SECURITIES AND EXCHANGE COMMISSION
REPORT ON FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1997
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[ ] Transition Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 0-23136
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COUNTRY STAR RESTAURANTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 62-1536550
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(State of or other jurisdiction of (IRS Employer Identi-
incorporation or organization) fication No.)
4929 Wilshire Boulevard
Los Angeles, California 90010
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: 213/634-5588
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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Issuer's revenues for its most recent fiscal year were $6,279,000.
On April 1, 1998, the aggregate market value of the voting common stock
held by non-affiliates of the Registrant was $1,683,500 based upon the average
of the closing bid and asked price of such common stock as of April 1, 1998,
which was $.195.
The number of shares of the Registrant's common stock outstanding as of
March 31, 1998 was 8,633,415.
No shares of the Registrant's preferred stock were outstanding as of
March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders (the "Proxy Statement") is incorporated by reference in Part III of
this Form 10-K to the extent stated herein. Except with respect to information
specifically incorporated by reference in this Form 10-K, the Proxy Statement is
not deemed to be filed as a part hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Country Star Restaurants, Inc. (the "Company"), which was formed in May
1993, develops, constructs, owns and operates country theme restaurants
combining high quality, moderately priced food with a casual, family-oriented
environment.
In recent years theme restaurants have gained increasing popularity, as
a number of such restaurants featuring a variety of different themes have
opened. The two most popular and well known restaurants of this genre are Planet
Hollywood(R) and Hard Rock Cafe(R), both of which combine an entertainment
component with a casual dining atmosphere. Aside from enhancing the dining
experience, the entertainment component also provides an additional revenue
stream, predominantly from merchandise sales. Patrons of theme restaurants have
evidenced a willingness to purchase souvenir T-shirts, hats, mugs, and other
items bearing the logo and reflecting the lifestyle of the particular theme
restaurant. These retail sales are typically at higher profit margins than food
sales, inclusive of labor costs.
The Company believes that its country theme provides a distinctly
American experience which, combined with its casual, high-quality dining in a
state-of-the-art multimedia environment, is a format with wide demographic
appeal. The Company believes that the country theme is an under-exploited
segment of quality dining in the restaurant industry and will fill a niche in
the casual dining segment of the restaurant industry, and therefore represents
an attractive opportunity for the Company.
The first Country Star(R) Restaurant opened in August 1994 in
Hollywood, California adjacent to Universal Studios Hollywood and the Universal
Citywalk development, a major tourist attraction. Country Star Hollywood
features an exciting, entertaining dining experience, including an extensive
display of country music memorabilia and artifacts, approximately 100 video
monitors, 10 audio listening posts, and a number of interactive audio-video
kiosks. The menu features moderately priced American and country-style food such
as ribs, chili, chicken, burgers, steaks, salad, pizza, fish and desserts, which
was developed to be consistently reproducible domestically and internationally.
Country Star Hollywood also sells a variety of merchandise with the Country Star
logo, including casual clothing, food products and other related items.
The Company opened two additional flagship restaurants: Country Star
Las Vegas commenced operations in July, 1996 and Country Star Atlanta commenced
operations in October, 1996.
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Country Star Atlanta is now permanently closed and no plans for opening any
other restaurants have been finalized.
Unanticipated financial problems arose with respect to both the Las
Vegas and Atlanta restaurants. Operating expenses at both sites substantially
exceeded budget. In addition, the Atlanta restaurant suffered from substantial
construction cost overruns and a delayed opening which prevented the restaurant
from operating during the 1996 Summer Olympics, which were held in Atlanta. By
early 1997, as a result of the mounting losses at the Las Vegas and Atlanta
restaurants, the Company determined that a major overhaul of corporate strategy
was required.
The most significant step taken was a change of management effected on
February 12, 1997, in which Dan Rubin, an investor in the Company, became Chief
Executive Officer and President. Immediately prior to Mr. Rubin assuming office,
a new Board of Directors was appointed to manage the Company. (See "Management's
Discussion and Analysis of Operations - Capital Resources, February 12, 1997
Financing and Change in Control," for a description of the change in management
and the financial terms under which Mr. Rubin made an additional investment in
the Company.)
In order to stem the rising operating losses and put the Company on a
financially solvent course, new management has taken a number of interim and
permanent measures.
