuance for the Love's
franchise operations, the Company has taken the actions discussed below to
discontinue its Love's operations. The Company is currently negotiating with the
landlord of the premises of the Company-owned Westchester, California's Love's
restaurant to terminate the lease in consideration for the Company continuing to
make the lease payments under the lease for the Westchester Love's restaurant
through May 1998 and the payment to the Company by the landlord of a $75,000
termination fee. It is anticipated that the Westchester Love's restaurant will
cease operations in January 1998.
In August, 1997 the Company sold its Company-owned Beverly Hills
Love's restaurant for an aggregate purchase price of $120,000, payable $40,000
in cash and $80,000 in a three-year 7% promissory note payable in monthly
installments.
In May 1997 the Company-owned San Bernardino Love's restaurant was
sold by the Company to the franchisee of this location in consideration for the
franchisee becoming a sublessee for the remainder of the lease term of the
premises leased by the Company for this restaurant location.
During fiscal year 1997 the franchisee of the Love's restaurant
located in Lakewood, California, of which restaurant location the Company was
the lessor, went into bankruptcy and the Company took over operations of this
Love's restaurant.
The Company is currently negotiating an agreement to sell the
remaining domestic assets of its Love's franchise operation, consisting
primarily of the Love's Company-owned Lakewood, California restaurant and the
franchise rights to nine remaining Love's franchised restaurants. The purchase
price for these remaining assets is anticipated to be approximately $200,000 and
the Company anticipates that this transaction will close in February 1998, with
the full purchase price payable at the closing.
The only Love's related asset which the Company intends to retain is
the international licensing rights to the Love's restaurants. In this regard in
August 1994, the Company entered into a Territory Rights Agreement with PT
Transpacific Ekagraha, an Asian holding company. The first Love's restaurant to
be opened under this agreement will be located in Jakarta, Indonesia, which
restaurant is currently scheduled to be open in early 1998. See "Business--
Other Operations-- Love's Far Eastern Territory Rights Agreement."
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BUSINESS
Grand Havana Rooms
The Company's private membership restaurants and cigar clubs, known as
the Grand Havana Rooms, cater primarily to affluent cigar smokers and their
guests. The Company's initial Grand Havana Room opened in June, 1995 in Beverly
Hills, California, on the second floor in the space above the Company's On Canon
restaurant. See "Business-- Other Operations." The Company opened its second
Grand Havana Room in Washington, D.C. in March 1997 and its third Grand Havana
Room in New York, New York in May 1997.
The Grand Havana Room concept is to provide a private membership club,
including an upscale restaurant, where members can keep their cigars and smoking
accessories for use when they are at the Grand Havana Room. Both corporate and
individual memberships are sold at the Grand Havana Room, with both corporate
and individual members paying a one-time initiation fee and a continuing monthly
membership fee thereafter. The Grand Havana Room concept includes the operation
of a private smoking lounge, a full bar and an upscale restaurant, as well as
the sale of premium cigars and cigar and tobacco accessories. If space permits,
a Grand Havana Room may also include other membership activities and services,
including a billiards room and screening room. The Company's New York Grand
Havana Room currently has a billiards room and a room which the Company may
designate in the future as a screening room. The Company intends to add a
billiards room to its Beverly Hills Grand Havana Room location in the near
future. All of the facilities of the Grand Havana Room, including the bar and
restaurant, are only available for use by members and their guests.
The Company commenced offering its own brand of cigars at its Grand
Havana Rooms under the brand names "Grand Havana Reserve" and "Grand Havana
Selection" in the summer of 1997. See "Trademarks and Service Marks," below.
The Company also offers these cigars at its retail Grand Havana House of Cigars
locations and in the future may enter into distribution agreements with respect
to the distribution of its brands of cigars to third party wholesalers or
retailers. See "Grand Havana House of Cigars." The Company does not manufacture
the cigars which use its trade names, but rather the Company orders them
directly from a cigar manufacturer and has its brand names applied to such
cigars. The Company's brands of cigars do not currently account for a
significant portion of the Company's cigar sales.
Membership at the Company's Grand Havana Rooms is limited to the
number which the Company believes is appropriate to the space of the particular
Grand Havana Room and the number of humidors maintained by the Company at each
Grand Havana Room.
The Company continues to investigate cites for additional Grand Havana
Room locations, although no new sites for such new locations has as yet been
identified. There can be no assurance that the Company will be successful in
locating additional locations for such Grand Havana Rooms, will be successful in
obtaining funding necessary to develop such additional Grand Havana Rooms, or if
developed, that such additional Grand Havana Rooms will be operated profitably.
Beverly Hills Grand Havana Room. The Company's initial Grand Havana
Room, which opened in June 1995, is located on the floor above the Company's On
Canon Restaurant in Beverly Hills, California. The Company leases its Beverly
Hills Grand Havana Room pursuant to a five year lease expiring June 30, 1999,
which lease has three five year options to extend, through June 30, 2014. The
Company's Beverly Hills Grand Havana Room consists of approximately 3,000 square
feet. All
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available memberships at the Company's Beverly Hills Grand Havana Room have
been sold, and there currently exists a waiting list with respect to future
members. The Company is currently examining whether to continue operations at
its On Canon restaurant location, and should the Company determine to cease
these operations, the Company may use the ground floor space of its On
Canon restaurant in order to expand the operations of its Beverly Hills Grand
Havana Room. See "Other Operations-- On Canon Restaurant."
New York Grand Havana Room. The Company's initial New York Grand
Havana Room, which opened in May 1997, is located on the 39th floor of 666 Fifth
Avenue, New York, New York, in the former location of the well-known restaurant,
"Top of the Sixes." Due to the relatively large size of the space leased for the
Company's initial New York Grand Havana Room, in addition to a smoking lounge,
bar and restaurant, the New York Grand Havana Room also includes a billiards
room and there is space which the Company may determine to convert into a
screening room in the future. Approximately one-third of the available
memberships at the Company's Grand Havana Room in New York have been sold to
date. The Company intends to continue to seek new members for its New York Grand
Havana Room by "word of mouth" advertising. In addition, the Company has been
marketing its New York Grand Havana Room for "event parties." The Company
believes that some of those who may attend event parties may determine to become
members of the Grand Havana Room. See Item 2. "Description of Property."
Washington, D.C. Grand Havana Room. The Company's Grand Havana Room in
Washington D.C. opened in March 1997 and is located at the lower level of 1220
19th Street, N.W., Washington, D.C. and consists of approximately 8,298 square
feet. See Item 2. "Description of Property." Membership at the Washington, D.C.
Grand Havana Room has been lower than anticipated, with the Company to date
selling approximately one-tenth of available memberships. The Company intends to
take actions to try to further promote memberships at its Washington, D.C. Grand
Havana Room, such as sponsoring of "event parties"; however, there can be no
assurance that the Company's efforts to increase its membership base at its
Washington, D.C. Grand Havana Room will be successful, and if these efforts are
not successful, the Washington, D.C. Grand Havana Room may not be financially
viable for the Company as a continuing operation.
Grand Havana House of Cigars
The Company's Grand Havana House of Cigars locations specialize in
premium cigars, cigar accessories and related merchandise. In the summer of
1997, the Company commenced offering its own brands of cigars, which are named
"Grand Havana Selection" and "Grand Havana Reserve," at its Grand Havana House
of Cigars retail locations. The Company's brand of cigars have only recently
been introduced and as yet do not account for a significant portion of the sales
of cigars by the Company.
The Company opened its first Grand Havana House of Cigars adjacent to
its Washington D.C. Grand Havana Room in March 1997. A second Grand Havana House
of Cigars was opened in the lobby of the Bally's Hotel in Las Vegas, Nevada in
November 1997 and a third Grand Havana House of Cigars was opened adjacent to
the Company's On Canon Restaurant (on the floor below the Company's Grand Havana
Room), in Beverly Hills, California in December 1997. In addition, the Company
is currently negotiating a lease for a cigar kiosk to be located in the lobby of
another major Las Vegas hotel.
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The Company intends to actively pursue the development of additional
Grand Havana House of Cigar locations in other major U.S. cities, although no
additional sites for such new locations has as yet been identified other than as
discussed herein.
Marketing and Promotion. The Company's Grand Havana Rooms are private
membership clubs. The Company intends to promote the clubs primarily through
direct targeting of select individuals by the Company's officers and employees,
by word-of-mouth advertising by existing members and by hosting "event parties"
through which to introduce prospective new members to the clubs' facilities;
however, if direct member personal solicitations, "word-of-mouth" advertising
and event parties are insufficient to sell memberships, the Company may find it
necessary to engage in advertising or other promotional activities to attract
members to its Grand Havana Rooms. Because the advertisement of tobacco products
is heavily regulated, there could be significant restrictions on the Company's
ability to advertise its Grand Havana Rooms, which could have a material adverse
effect on the operations of the Company's Grand Havana Rooms. See "Government
Regulation," below.
Love's
On May 27, 1993, the Company purchased all of the issued and
outstanding capital stock of Love's from Kyotaru International, Inc., a
subsidiary of a large Japanese concern, for a total consideration of $534,822.
On the date of Closing, Love's operated one Company-owned restaurant and was the
franchisor of an additional 19 Love's restaurants, which were operated by
independent franchisees. In addition, the Company acquired two closed
Company-owned locations.
Love's restaurants are mid-priced family-style restaurants which
specialize in barbecued pork and beef, primarily ribs. Each Love's restaurant
has a liquor license. Each of the franchised restaurants is owned and operated
by an independent franchisee under a Franchise Agreement pursuant to which a
royalty is paid to Love's.
In December 1996 the Company adopted a formal plan of discontinuance
of its Love's restaurants operations. At the time of the adoption of such plan
of discontinuance, the Company operated three Company-owned Love's restaurants,
one in Beverly Hills, California, one in Westchester, California and a third in
San Bernardino, California, and was the franchisor of an additional 10 Love's
restaurants.
Since the adoption of the plan of discontinuance for the Love's
restaurants, the Company has taken various actions to discontinue its Love's
operations. The final domestic assets of the Love's restaurants, consisting
primarily of one Company-owned location in Lakewood California and rights under
the franchise agreements for nine Love's restaurants are currently scheduled to
be sold in February 1998 for an aggregate purchase price of approximately
$200,000. See "Recent Developments- - Sale of Love's Restaurants and Domestic
Franchise Rights."
The only Love's related asset which the Company intends to retain is
the international licensing rights to the Love's restaurants. In this regard in
August 1994, the Company entered into a Territory Rights Agreement with PT
Transpacific Ekagraha, an Asian holding company. The first
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Love's restaurant to be opened under this agreement will be located in Jakarta,
Indonesia, which restaurant is currently scheduled to be open in early 1998. See
"Business-- Other Operations-- Love's Far Eastern Territory Rights Agreement."
OTHER OPERATIONS
On Canon. The Company's On Canon restaurant opened in April 1995 on
Canon Drive in Beverly Hills, California. On Canon offers a light Italian menu
featuring pizza, pasta and other Italian favorites. On Canon is open for lunch
and dinner each day and the ambiance is designed to be "elegantly casual" and
"social" with a modern, sporty look. The Company is currently examining whether
to cease operations of its On Canon restaurant. If the Company should determine
to cease operations of this restaurant, the Company would likely use the
restaurant space to expand the operations of its Beverly Hills Grand Havana
Room, which is located on the floor above the Company's On Canon restaurant.
Grand Havana Far Eastern Territory Rights Agreement. The Company entered
into an agreement in May 1997 with Grand Havana Room (Asia) Holding Hong Kong
("Grand Havana Asia"), pursuant to which the Company has granted to Grand Havana
Asia certain exclusive territories in the far east, including Hong Kong, Taiwan,
Singapore, Thailand, Japan, Korea, the Philippines and China, in which Grand
Havana Asia can open and operate Grand Havana Rooms for a term of 75 years.
Grand Havana Asia agreed to pay the Company, for the exclusive right to use the
name Grand Havana Room in the territory, a non-refundable territorial fee of
$600,000, of which $300,000 was paid upon execution of the agreement and the
balance of $300,000 is payable on the earlier of the opening of the initial
Grand Havana Room in Hong Kong or April 30, 1998. The Company is required to
provide comprehensive development and training services in connection with the
opening of the first and all subsequent Grand Havana Rooms in the territories.
In return for such services, the Company would receive 25% of the initial
membership fees paid by members of the Hong Kong Grand Havana Room and 15% of
the initial membership fees paid with respect to any other Grand Havana Rooms
opened pursuant to the agreement. Further, the Company would be entitled to
receive 6% of the monthly gross revenues from each Grand Havana Room opened
pursuant to this agreement. Pursuant to the agreement the Company is to open the
Grand Havana Room in Hong Kong within one year after the execution of the
agreement and a total of at least nine Grand Havana Rooms within five years
following the execution of the agreement. Given the recent decline in the Asian
economy, there can be no assurance that any or all of the obligations of Grand
Havana Asia under this agreement will be satisfied or that any Grand Havana
Rooms will be opened in Asia.
Love's Far Eastern Territory Rights Agreement. In August 1994, the
Company entered into a Territory Rights Agreement with PT Transpacific Ekagraha,
an Asian holding company, which engages in a number of businesses, including
banking and the restaurant development business. Under the Territory Rights
Agreement, the territory rights holder has committed to construct at least eight
Love's Restaurants in portions of Asia, including Mainland China, Hong Kong,
Indonesia, Singapore, Malaysia and Republic of China-Taiwan. The Territory
Rights Agreement provides for additional payments to Love's upon the opening of
each restaurant and for continuing royalties ranging from 5%-8.75% of gross
sales. Love's is to provide certain training, management and other services
during the term of the Territory Rights Agreement. It is expected that the
initial restaurant to be opened under the Territory Rights Agreement will open
in Jakarta, Indonesia in early 1998. Given the recent decline in the Asian
economy, there can be no assurance that any or all of the obligations of PT
Transpacific Ekagraha under this agreement will be satisfied or that any Love's
restaurants will be opened in Asia pursuant to this agreement.
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Il Forno Restaurant. On June 20, 1994 the Company acquired 85% of the
capital stock of Il Forno, Inc., which corporation owns and operates an
Italian-style restaurant located in Santa Monica, California. On September 20,
1996, due to less than anticipated operating results, the Company sold its 85%
interest in Il Forno back to the minority stockholders, resulting in a loss to
the Company of approximately $600,000. See Item 7. "Financial Statements and
Supplementary Data-- Note 4 to Consolidated Financial Statements."
TRADEMARKS AND SERVICE MARKS
The Company has registered various service marks or trademarks with the
United States Patent and Trademark Office on the Principal Register, including
"Love's", "Love's Wood Pit Barbecue" and "Love's Express." In addition, the
Company has registered the service marks "Grand Havana Room," and "Grand Havana
House of Cigars," and the trademarks "Grand Havana Selection" and "Grand Havana
Reserve." The Company has also registered the service mark "On Canon." The
Company regards its service marks and trademarks as having significant value and
being an important factor in the marketing of its restaurants and cigar clubs as
well as its Grand Havana House of Cigar locations. The Company currently uses
the "Grand Havana Selection" and "Grand Havana Reserve" trademarks on its own
brand of cigars. See "Business-- Grand Havana House of Cigars." The Company also
uses its Grand Havana Room service marks on T-shirts, hats and golf balls and
other similar products in order to generate additional revenues. The Company's
policy is to pursue registrations of its marks wherever possible and to oppose
vigorously any infringement of its marks. The Company is not aware of any
infringing uses that could materially affect its business or any prior claim to
the trademarks that would prevent the Company from using such trademarks in its
business.
GOVERNMENT REGULATION
California Smoke-Free Workplace Act of 1994. In 1994 the California
legislature enacted the California Smokefree Workplace Act of 1994 which
prohibits smoking in enclosed spaces at places of employment with certain
exceptions. Since the inception of the Company's Beverly Hills Grand Havana
Room, the Company has relied upon an exemption in the law that expressly exempts
from its coverage retail tobacco shops and private smoker's lounges. Although
the Company believes it is justified in relying on the "private smoker's lounge"
exemption, if it should be determined in the future that the Company is not a
"private smoker's lounge," but rather a restaurant or a bar to which the
California Smoke-Free Workplace Act of 1994 were applicable, this would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if other states in which the Company has
Grand Havana Room and Grand Havana House of Cigar locations should enact
legislation similar to the legislation adopted in California, and the Company
were unable to qualify under an exemption with respect to any such legislation,
this could have a material adverse effect on the Company's business, financial
condition and results of operations.
Tobacco Industry Regulation- General. Cigars and other tobacco products
are subject to regulation in the United States at the federal, state and local
levels. Together with changing public attitudes towards smoking, a constant
expansion of smoking regulations since the early 1970's has been a major cause
of the overall decline in consumption of tobacco products, although cigar
consumption has increased since 1993. Moreover, the trend is toward increasing
regulation in the tobacco industry.
Federal law has required health warnings on cigarettes since 1965;
however, there is currently no federal law requiring that cigars or pipe tobacco
carry such warnings. However, California requires "clear and reasonable"
warnings to consumers who are exposed to chemicals known to the state to cause
cancer or reproductive toxicity, including tobacco smoke and several of its
constituent chemicals.
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Violations of this law, known as Proposition 65, can result in a civil penalty
not to exceed $2,500 per day for each violation.
The majority of states, including California, restrict or prohibit
smoking in certain pubic places and restrict the sale of tobacco products to
minors. Local legislative and regulatory bodies have also increasingly moved to
curtail smoking by prohibiting smoking in certain buildings or areas or by
requiring designated "smoking" areas. Although the Company believes that because
it offers a private membership club it will be exempt from future regulations
that might further prohibit smoking, if regulations should be enacted which
would in any way limit or prohibit the smoking of cigars in the Company's Grand
Havana Rooms this would have a material adverse effect on the business of the
Company. See "New California Anti-Smoking Legislation."
Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed to
be increased, in some cases significantly, to fund various legislative
initiatives. Enactment of significant increases in or new federal, state or
local excise taxes may result in significantly increasing the price of cigars
which could result in decreased sales of cigars at the Company's Grand Havana
Rooms and Grand Havana House of Cigar locations, and a decrease in the number of
persons who smoke cigars which could cause a reduction in memberships at the
Grand Havana Rooms.
A variety of bills relating to tobacco issues have been introduced in the
Congress of the United States in recent years, including bills that would have
(i) prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of advertising expenses; (ii)
increase labeling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; and (iii) shifting
regulatory control of tobacco products and advertisements from the U.S. Federal
Trade Commission to the U.S. Food and Drug Administration. There can be no
assurance as to the ultimate content, timing or effect of any additional
regulation of tobacco products by any federal, state, local or regulatory body,
and there can be no assurance that any such legislation or regulation would have
a material adverse affect on the Company's business.
Restaurant and Alcohol Regulation. The Company's restaurants, including
the restaurants in the Company's Grand Havana Rooms, are subject to numerous
federal, state and local laws regulating their business, including health,
sanitation, safety standards, alcoholic beverage control and fire regulations.
The development and construction of additional restaurants, including those
within the Company's Grand Havana Rooms, will be subject to compliance with
applicable zoning, land use and environmental regulations. Each of the Love's
restaurants, the On Canon restaurant, and its Grand Havana Rooms, has
appropriate licenses from regulatory authorities allowing it to sell liquor,
beer and wine, and each restaurant has food service licenses from local health
authorities. The failure of a restaurant to obtain or retain liquor or food
service licenses could have a material adverse effect on its operations.
Difficulties in obtaining or failures to obtain the required licenses or
approvals could delay or prevent the development of a new restaurant in a
particular area including any new Grand Havana Rooms which may be developed by
the Company in the future. However, management believes the Company is currently
in compliance in all material respects with all relevant regulations, and the
Company has never experienced abnormal difficulties or delays in obtaining the
required licenses or approvals.
Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities, for a license and permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous
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aspects of the daily operations of the Company's restaurants, including minimum
age of patrons and employees, hours of operation, advertising, wholesale
purchasing, inventory control and handling, and storage and dispensing of
alcoholic beverages. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date. The failure to receive or
retain, or a delay in obtaining, a liquor license in a particular location could
adversely affect the Company's ability to obtain such a license elsewhere.
The Company is subject in California, and may be subject in certain other
states, to "dram-shop" statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. The Company
carries comprehensive general liability insurance which it believes is
consistent with coverage carried by other entities in the restaurant industry.
Even though the Company is covered by insurance, a judgment against the Company
under a dram-shop statute in excess of the Company's liability coverage could
have a material adverse effect on the Company. The Company has never been the
subject of a "dram-shop" claim.
Other Regulations. Various federal and state labor laws govern the
Company's relationship with its employees, including such matters as minimum
wage requirements, overtime and other working conditions. Significant additional
government-imposed increases in minimum wages, paid leaves of absence and
mandated health benefits, or increased tax reporting and tax payment
requirements for employees who receive gratuities, could be detrimental to the
economic viability of the Company's restaurants. Management is not aware of any
environmental regulations that have had a material effect on the Company to
date.
The Americans With Disabilities Act ("ADA") prohibits discrimination on
the basis of disability, accommodations and employment. The ADA became effective
in 1992 as to public accommodations and employment. The Company's restaurants
are currently designed to be accessible to the disabled. The Company believes
that it is in substantial compliance with all current applicable regulations
relating to restaurant accommodations for the disabled. Because of the
relatively recent effectiveness of the ADA and the absence of comprehensive
regulations thereunder, the Company is unable to predict the extent to which the
ADA will affect the Company. However, the Company could be required to expend
funds to modify its restaurants in order to provide service to, or make
reasonable accommodations for the employment of, disabled persons.
The Company is also currently subject to a number of state laws that
regulate certain substantive aspects of the franchisor/franchisee relationship
with respect to its Love's restaurant franchisees, such as termination,
cancellation or non-renewal of a franchise (such as requirements that "good
cause" exist as a basis for such determination and that a franchisee be given
advance notice of and a right to cure default prior to termination) and may
require the franchisor to deal with its franchisees in good faith, prohibit
interference with the right of free association among franchisees, and regulate
discrimination among franchisees in charges, royalties or fees.
COMPETITION
The Company's Grand Havana Rooms compete with other clubs that offer
private memberships as well as with other restaurants, bars, smoking lounges and
other establishments which are open to the public and at which cigar smoking is
permitted. The Company believes that by continuing its policy of catering to
affluent clientele, it will be able to compete effectively with other private
membership clubs that may have a broader base membership as well as with other
bars and restaurants that are open to the public and permit the smoking of
cigars. Many of the Grand Havana
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Rooms' competitors have substantially greater financial, marketing, personnel
and other resources than the Company, and the Company believes its ability to
compete effectively will continue to depend on its ability to offer an exclusive
membership club that caters to affluent cigar smokers and offers a high quality
distinctive restaurant, smoking lounge and bar. Additionally, the restaurant
business is often affected by changes in consumer taste and discretionary
spending priorities, economic conditions, demographic trends, traffic patterns
and employee availability. Any change in these factors could adversely affect
the Company. The Company believes that the ability of the Company's restaurants
located in its Grand Havana Rooms to compete effectively will continue to depend
on its ability to offer high quality food in a full-service, distinctive dining
environment.
The Company's Grand Havana House of Cigar locations will compete with
other retail cigar stores as well as with other businesses and entities which
sell cigars and cigar related products, such as supermarkets and liquor stores.
Many of these competitors have substantially greater financial, marketing,
personnel and other resources than the Company, and the Company believes that
its ability to compete effectively will depend on establishing prime locations
for its retail cigar stores and carrying the brands of premium cigars which are
in demand.
EMPLOYEES
As of December 31, 1997, the Company had 184 employees, including 52
full-time and 132 part-time employees. Harry Shuster, the Company's Chairman of
the Board, President and Chief Executive Officer is engaged by the Company as an
independent consultant. See Item 10, "Executive Compensation--Consulting and
Employment Agreements." None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company owns no real property, but rather leases all of the
facilities which it uses. The Company has a five-year lease expiring June 30,
1999, which lease has three five-year options to extend, through June 30, 2014,
for its "On Canon" restaurant location, Grand Havana Room and Grand Havana House
of Cigars in Beverly Hills, California. The aggregate monthly rental under the
lease for these premises is currently $17,344.
The Company's New York Grand Havana Room is located on the 39th floor
of 666 Fifth Avenue, New York, New York. The New York lease is for a term of
fifteen years expiring September 30, 2011. Annual rental under the New York
lease in its initial five years is $658,880 per annum, payable in equal monthly
installments. The Company commenced making monthly rental payments under this
lease in March 1997. In addition to this rental, the Company will pay as
additional rental under the New York lease an amount equal to 6.5% of the gross
sales from its New York Grand Havana Room in excess of $10,136,600 in any lease
year. The New York lease consists of approximately 16,472 square feet. See Item
1. "Description of Business-- Grand Havana Rooms."
The lease for the Company's Grand Havana Room and Grand Havana House
of Cigars in Washington D.C., is for a term of fifteen and one-half years
expiring in February, 2012 (the "Washington Lease"). Annual rental under the
Washington Lease is $170,000 per annum, payable in equal monthly installments.
The Company commenced making rental payments under this lease in March 1997. The
Washington D.C. Lease is for premises at the lower level of 1220 19th Street,
N.W., Washington, D.C. and consists of approximately 8,298 square feet.
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The Company rents the approximately 400 square feet of space for its
Grand Havana House of Cigars in the Bally's Hotel in Las Vegas, Nevada pursuant
to a seven year lease. Rental under the lease is $60,000 per year during the
initial year of the lease and thereafter the greater of $60,000 or the
applicable annual "percentage rent." The "percentage rent" is calculated as (i)
ten percent of gross sales up to $1,000,000 per year, (ii) 11% of gross sales
from $1,000,000 to $1,500,000 per year, (iii) 12% of gross sales from $1,500,000
to $2,000,000 and (iv) 13% of gross sales in excess of $2,000,000 per lease
year. In addition, upon the Company taking possession of the premises, the
Company delivered to the landlord under the lease $50,000 as "key money" in
consideration for the landlord entering into the lease agreement and completing
certain work on the leased premises. See Item 1. "Description of Business--
Grand Havana House of Cigars."
In February 1995 the Company entered into a six-year lease with 1990
Westwood Boulevard, Inc. covering approximately 6,000 square feet of office
space for its principal executive offices. The Lease provides for a rental of
$4,000 per month through January 31, 1998, and a rental of $4,400 per month
thereafter through the end of the term of the lease in January 2001. 1990
Westwood Boulevard, Inc. is owned 50% by Harry Shuster, Chairman of the Board,
President and Chief Executive Officer, a Director and a promoter of the Company,
35% by Jordan Belfort and 15% by Daniel Porush. Each of such latter persons is a
shareholder of Chicken & Ribs, Inc., a promoter of the Company. The Company is
advised that the rental and other terms of the agreed-upon Lease are no more
favorable to the lessor than could have been obtained in a similar building in
the same area from an independent, unrelated lessor. See Item 12. "Certain
Relationships and Related Transactions".
Until the closing of the sale of the remaining Love's Company-owned
location and nine franchised locations, which sale is anticipated to close in
early February 1998, the Company will remain the lessee under certain
franchised, subleased and Company-owned Love's locations. The leases are
generally "triple net" leases, obligating the Company, as tenant, to be
responsible for taxes, utilities and insurance. In the subleases which the
Company enters into with its franchisees, the Company passes on the "triple net"
obligations to such franchisees, and receives specified percentages of such
sublessees' sales of food, liquor and other items.
The Company considers its leased properties to be adequate for its
needs in the short term or at least until the expiration of such leases, subject
to such additional leases as need be entered into in connection with the
Company's expansion plans discussed elsewhere in this Annual Report on Form
10-KSB. In management's opinion, all of the properties leased by the Company are
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending material legal proceeding,
other than routine litigation that is incidental to its business or is covered
by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended September 28 1997, to a vote of security holders of the Company through
the solicitation of proxies, or otherwise. On October 7, 1997, the Board of
Directors of the Company approved and recommended that the Company's Certificate
of Amendment be amended to increase the number of authorized shares of Common
Stock of the Company from 22,000,000 to 50,000,000 (the "Amendment"). On October
7, 1997 the holders of more than a majority of the issued and outstanding shares
of Common Stock executed a Written Consent to Corporate Action pursuant to which
such holders approved the
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Amendment. The Company did not solicit proxies with respect to the taking of
such action by written consent. An Information Statement with respect to the
Amendment was mailed to all of the stockholders of the Company on or about
November 20, 1997. The Amendment became effective upon the filing of such
Amendment with the Secretary of State of Delaware on December 12, 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock, par value $.01 per share, of the Company has been
traded on The Nasdaq Stock Market's Small Cap Market ("Nasdaq") since April 12,
1994, the effective date of the Company's initial public offering. Prior to that
date, there was no public market for the Company's securities. The Company's
common stock has been traded under the symbol "PUFF" since March 1997 and prior
to that was traded under the symbol "UNIR." In its initial public offering, the
Company sold a total of 2,012,000 Units, each Unit consisting of one share of
Common Stock, one Class A Warrant and one Class B Warrant. Each of the Class A
Warrants and the Class B Warrants entitles the holders thereof to purchase one
share of the Company's Common Stock at exercise prices of $4.80 and $5.60 per
share, respectively. In addition to the market for the Company's Common Stock,
as to which certain information is provided below, the Company's Class A
Warrants and Class B Warrants are also traded on Nasdaq.
The following table sets forth, for the Company's fiscal quarters
indicated, the high and low bid prices of the Common Stock in The Nasdaq Stock
Market's Small Cap Market, as reported to the Company in monthly Reports from
Nasdaq:
<TABLE>
<CAPTION>
Reported
Bid Prices
-----------------
High Low
<S> <C> <C>
1996
1st Quarter 3-3/8 1
2nd Quarter 2-1/8 15/16
3rd Quarter 2-3/16 1-1/4
4th Quarter 1-11/16 7/8
1997
1st Quarter 2 1
2nd Quarter 3-3/4 1-3/4
3rd Quarter 3 1-1/2
4th Quarter 2 1
</TABLE>
The above quotations represent prices between dealers, do not include
retail mark-up, markdown or commission and do not necessarily represent actual
transactions.
There were approximately 71 record holders of the Common Stock of the
Company as of December 1, 1997.
The Company has never declared or paid any cash dividends and does not
intend to pay cash dividends in the foreseeable future on the shares of Common
Stock. Cash dividends, if any, that may be paid in the future to holders of
Common Stock will be payable when, as and if declared by the Board of Directors
of the Company, based upon the Board's assessment of the financial condition of
the Company, its earnings, need for funds, capital requirements, and prior
claims, if any, of Preferred
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<PAGE> 15
Stock to the extent issued, and other factors, including any applicable laws.
The Company is not currently a party to any agreement restricting the payment of
dividends.
Changes in Securities
In July 1997 the Company issued a 3-year warrant to Westminster
Capital, Inc. to purchase 150,000 shares of common stock of the Company
exercisable at the lesser of $.75 per share or 75% of the average trading price
ten trading days prior to exercise. This Warrant was issued to Westminster
Capital, Inc. as designee of United Leisure Corporation pursuant to an Amendment
to Financing Agreement dated July 15, 1997 between the Company and United
Leisure Corporation. See Item 12.
"Certain Relationships and Related Transactions."
Also in July 1997 the Company issued 100,000 shares of its common
stock to the law firm of Richman, Lawrence, Mann, Greene, Chizever & Phillips in
consideration for legal services rendered.
In September 1997 the Company agreed to issue 50,000 shares of its
common stock to an investor relations consultant in consideration for services
performed by such consultant.
Each of the foregoing issuances was made directly by the officers and
directors of the Company and no underwriting discounts or commissions were paid.
Each of the foregoing transactions was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, for issuance of shares
not involving any public offering.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
General
Grand Havana Enterprises, Inc. is engaged in the business of the
ownership, operation and development of private membership restaurants and cigar
clubs known as "Grand Havana Rooms," and in the ownership, operation and
development of retail cigar stores known as "Grand Havana House of Cigars."
The Company currently owns and operates three Grand Havana Rooms, one
in Beverly Hills, California which opened in June 1995, one in Washington, D.C.
which opened in March 1997 and a third in New York, New York which opened in May
1997. In addition, the Company currently owns and operates three Grand Havana
House of Cigars locations, one in Beverly Hills, California which opened in
December, 1997, one in Washington D.C. which opened in March 1997 and one is Las
Vegas, Nevada which opened in November, 1997. The Company intends to actively
pursue the operation of its existing Grand Havana Room locations and Grand
Havana House of Cigars locations, and to develop additional locations of these
two establishments in major cities in the United States as its principal
business focus. The Company also operated its On Canon restaurant during the
fiscal years ended September 30, 1996 and September 28, 1997 and its Il Forno
restaurant during the fiscal year ended September 30, 1996. See "Business--
Other Operations."
The Company was incorporated under the laws of the State of Delaware on April
13, 1993. The Company was originally formed in order to acquire all of the
capital stock of Love's Enterprises, Inc. ("Love's"), which company was the
franchisor owner and operator of the Love's restaurant chain. Love's restaurants
are mid-priced family-style restaurants which specialize in barbecued pork and
beef, with an emphasis on ribs. The Company acquired the stock of Love's in May
1993. In December 1996, due to less than anticipated operating results from the
Love's restaurant chain, the Company adopted a plan of discontinuance with
respect to the Love's restaurant chain. See "Recent Developments-- Sale of
Love's Restaurants and Domestic Franchise Rights."
Management of the Company expects that during the membership drive for
its new New York and Washington D.C. Grand Havana Rooms, and during the period
it is working on the development of additional Grand Havana Rooms and Grand
Havana House of Cigars locations, the Company will continue to experience
consolidated losses, until such time as there are enough profitable Grand Havana
Rooms and Grand Havana House of Cigars locations developed to absorb the
increased expenses and overhead; however, there can be no assurance that such
cigar clubs and retail cigar stores will be profitable in the future. The
Company has experienced operating losses since its inception with net losses of
$1,468,044 and $3,795,909 for the fiscal years ended September 30, 1996 and
September 28, 1997, respectively.
To the extent that any of the statements contained herein relating to
the Company's business, including its development plans with respect to its
Grand Havana Rooms and Grand Havana House of Cigars locations, contain
forward-looking statements, such statements are based on current expectations
that involve a number of uncertainties and risks that could cause actual results
to differ materially from those projected in the forwarded-looking statements,
including risks and uncertainties associated with the costs of the development
of new Grand Havana Room and Grand Havana House of Cigars locations, the timing
of the proposed developments, compliance with regulatory requirements and the
Company's ability to sell memberships in its New York, New York and Washington,
D.C. locations. In addition to these risks, other important factors that could
cause the Company's results of operations to differ materially from those
anticipated by management include a decline in public consumption of cigars and
other tobacco products and significant increases in excise taxes which could
substantially increase the price of cigars.
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<PAGE> 17
RESULTS OF OPERATIONS - FISCAL YEAR ENDED SEPTEMBER 28, 1997, COMPARED TO FISCAL
YEAR ENDED SEPTEMBER 30, 1996
The Company derives revenues from five principal sources: food and
beverage sales, franchise royalties, sublease income, merchandise sales and
membership fees. During its fiscal year ended September 28, 1997 the Company had
revenues of $5,076,967 compared to revenues of $5,262,790 for its fiscal year
ended September 30, 1996, a decrease of $185,823 or approximately 3.5%. The
decrease in revenues is primarily due to decreases in food and beverage sales,
from $3,984,246 in the fiscal year ended September 30, 1996 to $2,820,785 in the
fiscal year ended September 28, 1997 or $1,163,461 or approximately 29.2%. The
above-mentioned decreases were offset by increases in membership revenues from
$649,608 in the fiscal year ended September 30, 1996 to $1,186,591 in the
fiscal year ended September 28, 1997 or $536,983 or 82.7%, and an increase in
territorial fees from $200,000 in the fiscal year ended September 30, 1996 to
$600,000 in the fiscal year ended September 28, 1997.
The decrease in food and beverage sales was mainly due to the Company's
sale late in fiscal year 1996 of the IL Forno restaurant and decreased sales at
the On Canon Restaurant. These decreases were offset in part by a new revenue
source created by the opening of the two new Grand Havana Rooms during the
fiscal year ended September 28, 1997. The Company's former Il Forno restaurant,
which was sold in late September 1996, had $933,783 of food and beverage sales
in the fiscal year ended September 30, 1996 and no revenue in 1997. Food and
beverage sales were lower at the Company's On Canon restaurant during the fiscal
year ended September 28, 1997, with $2,217,070 in food and beverage revenue for
fiscal year 1996 as compared to $1,606,837 in food and beverage sales in the
fiscal year ended September 28, 1997 or a decrease of $610,233 or approximately
27.5%. This decrease was due primarily to changes in restaurant and kitchen
management throughout the fiscal year ended September 28, 1997 and the
competition faced by the Company in the highly competitive Beverly Hills
restaurant community. Food and beverage sales at the two new Grand Havana Rooms
in New York and Washington D.C. were approximately $253,000 for four months of
operations and $84,000 for eight months of operations, respectively. Food and
beverage sales at the Beverly Hills Grand Havana Room were similar in fiscal
years 1996 and 1997. The increase in territorial fees of $400,000 is due to a
one-time fee for the development of certain international rights of Love's in
fiscal year 1996, as compared with $600,000 in revenue in the fiscal year ended
September 28, 1997 from the sale of territorial rights of the Grand Havana Rooms
in nine Asian countries. The increase in membership revenue, from $649,608 in
the fiscal year ended September 30, 1996 to $1,186,591 for the fiscal year ended
September 28, 1997, is due primarily to initial membership fees recognized for
new members joining the two new Grand Havana Rooms in New York and Washington,
D.C. with membership revenue of approximately $477,000 and $94,000,
respectively.
Total costs and expenses of the Company increased from $5,967,516 for the
fiscal year ended September 30, 1996 to $8,088,534 for the fiscal year ended
September 28, 1997, an increase of $2,121,018 or 35.5%. The increase is mainly
due to increased occupancy and other costs, increased pre-opening costs and
increase labor due to the two new Grand Havana Rooms in Washington, D.C. and New
York, New York which opened during fiscal year 1997 which increase in costs was
offset by lower food and beverage costs.
Occupancy and other costs increased during fiscal year 1997 due to
additional rents for the new Grand Havana Rooms, additional utilities, increased
professional fees, reserve for doubtful accounts and travel costs. The New York
and Washington D.C. Grand Havana Rooms rents were $660,000 and $168,000,
respectively for the fiscal year ended September 30, 1997. There was no rent
expense for these two facilities in the fiscal year ended September 30, 1996.
Utilities increased from $112,000 in the fiscal year ended September 30, 1996 to
approximately $207,000 in the fiscal year ended September 28, 1997, an increase
of $95,000 or 84.8% due to the two new Grand Havana Rooms. Professional fees
increased from
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<PAGE> 18
approximately $59,000 in 1996 to $185,000 in 1997, or an increase of $126,000 or
213.6%. The increase in professional fees is mainly due to a consulting
agreement whereby an unrelated consultant agreed to provide marketing services
to the Company. The increase in reserve for doubtful accounts is due primarily
to the Company's $300,000 receivable from an Asian company and deteriorating
economic conditions in Asia.
Travel costs increased from approximately $20,000 in the fiscal year
ended September 30, 1996 to $85,000 for the fiscal year ended September 28,
1997, or $65,000. The increased travel costs related primarily to the Company
personnel commuting to New York and Washington D.C. during the construction and
opening of these two new Grand Havana Rooms.
The Company incurred pre-opening costs of $488,492 in the fiscal year
ended September 28, 1997, and no pre-opening costs in the fiscal year ended
September 30, 1996. The pre-opening costs include the costs associated with the
opening of New York and Washington D.C. Grand Havana Rooms. No Grand Havana
Rooms opened during the fiscal year ended September 30, 1996, thus no costs were
incurred.
Direct labor and benefits increased in the fiscal year ended September
28, 1997 due primarily to the opening of the two new Grand Havana Rooms which
increase was offset in part by lower costs due to the sale of the Company's
interest in Il Forno. Direct labor and benefits in the New York Grand Havana
Room and the Washington, D.C. Grand Havana Room were $276,930 and $196,360 in
the fiscal year ended September 28, 1997 and the fiscal year ended September 30,
1996, respectively. This increase was offset by no labor and benefits costs for
IL Forno, which was sold in the fiscal year ended September 30, 1996. The labor
and benefit costs incurred at Il Forno in 1996 were $393,507.
Cost of sales of food, beverages and merchandise were lower in fiscal
year 1997 due to no costs for these items at Il Forno in the fiscal year ended
September 28, 1997 and decreased costs for these items at On Canon and the Grand
Havana Room in Beverly Hills. These decreased costs were offset, in part, by
increased costs at the two new Grand Havana Rooms. Il Forno was sold in
September 1996 and incurred costs of $393,507 in fiscal year 1996 compared with
no costs incurred in fiscal year 1997. On Canon had costs of sales of $636,605
in fiscal year 1996 compared with $586,164 in the fiscal year ended September
28, 1997, a decrease of $50,441 or 7.9%. The Grand Havana Room in Beverly Hills
had costs of approximately $572,000 in 1996 compared with $494,623 in the fiscal
year ended September 28, 1997, or a decrease of $77,377, or approximately 13.5%.
This decrease correlates to a similar decrease in food, beverage and merchandise
sales at the Grand Havana Room, Beverly Hills. Costs incurred at the Grand
Havana Rooms in New York and Washington, D.C. during the fiscal year ended
September 28, 1997 were approximately $168,000 and $136,000, respectively
compared with no costs incurred for these items in the fiscal year ended
September 30, 1996.
The Company's loss from continuing operations increased from $(1,259,787)
in the fiscal year ended September 30, 1996 to $(3,259,817) in the fiscal year
ended September 28, 1997, or an increase in loss from continuing operations of
$2,000,030. This increase in loss was due primarily to the start-up and overhead
costs associated with the construction of the Company's New York and Washington
D.C. Grand Havana Rooms and losses at the Company's On Canon restaurant. Loss
from operations of the New York and Washington D.C. Grand Havana Rooms was
approximately $820,000 and $814,000, respectively during fiscal year 1997. This
loss was due to the start-up of these two clubs. On Canon generated net income
from operations of approximately $23,000 in the fiscal year ended September 30,
1996 compared to incurring a net loss of $431,000 in the fiscal year ended
September 28, 1997. This loss was attributable to an erosion of sales from
increased competition in Beverly Hills without a corresponding decrease in
costs. The net loss increased from ($1,468,044) or $0.23 per share in the fiscal
year ended September 30, 1996 to $(3,795,909) or $0.46 per share for the fiscal
year ended September 28, 1997. This increased loss was due primarily to a
provision of $441,283 for the disposal of Love's and additional interest expense
incurred for interest bearing debt.
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LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering in April, 1994,
receiving net proceeds from the offering of approximately $6,386,642. The
initial public offering consisted of the sale of 2,012,500 Units, each Unit
consisting of one share of Common Stock, one five-year Class A Common Stock
Purchase Warrant to purchase one share of Common Stock at $4.80 per share, and
one five-year Class B Common Stock Purchase Warrant to purchase one share of
Common Stock at $5.60 per share. After the offering, the Company had issued and
outstanding 6,262,500 shares of Common Stock, 2,012,500 Class A Warrants and
2,012,500 Class B Warrants.
As a result of its expansion activities, the Company had spent most of
the proceeds from its initial public offering prior to its fiscal year ended
September 30, 1996. Accordingly, in order to continue with its expansion plans
with respect to its Grand Havana Rooms and Grand Havana House of Cigar
locations, the Company raised an aggregate of approximately $4,009,500 in gross
proceeds through various private placements of its securities (common stock and
warrants to purchase shares of its common stock) during its fiscal year ended
September 28, 1997. In addition, warrants to purchase shares of the Company's
common stock were exercised during the fiscal year ended September 28, 1997 for
aggregate gross proceeds to the Company from such warrant exercises of
approximately $575,000. Substantially all of the funds raised in these private
placements and warrant exercises, as well as funds loaned by entities affiliated
with the Company, as discussed below, have been spent by the Company in
connection with the development of the Company's new Grand Havana Rooms and
Grand Havana House of Cigar locations, as well as for general working capital
purposes and repayment of indebtedness. At September 28, 1997 the Company had
cash or cash equivalents of $879,461.
At September 28, 1997 the Company owed an aggregate of $775,000 in
principal amount to United Leisure Corporation pursuant to a financing agreement
dated as of February 12, 1997. All principal plus unaccrued interest thereon is
due on or before September 30, 1998. Subsequent to the fiscal year ended
September 28, 1997, $75,000 of the principal amount was repaid on this loan. In
addition, as of September 28, 1997, an aggregate of $707,000 had been advanced
to the Company under a financing agreement with United Film Distributors, Inc.,
the full amount of which, together with all accrued but unpaid interest thereon,
is due and payable upon demand, which demand may not be made prior to September
30, 1998. Subsequent to September 28, 1997, the Company repaid an aggregate of
$200,000 in principal amount of this loan. In addition, subsequent to the fiscal
year ended September 28, 1997, the Company replaced in full the $875,000 in
collateral that had previously been pledged by United Leisure Corporation on
behalf of the Company to support a letter of credit. See Item 12. "Certain
Relationship and Related Transactions,: and Item 7 "Financial Statements and
Supplementary Information-- Note 13 to Notes to Consolidated Financial
Statements."
The Company intends to continue the expansion of its business, primarily
through the development and operation of additional Grand Havana Rooms and Grand
Havana House of Cigar locations.
The Company anticipates that in connection with continuing the operation
of its currently operational Grand Havana Rooms and Grand Havana House of Cigars
as well as its future development plans with respect to its Grand Havana Rooms
and Grand Havana House of Cigars it will need additional working capital during
the next 12 months. In fiscal year 1997 the Company's New York Grand Havana Room
and Beverly Hills Grand Havana Room had losses of approximately $820,000 for
four months of operations and $814,000 for eight months of operations,
respectively, and the Company anticipates that it will continue to incur
substantial future losses from these two Grand Havana Rooms until substantially
more memberships are sold in each of these clubs. In
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addition, the Company has experienced losses from the operation of its On Canon
restaurant in the fiscal year ended September 28, 1997 and is currently
examining whether to continue operations at its On Canon restaurant location,
and should the Company determine to cease these operations, the Company may
convert the space into additional room for its Beverly Hills Grand Havana Room.
In order to raise additional capital to fund its existing operations
and to develop future Grand Havana Rooms and Grand Havana House of Cigar
locations, the Company intends to continue to seek to sell its securities in
private placements, and anticipates that it will seek to raise an additional
$3,000,000 through the sale of its securities (and/or through the exercise of
outstanding warrants to purchase its securities) in the next twelve month
period. Due to the fact that the trading price of the Company's common stock has
fallen during recent months, there can be no assurance that the Company will be
able to sell its securities in private placements on terms that are acceptable
to the Company. In addition, the Company does not currently meet the new listing
standards for maintenance of the Company's securities on Nasdaq's SmallCap
Market, which new standards will become effective in late February 1998.
Although the Company intends to seek to comply with the new maintenance criteria
for continued listing of its securities on the Nasdaq SmallCap Market, and
believes it will be able to do so, if the Company should be unable to meet these
criteria, it is possible that its securities could be de-listed from the Nasdaq
SmallCap Market, which might result in the Company having difficulty in placing
its securities with prospective investors.
If the Company is unable to raise additional funds through the private
placement of its securities it may seek financing from affiliated or
unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
available, that it will be available on terms acceptable to the Company. If the
Company is unable to place securities or obtain financing to meet its working
capital needs and to repay indebtedness as it becomes due, the Company may have
to consider such options as selling or pledging portions of its assets in order
to meet such obligations.
Management does not expect that inflation will adversely affect the
Company's existing or planned operations in the future unless it increases
significantly over current levels.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of the Company are submitted as a separate
section of this Form 10-KSB commencing on page F-1 immediately following Part IV
of this Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's Directors and executive officers as of December 31, 1996.
<TABLE>
<CAPTION>
Positions Currently Held
Name Age With the Company
---- --- ------------------------
<S> <C> <C>
Harry Shuster 62 Chairman of the Board, President and Chief
Executive Officer, Chief Financial
Officer and a Director
Harvey Bibicoff 58 Director
Stanley Shuster 37 Executive Vice President and Director
Steven T. Ousdahl 51 Vice President -- Administration
</TABLE>
Harry Shuster, the Chairman of the Board, President, Chief Executive
Officer and Chief Financial Officer, as well as one of the original promoters of
the Company and a control person of the Company, has been engaged in managing
the affairs of the Company in his current positions since the inception of the
Company in 1993. During the period from 1986 through March 1990, Mr. Shuster and
members of his family owned Love's (which was acquired by the Company in May
1993), during which time he acted as the Chairman of the Board and Chief
Executive Officer of Love's. Mr. Shuster is and has been for more than five
years Chairman of the Board, President and Chief Executive Officer of and a
Director of United Leisure Corporation, a publicly-held company located in
Irvine, California ("United Leisure"). Mr. Shuster also serves as the Chairman
of the Board of United Film Distributors, Inc. (formerly known as HIT
Entertainment, Inc.), an independent motion picture production company in Los
Angeles, California which currently has a registration statement on file with
the Securities and Exchange Commission with respect to an initial public
offering of its securities. See Item 10, "Executive Compensation--Consulting and
Employment Agreements".
United Leisure Corporation's primary operating subsidiary, Lion
Country Safari, Inc.--California, of which Mr. Shuster is the president and
chief executive officer, has been engaged in protracted and difficult litigation
with its landlord, The Irvine Company, since 1986. In connection with this
litigation, as a strategic matter, the Board of Directors of United Leisure
determined that it would be in the best interest of its stockholders to place
such subsidiary under the jurisdiction of the United States Bankruptcy Court by
filing a petition for reorganization. The petition was filed on July 23, 1990.
The trial related to this litigation commenced on October 1, 1993, and resulted
in a jury verdict in favor of the United Leisure subsidiary in the approximate
amount of $42,000,000. After the jury verdict was rendered, United Leisure's
landlord brought a motion for a new trial and the court granted the Landlord's
motion. United Leisure appealed this order. The appeal was argued in late
November 1997 and the judge has taken this matter under submission. After the
initial jury verdict
21
<PAGE> 22
was rendered in favor of United Leisure, a motion was filed for the dismissal of
the subsidiary's petition for reorganization, which was granted by the
Bankruptcy Court.
Harvey Bibicoff has served as Chairman of the Board of Directors and as a
director of Harmony Holdings, Inc., a publicly held producer of commercials,
since August 1991. Mr. Bibicoff served as the Chairman of the Board, Chief
Financial Officer, Secretary and as a director of Ventura Entertainment Group
Ltd. ("Ventura") from May 1988 through April 1995. From 1989 until March 1995,
he served as an officer and a director of The Producers Entertainment Group Ltd.
(formerly named Ventura Motion Picture Group Ltd.), a subsidiary of Ventura
whose stock is traded on Nasdaq as "TPEG." Since 1981, Mr. Bibicoff has been the
sole shareholder of Bibicoff & Associates, Inc., a financial consulting firm
that was engaged in the representation of public companies in their
relationships with the investment banking and brokerage communities. Mr.
Bibicoff received a Bachelor of Sciences degree from Bowling Green State
University in 1960 as a business and finance major and a J.D. degree from
Columbia University School of Law in 1963. He has been a member of the New York
State Bar since 1963. Mr. Bibicoff is one of the original promoters of the
Company and was originally elected a Director of the Company in August 1993.
Stanley Shuster was elected Executive Vice President of the Company and a
Director in June 1995. Since April 1994, Mr. Shuster has been employed by the
Company in order to develop its Grand Havana Room concept, and is currently
supervising the operations and development of the Company's Grand Havana Rooms.
From March 1991 through February 1994, he was Vice President of Artist and
Repertoire for J.R.S. Records, an independent record company, with major
distribution through BMG. The Artist roster of J.R.S. included Stray Cats, Jimmy
Cliff, Kool and the Gang and Asia. From May 1989 through March 1991, Mr. Shuster
acted as Director of Artist and Repertoire for Venture Music Group, a music
company based in Los Angeles, California. Prior to that time, Mr. Shuster was a
partner and operated a chain of 10 restaurants. Stanley Shuster is the son of
Harry Shuster.
Steven T. Ousdahl has acted as Operations Administrator for Love's since
September 1985, in which capacity he has been engaged, in managing the
operations of the Love's restaurant chain. Prior to that time, for over 15
years, Mr. Ousdahl was engaged as an operations executive in the food service
business for several firms, all in the southern California area, including IHOP
Corp. Mr. Ousdahl was elected Vice President -- Administration of the Company in
August 1993.
All Directors hold office until the next annual meeting of stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the Board of Directors, until their successors are
appointed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and beneficial owners of more than 10% of the Company's
Common Stock are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file. Based solely on review of the copies
of such forms furnished to the Company, or written representations that no
reports on Form 5 were required, the Company believes that for the period
through September 28, 1997, all officers, directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them, except that the following
22
<PAGE> 23
persons were each late in filing one Form 4: Harry Shuster, Stanley Shuster,
Harvey Bibicoff, Clarinda Investments and United Leisure Corporation. In
addition, David M. Kane was late in filing a Form 3.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid by the Company
to Harry Shuster, Chairman of the Board, President and Chief Executive Officer
of the Company, pursuant to a consulting arrangement, during fiscal years 1997,
1996 and 1995 and the compensation paid by the Company to Stanley Shuster during
fiscal year 1997, the first year in which Mr. Shuster's compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
All Other
Name and Principal Position Year Consulting Fee Compensation
- --------------------------- ---- -------------- ------------
<S> <C> <C> <C>
Harry Shuster 1997 $323,244(1) $ 43,522(2)
Chairman of the Board, 1996 284,814 0
President, Chief Executive 1995 266,876 6,000(3)
Officer and Chief Financial
Officer
Stanley Shuster
Executive Vice President 1997 $151,000(4) $ 6,000(3)
</TABLE>
- ----------
(1) Only $101,939 of this compensation was paid to Mr. Shuster in the fiscal
year ended September 28. 1997, with the remaining $221,305 being
deferred.
(2) Represents payments with respect to the condominium where Mr. Shuster
stays when he is in New York.
(3) Includes $500 per month car allowance.
(4) Consists of $85,000 paid to Stanley Shuster as employment compensation
and an additional 60,000 paid to him as consulting fees.
No other person received compensation in excess of $100,000 during either
of the twelve-month periods ended September 28, 1997 or September 30, 1996, nor
is any other person expected to receive such compensation for the current fiscal
year. See this Item 10, "Executive Compensation -- Consulting and Employment
Agreements."