First, management permanently closed the Atlanta restaurant and removed
some of its furniture and fixtures during January 1998, with the balance to be
removed on or about May 1998. Although the restaurant was completed and fully
staffed in late 1996, the restaurant has realized extremely limited customer
revenues. Management determined that the continued operation of the restaurant
as an under utilized and unprofitable establishment would only hurt the
Company's opportunities for long term success. (See "Description of Business
Country Star Atlanta.")
Second, the Company sold all of its interest in the restaurant operator
of the Country Star Las Vegas restaurant in December 1997 and entered into a new
lease for the restaurant facility with a reduction in the base rent. The new
lease terminates on September 30, 1998, unless the landlord and the Company
mutually agree in writing to extend the lease on a month-to-month basis. The
Company used the proceeds of the sale of $1,550,000 for working capital and
repayment of indebtedness. (See "Description of Business - Country Star Las
Vegas.")
Third, management has determined that the best strategy for expansion
will be through joint ventures and licensing arrangements under which additional
Country Star Restaurants could be opened without the Company being required to
incur
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expensive construction, development and pre-opening costs. Management is seeking
to identify publicly held and private companies that may be interested in
working with the Company on a joint venture or licensing basis.
SETTLEMENT OF TRADE CLAIMS
Management determined that the Company would not be able to pay
existing trade creditors of the Company in full and also realize its strategic
goals. Accordingly, starting in March 1997 the Company made offers to all
creditors to settle their outstanding claims by accepting forty cents for every
dollar owed. Management pointed out to its creditors that the settlement was far
more favorable to them than the alternative of the Company filing a voluntary
bankruptcy proceeding.
The Company was successful in settling the majority of the trade
claims, including the claims of the then landlord of the Las Vegas facility and
the claims of the general contractor and certain subcontractors relating to the
construction of the Las Vegas facility. In some instances, the Company paid off
trade debt through the issuance of common stock.
The only trade creditor holding a claim in excess of $25,000 with whom
the Company has not reached a settlement is Pacific Southwest Development, Inc.
("PSD"). (See Item 3, "Litigation.")
During 1997, the Company recognized extraordinary gains totaling
$1,673,629 on the settlement of trade claims in exchange for discounted cash
payments and common stock issuances.
The Company's trade claims settlement has not materially affected the
Company's ability to obtain supplies at reasonable prices and on reasonable
terms. The Company has selected new suppliers when appropriate and has worked
out acceptable credit and payment terms with existing suppliers for them to
continue doing business with the Company.
COUNTRY STAR HOLLYWOOD
Country Star Hollywood is approximately 18,000 square feet in size,
4,000 of which is a partially enclosed outdoor patio, and has approximately 325
seats inside the restaurant and approximately 150 seats outside on an enclosed
patio. One of Country Star Hollywood's dining areas also features a fully
operational stage which is prewired for stage monitors and microphones, has
theatrical lighting and two television cameras. Country Star Hollywood offers a
wide range of moderately priced food in the Company's distinctive, exciting,
interactive country music environment. Entrance to Country Star Hollywood is
through a forty-two foot-high computer-driven electronic sign in the form of a
jukebox in front of which the Country Star line dancers regularly perform.
Country Star Hollywood's menu features basic,
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but varied, American fare, such as ribs, chili, chicken, burgers, steaks, salad,
pizza, fish and desserts and has a separate bar area and a number of separate
dining areas, all of which feature full waiter and bar service and revolve
around various country music artifacts and/or artists. Country Star Hollywood is
designed to allow diners to be surrounded by the various artifacts, memorabilia,
photographs and audio-visual materials. Country Star Hollywood's extensive
display of artifacts relating to country music and its heritage is combined with
a state-of-the-art multimedia environment.
The Company has recently completed the construction of a dance floor
and bar in its patio area. The Company expects the patio area to serve as a
venue for country music promotions, parties sponsored by local radio station
KZLA and other events.
Country Star Hollywood features interactive audio-visual kiosks, which
can be accessed by a touchscreen, offering short biographies, specially recorded
video interviews and fan club information with respect to country celebrities.
Country Star Hollywood also features approximately 100 video monitors and 10
audio listening posts located throughout the restaurant. The audio listening
posts, which can be accessed by listening to an attached headset, are dedicated
to different record labels and feature a recently released country music CD by a
recording artist who is signed to the particular label.
Country Star Hollywood also has a merchandise store that sells a
variety of casual clothing such as T-shirts, sweat shirts, jackets and baseball
caps bearing the Country Star Restaurant logo, other Country Star logo
merchandise such as coffee mugs, belt buckles, tote bags, pins, the Company's
food products and other selected merchandise. The Company has begun to emphasize
the sale of higher volume and higher gross profit merchandise.