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
# of Securities % of Total Exercise or Expiration
Name Underlying Options Options Granted Base Price Date
- ---- ------------------ --------------- ----------- ----------
<S> <C> <C> <C> <C>
Stanley Shuster 100,000 100% $1.00(2) 12/02/01
</TABLE>
- ----------
(1) No stock options were exercised in fiscal year 1997.
(2) Exercise price represents fair market value of shares at date of grant.
23
<PAGE> 24
Directors receive no cash compensation for their services to the Company
as Directors, but are reimbursed for expenses actually incurred in connection
with attending meetings of the Board of Directors.
CONSULTING AND EMPLOYMENT AGREEMENTS
The Company and Harry Shuster are parties to a Consulting Agreement,
dated as of June 1, 1993. The Consulting Agreement provides that Mr. Shuster
will be engaged as an independent contractor by the Company to act as the
Chairman of the Board, President and Chief Executive Officer and a Director of
the Company during the term of the Agreement. The initial three-year term of the
Consulting Agreement expired in May 1996, and the Consulting Agreement is now
continuing on a year-to-year basis until either party terminates the Agreement
by giving the other at least 60 days prior notice of termination prior to the
expiration of any one-year renewal term of the Consulting Agreement. Mr. Shuster
is to receive minimum annual consulting fees under the Consulting Agreement
initially of $250,000 per annum, which minimum amount is to be increased five
percent per annum during each successive year of the Agreement. Mr. Shuster is
also to be provided with either the use of a Company car to be used in carrying
out his duties for the Company or a $500 per month car allowance. The Agreement
also provides for certain disability benefits. Under the Agreement, Mr. Shuster
has agreed that the Company may maintain a $1,000,000 life insurance policy on
his life throughout the term of the Agreement. The Company has obtained and is
maintaining in force such life insurance policy. In addition, Mr. Shuster has
the right under the terms of the Agreement to increase the size of the Board of
Directors of the Company by one director and to fill this vacancy prior to the
election of directors by the stockholders. In addition, at each meeting of
stockholders of the Company at which directors are to be elected, Mr. Shuster
has the right to request, and the Company shall place, Mr. Shuster and any
designee of Mr. Shuster on the management slate of directors to be put up for
election at any such meeting of stockholders. In addition, if at any time during
the term of the Consulting Agreement, the number which shall constitute the
whole board of directors shall be increased to more than four, then Mr. Shuster
has the right to designate at least 50% of the whole board of directors of the
Company. The Agreement provides that as long as Mr. Shuster spends as much time
as necessary to properly carry out his duties as Chairman of the Board,
President and Chief Executive Officer of the Company, he will be otherwise
permitted to spend a reasonable amount of time pursuing his own outside
interests. Because Mr. Shuster is involved in multiple business enterprises in
addition to the Company, Mr. Shuster may have a conflict of interest if his
services should be required by both the Company and one of Mr. Shuster's other
business enterprises. See Item 9, "Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act--Directors
and Executive Officers." The Consulting Agreement terminates upon Mr. Shuster's
death or in the event of a breach of the Agreement by Mr. Shuster.
The Company has entered into a Employment Agreement with Stanley
Shuster pursuant to which Stanley Shuster has agreed to continue to serve as a
Vice President of the Company for an initial term of three (3) years, which
agreement shall be renewed automatically thereafter for additional terms of one
year each. Pursuant to this agreement, Stanley Shuster is to receive minimum
compensation of $125,000 per annum.
STOCK OPTIONS
1996 Stock Option Plan
During fiscal year ended September 28, 1997 the Company adopted the
1996 Stock Option Plan (the "Plan") to provide to officers, directors, key
employees and other key contributors to the
24
<PAGE> 25
Company an opportunity to purchase the common stock of the Company pursuant to
"non-qualified stock options" at the discretion of the Board of Directors.
Under the Plan options to purchase an aggregate of 626,250 shares of
common stock may be granted. The purchase price shall be no less than 85% of the
fair market value of the common stock on the date of grant. The Board of
Directors of the Company, or a committee established by the Board of Directors
shall determine, among other things (i) the purchase price of the shares covered
by each option, (ii) whether any payment will be required upon grant of the
option, (iii) the individual to whom, and the time or times at which, options
shall be granted, (iv) the number of shares to be subject to each option and (v)
when an option can be exercised and whether in whole or installments.
During fiscal year 1997 options to purchase an aggregate of 100,000
shares of the common stock of the Company were issued under the Plan to one
individual. None of those options have yet been exercised.
In addition to options granted under the Plan, at September 28, 1997,
there were outstanding presently exercisable non-qualified stock options to
purchase an aggregate of 25,000 shares of the Common Stock of the Company held
by a former Director of the Company, Arnold Wasserman, at an option price of
$3.00 per share. Mr. Wasserman resigned as a Director of the Company in June
1995. The option was granted at an exercise price approximately equal to the
then fair market value of the Company's Common Stock in consideration of Mr.
Wasserman's service on the Board of Directors. The option may be exercised at
any time during its five-year term, is nontransferable except by will or
pursuant to the laws of descent and distribution, is protected against dilution.
25
<PAGE> 26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of December 15, 1997, (a)
by each person who is known by the Company to own beneficially more than 5% of
the Company's Common Stock, (b) by each of the Company's Directors and (c) by
all officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
Percentage
Name and Address Number of Shares Ownership
of Beneficial Owner(1) Beneficially Owned(2)(3) of Class(3)
- ---------------------- ------------------------ -----------
<S> <C> <C>
Harry Shuster 1,453,466(4) 11.9%
Harvey Bibicoff 1,087,000(5) 8.9%
United Leisure
Corporation 941,666 8.0%
The Venezuela Recovery
Fund N.V.(6) 913,978(7) 7.6%
The International Investment
Group Equity Fund N.V. (6) 1,278,896(8) 10.5%
Stanley Shuster 100,000(9) .8%
Officers and directors
as a group (3 people) 2,640,466(4)(5)(9)(10) 21.6%
</TABLE>
- ----------
(1) Each person's address is c/o the Company, 1990 Westwood Boulevard, Los
Angeles, California 90025, unless otherwise noted.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to the
shares of Common Stock beneficially owned by them.
(3) Based on 11,799,306 shares outstanding. A person is deemed to be the
beneficial owner of Common Stock that can be acquired by such person
within 60 days of the date hereof upon the exercise of warrants or stock
options. Except as otherwise specified, each beneficial owner's
percentage ownership is determined by assuming that warrants and stock
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from the date hereof,
have been exercised.
(4) Includes 100,000 shares of Common Stock, and warrants to purchase an
additional 100,000 shares of Common Stock, owned by The Harry and Nita
Shuster Charitable Foundation. Includes warrants to purchase 333,333
shares owned by Mr. Shuster. Does not include 941,666 shares owned by
United Leisure Corporation ("United Leisure"), a public company of which
Mr. Shuster is the Chief Executive Officer and a director, and of which
shares Mr. Shuster disclaims beneficial ownership. Mr. Shuster is the
Chief Executive Officer and a director of the Company.
(5) Includes 271,000 shares owned by Clarinda Investments, Inc. of which
corporation Mr. Bibicoff is the sole shareholder and a director. Includes
816,000 shares owned by H&H Restaurant Holding Corporation, of which
corporation Mr. Bibicoff is the sole shareholder and a director. Mr.
Bibicoff is a director of the Company. See Item 12. "Certain
Relationships and Related Transactions."
(6) The address of this shareholder is Kaya Flamboyan 9, P.O. Box 812,
Curacao, Netherlands Antilles.
(7) Includes warrants to purchase 304,666 shares of Common Stock.
(8) Includes warrants to purchase 426,299 shares of Common Stock.
(9) Includes stock options to purchase 100,000 shares of Common Stock held by
an officer and director of the Company.
(10) Excludes 941,666 shares of Common Stock owned by United Leisure.
26
<PAGE> 27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 4, 1994, Chicken & Ribs, Inc. ("C&R"), one of the initial
stockholders and a promoter of the Company, sold 1,066,000 shares of the Common
Stock of the Company owned by it to H&H Restaurant Holding Corporation ("H&H"),
a corporation which prior to November 1, 1996 was 50%-owned by each of Harry
Shuster, a promoter, control person, Director and Chairman of the Board,
President and Chief Executive Officer of the Company, and Clarinda Investments,
Inc., a corporation controlled by Harvey Bibicoff, a promoter, control person
and Director of the Company. The original purchase price paid by H&H for the
1,066,000 shares was $4.00 per share. Payment of the purchase price was
evidenced by a Promissory Note in the principal amount of $4,264,000 drawn to
the order of C&R and made by H&H (the "Promissory Note"). C&R had originally
paid a total of $133,250 for the 1,066,000 shares in June 1993. Because H&H was
unable to pay the promissory note when it initially became due, the parties
extended the due date of the Promissory Note, made the note non-recourse and C&R
agreed to accept as full and complete satisfaction of the Promissory Note any
proceeds received by H&H from the sale of the 1,066,000 shares of the Common
Stock of the Company held by H&H, whether or not such value is equal to the
principal amount and accrued interest on the Promissory Note, more or less. In
this regard, the Company registered for resale, on behalf of H&H, the 1,066,000
shares of Common Stock. H&H has sold an aggregate of 250,000 of such shares to
date and intends to continue to sell these shares on a delayed or continuous
basis in order to meet its obligations under the Promissory Note. As of November
1, 1996, Harvey Bibicoff acquired Harry's Shuster's 50% ownership interest in
H&H and, accordingly, is now the 100% shareholder and the sole officer and
director of H&H.
In the event of the failure by H&H to pay the Promissory Note, the sole
recourse by C&R would be either to settle the matter by negotiation or to resort
to litigation to cause H&H to sell the shares of Common Stock. Under no
circumstances, including a default in payment of amounts owed under the
Promissory Note, will C&R or any of its shareholders acquire clear title to, or
any right to vote or control, the shares transferred to H&H to which C&R or its
shareholders may become entitled, any such shares shall be placed with the Court
or a mutually agreed-upon fiduciary. Such shares shall be placed in a segregated
account in a manner which prohibits C&R and its shareholders from exercising any
rights of ownership with respect to such shares.
The Company entered into a five-year lease with 1990 Westwood Boulevard,
Inc. covering approximately 6,000 square feet of office space for its executive
offices. The Lease provides for a current rental of $4,000 per month. 1990
Westwood Boulevard, Inc. is owned 50% by Harry Shuster, Chairman of the Board,
President and Chief Executive Officer, Chief Financial Officer, a Director and a
promoter of the Company, 35% by Jordan Belfort and 15% by Daniel Porush. Each of
such latter persons is a shareholder of C&R, a promoter of the Company. The
Company is advised that the rental and other terms of the agreed-upon lease are
no more favorable to the lessor than could have been obtained in a similar
building in the same area from an independent, unrelated lessor.
In connection with the lease for the Company's New York Grand Havana
Room, the Company was required to provide a letter of credit. In order to
establish this letter of credit the Company entered into a financing agreement
dated September 10, 1996, with its affiliate, United Leisure Corporation,
pursuant to which United Leisure pledged the sum of $875,000 in order for the
Company to obtain the required letter of credit. The Company had initially
agreed to apply one-half of all initial membership fees received from members of
its New York, New York and Washington D.C. Grand Havana Rooms to replace the
cash collateral pledged by United Leisure, and, in any event, the Company has
agreed to replace all of the cash collateral within 18 months after United
Leisure's pledge
27
<PAGE> 28
of the cash collateral. In consideration for United Leisure pledging the
collateral for the letter of credit, the Company has agreed to pay an amount to
United Leisure equal to 10% per annum on the amount of the pledged cash
collateral, as it exists from time to time. As additional consideration, the
Company agreed to issue 100,000 shares of its common stock to United Leisure,
and has agreed to grant to United Leisure a warrant to purchase an additional
100,000 shares of common stock of the Company, which warrant is exercisable for
a period of five years at an exercise price of $.75 per share. The warrant was
subsequently exercised by United Leisure. On July 15, 1997 the Company and
United Leisure entered into an amendment to financing agreement pursuant to
which amendment, in consideration for Untied Leisure agreeing to forego the
requirement that the Company replace the collateral pledged by United Leisure
from the initial membership fees it received from its New York and Washington
D.C. Grand Havana Rooms, the Company agreed to issue to United Leisure or its
designee a warrant to purchase 150,000 shares of its common stock at an exercise
price of the lesser of $.75 per share or 75% of the average of the last trade
price for the common stock for the 10 day period prior to the exercise of the
warrant. United Leisure subsequently designated Westminster Capital, Inc, an
unrelated third party, as the entity to receive this warrant. The Company had
fully replaced the collateral pledged by United Leisure Corporation to support
this letter of credit by October 1997. Harry Shuster, the Chairman of the
Board, President and Chief Executive Officer of the Company is an officer and
director of United Leisure.
In February 1997, the Company entered into a second financing
agreement with United Leisure pursuant to which agreement United Leisure agreed
to provide advances to the Company from time to time during a period of six
months. Interest on any amounts advanced bears interest at the rate of 9% per
annum until paid. In consideration for making the loan, the Company issued
75,000 shares of its common stock to United Leisure. The agreement further
provided that if all of the advances plus accrued but unpaid interest thereon
were not paid on or prior to September 30, 1997 that the Company would issue an
additional 25,000 shares of its common stock to United Leisure. The loan was not
repaid by September 30, 1997 and the parties agreed to extend the maturity date
of the advances made under this financing agreement to September 30, 1998. An
aggregate of $775,000 was advanced under this loan, the full principal amount of
which remained outstanding at September 28, 1997. Subsequent to the fiscal year
ended September 28, 1997, an aggregate of $75,000 in principal amount of this
loan was repaid. The Chairman of the Board, President and Chief Executive
Officer of the Company is the Chairman of the Board, President and Chief
Executive Officer of United Leisure.
In May 1997 the Company entered into a financing agreement with United
Film Distributors, Inc., an affiliate of the Company ("United Film"), whereby
United Film agreed to provide advances to the Company from time to time.
Interest on any amount advanced bears interest at the rate of prime pus 3%. The
full principal amount and all accrued but unpaid interest on any amounts
advanced is due and payable on demand, which demand may not be made prior to
September 30, 1998. At September 28, 1997 an aggregate of $707,000 had been
advanced under this financing agreement. Subsequent to the fiscal year ended
September 28, 1997, an aggregate of $200,000 in principal amount of this loan
was repaid. Harry Shuster, the Chairman of the Board, President and Chief
Executive Officer of the Company is the Chairman of the Board of United Film.
Brian Shuster, the son of Harry Shuster, is the President of United Film.
During the fiscal year ended September 28, 1997, Harry Shuster made
advances to the Company aggregating $60,000, all of which advances were repaid
by the Company to Mr. Shuster subsequent to the fiscal year ended September 28,
1997.
The Company is leasing on a month to month basis an apartment for
Harry Shuster's use while he is in New York on business at a monthly rental of
$3,000 plus common area maintenance charges. Rent expense incurred in fiscal
year 1997 by the Company for this apartment was $43,522. The Company believes
that this amount is similar to hotel costs the Company would have incurred had
such apartment not been available to Mr. Shuster.
28
<PAGE> 29
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The audited consolidated financial statements of Grand Havana
Enterprises, Inc. and Subsidiaries filed as a part of this Annual Report on Form
10-KSB are listed in the "Index to Consolidated Financial Statements" preceding
the Company's Consolidated Financial Statements, which directly follow this Part
IV of this Annual Report on Form 10-KSB, which "Index to Consolidated Financial
Statements" is hereby incorporated herein by reference.
(b) Exhibits.
See index to exhibits
(c) Reports on Form 8-K. The Company filed one report a Report on Form
8-K to report an event occurring on October 14, 1997 with respect to the sale of
securities by the Company in an offering exempt from registration under
Regulation S. Pursuant to the offering the Company sold an aggregate of
3,229,267 units, each unit consisting of one share of common stock and a warrant
to purchase one-half share of common stock for aggregate gross proceeds to the
Company of approximately $2,650,000.
29
<PAGE> 30
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2 - F-3
as of September 30, 1996 and September 28, 1997
Consolidated Statements of Operations F-4
for the Years Ended September 30, 1996 and September 28, 1997
Consolidated Statement of Stockholders' Equity F-5
for the Years Ended September 30, 1996 and September 28, 1997
Consolidated Statements of Cash Flows F-6
for the Years Ended September 30, 1996 and September 28, 1997
Notes to Consolidated Financial Statements F-7 - F-15
as of September 30, 1996 and September 28, 1997
</TABLE>
30
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Grand Havana Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Grand Havana
Enterprises, Inc. and Subsidiaries as of September 30, 1996 and September 28,
1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grand Havana
Enterprises, Inc. and Subsidiaries at September 30, 1996 and September 28, 1997,
and the results of operations and cash flows for the years then ended 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 to the
financial statements, the Company's significant operating losses, working
capital deficiency and significant capital requirements 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 these uncertainties.
HOLLANDER, GILBERT & CO.
Los Angeles, California
December 29, 1997
F-1
<PAGE> 32
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,010,062 $ 879,461
Accounts receivable, less allowance for doubtful accounts
of $15,500 and $307,762 in 1996 and 1997, respectively
(Note 5) 125,402 56,924
Current portion of note receivable (Note 3) 24,829
Subscriptions receivable (Note 12) 1,288,950
Equipment contract receivable (Note 7) 330,000
Inventories 210,054 786,168
Prepaid expenses 145,187 206,685
Net assets of discontinued operations (Note 3) 237,143
---------- ----------
TOTAL CURRENT ASSETS 1,820,705 3,480,160
PROPERTY AND EQUIPMENT, Net (Notes 6 and 8) 2,124,346 4,458,734
OTHER ASSETS
Restricted cash (Note 10) 118,596
Note receivable, net of current portion (Note 3) 55,171
Pre-opening costs 132,723 6,895
Due from related parties (Note 13) 69,419 78,032
Deferred charges (Notes 12 and 13) 80,000 205,596
Deposits and other assets 131,389 95,650
---------- ----------
TOTAL OTHER ASSETS 413,531 559,940
---------- ----------
$4,358,582 $8,498,834
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 33
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (Note 8) $ 172,571 $
Notes payable to related parties (Note 13) 1,482,000
Accounts payable 561,819 1,054,547
Accrued liabilities 125,219 203,942
Deferred revenues 57,026
Due to related parties (Note 13) 420,599
Deferred rent payable 488,606
Accrued costs of discontinued operations (Note 3) 200,000
----------- ------------
TOTAL CURRENT LIABILITIES 859,609 3,906,720
COMMITMENTS AND CONTINGENCIES (Notes 2, 5, 10 and 11)
STOCKHOLDERS' EQUITY (Notes 12 and 13)
Preferred Stock, $.01 par value
Authorized - 3,000,000 shares
Issued and outstanding - none
Common Stock, $.01 par value
Authorized - 22,000,000 shares
Issued and Outstanding - 6,362,500 shares
in 1996 and 11,799,306 shares in 1997 63,625 117,994
Additional paid-in capital 7,850,042 12,684,723
Accumulated deficit (4,414,694) (8,210,603)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 3,498,973 4,592,114
----------- ------------
$ 4,358,582 $ 8,498,834
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 34
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
REVENUES
Food and beverage $ 3,984,246 $ 2,820,785
Merchandise sales 356,641 408,687
Membership fees 649,608 1,186,591
Initial territorial fees (Note 5) 200,000 600,000
Other 72,295 60,904
----------- -----------
TOTAL REVENUES 5,262,790 5,076,967
----------- -----------
COSTS AND EXPENSES
Food and beverage 1,199,552 1,116,841
Merchandise 268,076 272,804
Operating expenses
Direct labor and benefits 1,832,092 1,939,862
Occupancy and other 1,438,399 2,545,237
Pre-opening expense 488,492
General and administrative 945,489 1,435,403
Depreciation and amortization 283,908 289,895
----------- -----------
TOTAL COSTS AND EXPENSES 5,967,516 8,088,534
----------- -----------
(704,726) (3,011,567)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 114,371 14,332
Interest expense (60,083) (266,858)
Loss on disposition of assets (Notes 4 and 7) (627,682)
Other, net 18,333 4,276
----------- -----------
(555,061) (248,250)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,259,787) (3,259,817)
DISCONTINUED OPERATIONS (NOTE 3)
Loss from operations (208,257) (94,809)
Estimated loss on disposal, including a provision of $400,000
for operating losses during the phase-out period (441,283)
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS (208,257) (536,092)
----------- -----------
NET LOSS $(1,468,044) $(3,795,909)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,262,500 8,231,400
=========== ===========
LOSS PER SHARE
Loss from continuing operations $ (.20) $ (.40)
Loss from discontinued operations (.03) (.01)
Estimated loss on disposal (.05)
----------- -----------
$ (.23) $ (.46)
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 35
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - September 30, 1995 6,262,500 $ 62,625 $ 7,771,042 $(2,946,650) $4,887,017
Common stock issued
as financing cost 100,000 1,000 79,000 80,000
Net loss - year ended
September 30, 1996 (1,468,044) (1,468,044)
----------- ----------- ----------- ----------- ----------
Balance - September 30, 1996 6,362,500 63,625 7,850,042 (4,414,694) 3,498,973
Common stock issued
as financing cost 75,000 750 138,000 138,750
Common stock issued for
services 220,000 2,200 374,100 376,300
Common stock issued for
warrants exercised 433,333 4,333 570,667 575,000
Common stock issued in
private placements 1,479,206 14,793 1,419,707 1,434,500
Common stock issued in
Regulation S offerings 3,229,267 32,293 2,303,207 2,335,500
Options and warrants
issued for services and fees 29,000 29,000
Net loss - year ended
September 28, 1997 (3,795,909) (3,795,909)
----------- ----------- ----------- ----------- ----------
Balance - September 28, 1997 11,799,306 $ 117,994 $12,684,723 $(8,210,603) $4,592,114
=========== =========== =========== =========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 36
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,468,044) $(3,795,909)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 392,034 386,197
Amortization of deferred charges 142,804
Loss on disposition of assets 627,682
Estimated loss on disposal of discontinued operations 200,000
Common stock, options and warrants issued for services and
financing costs 275,650
Changes in operating assets and liabilities:
Accounts receivable 4,880 68,478
Inventories (48,342) (576,114)
Prepaid expenses 30,030 (61,498)
Pre-opening costs 125,828
Deposits and other assets (126,419) 6,839
Accounts payable and other accrued liabilities (156,677) 932,050
Deferred revenues (200,000) 57,026
Deferred rent payable 488,606
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (944,856) (1,750,043)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (138,581) (3,008,828)
Due from related parties (8,613)
Sale of subsidiary 1,000
Collection of equipment contract receivable 330,000
Restricted cash (118,596)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (137,581) (2,806,037)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of short-term and long-term obligations (189,474) (172,571)
Sale of common stock 3,056,050
Borrowings from related parties 1,932,000
Advances from officer 60,000
Repayments of borrowings from related parties (450,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (189,474) 4,425,479
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,271,911) (130,601)
CASH AND CASH EQUIVALENTS, beginning of period 2,281,973 1,010,062
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,010,062 $ 879,461
=========== ===========
NON-CASH TRANSACTIONS
Common Stock, options and warrants issued for services and
financing costs $ 80,000 $ 275,650
=========== ===========
OTHER CASH INFORMATION
Interest paid $ 60,083 $ 127,692
=========== ===========
Interest received $ 114,371 $ 14,332
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 37
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND SEPTEMBER 28, 1997
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Grand Havana Enterprises, Inc., formerly United
Restaurants, Inc. (the "Company"), was incorporated under the laws of the
State of Delaware on April 13, 1993. The Company is engaged in the business
of the ownership, operation and development of private membership
cigar clubs/restaurants known as "Grand Havana Rooms," and retail cigar
stores known as "Grand Havana House of Cigars." The Company currently owns
and operates three Grand Havana Rooms and three Grand Havana House of
Cigars. The Company also operates a restaurant known as "On Canon" in
Beverly Hills, California.
The Company was originally formed to acquire all of the capital stock of
Love's Enterprises, Inc. ("Love's"). Love's is in the business of
franchising Love's restaurants. Love's restaurants specialize in barbecued
pork and beef, with an emphasis on ribs. The Company acquired the stock of
Love's in May 1993. In December 1996, the Company adopted a plan of
discontinuance of Love's franchising business, including company-owned
Love's restaurants (Note 3).
Principles of Consolidation. The consolidated financial statements include
the accounts of Grand Havana Enterprises, Inc. and its subsidiary
companies, all of which are wholly-owned, except for Il Forno, Inc. (Note
4). All significant intercompany transactions and balances have been
eliminated.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents.
Concentration of Credit Risk. The Company invests its excess cash in
certificates of deposit and money market funds, which, at times, may exceed
federally insured limits. The Company maintains its accounts with financial
institutions with high credit ratings. As of September 28, 1997, the
Company had $850,000 deposited in two banks.
Direct Financing Leases. Restaurant equipment leases the Company has with
franchisees and others have been classified as direct financing leases.
Inventories. Inventories, consisting of food and beverage products, cigars
and other merchandise, are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or estimated useful
lives of the assets. Useful lives generally are as follows:
Leasehold improvements 5 to 15 years
Restaurant equipment 2 to 8 years
Other equipment 3 to 15 years
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows
are not sufficient to recover its carrying amount. The Company measures an
impairment loss by comparing the fair value of the asset to its carrying
amount. Fair value of an asset is calculated as the present value of
expected future cash flows.
Pre-Opening Costs. Restaurant and cigar club pre-opening costs are deferred
and charged to operations when the location is opened or the location plans
are abandoned.
F-7
<PAGE> 38
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Membership Fees. Membership fee revenue represents initial and monthly
membership fees paid by members of the Company's "Grand Havana Room" clubs.
Initial membership fees are deferred and recognized as income when
membership services commence. Monthly membership fees are recognized as
income when earned.
Initial Territorial Fees. Revenues from initial territorial fees are
recognized, net of allowance for uncollectible amounts, when substantially
all significant initial services to be provided by the Company have been
performed.
Stock-Based Compensation. The Company adopted Statement No. 123 during its
fiscal year ended September 28, 1997, and has elected to account for
stock-based compensation arrangement under APB Opinion No. 25 and
accordingly recognizes compensation expense for the stock option grants as
the difference between the fair value and the exercise price at the grant
date.
Impact of Recently Issued Accounting Standard. In February 1997, the FASB
issued Statement No. 128, "Earnings Per Share." Under the new requirements,
primary earnings per share will be renamed basic earnings per share and
will exclude the dilutive effect of stock options. The statement is
effective for annual and interim periods ending after December 15, 1997.
Early application is not permitted. After the effective date, the Statement
requires that all prior period earnings per share data presented be
restated to conform with the provisions of this statement. The impact will
not change primary loss per share for the fiscal year ended September 28,
1997.
Loss per Common Share. Loss per common share is based upon the weighted
average number of common shares outstanding during the period. Common share
equivalents, when antidilutive, are excluded from weighted average number
of shares outstanding for all periods presented.
Lease Commitment. Rent expense is recognized on a straight-line basis over
the term of the lease.
Reclassifications. Certain 1996 balances have been reclassified to conform
with 1997 presentation.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Significant Operating Losses. The Company has experienced operating losses
since its inception. For the fiscal years ended September 30, 1996 and
September 28, 1997, the Company experienced net losses of $1,468,044 and
$3,795,909, respectively. The Company anticipates that it will continue to
experience losses as it continues working on its ongoing development plans,
including the establishment of additional Grand Havana Rooms and Grand
Havana House of Cigars. Even after the Company's development plans are
completed, there can be no assurance that the cigar clubs/restaurants owned
by the Company will be profitable.