COUNTRY STAR LAS VEGAS
Country Star Las Vegas opened on the "Strip" in Las Vegas in July,
1996, and is one of the largest free standing upscale dining establishments in
Las Vegas. The restaurant is an approximately 20,000 square foot, 500 seat,
facility located in Las Vegas near the intersection of Las Vegas Boulevard South
and Harman Avenue. The site is situated between the Boardwalk Hotel and Casino
development, and the Mirage Resorts, Incorporated's Bellagio Hotel and Casino
development, presently under construction and scheduled to open in 1998. Within
the immediate area of Country Star Las Vegas there are over 30,000 hotel rooms.
The Company believes that Las Vegas' strong tourist economy and growing
population represents a market that should be particularly receptive to the
Company's country music theme dining concept. [See Part II - Item 6
"Management's Discussion and Analysis Liquidity and Capital Resources -
Development Financing."]
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The Country Star Las Vegas restaurant was owned by a Nevada limited
liability company (the limited liability company is referred to herein as the
"Restaurant Operator"). The Company was the manager of and held the majority
interest in the Restaurant Operator. The other members of the Restaurant
Operator were Cirrus, Cirrus LLC ("Cirrus"), a Delaware limited liability
company and NevStar LLC ("NevStar"), a Nevada limited liability company. NevStar
was also the landlord of the restaurant's leased facility.
The restaurant suffered operating losses since its opening primarily as
a result of customer revenues falling below expectations and unanticipated
expenses.
The Company was in arrears in the payment of October, November and
December, 1997 rent due under the lease.
NevStar, as Landlord of the restaurant facility served a notice which
purported to terminate the lease as of December 22, 1997 for non-payment of
rent. The Landlord agreed not to take any actions to terminate the lease prior
to December 24, 1997. Management of the Company negotiated with NevStar as
Landlord for an agreement under which the Landlord would buy out the remaining
term of the lease.
Management was unable to reach an agreement with NevStar as Landlord
regarding a buy out of the lease and NevStar as Landlord would not agree to
delay its termination of the lease beyond December 24, 1997. The Company then
commenced a federal bankruptcy proceeding against the Restaurant Operator in
order to preserve the remainder of the lease and the rights thereunder as an
asset of the Restaurant Operator. Such a bankruptcy proceeding had to be
commenced before the legal termination of the lease in order for the lease and
the rights thereunder to remain an asset of the Restaurant Operator.
The Company, NevStar as Landlord and the other members of the
Restaurant Operator reached a settlement of their disputes and the bankruptcy
proceeding. Under the terms of the settlement, all of the following transactions
closed simultaneously.
The Company purchased the interest of Cirrus in the Restaurant Operator
for aggregate consideration of $200,000 cash and 225,000 shares of the Company's
common stock. The Company agreed to file a registration statement permitting the
resale of the shares.
(Prior to the settlement, Mirage Resorts, Inc. ("Mirage") a Nevada
corporation, through an affiliate, Restaurant Ventures of Nevada, Inc. ("RVNI")
purchased NevStar from its owners, thereby acquiring NevStar's interests as
Landlord of the restaurant facility and as a member of the Restaurant Operator.)
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The Company sold all of its interest in the Restaurant Operator,
including the interest purchased from Cirrus, to Mirage for consideration of
$1,550,000 cash. Mirage became the holder of all of the interests in the
Restaurant Operator. The Company agreed to pay when due all of the trade
payables of the Restaurant Operator and resigned as manager of the Restaurant
Operator.
RVNI agreed to a new lease of the restaurant facility directly to the
Company. The new lease took effect on February 8, 1998 upon dismissal of the
bankruptcy proceeding commenced by the Restaurant Operator. The new lease
includes the provisions of the prior lease to Restaurant Operator with certain
modifications. The modifications include a reduction in the base rent payable
from $83,334 per month to an amount equal to one-half (1/2) of the Company's
positive cash flow from operating the restaurant (with no reduction for the
Company's corporate overhead expenses other than for salary and employee related
expenses for 1/2 of an accounts payable employee, 1/2 of a payroll employee and
1/2 of an executive chef). All arrearages currently due under the prior lease
will be waived. The new lease shall terminate on September 30, 1998, unless RVNI
and the Company mutually agree in writing to extend the lease on a
month-to-month basis.
The Company, Mirage and the Restaurant Operator jointly sought the
dismissal of the Restaurant Operator's bankruptcy proceeding. The proceeding was
dismissed on February 8, 1998.