Significant Capital Requirements. The Company's capital requirements have
been and will continue to be significant. At September 28, 1997, the
Company had cash and cash equivalents of $879,461 and a working capital
deficit of $426,560. As a result of its expansion activities, the Company's
working capital has continually been reduced. The Company will need
additional financing, which the Company may raise through the private
placements of its securities. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all.
In addition, the Company does not currently meet the new listing standards
for maintenance of the Company's securities on Nasdaq's SmallCap Market,
which new standards will become effective in late February 1998. Although
the Company intends to seek to comply with the new maintenance criteria for
continued listing, if the Company should be unable to meet these criteria,
it is possible that its securities could be de-listed from the Nasdaq
SmallCap Market, which might result in the Company having difficulty in
placing its securities with prospective investors.
F-8
<PAGE> 39
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company's significant operating losses and significant capital
requirements raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business.
The financial statements do not include any adjustments relating to the
recoverability of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to
continue as a going concern.
California Smoke-Free Workplace Act of 1994. In 1994 the California
legislature enacted the California Smoke-Free Workplace Act of 1994 which
prohibits smoking in enclosed spaces at places of employment with certain
exemptions. Since the inception of the Company's Beverly Hills Grand Havana
Room, the Company has relied upon an exemption in the law that expressly
exempts from its coverage retail tobacco shops and private smoker's
lounges. Although the Company believes it is justified in relying on the
"private smoker's lounge" exemption, if it should be determined in the
future that the Company is not a "private smoker's lounge," but rather a
restaurant or a bar to which the California Smoke-Free Workplace Act of
1994 were applicable, this would have a material adverse effect on the
Company's business, financial condition and results of operations.
3. DISCONTINUED OPERATIONS
In December 1996, the Company adopted a formal plan of discontinuance of
its Love's franchising and restaurants operations except its international
licensing rights to the Love's restaurants. At the time of the adoption,
the Company operated three Company-owned Love's restaurants and was the
franchisor of an additional ten Love's restaurants. In August 1997, the
Company sold its Company-owned Love's restaurant in Beverly Hills,
California for an aggregate sales price of $120,000, payable $40,000 in
cash and $80,000 in a three-year 7% promissory note payable in monthly
installments. In May 1997, the Company sold its Company-owned Love's
restaurant in San Bernardino, California to the franchisee of this location
in consideration for the franchisee becoming a sublessee of the premises
leased by the Company for the remainder of the lease term. In June 1997 the
Company also acquired a Love's restaurant in Lakewood, California from its
franchisee, when the franchisee went into bankruptcy and the Company took
over operations of this Love's restaurant. As of September 28, 1997, the
Company had two Company-owned Love's restaurants and was the franchisor of
an additional nine Love's restaurants. The Company is currently
negotiating with the landlord of the premises of the Company-owned Love's
restaurant in Westchester, California to terminate the lease in
consideration for the Company continuing to make lease payments under the
lease through May 31, 1998, and the payment by the landlord to the Company
of a $75,000 termination fee. It is anticipated that the Westchester Love's
will cease operations in January 1998. The Company anticipates that the
remaining assets of Love's will be sold by February 1998.
The estimated loss on the disposal of the discontinued operations of
$441,283 represents the estimated loss on the disposal of the assets of
Love's and a provision of $400,000 for expected operating losses during the
phase-out period from January 1, 1997 through February 28, 1998.
Approximately $195,000 of the expected operating loss was incurred from
January 1, 1997 through September 28, 1997.
Operating results of Love's for the three months ended December 29, 1996
are shown separately in the accompanying consolidated statement of
operations. The consolidated statement of operations for the fiscal year
ended September 30, 1996 has been restated and operating results of Love's
are also shown separately.
Total revenues of Love's for 1996 and 1997 were $2,774,467 and $2,645,838,
respectively. These amounts are not included in total revenues from
continuing operations in the accompanying consolidated statements of
operations.
Assets and liabilities of Love's to be disposed of at September 28, 1997
consisted of property and equipment of $208,243 and liquor licenses of
$28,900. Net assets of discontinued operations have been separately
classified in the accompanying consolidated balance sheet at September 28,
1997. The 1996 consolidated balance sheet has not been restated.
F-9
<PAGE> 40
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. ACQUISITION AND DISPOSITION
Il Forno, Inc. On June 20, 1994, the Company acquired 85% of the issued and
outstanding capital stock of Il Forno, Inc. ("Il Forno"). Il Forno owns and
operates an Italian-style restaurant located in Santa Monica, California.
The Stock Purchase Agreement required the Company to advance approximately
$498,000 to Il Forno for the settlement of various Il Forno related party
loans and other arued expenses. Additionally, the Company was to pay
$252,000 to Il Forno stockholders for 85% of the outstanding capital stock
of Il Forno, payable $2,000 in cash upon closing with the balance of
$250,000 due, without interest, over a three year period.
The transaction was accounted for as a purchase and resulted in an excess
of purchase price over net assets acquired of $546,750. Amortization of
such goodwill amounted to $54,675 in 1996.
On September 20, 1996, the Company sold its 85% interest in Il Forno back
to the minority stockholders for $1,000 in cash. The sale resulting in a
loss to the Company of $607,682 which is included on the accompanying
consolidated statement of operation under "Loss on disposition of assets."
5. TERRITORY RIGHTS AGREEMENT
Love's Far Eastern Territory Rights Agreement. In August 1994, the Company
entered into a Territory Rights Agreement with PT Transpacific Ekagraha, an
Asian holding company. Under the Territory Rights Agreement, the territory
rights holder paid to the Company a non-refundable initial development fee
of $200,000 for the rights to develop Love's Woodpit Barbecue Restaurants
in Asia. The territory rights holder has committed to construct at least
eight Love's Restaurants in portions of Asia, including Mainland China,
Hong Kong, Indonesia, Singapore, Malaysia and Republic of China-Taiwan,
during the three years ended August 1997. The Agreement provides for
additional payments to the Company at the opening of each restaurant and
for continuing royalties ranging from 5% - 8.75% of gross sales. Under the
Agreement, the Company is to provide certain training, management and other
services during the term of the Agreement. The initial development services
required under the agreement were performed and completed during the fiscal
year ended September 30, 1996.
Grand Havana Far Eastern Territory Rights Agreement. In May 1997, the
Company entered into an agreement with Grand Havana Room (Asia) Holdings,
Ltd., a Hong Kong corporation ("Grand Havana Asia"), pursuant to which the
Company has granted to Grand Havana Asia certain exclusive territories in
the Far East, including Hong Kong, Taiwan, China, Singapore, Malaysia,
Thailand, Japan, Philippines and Korea for a term of 75 years. Grand Havana
Asia agreed to pay the Company for the exclusive right to use the name
Grand Havana Room in the territory a non-refundable territorial fee of
$600,000, of which $300,000 was paid upon execution of the agreement and
the balance of $300,000 is payable on the earlier of the opening of the
first Grand Havana Room in Hong Kong or April 30, 1998. The Company shall
be required to provide comprehensive development and training services in
connection with the opening of the first and all subsequent Grand Havana
Rooms in the territories. In return for such services, the Company would
receive 25% of the initial membership fees paid by the members of the Grand
Havana Room in Hong Kong and 15% of the initial membership fees paid with
respect to subsequent Grand Havana Rooms. Further the Company would receive
6% of the monthly gross revenues from each Grand Havana Room. At September
30, 1997, the Company has provided for an allowance for uncollectible
accounts for the $300,000 receivable.
Given the recent decline in the Asian economy, there can be no assurance
that any or all of the obligations of PT Transpacific Ekagraha or Grand
Havana Asia under the territory rights agreements will be satisfied or that
any Love's restaurant or Grand Havana Rooms will be opened in Asia.
6. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at September 30, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Leasehold improvements $1,626,573 $3,988,242
Restaurant equipment 871,811 981,105
Office equipment 176,589 64,256
Signage 11,690
---------- ----------
</TABLE>
F-10
<PAGE> 41
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C> <C>
2,686,663 5,033,603
Less accumulated depreciation and amortization (562,317) (574,869)
--------------- --------------
$ 2,124,346 $ 4,458,734
=============== ==============
</TABLE>
7. EQUIPMENT CONTRACT RECEIVABLE
In October of 1993, Love's entered into an agreement with Huntington Beach
Market Broiler ("HBMB"), the operator of an independent restaurant,
pursuant to which HBMB assumed all of Love's obligations under the
Huntington Beach real property lease, executed an equipment lease with
Love's and granted Love's a profit-sharing interest in the restaurant. The
duration of the Agreement is to September 2005. Under the terms of the
Agreement, the lessee is to pay an equipment rental of $2,250 per month for
the first 36 months of the lease against 40% of the annual profits (as
defined) of the restaurant. During the remainder of the term, the monthly
equipment rental will be $3,375 against 40% of profits. During 1996, the
Company received $52,540 as a result of the 40% profit override. The lessee
has the right to purchase the equipment under lease at any time during the
first five years of the Agreement for $350,000 and at the end of the
agreement for $50,000. In September of 1996, Love's entered into an
agreement with HBMB pursuant to which Love's would terminate its
profit-sharing interest in the restaurant and transfer to HBMB the
equipment under lease for a current payment of $330,000. The sale closed
and the payment was received in October of 1996. A loss of $20,000 as a
result of this transaction has been provided for as of September 30, 1996.
8. LONG-TERM DEBT
Long-term debt at September 30, 1996 was comprised of a 10% secured note,
principal and accrued interest payable in 84 monthly installments of $4,135
beginning February 1994. The equipment securing this note was sold in
October of 1996 (Note 7) and, accordingly, this note was repaid at that
time.
9. INCOME TAXES
At September 28, 1997, the Company had approximate net operating loss
carryforwards for federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
Year Expires Amount
------------ ------
<S> <C>
1998 $ 3,102,000
1999 1,512,000
2000 100,000
2004 1,000
2006 51,000
2007 268,000
2008 303,000
2009 1,355,000
2010 1,742,000
2011 712,000
2012 3,341,000
---------------
TOTAL $ 12,487,000
===============
</TABLE>
The components of deferred tax assets were as follows at September 30, 1996
and September 28, 1997:
<TABLE>
<CAPTION>
1996 1997
--------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,718,000 $ 4,609,000
Valuation reserves 285,000 220,000
</TABLE>
F-11
<PAGE> 42
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C> <C>
Employee benefit plans 23,000 14,000
State income tax 1,000 2,000
Contribution carryforwards 3,000 8,000
Pre-opening costs 118,000 254,000
Capital loss carryforwards 316,000 316,000
Related party expenses 96,000
Valuation allowance (4,387,000) (5,458,000)
--------------- --------------
Total deferred tax assets 77,000 61,000
Deferred tax liability:
Depreciation 77,000 61,000
--------------- --------------
Net deferred taxes $ -0- $ -0-
=============== ==============
</TABLE>
10. OPERATING LEASES
The Company leases restaurant, club and corporate facilities under
operating leases with original terms ranging from 10 to 25 years. The lease
obligations include provisions requiring the payment of property taxes,
insurance, repairs and maintenance, and generally contain renewal options
and call for contingency rentals based on percentages of sales. Restaurant
facilities subleased to franchisees are subleased under similar terms to
the lease the Company has with the lessor.
Minimum lease payments required under noncancelable leases and subleases,
respectively, at September 28, 1997 are as follows:
<TABLE>
<CAPTION>
Minimum Minimum
Lease Sublease
Payments Payments
to be Paid to be Received
--------------- --------------
<S> <C> <C>
Years Ending September 30,
1998 $ 1,380,140 $ 109,914
1999 1,331,795 54,801
2000 1,219,027 43,200
2001 975,988 43,200
2002 1,018,531 43,200
Thereafter 9,021,415 3,600
--------------- --------------
$ 14,946,896 $ 297,915
=============== ==============
</TABLE>
Rent expense was $989,110 in 1996 and $1,433,888 in 1997. Sublease income
included in discontinued operations was $291,027 in 1996 and $227,928 in
1997.
At September 28, 1997, the Company had $118,596 in certificate of deposit
which was used as a collateral for an irrevocable letter of credit issued
to guarantee the lease of its On Canon restaurant.
11. COMMITMENTS AND CONTINGENCIES
Consulting Agreement. The Company and Mr. Harry Shuster are parties to an
Agreement (the "Agreement") dated as of June 1, 1993, The Agreement
provides that Mr. Shuster will act as the Chairman of the Board, President
and Chief Executive Officer and a Director of the Company throughout the
rolling three year term of the Agreement for annual compensation initially
set at $250,000 per annum, to be increased five percent during each
successive year of the Agreement. Mr. Shuster is also to be provided with
either the use of a company car to be used in carrying out his duties for
the Company or a $500 per month car allowance. The Agreement
F-12
<PAGE> 43
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
provides for certain disability benefits for a period of up to three years.
The Agreement provides for automatic one-year renewals for each contract
year that ends without termination of the Agreement by either party.
Lease Agreements. The Company is contingently liable on two assigned leases
relating to former Love's locations.
12. STOCKHOLDERS' EQUITY
Warrants - In April 1994, the Company issued public warrants consisting of
2,012,500 Class A Common Stock Purchase Warrants and 2,012,500 Class B
Common Stock Purchase Warrants. The Class A Warrants are exercisable at
$4.80 per share and Class B Warrants are exercisable at $5.60 per share.
Both warrants expire in April 1999. The Company granted the underwriter
175,000 units, each unit consisting of 175,000 shares of common stock,
Class A underwriter warrants to purchase 175,000 shares of common stock and
Class B underwriters warrants to purchase 175,000 shares of common stock at
a price to be adjusted as new shares are issued at less than the
then-current exercise price. The underwriters units expire on April 12,
1999.
Stock Options. During fiscal year ended September 28, 1997, the Company
adopted the 1996 Stock Option Plan (the "Plan") to provide to officers,
directors, key employees and other key contributors to the Company an
opportunity to purchase the common stock of the Company pursuant to
"non-qualified stock options" at the discretion of the Board of Directors.
Under the Plan options to purchase an aggregate of 626,250 shares of common
stock may be granted. The purchase price shall be no less than 85% of the
fair market value of the common stock on the date of grant. The Board of
Directors of the Company, or a committee established by the Board of
Directors shall determine, among other things (i) the purchase price of the
shares covered by each option, (ii) whether any payment will be required
upon grant of the option, (iii) the individual to whom, and the time or
times at which, options shall be granted, (iv) the number of shares to be
subject to each option and (v) when an option can be exercised and whether
in whole or installments.
During fiscal year 1997, options to purchase an aggregate of 100,000 shares
of the common stock of the Company were issued under the Plan to Stanley
Shuster. The options are exercisable at $1.00 per share, which represents
100% of the fair market value of the stock on December 3, 1996, and expire
on December 3, 2001. None of those options have yet been exercised.
F-13
<PAGE> 44
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company accounts for the Stock Option Plan under the provisions of APB
No. 25. The following pro forma information is based on estimating the fair
value of grants under the above plan based upon the provisions of SFAS No.
123. For the Stock Option Plan, the fair value of each option granted in
1997 has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk
free interest rate of 5.7%, expected life for the option of five years,
expected dividend yield of 0%, and expected volatility of 10%. Under these
assumptions for the Stock Option Plan, the weighted average fair value of
options granted in 1997 was $.25. The fair value of the grants would be
amortized over the vesting period for stock options. Accordingly, the
Company's pro forma net loss and net loss per common share assuming
compensation cost was determined under SFAS No. 123 would have been the
following:
<TABLE>
<CAPTION>
Year Ended
September 28, 1997
------------------
<S> <C>
Net loss $ (3,820,909)
Net loss per common share $ (.46)
</TABLE>
In addition to options granted under the Plan, at September 28, 1997, there
were outstanding presently exercisable non-qualified stock options to
purchase an aggregate of 25,000 shares of the common stock of the Company
held by a former director of the Company, Arnold Wasserman, at an option
price of $3.00 per share. Mr. Wasserman resigned as a director of the
Company in June 1995. The option was granted at an exercise price
approximately equal to the then fair market value of the Company's common
stock in consideration of Mr. Wasserman's service on the Board of
Directors. The option may be exercised at any time during its five-year
term, is nontransferable except by will or pursuant to the laws of descent
and distribution and is protected against dilution.
In March 1997, the Company issued 110,000 shares of common stock pursuant
to a two-year consulting agreement. The shares were valued at $268,900 and
are being amortized over two years. The Company also granted the consultant
options to purchase 20,000 shares at $.80 per share and 5,000 shares at
$1.00 per share, expiring on January 30, 2001. The options were valued at
$9,000 using the Black-Scholes pricing model.
Private Placements. During the fiscal year ended September 28, 1997, the
Company, in various private placements, raised net proceeds of $1,434,500
through the issuance of 1,479,206 shares of common stock and warrants to
purchase 1,126,666 shares of common stock at $1.50 per share. Included in
the private placements were 333,333 shares to Harry Shuster, 333,333 shares
to United Leisure Corporation and 100,000 shares to H&N Shuster Charitable
Foundation. United Leisure Corporation exercised 333,333 warrants in 1997.
Regulation S Offerings. In September 1997, the Company completed a
Regulation S Offering of 3,229,267 units, each unit consisting of one share
of common stock and a three-year warrant to purchase 1/2 share of common
stock, exercisable at $1.50 per share of common stock for net proceeds of
$2,335,500. The Company paid a placement fee to the selling agent of 10%, a
non-accountable expense allowance of 3%, and in addition, delivered a
warrant expiring in September 2000 to purchase 600,000 shares of common
stock exercisable at $.85 per share as a finder's fee. The warrants were
valued at $72,000 using the Black-Scholes option pricing model. The value
of the warrants had no impact in the accompanying statements of operations.
Subscriptions receivable at September 28, 1997 of $1,288,950 was collected
in October 1997.
Increase in Authorized Capital Stock. On December 12, 1997, the Company
amended its Certificate of Incorporation to increase the number of
authorized shares of common stock to 50,000,000.
13. RELATED PARTY TRANSACTIONS
The Company entered into a five-year lease expiring on January 31, 1998
with 1990 Westwood Boulevard, Inc. covering approximately 6,000 square feet
of Class A office space for its executive offices. The Lease provides for a
rental of $4,000 per month. 1990 Westwood Boulevard, Inc. is owned 50% by
Harry Shuster, Chairman of the Board, President and Chief Executive
Officer, a Director and a promoter of the Company, 35% by Jordan Belfort
and 15% by Daniel Porush. Each of such latter persons is a shareholder of
C&R, a promoter of the Company.
The Company is leasing on a month to month basis an apartment in New York
from Harry Shuster at a monthly rent of $3,000 plus common area maintenance
charges. Rent expense incurred in 1997 for this apartment was $43,522.
In connection with the lease for the Company's New York Grand Havana Room,
the Company was required to provide a letter of credit. In order to
establish this letter of credit the Company entered into a financing
agreement dated September 10, 1996, with its affiliate, United Leisure
Corporation, pursuant to which United Leisure pledged the sum of $875,000
in order for the Company to obtain the required letter of credit. The
Company had additionally agreed to apply one-half of all initial membership
fees from the members of its New York, New York and Washington D.C. Grand
Havana Rooms to replace the cash collateral pledged by United Leisure, and,
in any event, the Company has agreed to replace all of the cash collateral
within 18 months after United Leisure's pledge of the cash collateral. In
consideration for United Leisure pledging the collateral for the letter of
credit, the Company has agreed to pay an amount to United Leisure equal to
10% per annum on the
F-14
<PAGE> 45
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
amount of the pledged cash collateral, as it exists from time to time. As
additional consideration, the Company agreed to issue 100,000 shares of its
common stock to United Leisure, and has agreed to grant to United Leisure a
warrant to purchase an additional 100,000 shares of common stock of the
Company, which warrant is exercisable for a period of five years at an
exercise price of $.75 per share. The warrant was subsequently exercised by
United Leisure. On July 15, 1997 the Company and United Leisure entered
into an amendment to financing agreement pursuant to which amendment, in
consideration for United Leisure agreeing to forego the requirement that
the Company replace the collateral pledged by United Leisure from the
initial membership fees it received from its New York and Washington D.C.
Grand Havana Rooms, the Company agreed to issue to United Leisure or its
designee a warrant expiring on August 1, 2000 to purchase 150,000 shares of
its common stock at an exercise price of the lesser of $.75 per share or
75% of the average of the last trade price for the common stock for the
10-day period prior to the exercise of the warrant. The warrants were
valued at $20,000 using the Black-Scholes option pricing model. United
Leisure subsequently designated Westminster Capital, Inc., an unrelated
third party, as an entity to receive this warrant. The full $875,000 cash
collateral under this financing agreement, was repaid by the Company to
United Leisure in October 1997. Harry Shuster, the Chairman of the Board,
President and Chief Executive Officer of the Company, is an officer and
director of United Leisure.
In February 1997, the Company entered into a second financing agreement
with United Leisure pursuant to which agreement United Leisure agreed to
provide advances to the Company from time to time during a period of six
months. Interest on any amounts advanced bears interest at the rate of 9%
per annum until paid. In consideration for making the loan, the Company
issued 75,000 shares of its common stock to United Leisure. The agreement
further provided that if all of the advances plus accrued but unpaid
interest thereon were not paid on or prior to September 30, 1997 that the
Company would issue an additional 25,000 shares of its common stock to
United Leisure. The loan was not repaid by September 30, 1997 and the
parties agreed to extend the maturity date of the advances made under this
financing agreement to March 31, 1998. An aggregate of $775,000 was
advanced under this loan, the full principal amount of which remained
outstanding at September 28, 1997.
In May 1997 the Company entered into a financing agreement with United Film
Distributors, Inc., an affiliate of the Company ("United Film"), whereby
United Film agreed to provide advances to the Company from time to time.
Interest on any amount advanced bears interest at the rate of prime plus
3%. The full principal amount and all accrued but unpaid interest on any
amounts advanced is due and payable on demand. The Company borrowed
$507,000 in May 1997, repaid $450,000 in July 1997 and borrowed an
additional $650,000 in August 1997, leaving a balance due to United Film of
$707,000 as of September 28, 1997. Harry Shuster, the Chairman of the
Board, President and Chief Executive Officer of the Company is the Chairman
of the Board of United Film. Brian Shuster, the son Harry Shuster, is the
President of United Film.
Due to related parties at September 28, 1997 consisted of the following:
<TABLE>
<S> <C>
Advances from Harry Shuster $ 60,000
Accrued interest expense to United Leisure 120,989
Accrued interest expense to United Film 18,305
Accrued consulting fees and expenses to Harry Shuster 221,305
--------
$420,599
========
</TABLE>
Due from related parties at September 30, 1996 and September 28, 1997
included $48,000 advanced to the Company's Chairman of the Board, President
and Chief Executive Officer and also included receivables from United
Leisure and other similarly affiliated companies resulting from charges for
common expenses.
F-15
<PAGE> 46
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.
GRAND HAVANA ENTERPRISES, INC.
By /s/ HARRY SHUSTER
--------------------------------------
Harry Shuster, Chairman of the Board,
President and Chief Executive Officer
Dated: January 8, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/HARRY SHUSTER Chairman of the Board, January 8, 1998
- ------------------------------------ President and Chief Executive Officer,
Harry Shuster Chief Financial Officer (Principal
Financial Officer) and Director
Director January _, 1998
- ------------------------------------
Harvey Bibicoff
/s/ STANLEY SHUSTER Director January 8, 1998
- ------------------------------------
Stanley Shuster
</TABLE>
31
<PAGE> 47
EXHIBIT INDEX
(3)-1 Restated Certificate of Incorporation of the Company, filed in the
office of the Secretary of State of the State of Delaware, filed as
Exhibit (3)-1 to the Company's Registration Statement on Form SB-2
(Registration No. 33-68252-LA), is hereby incorporated herein by
reference.
(3)-2 Bylaws of the Company, filed as Exhibit (3)-2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-68252-LA), is
hereby incorporated herein by reference.
(3)-3 Certificate of Amendment to Certificate of Incorporation of the
Company, filed in the Office of the Secretary of State of Delaware on
February 28, 1997.*
(3)-4 Certificate of Amendment to Certificate of Incorporation of the
Company filed in the Office of the Secretary of State of Delaware on
December 12, 1997.*
(4)-1 Warrant Agreement, dated April 20, 1994, between the Company and OTR,
Inc., filed as Exhibit (4)-1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1994, is hereby
incorporated herein by reference.
(4)-2 Form of Underwriters' Unit Purchase Options, Underwriters' Class A
Warrant and Underwriters' Class B Warrant issued to M. H. Meyerson &
Co., Inc. and Biltmore Securities, Inc. and their designees, filed as
Exhibit (1)-2 to the Company's Registration Statement on Form SB-2
(Registration No. 33-68252-LA), is hereby incorporated herein by
reference.
(10)-1 Consulting Agreement, dated as of June 1, 1993, between the Company
and Harry Shuster, filed as Exhibit (10)-38 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-68252-LA), is
hereby incorporated herein by reference.
(10)-2 Form of Indemnity Agreement entered into by the Company with each of
its Directors, filed as Exhibit (10)-39 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-68252-LA), is hereby
incorporated herein by reference.
(10)-3 Stock Purchase Agreement, dated as of February 4, 1994, between
Chicken & Ribs, Inc. and H & H Restaurant Holding Corporation and
related Promissory Note, filed as Exhibit (10)-40 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-68252-LA), is
hereby incorporated herein by reference.
(10)-4 Amendment No. 1, dated March 24, 1994, to Stock Purchase Agreement
dated as of February 4, 1994, between Chicken & Ribs, Inc. and H & H
Restaurant Holding Corporation, filed as Exhibit (10)-41 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-68252-LA), is hereby incorporated herein by reference.
<PAGE> 48
(10)-5 Amendment No. 2 to Stock Purchase Agreement, dated as of April 4,
1994, between Chicken & Ribs, Inc. and H & H Restaurant Holding
Corporation, filed as Exhibit (10)-34 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended September 30, 1994, is hereby
incorporated by reference.
(10)-6 Note Modification and Extension Agreement, dated as of January 21,
1995, between H & H Restaurant Holding Corporation and Chicken & Ribs,
Inc., as filed as Exhibit (10)-25 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1995, is hereby
incorporated by reference.
(10)-7 Territory Rights Agreement, dated August 22, 1994, between Love's
Enterprises, Inc. and PT Transpacific Ekagraha, filed as Exhibit
(10)-29 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1994, is hereby incorporated by reference.
(10)-8 Stock Option Agreement, dated September 21, 1994, as amended, between
the Company and Arnold Wasserman covering 25,000 shares of the Common
Stock, par value $.01 per share, of the Company, as filed as Exhibit
(10)-27 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995, is hereby incorporated by reference.
(10)-9 Village on Canon Lease, dated July 1, 1994, between Pinkwood
Properties Corp. and the Company, filed as Exhibit (10)-37 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1994, is hereby incorporated by reference.
(10)-10 Lease Agreement, dated December 1, 1994, between 1990 Westwood
Boulevard and the Company, with respect to the Company's corporate
offices, Filed as Exhibit (10)-32 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1995, is hereby
incorporated by reference.
(10)-11 Agreement of Lease, dated September 16, 1996, between 666 Fifth Avenue
Limited Partnership and Grand Havana Room -- New York, Inc., filed as
Exhibit (10)-35 to the Company's Registration Statement on Form S-3
(File No. 333-16045), is hereby incorporated by reference.
(10)-12 Office Building Lease dated August 23, 1996, by and between Writ
Limited Partnership and the Company, T/A Grand Havana Room, filed as
Exhibit (10)-39 to the Company's Registration Statement on Form S-3
(File No. 333-16045), is hereby incorporated by reference.
(10)-13 Financing Agreement dated September 10, 1996 by and between the
Company and United Leisure Corporation, filed as Exhibit (10)-40 to
the Company's Registration Statement on Form S-3 (File No. 333-16045),
is hereby incorporated by reference.
(10)-14 Territorial Rights Agreement dated as of May 6, 1997 by and among the
Company and Grand Havana Room (Asia) Holding Hong Kong*
(10)-15 Financing Agreement dated as of February 12, 1997 by and between
United Leisure Corporation and the Company*
<PAGE> 49
(10)-16 Amendment No. 1 to Financing Agreement dated as of September 30, 1997
between United Leisure Corporation and the Company (amending financing
agreement dated February 12, 1997)*
(10)-17 Amendment No. 1 to Financing Agreement dated as of July 15, 1997
between United Leisure Corporation and the Company (amending financing
agreement dated September 10, 1996)*
(10)-18 Financing Agreement dated as of May 1, 1997 by and between United Film
Distributors, Inc. and the Company*
(10)-19 1996 Stock Option Plan of the Company*
(10)-20 Lease Agreement dated as of February 24, 1997 by and between the
Company and Bally's Grand, Inc.*
(10)-21 Consulting Agreement between the Company and IPO Consultants dated
September 16, 1997*
(21) List of Subsidiaries*
(23) Consent of Hollander, Gilbert & Co., independent public accountants.*
(27) Financial Data Schedule*
- ----------
* Filed herewith
<PAGE> 1
Exhibit (3)-3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
UNITED RESTAURANTS, INC.
FIRST: That by a Unanimous Written Consent of the Board of Directors of United
Restaurants, Inc., a Delaware corporation, resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and providing that the
written consent of the stockholders to such amendment should be obtained. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered "First"
so that, as amended, said Article shall be and read as follows: "The
name of the corporation is Grand Havana Enterprises, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, the
written consent of the stockholders of the corporation was obtained in
accordance with Section 228 of the General Corporation Law, by which consent the
necessary number of shares as required by statute consented to the amendment,
and written notice of action taken by such stockholders' consent has been given
as provided in Section 228 of the General Corporation Law.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by
Harry Shuster, an authorized officer, this 22nd day of February, 1997.
By: /s/ Harry Shuster
---------------------------------
Harry Shuster
<PAGE> 1
Exhibit (3)-4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
GRAND HAVANA ENTERPRISES, INC.
Grand Havana Enterprises, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That by a Unanimous Written Consent of the Board of Directors of the
Corporation, resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said Corporation, declaring said amendment
to be advisable and providing that the written consent of the stockholders to
such amendment should be obtained. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
Corporation be amended by changing the first sentence of the Article
thereof numbered "Fifth" so that, as amended, said sentence of said
Article shall be and read in full as follows:
"FIFTH: The total number of shares of stock which the Corporation
shall have authority to issue is Fifty-Three Million (53,000,000)
shares, consisting of Fifty Million (50,000,000) shares of Common
Stock, par value one cent ($.01) per share, and Three Million
(3,000,000) shares of Preferred Stock, par value one cent ($.01)
per share."
All other provisions of Article Fifth and all other provisions of
the Corporation's Certificate of Incorporation shall remain unchanged and in
full force and effect.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, the
written consent of the stockholders of the corporation was obtained in
accordance with Section 228 of the General Corporation Law, by which consent the
necessary number of shares as required by statute consented to the amendment,
and written notice of action taken by such stockholders' consent has been given
as provided in Section 228 of the General Corporation Law.
THIRD: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by
Harry Shuster, an authorized officer, this 11th day of November, 1997.
By /s/ Harry Shuster
---------------------------
Harry Shuster,
Chief Executive Officer
<PAGE> 1
EXHIBIT 10-14
TERRITORY RIGHTS AGREEMENT
AGREEMENT, dated May 6, 1997, by and between GRAND HAVANA ENTERPRISES, INC., a
corporation, hereinafter referred to as "Grand Havana Room", and, GRAND HAVANA
ROOM (ASIA) HOLDINGS, a Hong Kong corporation, hereinafter referred to as
"Territory Rights Holder".
WITNESSETH:
Recitals of Facts:
(a) Grand Havana Room owns and controls "The Grand Havana Room" a
private for members only, cigar smoking club catering to upscale members,
featuring food and beverage service, sale of cigars and smoking accessories,
humidors, fine wines and other alcoholic beverages, (hereinafter referred to as
"the facility" or "facilities.")
(b) Grand Havana Room has developed techniques for attracting members,
and for the promotion, sale and merchandising of its products, services and
related items which are being offered and may be offered through locations
operating under the name of Grand Havana Room, or the Grand Havana House of
Cigars.
(c) Grand Havana Room has designed, developed, engineered and adopted a
standard, unique and uniform plan and style for the construction and operation
of such Grand Havana Room. This includes, among other things, and without
limitation, engineering for highest efficiency of operation of said facilities,
signs, interior and exterior design and decor, uniforms, and procedures and
training of personnel and management.
(d) Grand Havana Room now owns and operates "Grand Havana Room" in
Beverly Hills, Washington D.C and New York and intends to own, operate and
license other such facilities in the United States and other parts of the world.
(e) Territory Rights Holder desires to obtain exclusive territory rights
to operate "Grand Havana Room" within the territory hereinafter described and
Grand Havana Room is willing to grant such rights to Territory Rights Holder
upon the terms and conditions hereinafter set forth.
IN CONSIDERATION OF THE MUTUAL PROMISES and other consideration as
described herein, the parties do hereby agree as follows:
<PAGE> 2
GRANT OF RIGHTS
1. TERRITORY. Grand Havana Room hereby grants to Territory Rights Holder, and
Territory Rights Holder hereby accepts from Grand Havana Room upon the terms and
conditions hereinafter set forth, an exclusive territory and exclusive rights
for the operation of Grand Havana Room within the following territory area
(hereinafter referred to as the "Territory") described as follows:
Hong Kong, Taiwan, China, Singapore, Malaysia, Thailand, Japan, Philippines and
Korea.
It is agreed that this Territory Rights Agreement and the rights granted
hereunder pertain only to the establishment and operation of Grand Havana Room.
Territory Rights Holder shall also have the exclusive right to sell Grand Havana
Room's products at retail outlets in the Territory. Grand Havana Room shall not
have the right to enter any territory of the Territory Rights Holder for any of
Grand Havana Room's operations, including the Grand Havana House of Cigars
without concluding an exclusive arrangement with Territory Rights Holder. If no
such arrangement is concluded for any reason whatsoever, Grand Havana Room shall
be barred from that Territory.
2. TERM. The term of this Agreement shall be for Seventy-Five Years (75)
unless sooner terminated under the provisions of this Agreement.
3. RIGHTS GRANTED. The rights hereby granted constitute all rights necessary
in the Territory to operate Grand Havana Room. Territory Rights Holder alone has
the right to operate a Grand Havana Room and to use Grand Havana Room's trade
name, good will and trade secrets in the operation of Grand Havana Room solely
within the Territory, and in compliance with the terms hereof in all material
respects.
The parties acknowledge that the laws, government policies and business
practices vary widely among the various jurisdictions included in the Territory.
From time to time, Territory Rights Holder may find it to be necessary or
prudent to enter into joint ventures, partnerships or sublicenses to own and
operate Grand Havana Rooms within certain parts of the Territory. In any such
case the Territory Rights Holder shall have the right to operate in such
jurisdiction or jurisdictions by means of a joint venture, partnership or
sublicensing arrangement. Such sublicensee or joint venturer or partner shall be
obligated to fulfill all the applicable terms and conditions of this Agreement
and in particular shall be obligated to make payments under section 4.2 and 4.3
such that the total amount of payments made by the Territory Rights Holder, and
all such joint venturers, partners or sublicensees is not less than the amount
that would be payable if Territory Rights Holder had operated all such Grand
Havana Room establishments in the Territory. No additional payments will be
payable under Section 4.1 with respect to any such arrangement.
It is expressly agreed that the ownership of all right, title and
interest in and to said trade name, good will and trade secrets is and shall
remain vested solely in Grand Havana
- 2 -
<PAGE> 3
Room.
Grand Havana Room warrants and represents to the Territory Rights Holder
that Grand Havana Room has not granted or authorized any other person or entity
to use the name Grand Havana Room in any of the Territories. Grand Havana Room
further warrants and represents that it is the sole owner of the name Grand
Havana Room and has the full and exclusive protection of the name and trademark
in the United States of America. The Grand Havana Room has filed for protection
and use of the name Grand Havana Room in all the countries comprising the
territories.
FEES TO BE PAID BY TERRITORY RIGHTS HOLDER
4.1 FEES. Territory Rights Holder agrees to pay to Grand Havana Room for the
exclusive right to use the name Grand Havana Room in the Territory, an
aggregate, non refundable, territorial fee of $600,000, payable one-half (1/2)
upon the execution and delivery of this Agreement and one-half (1/2) upon the
earlier to occur of (a) the opening of the first Grand Havana Room in Hong Kong,
or (b) April 28, 1998.
4.2 RIGHTS FEES. For the exclusive rights to use the name Grand Havana Room and
for the other exclusive benefits and services to be provided by Grand Havana
Room hereunder, Territory Rights Holder agrees to pay Grand Havana Room during
the term of the agreement and in addition to the payments referred to in 4.1 and
4.3, a fee with respect to the first Grand Havana Room to be opened by it of
Twenty-Five Percent (25%) of all the one time membership sign up fees charged,
received and collected from the sale of memberships to the Grand Havana Room in
Hong Kong. Such amount shall be by bank wire transfer or by cashier's check sent
no later than seven days after the end of each and every calendar month in which
such membership fee is received. With respect to the second and each and every
Grand Havana Room opened by the Territory Rights Holder in the exclusive
territory, the Territory Rights Holder shall pay to Grand Havana Room, the sum
of 15% (fifteen percent) of all one time membership sign up fees. Payments in
each case shall be by bank wire transfer or by cashier's check sent no later
than seven days after the end of each and every calendar month in which the
membership fee is received. Members fees from monthly dues are dealt within
section 4.3 hereunder.
4.3 MONTHLY FEE. For the exclusive rights to use the name Grand Havana Room and
for the other exclusive benefits and services to be provided by Grand Havana
Room hereunder, Territory Rights Holder agrees to pay Grand Havana Room, in
addition to the payments referred to in 4.1, 4.2, a sum of 6% of the gross
revenues from any and all sources arising out of or received by the Territory
Rights Holder from the operation of The Grand Havana Room in the Territories.
Beginning seven days following the end of the first quarter during which the
first, and any subsequent Grand Havana Rooms are opened in the Territory, and
seven days after the end of each and every month thereafter during the term of
this Agreement, and any extension hereof, Territory Rights Holder shall pay said
fee based upon gross revenues for the previous quarter. Payments are to be wire
transferred to the address hereinafter designated and a fax shall be sent to the
fax number herein after
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<PAGE> 4
specified accompanied by a "Monthly Report" on a form specified by Grand Havana
Room. The report will summarize sales information for the preceding quarter for
all Grand Havana Rooms in the Territory.
DUTIES OF TERRITORY RIGHTS HOLDER
5.1 COMPLIANCE WITH LAWS, RULES, POLICIES AND PROCEDURES. Territory Rights
Holder agrees to operate all Grand Havana Rooms in compliance in all material
respects with (i) all applicable laws, rules and regulations of duly constituted
governmental authorities, and (ii) subject to the last two sentences of Section
5.1, the standard operating policies and procedures established by Grand Havana
Room as now in effect. In the event of any subsequent changes to such operating
policies and procedures, the parties will jointly determine whether such changes
are beneficial and appropriate for each jurisdiction within the Territory and
reasonable in cost, and the Territory Rights Holder shall implement those
changes that are agreed with Grand Havana Room. It is understood that in
addition to other matters, the standard operating policies will specify design,
decoration and decor of Grand Havana Room, the type and layout of equipment,
minimum hours of operation, menus, design and colors of all materials and
uniforms, standards of service, standards of sanitation, and in general, will
govern all other matters which in Grand Havana Room's judgment requires
standardization in all Grand Havana Rooms. Territory Rights Holder shall not
vary any of such standard operating policies and procedures without Grand Havana
Room's prior written consent. In the event variance is reasonable, on account of
local customs, conditions or otherwise, Grand Havana Room will not unreasonably
withhold consent.
5.2 ACCOUNTING METHODS. Territory Rights Holder shall use the method of
accounting designated by Grand Havana Room including the statements and reports
as are required by Grand Havana Room. Territory Rights Holder shall furnish to
Grand Havana Room copies of the statements and reports required of Territory
Rights Holder by Grand Havana Room, including but not limited to, complete
monthly operating statements and quarterly balance sheets. Nothing herein
contained shall obligate the Territory Rights Holder to employ any accounting
treatment or procedures that are not standard in the territory.
5.3 FUTURE GRAND HAVANA ROOM. Territory Rights Holder shall advise Grand Havana
Room as soon as possible as to proposals for locations to establish future Grand
Havana Rooms.
5.4 INSPECTIONS BY GRAND HAVANA ROOM. Grand Havana Room and its authorized
agents upon reasonable advance notice, and in a manner that is not disruptive to
the business or operation of the Territory Rights Holder shall be permitted to
inspect the premises, and audit the books and records of any Grand Havana Room
at any time and from time to time during normal business hours. All records
relating to gross sales, including cash register tapes shall be preserved for a
minimum of three years and for such additional period as may be required by law.
If any inspection reveals an error by more than 10%, the cost of the audit shall
be borne by Territory Rights Holder.
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<PAGE> 5
5.5 REQUIRED ESTABLISHMENT OF GRAND HAVANA ROOM. If the Territory Rights Holder
(i) fails to meet the development schedule set forth in the preceding paragraph,
or (ii) after opening at least nine (9) Grand Havana Rooms, allows the closure
of one or more Grand Havana Rooms such that the total number is less than nine
(9), and if in either case such delay or closure continues for at least six (6)
months, then the rights of the parties under this Agreement are subject to
modification as provided in the following sentence. Upon the occurrence of an
event as specified in clause (i) or (ii) of the preceding sentence after the
expiration of the grace period, Grand Havana Room shall notify Territory Rights
Holder of its intention to impose the penalty specified in this Section 5.5.
Thereafter, unless the reasons for delay or closure is force majeure or another
cause reasonable beyond the control of Territory Rights Holder. Territory Rights
Holder shall within six month (6) after receipt of such notice either open or
reopen the locations specified in the notice from Grand Havana Room, or
Territory Rights Holder shall forfeit all rights to establish a Grand Havana
Room in any jurisdiction in the Territory in which it has not yet established a
Grand Havana Room prior to notice from Grand Havana Room. Such forfeiture shall
not affect the Territory Rights Holders payment, reporting and other obligations
under this agreement with respect to the already opened Grand Havana Rooms.
Nothing herein contained shall obligate the Territory Rights Holder to continue
to keep open any Grand Havana Room in any of the Territories if such opening is
prevented by any act of god, fire, flooding or other catastrophes, any changes
in any law and insurrection riots or civil disturbance or other causes beyond
the reasonable control of the Territory Rights Holder. Failure by the Territory
Rights Holder to open for any of the above reasons for any period of time shall
not be a default.
It is understood and agreed that section 8.1 shall not apply to the obligation
to open locations, and the penalty imposed under this section 5.5 shall be Grand
Havana Room's exclusive remedy for such failure to open or maintain Grand Havana
Room locations, and that the loss of one or more locations shall not affect the
Territory Right Holder's exclusive rights in any other locations. Territory
Rights Holder shall have the right to substitute an opening of a Grand Havana
Room in any location.
SERVICES OF GRAND HAVANA ROOM
6.1 OBLIGATIONS OF GRAND HAVANA ROOM DEVELOPMENT, TRAINING AND ARCHITECTURAL
SERVICES. Grand Havana Room shall be required to provide comprehensive
development and training services to the Territorial Rights Holder in connection
with the opening of the first and all subsequent Grand Havana Rooms opened in
the territories by the Territorial Rights Holder. Such services will be provided
to the Territorial Rights Holder in the U.S.A at one of the operating Grand
Havana Rooms. Territory Rights Holder shall be entitled to send up to five (5)
trainees per Grand Havana Room for training. Grand Havana Room warrants that it
has sufficient facilities to handle all the Territory Right Holder's training
requirements based on the schedule of proposed openings. Grand Havana Room, at
it own costs, will provide its architect and space planner for a reasonable
period of time to design
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<PAGE> 6
the interior, as per Territorial Rights Holder's requirements for each location.
At the option of the Territorial Rights Holder such architectural and space
planning services will be provided at the location of the Grand Havana Room.
Territorial Rights Holder shall be liable for all travelling and hotel and other
expenses of the architect, but not the architect's professional fees, and such
architect will not be responsible for supervising construction. With respect to
all facilities subsequently opened, Grand Havana Room will make its architect
and space planner available as consultants to the architect utilized by the
Territorial Rights Holder at no cost. If required by the Territorial Rights
Holder, Grand Havana Room will send its architect to the Territory to perform
the services set forth above at the expense of the Territorial Rights Holder.
Grand Havana Room shall have the right to approve any such plans prepared by the
Territorial Rights Holder's architect or space planner. Grand Havana Room's
architect shall in considering the approvals of such plans recognize local
custom and architectural needs and preferences.
Grand Havana Room shall provide Territory Rights Holder with Grand Havana
Room's private label cigars in such reasonable amounts as may be available at
any given time. Territory Rights Holder recognizes that cigars are in short
supply and Grand Havana Room does have its own outlets to supply. Grand Havana
Room will in good faith allocate a supply of its private label cigars to
Territory Rights Holder. Grand Havana Room will also provide Territory Rights
Holder with a catalogue of all its merchandise as and when it is available and
will supply Territory Rights Holder with all merchandise ordered within its
standard delivery time. All prices charged to Territory Rights Holder for cigars
and merchandise will be at its standard customary wholesale prices and standard
credit terms, provided that if Grand Havana Room supplies such items to other
and any other purchasers at lower price, Territory Rights Holder shall also be
charged the lowest price.
6.2 FIXTURES, EQUIPMENT AND SIGNS. Grand Havana Room shall specify and make
available to Territory Rights Holder designs, specifications, layout and sources
for all fixtures, equipment and signs necessary for the establishment of such
Grand Havana Room.
6.3 INSURANCE. Territory Rights Holder shall obtain through its brokers and
agents and companies of its choosing, on behalf of Territory Rights Holder,
insurance coverage equivalent to similar type businesses in the Territory
reasonably necessary to protect Grand Havana Room. Grand Havana Room does not
intend to imply that such insurance coverage is sufficient to meet each and
every need of Territory Rights Holder and Territory Rights Holder is encouraged
to secure on its own behalf any insurance that it may deem necessary or as is
required by law.
Territory Rights Holder shall indemnify Grand Havana Room and hold it
harmless from any act or omission of Territory Rights Holder, and Territory
Rights Holder shall arrange for Grand Havana Room to be named as an additional
insured in all liability policies issued in regard to any Grand Havana Room in
the Territory.
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<PAGE> 7
6.4 DISCLOSURE OF PROCEDURES. Grand Havana Room will disclose to Territory
Rights Holder its standard operating policies and procedures and in connection
therewith will furnish copies (to the extent they exist) of its operating
manual, its standard forms, designs and layouts to Territory Rights Holder.
6.5 IMPROVEMENTS. All improvements made by Grand Havana Room in its products,
procedures or designs will be made available to Territory Rights Holder.
RELATIONSHIP OF PARTIES
7.1 INDEPENDENT CONTRACTOR RELATIONSHIP. At all times pertaining to any
activities related to this Agreement, Territory Rights Holder shall be deemed
independent contractors. No employee of Territory Rights Holder or of its
operating rights holders shall be deemed to be an employee of Grand Havana Room
and nothing herein contained shall be construed as to create a partnership,
joint venture, agency nor any other business relationship other than independent
contractor. Neither party hereto shall be liable for debts or obligations other
than their own.
7.2 RECIPROCAL RIGHTS. During the term of this Agreement, each of the members
of each Grand Havana Room owned or licensed by either of the parties hereto
shall have reciprocal privileges to use all of the other Grand Havana Rooms
owned or licensed by the other party.
REMEDIES FOR BREACH
8.1 COMPLETE PERFORMANCE REQUIRED. If Territory Rights Holder does not comply
with the strict performance of all the terms of this agreement as provided for
herein and such deviation is severe, Grand Havana Room shall send a notice of
Territory Rights Holder's failure to comply and shall allow Territory Rights
Holder a reasonable period of time to do so, not to exceed ninety (90) days. If
such compliance continues after such ninety (90) day notice or Territory Rights
Holder cannot cure any such non-compliance then Grand Havana Room shall have the
option to declare this a default under paragraph 8.2 unless the ability to cure
is due to force majeure or other cause beyond the reasonable control of
Territory Rights Holder. The provisions hereof do not apply to any failure to
make payments by Territory Rights Holder under the provisions of paragraph 4.2
and 4.3. The parties agreed that failure to open or maintain any Grand Havana
Room locations shall be governed by section 5.5 of this Agreement and not by
section 8.1.
8.2 DEFAULT. If Grand Havana Room shall have declared a default in accordance
with Section 8.1 or as a result of Territory Rights Holder's failure to make
payments under 4.2 and 4.3 hereof, or if bankruptcy, debtor or insolvency
proceedings are commenced by or against Territory Rights Holder, or if Territory
Rights Holder makes an assignment for the benefit of creditors, or if a receiver
is appointed or an attachment or keeper is placed in possession of the business
or assets of Territory Rights Holder, or if Territory Rights Holder
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<PAGE> 8
transfers its business in violation of Section 10.1 of this Agreement, then in
addition to all other remedies it may have at law or in equity, Grand Havana
Room at its election may declare this Agreement terminated.
8.3 NON-WAIVER. A waiver by Territory Rights Holder of any condition or term of
this Agreement shall not be deemed to be a waiver of any other or subsequent
default or breach.
TERMINATION
9.1 EFFECT OF TERMINATION. Upon termination of this Agreement, as to one or
more locations whether by lapse of time, default or other causes, Territory
Rights Holder shall be entitled to continue the exclusive use of Grand Havana
Room's trade name, trade secrets and procedures as to all or any of the Grand
Havana Rooms already opened pursuant to this Agreement which have not been
terminated by lapse of time, default or other causes. In the event of
termination of this Agreement as to any location, the Territory Rights Holder
shall forfeit all of its rights as to that location and Territory Right Holder
shall forthwith discontinue in that location all use of Grand Havana Room's
trade names, trade secrets and procedures and shall remove from its own
facilities all signs, decor and decoration characteristic of Grand Havana Room
operations and shall not thereafter operate or do business under any name or in
any manner that might tend to give the general public the impression that it is
dispensing, selling or serving any of Grand Havana Room's products.
Expiration or termination of this Agreement shall be without prejudice to
the rights of Grand Havana Room against Territory Rights Holder, nor shall such
expiration and termination relieve Territory Rights Holder of any of its
obligations to Grand Havana Room existing at the time of the expiration or
termination.
ASSIGNMENT
10.1. WRITTEN CONSENT. Except as otherwise permitted in Section 3 hereof, no
part of this Agreement shall be assigned either voluntarily or by operation of
law, without the prior written consent of Grand Havana Room, except as
hereinafter set out. Grand Havana Room shall not unreasonably withhold such
written consent. Such withholding shall not be deemed to be unreasonable in the
event the proposed assignee does not, in the opinion of Grand Havana Room,
qualify in all respects as a Territory Rights Holder in the first instance.
10.2. ASSIGNMENT BY GRAND HAVANA ROOM. This Agreement shall inure to the benefit
of the successors and assigns of Grand Havana Room.
10.3. CHANGE IN CONTROL. Subject to section 3 of this Agreement, attached hereto
as Schedule "A" is a list of the owners of Territory Rights Holder. Any
transaction resulting
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<PAGE> 9
in a change in the majority control of the Territory Rights Holder shall be
deemed an assignment under this Agreement.
NATURE OF RIGHTS
11.1 LIMITATIONS. The Territory rights granted hereby constitute rights to use
"Grand Havana Room" trade name, good will, and standard operating policies and
procedures of said Grand Havana Room and to benefit from the trade secrets of
Grand Havana Room in the Territory. Nothing herein contained shall be construed
so as to authorize or permit the use by Territory Rights Holder of such trade
name, good will, standard operating procedures and/or trade secrets within any
other region of the world, or for any purpose other than specifically granted in
this Agreement.
It is expressly agreed that ownership of all rights, title and interest in
and to said trade name, good will, standard operating policies and procedures
and trade secrets is and shall remain vested solely in Grand Havana Room.
11.2 SOLICITATION OF PERSONNEL. It is agreed that during the effective term of
this agreement, each of the parties hereto shall not seek to employ or employ
any person who is at the time employed by the other, and neither party shall
directly or indirectly induce any such person to leave his or her employment as
aforesaid.
INTEGRATION OF AGREEMENTS
12.1 ATTACHMENTS, REPRESENTATIONS AND PRIOR AGREEMENTS. This Agreement and the
attached Exhibits and such other documents as are executed contemporaneously
herewith, shall be constructed together and constitute the entire agreement
between the parties and supersede all prior negotiations, understandings and
agreements. Territory Rights Holder acknowledges that it has entered in to this
Agreement as a result of its own independent investigation and not as a result
of any representations of Grand Havana Room, its agents, officers or employees.
NOTICES
13.1 MAILING ADDRESSES. Any notice required or permitted shall be in writing and
shall be delivered by registered or certified mail, return receipt requested, or
air express, for the protection of both parties. Any notice to Grand Havana Room
shall be addressed to it in care of Grand Havana Room at 1990 Westwood Blvd.,
Los Angeles, CA 90025, with a copy to Harry Shuster at 1990 Westwood Blvd., Los
Angeles, CA 90025. Any notice to Territory Rights Holder, shall be addressed to
it at Workington Tower, Suite 901, 78 Bonham Strand East, Sheung Won, Hong Kong.
Either party may designate another address at any time by appropriate written
notice.
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<PAGE> 10
DIVISIBILITY
14.1 Should any part of this Agreement for any reason be declared invalid or
unenforceable, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part or parts, or portion which may, for any reason be hereafter declared
invalid.
DEFINITIONS
15.1 GROSS SALES. The term "gross sales" as used herein shall include the entire
gross receipts received by Territory Rights Holder of every kind and nature made
in, or from all Grand Havana Rooms operating by Territory Rights Holder by
virtue of this Agreement whether upon credit or for cash, in every department
operating in or from said facilities, whether operated by a lessor, lessee, or
sublessee or sublessees, or by a concessionaire or concessionaires, excepting
therefrom any rebates and/or refunds to patrons and the amount of all sales
taxes or similar tax receipts which have to be accounted for to any governmental
agency. The term "gross sales" shall not include sales from automatic vending
machines nor from public telephones.
INTERPRETATION
16.1 CAPTIONS. This Agreement shall be interpreted in accordance with the laws
of the State of California. The captions and headings of the various sections
and paragraphs are for convenience only and shall not affect the construction or
interpretation of this Agreement.