The Company used the net proceeds from the sale of its interest in the
Restaurant Operator to Mirage for working capital and repayment of indebtedness.
Country Star Las Vegas, although based on the Country Star Hollywood
model, has more advanced technology for video and audio presentations and
productions. This location has also enjoyed more appearances by country music
and rodeo celebrities than the Los Angeles restaurant. Since the installation of
Dan Rubin as President on February 12, 1997, Country Star Las Vegas has
undergone an overhaul of restaurant management and operating procedures. All
costs, including, but not limited to event labor, management labor, food and
merchandise purchasing, have been put under strict control, and brought within
acceptable industry standards.
COUNTRY STAR ATLANTA
The Company's restaurant in Atlanta was the subject of litigation with
the Landlord of the facility since April 1997. In this litigation, the Landlord
sought to have the restaurant turned over to it on the grounds that the Company
was holding over in the premises beyond the term for which they were leased. The
Company defended the action vigorously. The Company
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contended that many of the Landlord's allegations of default were false, that
others which were not false have been cured and that others were directly caused
by the Landlord's bad faith in performing its obligations under the lease. The
Company also contended that the Notice which purported to terminate the Lease
was defective. Rental payments under the lease had been prepaid through December
31, 1997. Additional rent in the amount of $62,500 per month were due and
payable commencing January 1, 1998. The Company did not have the cash available
to make the January rental payment.
In light of the defaults alleged in the litigation and the imminent
default of the payment of the January 1998 rent, the Company determined to agree
to a settlement of the dispute with the Landlord of the Atlanta facility. Under
the terms of the settlement, the Company removed some of its fixtures and
equipment from the premises during January 1998 with the balance to be removed
on or about May 1998. The Landlord forgave all past due rents and additional
rent. Under the terms of the settlement, the Landlord and the Company will
pursue claims against the architect and construction company that designed and
built the restaurant facility for negligent design and construction, and related
causes of action. The Landlord will advance the legal fees required to pursue
these actions.
In taking these actions, Management of the Company has recognized that
the development, completion and opening of the Atlanta restaurant as envisioned
by prior management was an unsound business decision. The restaurant never
realized the revenues necessary to support its operations. Under the terms of
the settlement, Management will no longer be required to spend valuable assets
trying to establish a facility that has been performing poorly since it
commenced operations. Moreover, the plan to bring legal actions against the
construction company and the architect who designed the facility for major
construction defects could eventually result in a recovery of damages for the
Company. (See "Litigation - Atlanta Default.")
THE COMPANY'S STRATEGY
The Company has no present expansion plans, although the Company may
explore non-capital intensive ways of promoting the Company's business, such as
licensing agreements, joint ventures and other opportunities. Such expansions
may include off-site catering of parties and at music venues or the
establishment of limited menu restaurants in food courts located throughout the
United States and in foreign locations. The Company may seek to pay for its
portion of any such expansion by issuing shares of its Common Stock. It is
anticipated that any of the future Country Star Restaurants, although modeled
after its flagship Country Star Restaurants, will be smaller and less expensive
to construct. The Company will seek to leverage the recognition and publicity
achieved by its flagship Country Star Restaurants to
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support its smaller Country Star Restaurants. The Company believes that the
reduced scale of these smaller Country Star Restaurants will result in lower
overall costs to develop, construct and open.
One of the Company's key priorities in the near term is to inject new
excitement into the Company's restaurant business in order to stimulate greater
customer traffic. The Company plans to increase the frequency of celebrity
events and promotions and broaden the number of celebrities associated with the
Company, with an emphasis on new, up-and-coming stars. In addition, the Company
is taking steps to broaden the appeal of its restaurants through menu revisions,
the acceptance of reservations in certain markets and greater promotion of group
sales, in order to attract more local residents to augment the Company's
primarily tourist customer base.
The Company is presently exploring a number of potential opportunities
to increase revenues at the Las Vegas restaurant, including targeted advertising
and promotions directed to guests staying in hotels without significant on-site
restaurant capacity, the possibility of serving as a venue for a dinner show
and/or cocktail show, and the development of more substantial business through
the Company's existing contacts in the tour and travel industry.
The Company is seeking to increase its name brand recognition and
establish a secondary meaning in the marketplace for Country Star Restaurants.
The Company believes that this will have a favorable impact on the Company's
business operations, particularly with respect to merchandise sales and may open
up the opportunity for sale of certain food products for distribution to
customers through retail channels as well as at restaurant sites. By emphasizing
the high quality of its food and offering an exciting entertainment dining
experience, the Company believes that it will be able to appeal to a broad
consumer base, and specifically those individuals who patronize theme
restaurants.
In light of the Company's personnel reduction, particularly in its
corporate office, the elimination of costs associated with the Atlanta
restaurant, and management's belief that the marketing initiatives described
above represent the best way to increase customer traffic at the lowest possible
cost, management believes that the Company can attain profitable operations.
RESTAURANT OPERATING SYSTEMS
To ensure the quality and consistency of the Company's food items, the
Company has an executive chef who has oversight responsibility for the menu and
has taken measures to distinguish and ensure the high quality of the food served
at the Company's
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restaurants. For example, to ensure the high quality and consistency of the
Company's various barbecued rib entrees, the Company has developed its own line
of barbeque sauces which is produced at a centralized location and purchases all
of its ribs from one quality Midwestern packing house. The Company negotiates
directly with large, centralized suppliers of various food and beverage products
to ensure consistent quality, freshness and to obtain competitive prices.
Kitchens in the Country Star Restaurants are designed for efficiency of work
flow and to minimize the amount of kitchen space required.
The Company's sophisticated, state-of-the-art multimedia systems
located throughout its restaurants are operated by the Company's specialized
software, which can be replicated readily for other Country Star Restaurants.
The Company has a training program for all Country Star Restaurant
personnel and a uniform standard of operations relating to food and beverage
preparation, maintenance of facilities and conduct of personnel.
SITE SELECTION
The choice of site location for each Country Star Restaurant is
extremely important to the potential success of the particular establishment. As
a consequence, prior management used to devote a significant amount of time and
capital in analyzing each prospective site. A variety of factors were considered
in the site selection process, including, but not limited to, local
demographics, tourism, site visibility and accessibility, pedestrian and
vehicular traffic flow, proximity to significant generators of potential
customers, such as retail centers, convention centers, office complexes, hotels
and entertainment facilities, such as stadiums, arenas and theaters.
Present management may rely on third parties and commissioned brokers
for site recommendations.
ARTIFACTS AND MEMORABILIA
The Company independently acquires and/or leases artifacts and
memorabilia relating to country music and its heritage from a variety of
sources, such as country music artists and clothing designers, which are
currently on display at the Company's restaurants.
The Company has been able to readily locate and obtain country music
artifacts and memorabilia at a reasonable expense from a variety of sources,
including recording companies, artists and others involved in country music and
is not dependent on any one source for locating and obtaining country music
artifacts and memorabilia. The Company believes this will continue to be true
for the foreseeable future.
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COMPETITION
The casual dining restaurant industry is intensely competitive with
respect to price, service, location, themes and food quality. There are many
casual theme dining restaurant competitors of the Company, such as Planet
Hollywood(R), Hard Rock Cafe(R) and the Rain Forest Cafe, that are better
established and have substantially greater financial and other resources than
the Company. Similarly, the restaurant field is quite broad and many of the
Company's other competitors have been in existence for a substantially longer
period of time and may be better established in those markets where the Company
intends to open restaurants. Additionally, the restaurant business is often
affected by changes in consumer taste, national, regional and local economic
conditions, demographic trends, traffic patterns, and the number and location of
competing restaurants. In addition, there are factors that are not within the
Company's or any competitor's control, such as inflation and increased food,
labor and benefit costs, which may have an impact on the restaurant industry in
general and the Company in particular. There can be no assurances that the
Company will be able to withstand the competitive and other external pressures
of the restaurant business.
The Company also competes with a wide range of establishments in
attempting to identify and secure desirable locations. The Company presently
intends to lease all of its sites. Although the Company believes that it will be
able to locate additional suitable sites, there can be no assurance that such
sites will be available or viable or on economic terms acceptable to the
Company.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws
affecting its business. Each of the Company's restaurants will be subject to
licensing regulation by numerous governmental authorities, which may include
alcohol beverage control, building, health and safety, and fire agencies in the
state or municipality in which the restaurant is located. Difficulties in
obtaining or failures to obtain the necessary licenses or approvals could delay
or prevent the development of a new restaurant in an area.
Alcoholic beverage control regulations in each state require that the
Company's restaurant apply to the specific state authority and, in certain
locations, county and municipal authorities for a license or permit to sell
alcoholic beverages on the premises and to provide service for extended hours
and on Sundays. Typically, an alcoholic beverage license must be renewed
annually and may be revoked or suspended for cause at any time. Alcohol beverage
control regulations relate to numerous aspects of the daily operations of the
Company's restaurants,
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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 failure of a restaurant to obtain or retain a liquor
or food service license would adversely affect that particular restaurant's
operations.