ARBITRATION
17.1 AMERICAN ARBITRATION ASSOCIATION. Any controversy or claim arising out of
or relating to this Agreement, or any breach thereof, shall be submitted to
arbitration at Los Angeles, California, in accordance with the Rules of the
American Arbitration Association and judgment upon the award may be entered in
any court having jurisdiction thereof. In the case that either party should have
to sue to collect or enforce its agreements, the prevailing party will be
entitled to attorneys' fees and costs.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
GRAND HAVANA ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Harry Shuster
-----------------------------------
Harry Shuster, President
GRAND HAVAVA ROOM (ASIA) HOLDINGS
By: /s/
-----------------------------------
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<PAGE> 12
SCHEDULE A
Owners of Grand Havana Room (Asia) Holdings
Mr. Lu-Yen Wang
Mr. Joseph King
Mr. Ambrose King, Jr.
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<PAGE> 1
Exhibit 10-15
FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Agreement") is made and entered into
this 12th day of February, 1997, by and between UNITED LEISURE CORPORATION
("Leisure"), a Delaware corporation, and UNITED RESTAURANTS, INC.
("Restaurants"), a Delaware corporation.
WHEREAS, Restaurants is in need of up to $1,250,000 in financing
in connection with the furniture, fixtures, and improvements for the Grand
Havana Rooms in New York City and Washington, D.C.; and
WHEREAS, Leisure is interested in providing such funds upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. Leisure hereby agrees to loan to Restaurants, from time to
time, during a period of six months from the date hereof, the aggregate sum of
up to $1,250,000 (the "Loan"). The Loan shall be advanced in such increments as
shall be requested by Restaurants from time to time. Interest on the amount of
the Loan that have been advanced shall bear interest at the rate of 8% per annum
from the date of advance until paid. The full principal amount advanced, and all
accrued but unpaid interest thereon, shall be payable in one lump sum payment on
September 30, 1997 (the "Maturity Date"); provided, however, if the Loan shall
not be repaid in full on the Maturity Date, then the Loan shall thereafter be
payable on demand of Leisure and shall incur a late fee as set forth in Section
3 below. The Loan shall be evidenced by a promissory note made by Restaurants in
form satisfactory to Leisure.
2. In consideration for making the Loan as set forth above,
Restaurants shall issue to Leisure Seventy-Five Thousand (75,000) shares of
Restaurants' $.01 par value common stock (the "Common Stock").
3. If the Loan shall not be paid at the Maturity Date, then
Restaurants shall cause to be issued to Leisure, as a late fee, an additional
25,000 shares of Common Stock.
4. As a condition to the issuance of the aforesaid Common Stock
("Securities"), Leisure hereby represents and warrants to, and covenants with,
Restaurants as follows:
(a) Leisure has received and had the opportunity to
review Restaurants' Form 10-K and Form 10-Q filed with the Securities and
Exchange Commission for the periods ended December 29, 1995 and September 30,
1996, respectively ("Information") and has been given access to full and
complete information regarding
<PAGE> 2
Restaurants, and has utilized such access to Leisure's satisfaction for the
purpose of obtaining such information regarding Restaurants as Leisure has
requested; and, particularly, Leisure has been given reasonable opportunity to
ask questions of, and receive answers from, representatives of Restaurants
concerning the terms and conditions of the issuance of the Securities and to
obtain any additional information, to the extent available;
(b) Leisure was not offered or sold the Securities,
directly or indirectly, by means of any form of general advertising or general
solicitation, including but not limited to the following: (1) any advertisement,
article, notice or other communication published in any newspaper, magazine, or
similar medium of or broadcast over television or radio; or (2) any seminar or
meeting whose attendees had been invited by any general solicitation or general
advertising;
(c) Stop transfer instructions will be placed with the
transfer agent for the Securities, and a legend may be placed on any instrument
or certificate representing the Securities substantially to the following
effect:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), IN
RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN THE ACT AND
REGULATION D UNDER THE ACT. AS SUCH, THE PURCHASE OF THIS SECURITY WAS
NECESSARILY WITH THE INTENT OF INVESTMENT AND NOT WITH A VIEW FOR
DISTRIBUTION. THEREFORE, ANY SUBSEQUENT TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN WILL BE UNLAWFUL UNLESS IT IS REGISTERED UNDER THE ACT
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. FURTHERMORE, IT
IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, WITHOUT THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT THE PROPOSED TRANSFER OR SALE DOES NOT AFFECT THE
EXEMPTIONS RELIED UPON BY THE COMPANY IN ORIGINALLY DISTRIBUTING THE
SECURITY AND THAT REGISTRATION IS NOT REQUIRED.
(d) Leisure has been advised and understands that the
Securities have not been registered under the Securities Act of 1933 or
applicable state securities laws and that the Securities are being offered and
sold pursuant to exemptions from such laws. Leisure represents and warrants that
the Securities are being acquired for Leisure's own account and for investment
purposes only, and without the intention of reselling or redistributing the
same; Leisure has made no agreement with others regarding any of the Securities;
and Leisure's financial condition is such that it is not likely that it will be
necessary to dispose of any of such Securities in the foreseeable future.
Leisure further represents and agrees that if, contrary to the foregoing
intentions, Leisure should later desire
2
<PAGE> 3
to dispose of or transfer any of the Securities in any manner, Leisure shall not
do so unless and until (i) said Securities shall have first been registered
under the Act and all applicable securities laws; or (ii) Leisure shall have
first delivered to Restaurants a written notice declaring such holder's
intention to effect such transfer and describe in sufficient detail the manner
and circumstances of the proposed transfer, which notice shall be accompanied
either by a written opinion of legal counsel who shall be reasonably
satisfactory to Restaurants which opinion shall be addressed to Restaurants and
reasonably satisfactory in form and substance to Restaurants' counsel, to the
effect that the proposed sale or transfer is exempt from the registration
provisions of the Act and all applicable state securities laws, or by a "no
action" letter from the Securities and Exchange Commission to the effect that
the transfer of the Securities without registration will not result in
recommendation by the staff of the Commission that action be taken with respect
thereto.
5. This Agreement and the Exhibit hereto contain the entire
understanding and agreement of the parties regarding the subject matter hereof.
This Agreement may not be amended or superseded except by a written instrument
executed by both parties hereto.
6. In the event that either party to this Agreement institutes
legal action against the other party as a result of a breach or default under
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys fees and court costs.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
general conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
UNITED LEISURE CORPORATION
By: /s/
---------------------------------
Its: President
UNITED RESTAURANTS, INC.
By: /s/
---------------------------------
Its: President
3
<PAGE> 1
Exhibit 10-16
AMENDMENT NO. 1 TO FINANCING AGREEMENT
AMENDMENT NO. 1, dated as of September 30, 1997 ("Amendment"), to
Financing Agreement dated February 12, 1997 ("Financing Agreement") by and
between United Leisure Corporation, a Delaware corporation ("ULC") and Grand
Havana Enterprises, Inc., a Delaware corporation ("GHE").
WHEREAS, the parties hereto wish to amend the Financing Agreement
to extend the maturity date of the advances made by ULC to GHE pursuant to the
Financing Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Extension of Maturity Date. The Maturity Date of the advances
made to GHE by ULC pursuant to the Financing Agreement is hereby extended to
March 31, 1998.
2. Shares to ULC. GHE acknowledges and agrees that pursuant to
Section 3 of the Financing Agreement if the advances made pursuant thereto were
not repaid on or prior to September 30, 1997, that ULC would be entitled to
25,000 shares of the common stock of GHE as a late fee, and GHE acknowledges and
agrees that such late fee has now become due and payable notwithstanding the
extension of the Maturity Date as provided for herein.
3. Ratification of Financing Agreement. All of the terms and
provisions of the Financing Agreement, except as such terms and provisions have
been modified by this Amendment, are hereby ratified, approved and confirmed in
all respects.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above-written.
UNITED LEISURE CORPORATION
By: /s/ Harry Shuster
---------------------------------
Harry Shuster, President
GRAND HAVANA ENTERPRISES, INC.
By: /s/ Harry Shuster
---------------------------------
Harry Shuster, President
<PAGE> 1
Exhibit 10-17
AMENDMENT NO. 1 TO FINANCING AGREEMENT
AMENDMENT NO. 1, dated July 15, 1997 ("Amendment"), to Financing
Agreement dated September 10, 1996 ("Financing Agreement") by and between United
Leisure Corporation, a Delaware corporation ("ULC") and Grand Havana
Enterprises, Inc., a Delaware corporation ("GHE").
WHEREAS, the parties hereto wish the amend the Financing
Agreement to provide that GHE not be required to replace the cash collateral
pledged by ULC from one- half of all initial membership fees received from
members of GHE's Grand Havana Rooms in New York and Washington, D.C.;
WHEREAS, in consideration for such modification to the Financing
Agreement Grand Havana wishes to agree to grant to ULC or its designee warrants
to purchase up to 150,000 shares of its common stock on the terms and conditions
provided for herein;
NOW, THEREFORE, in consideration for the mutual promises
contained herein, the parties hereto agree as follows:
1. Amendment to Financing Agreement. Section 2 of the Financing
Agreement is amended by deleting the first sentence of this Section so that the
full Section 2 shall now read as follows:
"2. At the end of eighteen (18) months after Leisure's pledge of the
cash collateral, Restaurants shall cause all of Leisure's remaining cash
collateral to be released and returned to Leisure. It is understood and
agreed by and between the parties hereto that the cash collateral
pledged by Leisure hereunder is not an asset of Restaurants and such
cash collateral shall always be deemed an asset of Leisure."
2. Issuance of Warrant. At any time from the date of this
Amendment to a period of one year after the date of this Agreement, upon the
request of ULC, GHE shall issue to ULC or its designee warrants to purchase
150,000 shares of the common stock of GHE, which warrants shall be exercisable
for a period of three years from the date of issuance at an exercise price of
the lesser of $.75 per share or 75% of the average of the last trade price of
the common stock of GHE for a period of ten business days immediately prior to
the exercise of the warrant. GHE agrees to register the shares underlying the
warrants within thirty days following receipt by GHE of written notice from the
holder of the warrants of its intent to exercise all of its warrants.
1
<PAGE> 2
3. Ratification of Financing Agreement. All of the terms and
provisions of the Financing Agreement, except as such terms and provisions have
been modified by this Amendment, are hereby ratified, approved and confirmed in
all respects.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above-written.
UNITED LEISURE CORPORATION
By: /s/ Harry Shuster
---------------------------------
Harry Shuster, President
GRAND HAVANA ENTERPRISES, INC.
(formerly United Restaurants, Inc.)
By: /s/ Harry Shuster
---------------------------------
Harry Shuster, President
2
<PAGE> 1
Exhibit 10-18
FINANCING AGREEMENT
THIS FINANCING AGREEMENT ("Agreement") is made and entered into
as of this 1st day of May, 1997, by and between UNITED FILM DISTRIBUTORS, INC.
("UFD"), a Delaware corporation, and GRAND HAVANA ENTERPRISES, INC. ("Havana"),
a Delaware corporation.
WHEREAS, Havana is in need of additional working capital and UFD
is interested in providing such funds upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. UFD hereby agrees to loan to Havana, from time to time, during
a period of six months from the date hereof, the aggregate sum of up to
$1,000,000 (the "Loan"). The Loan shall be advanced in such increments as shall
be requested by Havana from time to time. Interest on the amount of the Loan
that has been advanced shall bear interest at the rate of prime plus 3% per
annum from the date of advance until paid. The full principal amount advanced,
and all accrued but unpaid interest thereon, shall be payable in one lump sum
payment on demand, which demand shall not be made prior to November 1, 1998 (the
"Maturity Date").
2. This Agreement contains the entire understanding and agreement
of the parties regarding the subject matter hereof. This Agreement may not be
amended or superseded except by a written instrument executed by both parties
hereto.
3. In the event that either party to this Agreement institutes
legal action against the other party as a result of a breach or default under
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys fees and court costs.
4. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
general conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
UNITED FILM DISTRIBUTORS, INC.
By: /s/ Harry Shuster
--------------------------------
GRAND HAVANA ENTERPRISES, INC.
By: /s/ Harry Shuster
--------------------------------
<PAGE> 1
Exhibit 10.19
UNITED RESTAURANTS, INC.
1996 STOCK OPTION PLAN
1. Purpose.
This 1996 Stock Option Plan (the "Plan") provides for the grant
of non-qualified stock options by United Restaurants, Inc. (the "Company"). The
purpose of the Plan is to enable the Company to attract and retain the services
of selected employees, officers, directors and other key contributors (including
consultants and nonemployee agents) of the Company or any subsidiary of the
Company in order to promote the success of the Company. Pursuant to the Plan,
such persons will be given the opportunity to acquire common stock of the
Company through the grant of non-qualified stock options. Non-qualified stock
options are those which do not qualify for preferential tax treatment afforded
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"). For purposes of this Plan, the term "Company" shall be
deemed to include subsidiaries.
2. Shares Subject to the Plan.
Subject to adjustment as provided below, there will be reserved
for issuance upon the exercise of options under the Plan an aggregate of 626,250
shares of Common Stock. Such shares may be, in whole or in part, authorized but
unissued shares of Common Stock or issued shares of Common Stock which shall
have been reacquired by the Company. If an option granted under the Plan
expires, terminates or is cancelled, the unissued shares subject to such option
shall again be available under the Plan.
3. Effective Date and Duration of Plan.
3.1 Effective Date. The Plan shall be effective as of
December 1, 1996.
3.2 Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed; provided, however, the Board of Directors may suspend
or terminate the Plan at any time except with respect to options then
outstanding under the Plan. Termination shall not affect any outstanding option.
4. Administration.
4.1 Board of Directors. The Plan shall be administered by the
Board of Directors of the Company, which shall determine and designate from time
to time (a) the purchase price of the shares covered by each option, (b) whether
any payment will be required upon grant of the option, (c) the individuals to
whom, and the time or times at which, options shall be granted, (d) the number
of shares to be subject to each option, (e) when an option can be exercised and
whether in whole or in installments, (f) whether the options are immediately
transferable, (g) whether the exercisability of the options is subject to a risk
of forfeiture or
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other conditions and (h) whether the stock issued upon exercise of an option is
subject to repurchase by the Company, and the terms of such repurchase. Subject
to the provisions of the Plan, the Board of Directors may from time to time
adopt and amend rules and regulations relating to administration of the Plan,
advance the lapse of any waiting period, accelerate any exercise date, waive or
modify any restriction applicable to shares (except those restrictions imposed
by law) and make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect, and it shall be
the sole and final judge of such expediency.
4.2 Committee. The Board of Directors may delegate to a
committee of the Board of Directors or specified officers of the Company, or
both (the "Committee"), any or all authority for administration of the Plan. If
authority is delegated to a Committee, all references to the Board of Directors
in the Plan shall mean and relate to the Committee except (i) as otherwise
provided by the Board of Directors and (ii) that only the Board of Directors may
amend or terminate the Plan as provided in paragraphs 3 and 9.
5. Eligibility.
The Board of Directors may, from time to time, grant options
under the Plan to the Company's employees, officers and directors as well as to
consultants of the Company and other non-employees who the Board of Directors
believes have made or will make a valuable contribution to the Company.
6. Option Grants.
6.1 Option Price. With respect to each option grant, the Board
of Directors shall determine the option price (which shall not be less than 85%
of the last price at which shares of the Company's Common Stock were sold as
reported by NASDAQ on the day prior to the date of grant, or, if no last sales
price is available, such other price as the Board determine is at least 85% of
the fair market value of the stock on the date of grant).
6.2. Exercise of Options. Except as provided in paragraph 6.4 or
as otherwise determined by the Board of Directors, no option granted under the
Plan may be exercised unless, at the time of such exercise, the optionee is
employed by or is in the service of the Company and shall have been so employed
or provided such service continuously since the date such option was granted.
Absence on leave or on account of illness or disability under rules established
by the Board of Directors shall not, however, be deemed an interruption of
employment or service for this purpose. Unless
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otherwise determined by the Board of Directors, vesting of options shall not
continue during an absence on leave (including an extended illness) or on
account of disability. Except as provided in paragraphs 6.4 and 7, options
granted under the Plan may be exercised from time to time over the period stated
in each option in such amounts and at such times as shall be prescribed by the
Board of Directors, provided that options shall not be exercised for fractional
shares. Unless otherwise determined by the Board of Directors, if the optionee
does not exercise an option in any one year with respect to the full number of
shares to which the optionee is entitled in that year, the optionee's rights
shall be cumulative and the optionee may purchase those shares in any subsequent
year during the term of the option.
6.3 Nontransferability. Unless otherwise determined by the Board
of Directors, each option granted under the Plan by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the optionee's domicile at the time of death, and each
option by its terms shall be exercisable during the optionee's lifetime only by
the optionee.
6.4 Termination of Employment or Service.
(a) General Rule. Unless otherwise determined by the Board
of Directors, in the event the employment or service of the optionee with the
Company terminates for any reason other than because of physical disability or
death as provided below, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 30 days after the date of
such termination, whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the option at the date of such
termination; provided, however, in connection with the termination of any
employee or other person rendering services to the Company, the Board of
Directors may determine, in its sole discretion, to allow the exercisability of
the option to continue until the original expiration date of the option.
(b) Termination Because of Physical Disability. Unless
otherwise determined by the Board of Directors, in the event of the termination
of employment or service because of physical disability (as that term is defined
in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), the
option may be exercised at any time prior to the expiration date of the option
or the expiration of 12 months after the date of such termination, whichever is
the shorter period, but only if and to the extent the optionee was entitled to
exercise the option at the date of such termination.
(c) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the death of an optionee
while employed by or providing service to the Company, the option may be
exercised at any time prior to the expiration date of the option or the
expiration of 12 months after the date of
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<PAGE> 4
such death, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of such termination and
only by the person or persons to whom such optionee's rights under the option
shall pass by the optionee's will or by the laws of descent and distribution of
the state or country of domicile at the time of death.
(d) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or at any time thereafter, may but
shall have no obligation to extend the aforesaid 30-day and 12-month exercise
periods to any length of time not later than the original expiration date of the
option, and may increase the portion of an option that is exercisable, subject
to such terms and conditions as the Board of Directors may determine.
(e) Failure To Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or service
terminates is not exercised within the applicable period, all further rights to
purchase shares pursuant to such option shall cease and terminate.
6.5 Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the Plan
only upon receipt by the Company of notice in writing from the optionee of the
optionee's intention to exercise, specifying the number of shares as to which
the optionee desires to exercise the option and the date on which the optionee
desires to complete the transaction (which date shall not be later than ten (10)
business days after the date of exercise), and, if required in order to comply
with the Securities Act of 1933, as amended, containing a representation that it
is the optionee's present intention to acquire the shares for investment and not
with a view to distribution, and any other information the Board of Directors
may request. Unless the Board of Directors determines otherwise, on or before
the date specified for completion of the purchase of shares pursuant to an
option, the optionee must have paid the Company the full purchase price of such
shares in cash (including, with the consent of the Board of Directors, cash that
may be the proceeds of a loan from the Company). No shares shall be issued until
full payment therefor has been made. Each optionee who has exercised an option
shall immediately upon notification of the amount due, if any, pay to the
Company in cash amounts necessary to satisfy any applicable federal, state and
local tax withholding requirements. If additional withholding is or becomes
required beyond any amount deposited before delivery of the certificates, the
optionee shall pay such amount to the Company on demand. If the optionee fails
to pay the amount demanded, the Company may withhold that amount from other
amounts payable by the Company to the optionee, including salary, subject to
applicable law.
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<PAGE> 5
7. Changes in Capital Structure.
If the outstanding Common Stock of the Company is hereafter
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation by
reason of any recapitalization, reclassification, stock split, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares available for awards
under the Plan. In addition, the Board of Directors shall make appropriate
adjustment in the number and kind of shares as to which outstanding options, or
portions thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive.
8. Effect of Liquidation or Reorganization.
8.1 Cash Stock or Other Property for Stock. Except as provided
in paragraph 8.2, upon a merger, consolidation, acquisition of property or
stock, reorganization or liquidation of the Company, as a result of which the
stockholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the optionee shall have the right during a 30-day
period immediately prior to any such merger, consolidation, acquisition of
property or stock, reorganization or liquidation to exercise his or her option
in whole or in part whether or not the vesting requirements applicable to the
option have been satisfied.
8.2 Conversion of Options on Stock for Stock Exchange. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation, acquisition of property or stock,
separation or reorganization, all options granted hereunder shall be converted
into options to purchase shares of Exchange Stock unless the Board of Directors,
in its sole discretion, determines that any or all of such options granted
hereunder shall not be converted into options to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of paragraph
8.1. The amount and price of converted options shall be determined by adjusting
the amount and price of the options granted hereunder in the same proportion as
used for determining the number of shares of Exchange Stock the holders of the
Common Stock receive in such merger, consolidation, acquisition of property or
stock, separation or reorganization.
9. Corporate Mergers, Acquisitions, Etc.
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The Board of Directors may also grant options under the Plan
having terms, conditions and provisions that vary from those specified in this
Plan, provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing options issued by another
corporation and assumed or otherwise agreed to be provided for by the Company
pursuant to or by reason of a transaction involving a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation to which the Company or a subsidiary is a party.
10. Change of Control.
Notwithstanding the provisions of any option which provide for
its exercise in installments as designated by the Board, all options shall
become immediately exercisable in the event of a "change in control" or
"threatened change in control" of the Company. The term "change in control"
shall refer to the acquisition, in any single transaction or series of related
transactions, of 25% or more of the voting securities of the Company by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934; provided, however, that for purposes of the
Plan no change in control or threatened change in control shall be deemed to
have occurred if prior to the acquisition of, or offer to acquire, 25% or more
of the voting securities of the Company, the full Board shall have adopted, by
not less than a two-thirds vote, a resolution specifically approving such
acquisition or offer. Whether a "threatened change in control" has occurred
shall be determined by the Board in its sole discretion. The term "person" shall
include any individual, corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, or unincorporated organization.
11. Amendment of Plan.
The Board of Directors may at any time, and from time to time,
modify or amend the Plan in such respects as it shall deem advisable because of
changes in the law while the Plan is in effect or for any other reason. Except
as provided in paragraphs 6.4, 7 and 8, however, no change in an award already
granted shall be made without the written consent of the holder of such award.
12. Government and Other Regulations.
The obligation of the Company to sell and deliver shares under
the options granted under the Plan shall be subject to (i) all applicable laws,
rules and regulations and such approvals by any governmental agencies as may be
required, including, without limitation, the effectiveness of a registration
statement under the Securities Act of 1933, and (ii) the requirements of any
stock exchange upon which the Common Stock may then be listed. At the time of
the grant or exercise of any option, the Company may, if it is deemed necessary
or desirable for any reason connected with any law or regulation of any
governmental authority relating to the
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regulation of securities, require the holder to make such representations
regarding his acquisition of the Common Stock or agree to comply with such
restrictions on the transfer of the Common Stock as the Board may specify. In
the event such representations are required, no shares shall be issued to such
individual unless and until the Company is satisfied with any such
representation.
13. Employment and Service Rights.
Nothing in the Plan or any award pursuant to the Plan shall (a) confer upon any
employee any right to be continued in the employment of the Company or interfere
in any way with the right of the Company by whom such employee is employed to
terminate such employee's employment at any time, for any reason, with or
without cause, or to decrease such employee's compensation or benefits, or (b)
confer upon any person engaged by the Company any right to be retained or
employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
14. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as
a shareholder with respect to any Common Stock until the date of issue to the
recipient of a stock certificate for such shares. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
This 1996 Stock Option Plan has been approved by the Board of
Directors of United Restaurants, Inc. as of December 1, 1996.
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<PAGE> 1
Exhibit 10.20
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is entered into as of this
24th day of February, 1997, by and between BALLY'S GRAND, INC., a Delaware
corporation ("Landlord") and UNITED RESTAURANTS, INC. dba GRAND HAVANA CIGARS, a
Delaware corporation ("Tenant").
W I T N E S S E T H
WHEREAS, Landlord is the owner of certain real property located
at 3645 Las Vegas Boulevard South, Las Vegas, Nevada 89109 (the "Property"); and
WHEREAS, Landlord desires to lease to Tenant and Tenant desires
to lease from Landlord certain premises within the Property upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the terms, covenants,
conditions and provisions hereinafter set forth and other good and valuable
consideration, it is hereby mutually agreed by and between Landlord and Tenant
as follows:
SECTION 1
DEMISED PREMISES
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, a separate commercial premise in the main lobby of the Property
generally located at 3645 Las Vegas Boulevard South, Las Vegas, Nevada 89109,
consisting of approximately four hundred (400) square feet, as more particularly
depicted on Exhibit "A" attached hereto, plus all fixtures, equipment and
property located therein or thereon (collectively, the "Premises"). Landlord
reserves to itself the use of the roof, exterior walls and the area above and
below the Premises together with the right to install, maintain, use, repair and
replace and pipes, ducts, conduits, wires and structural elements now or in the
future leading through the Premises and which serve other parts of the Property.
1.2 In the event of a substantial renovation of the main lobby of the
Property, Landlord shall have the right, in its sole discretion, to relocate the
leased Premises to another location within the Property, provided that the area
of such location shall be approximately equal in size to that of the original
location and exposed to reasonably equivalent pedestrian traffic. In connection
with any relocation under this paragraph, Landlord shall bear the expense of
providing wall and floor coverings, a reasonably number of electrical outlets
and a telephone line at the new location, all according to Landlord's design
specifications. Tenant shall bear all other relocation expenses. In connection
with any such relocation, Landlord shall reimburse Tenant for the unamortized
cost of Tenant's leasehold improvements, based on a straight line amortization
over the term of the Lease.
<PAGE> 2
1.3 Landlord may, in connection with any remodeling of all or any
portion of the Property, change the dimensions or reduce the size of the
Premises; provided, however, that if a reduction in size of the Premises would
reduce the Premises to less than four-fifths (4/5) of their original size, and
Tenant determines that as a result thereof the remaining portion of the Premises
will not be suitable for the purpose for which Tenant has leased said Premises,
Tenant may, at its option (i) terminate this Lease by written notice to Landlord
given within thirty (30) days after the Landlord notifies Tenant of Landlord's
intention to remodel, or (ii) require Landlord to relocate the Premises in the
manner set forth in section 12 above. Within thirty (30) days following receipt
of Tenant's notice thereof, Landlord shall, at its option, either rescind the
Landlord's intention to remodel in a manner that would change the dimensions or
reduce the size of the Premises (in which event Tenant's termination notice is
of no effect and this Lease shall continue) or shall agree to relocation of the
Tenant pursuant to Section 1.2 hereof. In the event of any remodeling pursuant
to this Section 1.3, Landlord shall repair any damage to the Premises caused
thereby. In connection with any such remodeling, or any relocation pursuant to
Section 1.2, Landlord may require Tenant to cease conducting business from the
Premises for a period not in excess of thirty (30) days. The rent payable
hereunder shall be abated during any such period that Landlord requires Tenant
to cease conducting business and Tenant shall be entitled to a reduction in rent
in an amount equal to that proportion of the Guaranteed Minimum Rent (as
hereinafter defined) which the number of square feet taken away in the
remodeling bears to the original number of square feet of the Premises.
1.4 Landlord shall only be obligated to provide the Premises to
Tenant in a completely undecorated condition, as is, with bare walls and floors,
electrical service to a panel, exterior door and store front; provided, however,
Landlord shall also remodel and relocate the front wall of the Premises in
accordance with the plans described in Exhibit "B" attached hereto prior to
delivery of the Premises to Tenant. Tenant acknowledges that it has inspected
the Premises and accepts the Premises in "as is" condition. Tenant shall be
responsible, at its sole cost, for decorating, fixturizing, and equipping the
interior of the Premises, including, but not limited to, floor and wall
coverings, duct work for distribution of air conditioning and heating within the
Premises, electrical wiring from the panel indicated above, furnishings,
decorations, light fixtures and interior doors. Tenant will furnish, equip, and
decorate the Premises with all new and modern equipment and agrees that the
proposed furnishings, fixtures, floor and wall covering, decor, architectural
layout and color scheme for the Premises shall be subject to the prior written
approval of the Landlord and in accordance with the approved Tenant's Plans (as
hereinafter defined).
1.5 Within thirty (30) days after the execution of this Lease by both
parties, Tenant shall submit to Landlord one (1) reproducible set of plans and
specifications of all of the improvements Tenant proposes to construct within
the Premises, which shall include a schedule of fixtures, furnishings and
equipment to be installed or provided as part of the Premises signage
specifications and a description of planned decoration (the "Tenant's Plans").
Landlord shall notify Tenant within twenty (20) days after receipt of a complete
set of Tenant's Plans whether Landlord approves of Tenant's Plans and, if it
does not fully approve of them, the respects in which they are not found
acceptable. Within ten (10) days
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after receipt of any such notice of disapproval, Tenant shall cause Tenant's
Plans to be revised to correct those matters of which Landlord disapproved and
shall prepare final Tenant's Plans based upon Landlord's notice and resubmit the
same to Landlord. Upon final approval of Tenant's Plans by Landlord, whether in
original or revised form, Landlord shall initial and return one set of the
approved Tenant's Plans to Tenant and the same shall become incorporated in this
Lease by this reference and made a part hereof as Exhibit "A." Any changes to
Tenant's Plans shall be at Tenant's sole cost and expense.
SECTION 2
TERM
2.1 The term of this Lease shall commence on the sooner to occur of
four (4) months after delivery of the Premises to Tenant with the work described
in Exhibit "B" completed or the date on which Tenant is opened for business, or
on another date mutually agreed to in writing by the parties (the "Commencement
Date"), and shall continue on for a period of seven (7) years thereafter unless
terminated earlier as elsewhere provided in this agreement. In the event that
the Tenant fails or refuses to commence the conduct of its business upon the
Premises by the Commencement Date, then, at the option of Landlord, Landlord may
treat such failure or refusal as an event of default hereunder.
2.2 Should Tenant hold possession of the Premises with the consent of
Landlord after the expiration of the term of this Lease, such holding over shall
create a tenancy from month-to-month only, upon the same terms and conditions as
are hereinafter set forth, except that the rent shall be One Hundred Fifty
Percent (150%) of the rent paid by Tenant for the month immediately preceding
such holding over.
SECTION 3
RENT AND DEPOSIT
3.1 During the first year of the term of this Lease, Tenant shall pay
Five Thousand Dollars ($5,000.00) as monthly rent (the "Guaranteed Minimum
Rent"). At the end of the first year of the term hereof, Tenant's Gross Sales
(hereinafter defined) shall be determined from the monthly certified statements
addressed later in this Section, and the applicable Percentage Rent (hereinafter
defined) shall be calculated on an annual basis according to the terms of the
next paragraph of this Section. If the applicable annual Percentage Rent is
greater than Sixty Thousand Dollars ($60,000.00), Tenant shall pay the
difference to Landlord.
During the remainder of the term of this Lease, Tenant shall pay
as monthly rent the Guaranteed Minimum Rent or the "Percentage Rent" as follows:
(1) ten percent (10%) of the Gross Sales (hereinafter defined) up to $1,000,000
per Lease Year; (ii) eleven percent (11%) of Gross Sales from $1,000,000 to
$1,500,000 per Lease Year; (iii) twelve percent (12%) of Gross Sales from
$1,500,000 to $2,000,000 per Lease Year; or (iv) thirteen
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percent (13%) of Gross Sales in excess of $2,000,000 per Lease Year. The dollar
amounts specified in the foregoing sentence are hereinafter referred to as the
"Breakpoint." The Lease year is each calendar year that this Lease is in effect.
Within twenty (20) days after the end of each elapsed calendar
month during the term of this Lease, Tenant shall present to Landlord a
statement certified by Tenant to be true and correct showing the Gross Sales
made from the Premises during the preceding month, and Tenant shall pay
therewith a sum equivalent to the percentage of such Gross Sales in excess of
the applicable Breakpoint as hereinabove set forth.
The Guaranteed Minimum Rent shall be adjusted annually for
inflation, utilizing the Consumer Price Index published by the U.S. Department
of Labor. The effective date of the adjustment shall be on each annual
anniversary of the Commencement Date hereof.
3.2 As used in this Lease "Gross Sales" means the aggregate selling
price of all merchandise and services sold in, upon or from the Premises by
Tenant, its permitted subtenants, licensees and concessionaires, excluding only
the following:
(a) Returns or refunds, or monies or credit received by Tenant in
the settlement of claims for loss or damage of or to Tenant's merchandise; and
(b) Sales taxes, excise taxes, gross receipts taxes or luxury
tax, or any other tax imposed and actually paid by Tenant to a governmental
agency.
3.3 All gross income of Tenant or any other person, firm or
corporation from any operations in, at or upon the Premises which are not
specifically excluded by this section shall be included in Gross Sales. All
sales originating at the Premises shall be included in Gross Sales even though
the account therefore may be transferred to another place for collection or the
actual filing of the order may be made from a place other than the Premises. No
credit shall be allowed for uncollected or uncollectible credit accounts. Each
sale upon installment or credit shall be treated as a sale for the full price in
the month during which such sale is made, regardless of the time or whether
Tenant shall receive payment therefor. In no event shall the cost of value of
any coupons, trading stamps, premiums, advertising or other promotional devices
be deducted or excluded from Gross Sales or be otherwise construed as a
discount, refund, allowance or credit hereunder. The authorized deductions from
Percentage Rental shall be noncumulative, and a computation of payment of the
Percentage Rental shall be made separately for each calendar month throughout
the term of this Lease without regard to Gross Sales, Percentage Rental or
authorized deductions therefrom in connection with any calendar month, except to
the extent that the aggregate of Gross Sales in any Term Year causes the
Percentage Rental to be increased as provided in this Section.
3.4 All rents and other monies required to be paid by Tenant
hereunder shall be
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paid to Landlord without deduction or offset, prior notice or demand, in lawful
money of the United States America, at the Property or at such other place as
Landlord may from time to time designate in writing.
3.5 If Tenant fails to pay, within ten (10) days after it is due and
payable, any rent or any other amounts or charges to be paid by Tenant
hereunder, such unpaid amounts shall bear interest from the due date thereof to
the date of payment at a rate equal to the prime rate of interest last
ascertained by the Commissioner of Financial Institutions of the State of Nevada
pursuant to Nevada Revised Statutes 99.040, plus five percent (5%).
3.6 Tenant, concurrently with the execution of this Lease, has
deposited with Landlord the sum of Five Thousand Dollars ($5,000.00), receipt of
which is hereby acknowledged by Landlord (the "Security Deposit"). The Security
Deposit shall be held by Landlord as security for the faithful performance by
Tenant of all the terms, covenants and conditions of this Lease by Tenant to be
kept and performed during the Term hereof, provided that Tenant shall not be
excused from the payment of any rent herein reserved or any other charge herein
provided. If Tenant defaults with respect to any provision of this Lease,
Landlord may, but shall not be required to, use or retain all or any part of the
Security Deposit for the payment of any rent, to repair damages to the Premises,
to clean the Premises or to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, within five (5) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. Should Tenant
comply with all of said terms, covenants and conditions and promptly pay all the
rental herein provided for as it falls due, and all other sums payable by Tenant
to Landlord hereunder, then the Security Deposit shall be returned to Tenant
thirty (30) days after the end of the term of this Lease or after the last
payment due from Tenant to Landlord, whichever last occurs. In the event of sale
or transfer of the Property, if Landlord transfers the Security Deposit to the
vendee or transferee for the benefit of Tenant, or if such vendee or transferee
assumes all liability with respect to the Security Deposit, Landlord shall be
considered released by Tenant from all liability for the return of the Security
Deposit, and Tenant agrees to look solely to the new Landlord for the return of
the Security Deposit, and it is agreed that this Section 3 shall apply to every
transfer or assignment to a new Landlord.
3.7 By no later than the date of delivery of the Premises to Tenant
with the work described in Exhibit "B" completed, Tenant will pay to Landlord
Fifty-Five Thousand Dollars ($55,000.00), Five Thousand Dollars ($5,000.00) of
which shall be applied by Landlord as Guaranteed Minimum Rent for the first
month of the term hereof and Fifty Thousand Dollars ($50,000.00) of which shall
be key money ("Key Money") in consideration to Landlord for entering into this
agreement with Tenant and for Landlord's work described in Exhibit "B". Such sum
shall not apply to the Guaranteed Minimum Rent or Percentage Rental nor to any
other obligation for payment of money under this Lease, nor shall it
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constitute a part of the Security Deposit. The Key Money is and shall be
considered fully earned by the Landlord.
SECTION 4
GAMING
4.1 No slot machines or other gambling game or device shall be
permitted on the Premises. Tenant acknowledges that Landlord conduct gaming
operations at the Property and that Landlord shall have the absolute right to
terminate this Lease in the event a Gaming Authority (as hereinafter defined)
orders or requests that it do so.
4.2 If Tenant, or any key employee, director or stockholder of
Tenant, is required to apply to apply to any state or local government authority
regulating gaming activities (the "Gaming Authorities") for a finding of
suitability or other similar approval, such application shall promptly be made.
If such application is not made or if Tenant or any of Tenant's key employees,
stockholders or directors are found unsuitable, this Lease shall immediately
terminate unless the party failing to make such application to the Gaming
Authorities, or the party found unsuitable, immediately resigns, divests himself
or herself of equity ownership and fully complies with any other requirements of
the Gaming Authorities.
4.3 Tenant acknowledges that Tenant and this Lease are subject to (as
a condition precedent to the effectiveness of this Lease) the approval of the
Compliance Committee of Hilton Hotels Corporation. Tenant, its principals, and
any employees or agents of Tenant shall cooperate with all requests of said
Compliance Committee, prior to and during the term of this Lease, and Tenant
acknowledges that this Lease and all actions of the parties during the term
hereof are subject to review and prior approval (in Landlord's discretion) by
said Compliance Committee. If, at any time, Tenant or this Lease are disapproved
by said Compliance Committee, this Lease shall immediately terminate without
further liability of either party.
SECTION 5
POSSESSION AND SURRENDER OF THE PREMISES
5.1 Tenant shall, by entering upon and occupying the Premises, be
deemed to have accepted the Premises in their existing condition, and Landlord
shall not be liable for any latent or patent defect therein. Landlord warrants
only that it has no actual knowledge of any existing defects upon execution of
this Lease.
5.2 Upon the expiration or sooner termination of the term of this
Lease, Tenant shall, at its sole cost and expense, remove all personal property
and trade fixtures which Tenant has installed or placed on the Premises
("Tenant's Property") from the Premises and repair all damage thereto resulting
from such removal, and Tenant shall thereupon surrender the Premises in the same
condition as on the Commencement Date, reasonable wear and tear excepted, broom
clean. In the event Tenant fails to remove any of Tenant's
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Property as provided herein, Landlord may, but is not obligated to, at Tenant's
expense, remove all of such property not so removed and repair all damage to the
Premises resulting from such removal, and Landlord shall have no responsibility
to Tenant for any loss or damage to Tenant's Property caused by, or resulting
from, such removal or otherwise. In the event any amount due Landlord pursuant
to this Lease has not been paid at the expiration or termination of this Lease,
Landlord shall have the right to sell or dispose of Tenant's Property as
Landlord so chooses as partial satisfaction of the amount past due.
SECTION 6
USE OF PREMISES
6.1 The Premises are leased to Tenant solely for the purpose of the
operation of an establishment engaged in the retail sale of cigars and related
products. Tenant shall not use or suffer to be used the Premises, or any portion
thereof, for any other purpose or purposes whatsoever, without Landlord's prior
written consent. Tenant shall conduct business under the trade name of Grand
Havana House of Cigars or Grand Havana Room, and no other without the prior
written consent of Landlord.
6.2 Landlord shall not permit any existing or future lessee or
operator of any other business in the Property to sell cigars or cigar
accessories; provided, however, that Landlord shall have the right to offer
cigars and cigar accessories purchased from Tenant for sale in its gift shops.
Tenant acknowledges that Landlord has or will enter into other leases within the
Property and that the products offered or sole hereunder may, during the term,
create a conflict with the products offered or sold by such other lessees. In
the event of a controversy between Tenant and Landlord or Tenant and the lessee
or operator of any other business in the Property relating to the type or
selling price of any product to be sold in, or from the Premises, Landlord shall
have the sole right to resolve such controversy and such decision shall be
binding on all parties involved. In the event that Tenant fails or refuses to
abide by the decision of Landlord, such failure or refusal shall be deemed a
material breach and event of default.
6.3 Tenant shall not permit or suffer anything to be done, or kept
upon the Premises which will obstruct or interfere with the rights of other
tenants, Landlord or the patrons and customers or any of them, or which will
annoy any of them by reason of unreasonable noise or otherwise, nor will Tenant
commit or permit any nuisance on the Premises or commit or suffer any immoral or
illegal act to be committed thereon. Tenant shall not, without Landlord's prior
written approval:
(a) Distribute or place anywhere on Landlord's property any
notice, advertisement or other written solicitation, except upon the Premises;
(b) Solicit or attempt to solicit Landlord's guests or customers
by telephone or other means of communication, unless the contact is initiated by
the guest or by the guest's agent;
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(c) Except for Tenant's other locations outside of Las Vegas,
display on the Premises advertising, brochures, material or posters from any
Property, casino or entertainment facility other than that of Landlord;
(d) Do or permit anything to be done in or about the Premises,
which will in any way affect fire or other insurance upon the building, or any
of its contents, or which shall in any way conflict with any law, ordinance,
rule or regulation affecting the occupancy or use of the Premises, or in any way
obstruct or interfere with the right sof any other persons in the Property;
(e) Operate or permit to be operated on the Premises, any coin
or token- operated vending machines or similar devices;
(f) Use the Premises or any portion thereof as living quarters
or sleeping quarters;
(g) Conduct a fire, bankruptcy or auction sale in, on or about
the Premises.
6.4 Tenant shall, at all times during the term of this Lease, comply
with all governmental rules, regulations, ordinances, statutes and laws, now or
hereafter in effect pertaining to the Property, the Premises or Tenant's use
hereof.
6.5 Tenant hereby covenants and agrees that it, its agents,
employees, servants, contractors, subtenants and licensees shall abide by any
and all reasonable rules and regulations as Landlord may, from time to time,
adopt for the safety, care and cleanliness of the Premises or the Property.
6.6 Tenant hereby affirmatively covenants to do business at the
Premises throughout the term of this Lease. Tenant shall conduct its business in
the Premises during those days, nights and hours as shall be determined by
Tenant and Landlord, which shall not be less than twelve (12) hours per day
three hundred Sixty-Five (365) days per year. Failure to conduct its business in
the manner provided shall constitute a material breach of this lease and an
event of default. Tenant may reduce its hours of operation only with prior
written consent of Landlord.
6.7 All of Tenant's signage is subject to Landlord's approval. Any
exterior signage relating to Tenant may be modified or removed and replaced from
time to time in Landlord's sole discretion and at Landlord's sole expense.
Tenant understands and agrees that all of its signage must be compatible with
the Property's decor. Therefore, and without limiting the generality of the
foregoing provisions of this subsection, Tenant agrees that Landlord may limit
the size of Tenant's logo on any signage.
6.8 Tenant shall not use the name "Bally's" or "Hilton", either alone
or in combination with any other names or terms (the "Property's Name"), or any
derivation
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hereof in connection with, or as part of, Tenant's business without the prior
written consent of Landlord. In the event that Landlord allows Tenant to use the
Property's Name in advertising, such use shall be deemed a nonexclusive license
or privilege only which confers no property rights therein, and such license or
privilege may be revoked by Landlord at any time, in which event Tenant shall
cease the use of the Property's Name. The Landlord's permission to use the
Property's Name shall not be deemed to abridge the right of Landlord to grant or
license the use of the Property's Name to any other person at any other time.
Tenant shall have no right to use any Landlord owned or licensed trademarks or
copyrights without the prior written consent of Landlord. Any rights to use
Landlord's owned or licensed trademarks or copyrights on Tenant's merchandise
shall be non-exclusive and the subject of a separate agreement.
6.9 Tenant acknowledges that the Property is a first-class Property
and that the maintenance of Landlord's and the Property's reputation and the
goodwill of all of Landlord's guests and invitees is absolutely essential to
Landlord and that any impairment thereof whatsoever will cause great damage to
Landlord. Tenant therefore covenants that it shall operate the Premises in
accordance with the highest standards of honesty, integrity, quality and
courtesy so as to maintain and enhance the reputation and goodwill of Landlord
and the Property. Tenant shall continuously monitor the performance of each of
Tenant' s employees at the Premises to insure that such standards are
consistently maintained. Tenant further agrees, as a material inducement to
Landlord, that repeated failure to maintain such standards or repeated
complaints from customers or guests which Landlord after consultation with
Tenant determines have a factual basis shall be deemed a material breach of this
Lease by Tenant and an event of default.
6.10 Tenant shall not cause or permit its employees to enter upon
those areas of the Property which are designated "Employees Only", as the
parties acknowledge that for the purpose of this Section 6.10, "Employees"
refers to the employees of Landlord and not to the employees of Tenant.
6.11 Tenant shall in its sole discretion, fix the salary rate and
provisions of employee benefits of its employees and shall be responsible for
all such salaries, employee benefits, social security taxes, federal and state
unemployment insurance and any and all similar taxes relating to its employees
and for workers' compensation coverage with respect thereto pursuant to
applicable law. Tenant's employees shall not be entitled to participate in, or
to receive, any of Landlord's employee benefit or welfare plans, and they shall
not be deemed agents of Landlord for any purposes.
SECTION 7
ALTERATIONS AND IMPROVEMENTS
7.1 Tenant shall not make any alterations, improvements or changes
("Improvements") in or to the Premises without the prior written approval of
Landlord. Any Improvements shall be at the sole cost and expense of Tenant.
Landlord may require Tenant, at Tenant's sole cost and expense, to furnish a
bond, or other security satisfactory
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to Landlord, to assure diligent and faithful performance of any work to be
performed by Tenant. Any Improvements shall be made promptly, in good and
workmanlike manner by duly licensed contractors and in compliance with all
insurance requirements and with all applicable permits, authorizations, building
regulations, zoning laws and all other governmental rules, regulations,
ordinances, statutes and laws, now or hereafter in effect, pertaining to the
Premises or Tenant's use thereof. Any Improvements made by Tenant shall, at
Landlord's option, become the property of Landlord upon the expiration or sooner
termination f this Lease. However, Landlord shall have the right to require
Tenant to remove such Improvements, at Tenant's sole cost and expense, upon
termination of this Lease and to surrender the Premises in the same condition as
they were in prior to the making of any or all such Improvements, ordinary wear
and tear excepted. Notwithstanding the above, Tenant shall have the right to
remove any trade fixtures installed by Tenant upon the Premises.
SECTION 8
PARKING AND COMMON AREAS
8.1 Tenant, its agents, employees, servants, contractors, subtenants,
licensees, customers and customers and business invitees shall have the
non-exclusive right to use such common areas of the Property as are designated
from time to time by Landlord, subject to such rules and regulations as Landlord
may from time to time impose. All common areas which Tenant may be permitted to
use are to be used under a revocable license, and if any such license is
revoked, or if the amount of such area is diminished, Landlord shall not be
subject to any liability, nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation or diminution of such
areas be deemed constructive or actual eviction.
SECTION 9
TAXES
9.1 Tenant shall be liable for and shall pay before delinquency (and,
upon five (5) days of written demand by Landlord, Tenant shall furnish Landlord
with satisfactory evidence of the payment thereof) all taxes, fees and
assessments of whatsoever kind of nature, and penalties and interest thereon, if
any, levied against Tenant's property or any other personal property of
whatsoever kind and to whomsoever belonging situate or installed in our upon the
Premises, whether or not affixed to the realty. If at any time during the term
of this Lease any such taxes on personal property are assessed as part of the
tax on the real property of which the Premises is a part, then in such event
Tenant shall pay to Landlord the amount of such additional taxes as may be
levied against the real property by reason thereof.
9.2 Tenant shall pay when due all taxes, assessments or fees for
which Tenant is liable and which arise directly or indirectly from Tenant's
operations at the Premises. Within five (5) days of written demand from
Landlord, Tenant shall furnish Landlord evidence satisfactory to Landlord of the
timely payment of nay such tax, assessment or fee.
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9.3 If at any time during the term of this Lease, under the laws of
the United States, Nevada or any political subdivision thereof, a tax or excise
on rents or other tax (except income tax), however described, is levied or
assessed by the United States, Nevada or any political subdivision against
Landlord on account of any rent reserved under this Lease, all such tax or
excise on rents or other taxes shall be paid by Tenant.
9.4 Whenever Landlord shall receive any statement or bill for any
tax, payable in whole or in part by Tenant as additional rent, or shall
otherwise be required to make any payment on account thereof, except as
otherwise provided herein. Tenant shall pay the amount due hereunder within ten
(10) days after demand therefor accompanied by delivery to Tenant of a copy of
such tax statement, if any.
SECTION 10
UTILITIES
10.1 Landlord shall pay all charges for heating and cooling,
attributable to the Premises. Tenant shall pay for all other service or
utilities (including, but not limited to, telephone service) used in, upon or
about the Premises by Tenant or any of its subtenants, licensees or
concessionaires during the term hereof. Electric power and/or gas consumed by
Tenant, exclusive of heating and air conditioning, shall be either metered
separately or pro-rated and the charge therefor shall be paid by Tenant to
Landlord within ten (10) days of billing, except that the cost of installing and
maintaining the meter shall be borne by Landlord.
SECTION 11
MAINTENANCE AND REPAIRS
11.1 Landlord agrees to keep in good structural order, condition and
repair the exterior walls, floor and roof of the Premises, except for reasonable
wear and tear and except for any damage thereto caused by any act or negligence
of Tenant or its agents, employees, servants, contractors, subtenants,
licensees, customers or business invitees.
11.2 Landlord shall not be obligated to perform any service or to
repair or maintain any structure or facility except as provided in this Section
and Section 14 of this Lease. Landlord shall not be obligated to provide any
service or maintenance or to make any repairs pursuant to this Lease when such
service, maintenance or repair is made necessary because of the negligence or
misuse of Tenant, Tenant's agents, employees, servants, contractors, subtenants,
licensees, customers or business invitees. Landlord reserves the right to stop
any service when Landlord deems such stoppage necessary, whether by reason of
accident or emergency, or for repairs or Improvements or otherwise. Landlord
shall not be liable under any circumstances for loss or injury however
occurring, through or in connection with or incident to any stoppage of such
services. Landlord shall have no responsibility or liability for failure to
supply any services or maintenance or to make any repairs when prevented from
doing so by any cause beyond Landlord's control. Landlord
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shall not be obligated to inspect the premises and shall not be obligated to
make any repairs or perform any maintenance hereunder unless first notified of
the need thereof in writing by Tenant. Landlord shall not be liable for any loss
or damage to persons or property sustained by Tenant or other persons, which may
be caused by the Property or the Premises, or any appurtenances thereto, being
out of repair or by bursting or leakage of any water, gas, sewer or steam pipe,
or by theft, or by any act or neglect of any tenant or occupant of the Property,
or of any other person.
11.3 Except as provided for elsewhere herein, Tenant shall keep and
maintain in good order, condition and repair (including any such replacement and
restoration as is required for that purpose) the Premises and every part thereof
and any and all appurtenances thereto (except for roof and structural repairs)
wherever located, including, but without limitation, the exterior and interior
portion of all doors, door checks, windows, plate glass, store front, all
plumbing and sewage facilities within the Premises, fixtures, sprinkler system,
walls, floors, ceilings and all interior lighting. Tenant shall also keep and
maintain in good order, condition and repair (including any such replacement and
restoration as is required for that purpose) any Improvements, special
equipment, furnishings, fixtures or facilities installed by it on the Premises.
Without limiting the generality of the foregoing, Tenant shall periodically
paint and refurbish the Premises as required by Landlord in its reasonable
discretion. Tenant shall store all trash and garbage in containers located where
designated by Landlord and so as not to be visible or create a nuisance to
guests, customers and business invitees of the Property, and so as not to create
or permit any health or fire hazard.
SECTION 12
LIENS
12.1 Tenant, at all times, shall keep the Landlord, the Property, the
Premises, the leasehold estate created by this Lease, and any trade fixtures,
equipment or personal property within the Premises, free and clear from any
claim, lien or encumbrance (other than personal property, consensual security
interests for liens of credit or inventory financing in the ordinary course of
Tenant's business), tax lien or levy, mechanic's lien, attachment, garnishment
or encumbrance arising directly or indirectly from any obligation, action or
inaction of Tenant whatsoever.
12.2 Tenant shall give Landlord at least ten (10) business days' prior
written notice before the commencement of any work, construction, alteration or
repair on the Premises to afford Landlord the opportunity to file appropriate
notices of non-responsibility.
SECTION 13
INSURANCE
13.1 Tenant shall, at all times during the term hereof, at its sole
cost and expense, maintain in full force and effect a policy of broad form
comprehensive public liability
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insurance issued by an insurance carrier approved by Landlord, insuring against
loss, damage or liability for injury or death to persons and loss or damage to
property occurring from any cause whatsoever in connection with the Premises or
Tenant's use thereof. Such liability insurance shall be in an amount of not less
than Two Million Dollars ($2,000,000.00). Landlord shall be named as an
additional insured under each such policy of insurance.
13.2 Tenant shall, at all times during the term hereof, at its sole
cost and expense, maintain in full force and effect a standard form of fire with
extended coverage insurance covering Landlord's and Tenant's respective
property, and the personal property of others in Tenant's possession in, upon or
about the Premises. Such insurance shall be in an amount equal to the current
replacement value of the property required to be insured. Tenant and Landlord,
as their interests may appear, shall be the named insureds under each such
policy of insurance.
13.3 A certificate issued by the insurance carrier for each policy of
insurance required to be maintained by Tenant hereunder, together with a copy of
each such policy, shall be delivered to Landlord on or before the Commencement
Date and thereafter, as to policy renewals, within thirty (30) days prior to the
expiration of the terms of each such policy. Each of said certificates of
insurance and each such policy of insurance shall be from an insurer and in a
form and substance satisfactory to Landlord, shall expressly evidence insurance
coverage as required by this Lease and shall contain an endorsement or provision
requiring not less than thirty (30) days written notice to Landlord and all
other named insureds prior to the cancellation, diminution in the perils insured
against, or reduction of the amount of coverage of, the particular policy in
question. In addition to the foregoing certificates, Tenant shall at all times
during the term hereof, furnish Landlord with a current certificate of worker's
compensation coverage evidencing coverage at Nevada statutory limits.
13.4 Tenant shall not use or occupy, or permit the Premises to be used
or occupied, in a manner which will make void any insurance then in force or
increase the rates of fire or any other insurance on the Premises. If by reason
of the failure of Tenant to comply with the provisions of this Section, the fire
or any other insurance rates of the Premises are increased, Tenant shall
reimburse Landlord, as additional rent, on the first day of the calendar month
next succeeding notice by Landlord to Tenant of said increase, for that part of
all insurance premiums thereafter paid by Landlord which shall have been charged
because of such failure of Tenant.
13.5 Tenant hereby waives any and all rights of recovery from
landlord, its officers, agents and employees for any loss or damage, including
consequential loss or damage, caused by any peril or perils (including negligent
acts) that are caused by or result from risks insured against under any form of
insurance policy required to be maintained by Tenant hereunder.
13.6 Each policy of insurance provided for in this Section 13 shall
contain an
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express waiver of any and all rights of subrogation thereunder whatsoever
against Landlord, its officers, agents and employees. All such policies shall be
written as primary policies and not contributing with or in excess of the
coverage, if any, which Landlord may carry. Any other provision contained in
this Section 13 or elsewhere in this Lease notwithstanding, the amounts of all
insurance required hereunder to be paid by Tenant shall be not less than an
amount sufficient to prevent Landlord from becoming a co-insurer. The limits of
the public liability insurance required to be maintained by Tenant under this
Lease shall in no way limit or diminish Tenant's liability under Section 15
hereof and such limits shall be subject to increase at any time and from time to
time during the Term if Landlord, in the exercise of reasonable discretion,
deems such an increase necessary for its adequate protection; provided, however,
Landlord may not exercise its right under this sentence more frequently than one
time every two (2) Term Years.
SECTION 14
DESTRUCTION OF PREMISES
14.1 In the case of the total destruction of the Premises, or any
portion thereof or of the Property substantially interfering with Tenant's use
of the Premises, not caused by the fault
or negligence of Tenant, its agents, employees, servants, contractors,
subtenants, licensees, customers or business invitees ("Destruction"), this
Lease shall terminate except as herein provided. If Landlord notifies Tenant in
writing within forty-five (45) days of such Destruction of Landlord's election
to repair said damage to the Premises, and if Landlord proceeds to and does
repair such damage with reasonable dispatch, the Lease shall not terminate, but
shall continue in full force and effect, except that Tenant shall be entitled to
a reduction in the Guaranteed Minimum Rent in an amount equal to that proportion
of the Guaranteed Minimum Rent which the number of square feet of floor space in
the unusable portion bears to the total number of square feet of floor space in
the entire premises. Said reduction shall be prorated so that the Guaranteed
Minimum Rent shall only be reduced for those days any given area as actually
unusable. If this Lease is terminated pursuant to this Section 14, and if Tenant
is not in default hereunder, rent shall be prorated as of the date of
termination, any security deposited with Landlord shall be returned to Tenant,
and all rights and obligations hereunder shall cease and terminate.
14.2 The provisions of this Section 14 with respect to repair by
Landlord shall be limited to such repair as is necessary to place the Premises
in the condition they were in immediately prior to the Destruction and when
placed in such condition, the Premises shall be deemed restored and rendered
tenantable. Tenant shall replace its own stock in trade, furniture, furnishings,
floor coverings, decor, equipment and trade fixtures at its own expense.
14.3 Notwithstanding the foregoing provisions, in the event the
Premises, or any portion thereof, shall be damaged by fire or other casualty due
to the fault or negligence of Tenant, its agents, employees, servants,
contractors, subtenants, licensees, customers or business invitees, then this
Lease shall not terminate, the damage shall be repaired by
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Tenant, and there shall be no apportionment or abatement of any rent.
14.4 All insurance proceeds payable under any fire and extended
coverage risk insurance covering the Premises shall be payable to Landlord in
the event of Destruction, and Tenant shall have no interest therein, except to
the extent of such insurance obtained by Tenant to cover Tenant's personal
property. Tenant shall in no case be entitled to compensation for damages on
account of any annoyance or inconvenience in making repairs under any provision
of this Lease. Except to the extent provided for in this Section 14, neither the
rent payable by Tenant, nor any of Tenant's other obligations under any
provision of this Lease, shall be affected by any Destruction.
SECTION 15
INDEMNIFICATION
15.1 Tenant hereby covenants and agrees to indemnify, defend, save and
hold Landlord, the Premises and the leasehold estate created by this Lease free,
clear and harmless from any and all liability, loss, costs, expenses (including
attorneys' fees), judgments, claims, liens and demands of any kind whatsoever in
connection with, arising out of, or by reason of any act, omission, or
negligence of Tenant, its agents, employees, servants, contractors,
subtenants, licensees, customers or business invitees while in, upon, about, or
in any way connected with, the Premises or the Property or arising from any
accident, injury or damage, howsoever and by whomsoever caused, to any person or
property whatsoever, occurring in, upon, about or in any way connected with the
Premises or any portion thereof other than as a result of the intentional or
grossly negligent acts of Landlord.
15.2 In the absence of intentional or grossly negligent acts of
Landlord, Landlord shall not be liable to Tenant, or to any other person
whatsoever, for any damage occasioned by falling plaster, electricity, plumbing,
gas, water, steam, sprinkler or other pipe and sewage system or by the bursting,
running or leaking of any tank, washstand, closet or waste of other pipes, nor
for any damages occasioned by water being upon or coming upon the Premises or
for any damage arising from any acts or neglect of co-tenants or other occupants
of the Property or of adjacent property or of the public, nor shall Landlord be
liable in damage or otherwise for any failure to furnish, or interruption of,
service of any utility beyond the control of Landlord. Tenant acknowledges and
agrees that Landlord's security department and security officers are not
responsible for providing security services in the Premises and that all such
responsibility is the obligation of Tenant. In no event shall Landlord be liable
to Tenant or any third-party for the security department's failure to respond to
a request for aid or assistance by Tenant.
SECTION 16
SUBORDINATION
16.1 Tenant agrees upon request of Landlord to subordinate this Lease
and its
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rights hereunder to the lien of any mortgage, deed of trust or other
encumbrance, together with any renewals, extensions or replacements thereof now
or hereafter placed, charged or enforced against the Premises, or any portion
hereof, and to execute and deliver at any time, and from time to time, upon
demand by Landlord, such documents as may be required to effectuate such
subordination, and in the event that Tenant shall fail, neglect or refuse to
execute and deliver any such documents to be executed by it within ten (10) days
after Landlord's request, Tenant hereby irrevocably appoints Landlord, its
successors and assigns, the duly authorized attorney-in-fact of Tenant to
prepare, execute and deliver any and all such documents for and on behalf of
Tenant. Tenant agrees and acknowledges that the foregoing power of attorney is
coupled with an interest.
SECTION 17
ASSIGNMENT AND SUBLETTING
17.1 Except for an assignment to a wholly owned subsidiary of Tenant,
Tenant shall not assign, mortgage, pledge, hypothecate or encumber this Lease
nor the leasehold estate hereby created or any interest herein, or sublet the
Premises or any portion thereof, or license the use of all or any portion of the
Premises without the prior written consent of Landlord. The restriction or
limitation on use of the Premises shall continue to apply to any subtenant or
assignee hereunder. Any consent by Landlord to any act requiring consent
pursuant to this Section shall not constitute a waiver of the necessity for such
consent to any subsequent act.
Tenant shall pay all costs, expenses and reasonable attorneys' fees that may
incurred or paid by Landlord in processing, documenting or administering any
request of Tenant for Landlord's consent required pursuant to this Section. If
Tenant is a corporation which is not publicly traded or a partnership or other
legal entity, the issuance of any additional stock and/or the transfer,
assignment or hypothecation of any stock or interest in such corporation or
partnership or other legal entity in the aggregate in excess of twenty-five
percent (25%) of such interests shall be deemed an assignment within the meaning
of the Section 17.
17.2 In the absence of an express agreement in writing to the
contrary, executed by Landlord, no assignment, mortgage, pledge, hypothecation,
encumbrance, subletting or license hereof or hereunder shall act as a release of
Tenant from any of the provisions, covenants and conditions of this Lease on the
part of tenant to be kept and performed.
SECTION 18
INSOLVENCY AND DEATH
18.1 It is understood and agreed that neither this Lease nor any
interest herein or hereunder, nor any estate hereby created in favor of Tenant,
shall pass by operation of law under any state or federal insolvency, bankruptcy
or inheritance act, or any similar law now or thereafter in effect, to any
trustee, receiver, assignee for the benefit of creditors, heirs, legatees,
devisees, or any other person whomsoever without the prior written consent of
Landlord.
- 16 -
<PAGE> 17
SECTION 19
RECORDS AND BOOKS OF ACCOUNT
19.1 Tenant and any other person, firm or corporation selling
merchandise or service in, upon or from the Premises or any part thereof shall
keep and maintain complete, accurate and customary records and books of account
of all sale and all business transactions made in, upon or from the Premises and
the same shall be retained intact for a period of not less than three (3) years
after the end of the fiscal year to which said records and books of account
pertain. Landlord shall be entitled at all reasonable times during business
hours, through Landlord's duly authorized agents, attorneys, or accountants, to
inspect and make copies of any and all such records and books of account,
together with any and all other records and documents in any way bearing on
Tenant's Gross Sales.
19.2 Landlord shall be entitled at any time to cause an audit to be
made by any person authorized by Landlord of all records and books of account
required to be kept hereunder, and if such audit discloses that Tenant's Gross
Sales as previously reported for the period audited were understated, Tenant
shall immediately pay to Landlord the additional Percentage Rental due for the
period audited, together with interest thereon at a rate equal to the prime rate
of interest last ascertained by the Commissioner of Financial Institutions of
the State of Nevada pursuant to Nevada Revised Statutes 99.040, plus five
percent (5%) on such shortage of rental from the time such rental became due. If
such shortage was in excess of three percent (3%) of the Percentage Rental due
as disclosed by such audit, Tenant shall immediately pay to Landlord the cost of
such audit. If such shortage was in excess of five percent (5%) of said actual
Percentage Rental due, in addition to the monies due as provided herein, said
shortage shall, at the option of Landlord, terminate this Lease.
SECTION 20
RIGHT OF ACCESS
20.1 Landlord and its authorized agents and representatives shall be
entitled to enter the Premises with reasonable notice, or immediately in the
case of an emergency, for the purpose of observing, posting or keeping posted
thereon notices provided for hereunder, and such other notices as Landlord may
deem necessary or appropriate; for the purpose of inspecting the Premises; for
the purpose of exhibiting the Premises to prospective purchasers or lessees; and
for the purpose of making repairs to the Premises or the Property and performing
any work upon the Premises which Landlord may elect or be required to make.
SECTION 21
ESTOPPEL CERTIFICATE
21.1 Tenant agrees that within ten (10) days of any demand therefore
by Landlord, Tenant will execute and deliver to Landlord a certificate stating
that this Lease is in full
- 17 -
<PAGE> 18
force and effect without amendment, or if amended attaching a copy thereof to
the certificate, the date to which all rentals have been paid, any defaults or
offsets claimed by Tenant and such other information concerning the Lease, the
Premises or Tenant as Landlord may request. In the event Tenant shall fail to
execute, acknowledge and/or deliver said certificate within said ten (10) days,
Tenant hereby irrevocably appoints Landlord. its successors and assigns, as
Tenant's attorney-in-fact for the purpose of preparing, executing and delivering
said certificate for and on behalf of Tenant. Tenant agrees and acknowledges
that the foregoing power of attorney is coupled with an interest.
SECTION 22
EXPENDITURES BY LANDLORD
22.1 Whenever under any provision of this Lease, Tenant shall be
obligated to make any payment or expenditure, or to do any act or thing, or to
incur any liability whatsoever, and Tenant fails, refuses or neglects to perform
as herein required, Landlord shall be entitled, but shall not be obligated, to
make any such payment or to do any such act or thing, or to incur any such
liability, all on behalf of and at the cost and for the account of Tenant. In
such event, the amount thereof with interest thereon at a rate equal to the
prime rate of interest last ascertained by the Commissioner of Financial
Institutions of the State of Nevada pursuant to Nevada Revised Statutes 99.040,
plus five percent (5%) shall constitute and be collectable as additional rent on
demand.
SECTION 23
DEFAULT
23.1 Tenant's compliance with each and every covenant and obligation
hereof on its part to be performed is a condition precedent to each and every
covenant and obligation of Landlord hereunder. Tenant shall be in default of
this Lease if:
(a) Tenant shall fail to make timely and full payment of any sum
of money required to be paid hereunder and such failure shall continue for ten
(10) days (without requirement of notice);
(b) Tenant shall fail to perform any other term, covenant or
condition of Tenant contained in this Lease, and such failure continues for ten
(10) business days after written notice thereof from Landlord; provided,
however, that if correction is impossible to correct within ten (10) business
days Tenant shall not be deemed in default if Tenant commences correction within
said twenty (20) business day period, and diligently pursues such correction to
completion;
(c) Tenant should vacate or abandon the Premises or cease
operations during the term of this Lease;
(d) There is filed any petition in bankruptcy or Tenant is
adjudicated a bankrupt or insolvent, or there is appointed a receiver or trustee
to take possession of
- 18 -
<PAGE> 19
Tenant or of all or substantially all of the assets of Tenant, or there is a
general assignment by Tenant for the benefit of creditors, or any action is
taken by or against Tenant under any state or federal insolvency or bankruptcy
act, or any similar law now or hereafter in effect;
(e) Notwithstanding anything to the contrary contained above, if
Tenant shall breach any covenant hereof, or do or permit, or omit to do, any act
or thing, which results in a nuisance or an offensive or illegal condition, or
which causes or threatens serious damage or injury to life, limb or property, or
in the event of a breach of Sections 3.4, 13.1, 13.2, 17.1 or 18.1, then and in
any such event, Tenant shall be automatically in default of this Lease, without
any requirement of notice from Landlord, unless Landlord waives such default, in
writing, in Landlord's sole discretion.
23.2 In the event of a default, in addition to any other rights or
remedies provided for herein or at law or in equity, Landlord, at its sole
option, shall have the following rights:
(a) The right to declare the term of this Lease ended and to
re-enter the Premises and take possession thereof, and to terminate all of the
rights of Tenant in and to the Premises;
(b) The right, without declaring the term of this Lease ended,
to re-enter the Premises and to occupy and/or relet the same, or any portion
thereof, for and on account of Tenant, applying any monies received first to the
payments of such expenses as Landlord may have incurred in recovering possession
of the Premises, including without limitation, costs and attorneys' fees, and
then to the fulfillment of the covenants of Tenant. Landlord may enter into any
lease concerning the Premises either in Landlord's name or in the name of
Tenant, or assume Tenant's interest in and to any existing subleases of the
Premises, as Landlord may see fit, and Tenant shall have no right whatsoever to
collect any rent from such tenants or subtenants. In any case, Tenant, until the
end of what would have been the term of the Lease, shall remain liable to
Landlord for the Monthly Minimum Rent hereunder, less the net proceeds for said
month, if any, of any reletting, after deducting all of Landlord's expenses in
connection with such reletting, together with interest thereon at the rate of
twelve percent (12%) per annum, compounded monthly. Landlord reserves the right
to bring such actions for the recovery of any deficits remaining unpaid by
Tenant to Landlord hereunder as Landlord may deem advisable from time to time
without being obligated to await the end of the term hereof or a final
determination of Tenant's account and the commencement or maintenance of one or
more actions by Landlord in this connection shall not bar Landlord from bringing
any subsequent actions for further accruals pursuant hereto;
(c) The right, even thought it may not relet all or any portion
thereof of the Premises, to thereafter at any time terminate this Lease, and to
terminate all of the rights of Tenant in and to the Premises. Landlord can
terminate Tenant's right to possession of the Premises at any time. On
termination, Landlord has the right to recover from Tenant;
- 19 -
<PAGE> 20
(i) The worth, at the time of the award of the unpaid rent that
had been earned at the time of termination of this Lease;
(ii) The worth, at the time of the award of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Lease until the time of award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided;
(iii) The worth at the time of the award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
(iv) Any other amount, and court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
(d) Pursuant to its rights of re-entry, Landlord may, but shall not
be obligated to (i) remove all persons from the Premises, (ii) remove all
property therefrom, and (iii) enforce any rights Landlord may have against said
property or store the same in any warehouse or elsewhere at the cost and for the
account of Tenant. Tenant agrees to hold Landlord free and harmless of any
liability whatsoever for the removal and/or storage of any such property,
whether of Tenant or any third party whomsoever;
(e) Anything contained herein to the contrary notwithstanding,
Landlord shall not be deemed to have terminated this Lease or the liability of
Tenant to pay any rent or other sum of money accruing hereunder, by any such
re-entry, or by any action in unlawful detainer or otherwise to obtain
possession of the Premises, unless Landlord shall specifically notify Tenant in
writing that it has so elected to terminate this Lease.
23.3 In any action brought by Landlord to enforce any of its rights
under or arising from this Lease, Landlord shall be entitled to receive its
costs and legal expenses, including reasonable attorneys' fees, whether such
action is prosecuted to judgment or not.
23.4 The waiver by Landlord of any breach of this Lease by Tenant
shall not be a waiver of any preceding or subsequent breach of this Lease by
Tenant. The subsequent acceptance of rent or any other payment hereunder by
Landlord shall not be construed to be a waiver of any preceding breach of this
Lease by Tenant. No payment by Tenant or receipt by Landlord of a lesser amount
than the rent herein provided shall be deemed to be other than on account of the
earliest rent due and payable hereunder.
SECTION 24
MISCELLANEOUS
24.1 Tenant, upon paying the rentals and other payments herein
required and upon performance of all of the terms, covenants and conditions of
this Lease on its part to be
- 20 -
<PAGE> 21
kept, may quietly have, hold and enjoy the Premises during the term of this
Lease without any disturbance from Landlord or from any other person claiming
through Landlord, except as expressly provided otherwise in this Lease.
24.2 In the event of any sale or exchange of the Premises by Landlord,
Landlord shall be, and is, hereby relieved of all liability under and all of its
covenants and obligations contained in or derived from this Lease. Tenant agrees
to attorn to such purchaser or transferee. Any sale of the Property or the
Premises by Landlord shall be subject to this Lease.
24.3 It is agreed that in the event Landlord fails or refuses to
perform any of the provisions, covenants or conditions of this Lease, Tenant,
prior to exercising any right or remedy Tenant may have against Landlord, shall
give written notice to Landlord of such default, specifying in said notice the
default with which Landlord is charged and Landlord shall not be deemed in
default if the same is cured within twenty (20) days of receipt of said notice.
Notwithstanding any other provision hereof, Tenant agrees that if the default is
of such a nature that the same can be rectified or cured by Landlord, but cannot
with reasonable diligence be rectified or cured within said twenty (20) day
period, then such default shall be deemed to be rectified or cured if Landlord
within said twenty (20) day period shall commence the rectification and curing
thereof and shall continue thereafter with all due diligence to cause such
rectification and curing to proceed.
24.4 Neither party shall be in breach of this Lease if it fails to
perform as required hereunder due to labor disputes, civil commotion, war,
warlike operation, sabotage, governmental regulations or control, fire or other
casualty, inability to obtain any materials, or other causes beyond such party's
reasonable control (financial inability excepted); provided, however, that
nothing contained herein shall excuse Tenant from the prompt payment of any rent
or charge required of Tenant hereunder.
24.5 Any and all notices and demands required or desired to be given
hereunder shall be in writing and shall be validly given or made if served
personally, delivered by a nationally recognized overnight courier service, or
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested, to the following addresses:
If to Landlord: Bally's Las Vegas
3645 Las Vegas Blvd. South
Las Vegas, Nevada 89109
Attn: David Arrajj
Vice President and General Counsel
If to Tenant: United Restaurants, Inc.
1990 Westwood Boulevard, Penthouse
- 21 -
<PAGE> 22
Los Angeles, California 90025
Attn: Harry Shuster
President
Either party may change its address for the purpose of receiving notices by
providing written notice to the other.
24.6 The various rights, options, elections and remedies of Landlord
contained in this Lease shall be cumulative and no one of them shall be
construed as exclusive of any other, or of any right, priority or remedy allowed
or provided for by law and not expressly waived in this Lease.
24.7 The terms, provisions, covenants and conditions contained in this
Lease shall apply to, bind and inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, legal representatives,
successors and assigns, as permitted in Section 17 hereof.
24.8 If any term, covenant or condition of this Lease, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void or unenforceable, all terms, covenants and conditions of this
Lease, and all applications thereof, not held invalid, void or unenforceable,
shall continue in full force and effect and shall in no way be affected,
impaired or invalidated thereby.
24.9 Time is of the essence of this Lease and all of the terms,
covenants and conditions hereof.
24.10 This Lease contains the entire agreement between the parties and
cannot be changed or terminated orally.
24.11 Nothing contained herein shall be deemed to create any
partnership or other relationship between Landlord and Tenant other than the
relationship of Landlord and Tenant.
24.12 The captions are descriptive only and for convenience in
reference to this Lease and no way whatsoever define, limit or describe the
scope or intent of this Lease nor in any way affect this Lease.
24.13 The laws of the State of Nevada shall govern the validity,
construction, performance and effect of this Lease.
24.14 In the event Tenant now or hereafter shall consist of more than
one person, firm or corporation, then and in such event, all such persons, firms
or corporation shall be
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<PAGE> 23
jointly and severally liable as Tenant hereunder.
24.15 This Lease may not be recorded without Landlord's prior written
consent. If Tenant records this Lease without said consent, Tenant shall be in
default hereof.
24.16 All necessary corporate or partnership actions have been taken to
authorize the individuals signing this Lease on behalf of the respective parties
to do so.
24.17 In any action brought by Landlord to enforce any of its rights
under or arising from this Lease, Landlord shall be entitled to receive its
costs and legal expenses including reasonable attorneys' fees, whether such
action is prosecuted to judgment or not. In any action brought by Tenant to
enforce any of its rights under or arising from this Lease in which Tenant shall
be the prevailing party, Tenant shall be entitled to receive its costs and legal
expenses including reasonable attorneys' fees. The 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 whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Leased Property, and/or
any claim of injury or damage. In the event Landlord commences any proceedings
for nonpayment of any rent, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceedings. This shall not, however,
be construed as a waiver of the Tenant's right to assert such claims in any
separate action or actions brought by Tenant. The parties hereto covenant and
agree that Landlord shall have no duty to mitigate damages arising in any way
out of Tenant's failure to comply with any term, condition or covenant of this
Lease.
IT WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above-written.
"Landlord" "Tenant"
BALLY'S GRAND, INC. UNITED RESTAURANTS, INC.
a Delaware corporation a Delaware corporation
By: /s/ David Arrajj By: /s/ Harry Shuster
------------------------------ --------------------------------
David Arrajj Harry Shuster
Vice President and General President
Counsel
- 23 -
<PAGE> 1
EXHIBIT 10-21
GRAND HAVANA ENTERPRISES, INC.
1990 Westwood Boulevard, Penthouse
Los Angeles, California 90025
September 16, 1997
Mr. James Franklin
IPO Consultants, Inc.
6265 Greenwich Drive, Suite 250
San Diego, California 92122
Re: Consulting Agreement
Dear Mr. Franklin:
The purpose of this letter is to set forth the terms of
the agreement reached between Grand Havana Enterprises, Inc.
("GHE") and IPO Consultants, Inc. ("IPO") regarding the rendering
of consulting services to GHE.
IPO has agreed that, for a period of one (1) year from the date
of this letter, from time to time and only upon the request of GHE, IPO shall
render consulting services to GHE in the areas of investor relations, public
relations and corporate financing.
The aforesaid services shall be rendered only if so requested by
GHE during said one (1) year period. Upon such request(s), IPO shall make James
F. Franklin available in order to render such services. GHE agrees that, in no
event, shall IPO and/or Franklin be obligated to spend more than 20 hours in any
30-day period.
Any expenses incurred by IPO in connection with the aforesaid
services must first be approved in writing by GHE. Neither IPO nor any other
person or entity shall have the right to bind or commit GHE to any agreement or
obligation without the prior written consent of GHE.
In the event that, in connection with the services to be rendered
hereunder by IPO, IPO shall come into possession of confidential or proprietary
information relating to GHE, IPO agrees not to disclose or disseminate to any
other person any of such confidential information without the prior written
approval of GHE.
IPO agrees to use its best efforts in rendering its services to
GHE hereunder.
<PAGE> 2
Mr. James Franklin
September 16, 1997
Page 2
In consideration for IPO entering into this agreement, GHE shall
issue to IPO 50,000 shares of GHE's common stock. Said shares are "restricted
securities" and may not be transferred or sold in violation of any federal or
state securities laws. In the event that, prior to September 1, 1998, GHE files
a Form S-3 or Form S-8 Registration Statement with the Securities and Exchange
Commission, GHE agrees to include the aforesaid 50,000 shares.
If the foregoing meets with your approval, kindly execute and
return a copy of this letter.
Very truly yours,
GRAND HAVANA ENTERPRISES, INC.
By: /s/ Harry Shuster
-------------------------------
Harry Shuster, President
THE FOREGOING IS AGREED TO AND ACCEPTED:
IPO CONSULTANTS, INC.
By: /s/ James Franklin
---------------------------------
James Franklin, President
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF GRAND HAVANA ENTERPRISES, INC.
Each of the following is a 100% owned subsidiary of Grand Havana
Enterprises, Inc.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Love's Enterprises, Inc. California
Grand Havana Room-- Delaware, Inc. Delaware
Grand Havana Room-- New York, Inc. New York
Grand Havana Room-- Washington, Corp. District of Columbia
On Canon, Inc. California
Hopping Jalapeno, Inc. California
Grand Havana Room-- California, Inc.
(formerly, Havana, Inc.) California
Grand Havana House of Cigars
(formerly, Club Havana, Inc.) Delaware
</TABLE>
<PAGE> 1
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference into the (i)
Registration Statement on Form S-3 (No. 333-16045), filed with the Securities
and Exchange Commission on or about November 13, 1996, (ii) the Registration
Statement on form S-3 (No. 333-38125), filed with the Securities and Exchange
Commission on or about October 17, 1997 and (iii) the Registration Statement on
Form S-8 (No. 333- 22719), filed with the Securities and Exchange Commission on
or about March 4, 1997 (collectively, the "Registration Statements"), of our
report, dated December 29, 1997, on our audits of the consolidated financial
statements of Grand Havana Enterprises, Inc. and subsidiaries, contained in the
Annual Report on Form 10-KSB of Grand Havana Enterprises, Inc. for the fiscal
year ended September 28, 1997. We also consent to the reference of our firm
under the caption "Experts" in the Registration Statements.
/s/ Hollander, Gilbert & Co.
Los Angeles, California
January 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE FISCAL YEAR ENDED
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-28-1997
<CASH> 879,461
<SECURITIES> 0
<RECEIVABLES> 389,515
<ALLOWANCES> 307,762
<INVENTORY> 786,168
<CURRENT-ASSETS> 3,480,160
<PP&E> 4,458,734
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,498,834
<CURRENT-LIABILITIES> 3,906,720
<BONDS> 0
0
0
<COMMON> 117,994
<OTHER-SE> 4,474,120
<TOTAL-LIABILITY-AND-EQUITY> 8,498,834
<SALES> 4,416,063
<TOTAL-REVENUES> 5,076,967
<CGS> 5,874,744
<TOTAL-COSTS> 8,088,534
<OTHER-EXPENSES> 248,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266,858
<INCOME-PRETAX> (3,259,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,259,817)
<DISCONTINUED> (536,092)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,795,909)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