Restaurants in most states are subject to "dram shop" laws and
legislation, which typically impose liability on licensed alcoholic beverage
servers for injuries or damages caused by their negligent service of alcoholic
beverages to a visibly intoxicated person or to a minor, if such service is the
proximate cause of the injury or damage and such injury or damage is reasonably
foreseeable. The Company maintains liquor liability insurance as part of its
existing comprehensive general liability insurance, which it believes to be
adequate to protect against such liability, although there can be no assurance
that it will not be subject to a judgment in excess of such insurance coverage
or that it will be able to continue to maintain such insurance coverage or that
it will be able to continue to maintain such insurance coverage at reasonable
costs. The imposition of a judgment substantially in excess of the Company's
insurance coverage would have a material adverse effect on the Company. In the
event that such insurance coverage were to become unavailable in the future, it
could materially and adversely affect the Company.
The Company does not presently intend to install and operate any slot
machines for its own account in Country Star Las Vegas. In the event the Company
were to decide in the future to install and operate any slot machines in Country
Star Las Vegas for its own account, it would first be required to obtain the
necessary gaming approvals from the appropriate regulatory authorities in the
State of Nevada. The ownership and operation of casino gaming facilities and
slot machine routes in Nevada and the manufacture and distribution of gaming
devices in Nevada are subject to licensing and regulatory control by the Nevada
State Gaming Control Board (the "Nevada Board"), the Nevada Gaming Commission
(the "Nevada Commission") and various local, city and county regulatory agencies
(collectively, the "Nevada Gaming Authorities"). Obtaining the necessary
approvals, of which there can be no assurance, is a lengthy and costly process.
INTELLECTUAL PROPERTY RIGHTS
The Company has made such appropriate filings and registrations that it
has deemed appropriate and sufficient in its business judgment to protect the
Company's name in all appropriate categories, and taken such other actions
necessary to obtain and protect all trademarks, copyrights, tradenames,
tradedress and all other intellectual property rights relating to its Country
Star Restaurants, although there can be no assurance that the Company will be
able to effectively protect its rights.
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To date, the Company has been issued a Federal registration for the "Country
Star" trademark for clothing and restaurant services by the United States Patent
and Trademark Office. Third parties may attempt to exercise alleged rights in
any of the trademarks, copyrights or other intellectual property rights, or
appropriate any trademarks, copyrights, or other intellectual property rights
established by the Company, and the Company's failure or inability to establish
appropriate copyrights and trademarks, or to adequately protect any of its
intellectual property rights, may have a material adverse effect on the Company.
EMPLOYEES
As of March 31, 1998, the Company had 83 full-time employees, 13 of
whom were employed in executive and management capacities, 2 in sales and
marketing, 8 in general and administrative capacities, and 60 as restaurant
staff. The Company also employs an additional 61 part-time employees as
restaurant staff. The Company believes that its relations with its employees are
satisfactory.
INDUSTRY SEGMENT INFORMATION
The Company is engaged in one industry segment. Financial information
concerning the Company's business is included and incorporated by reference in
Part II and Part IV of this Form 10-KSB.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases its executive offices of approximately 3,833 square
feet at 4929 Wilshire Boulevard, Suite 428, Los Angeles, California 90010 for a
five year term commencing July 1, 1997. The Company's rent is $5,175 per month
for the first three years of the lease and $5,558 per month for the last two
years of the lease.
The Company presently leases an approximately 18,000 square foot
restaurant (inclusive of an approximately 4,000 square foot enclosed patio that
is contiguous to the restaurant) in Universal City, which is the site of Country
Star Hollywood. Pursuant to this lease, the Company is obligated to pay minimum
rental payments of $250,000 per annum payable in equal monthly installments,
$50,000 per year in parking assessments and $12,000 per year in marketing
expenses and percentage rent ranging from 6% to 10% of the annual sales volume
of Country Star Hollywood; PROVIDED, HOWEVER, that such percentage rent payments
do not commence until such time as the Company has recouped all sums that it has
expended in connection with leasehold improvements made by the Company with
respect to the premises. The lease, which was entered into in January of 1994,
had an initial term of three years and three five-year options, and is subject
to termination by the landlord at any time after May 31, 1997 on nine months'
notice, provided that the lease cannot be terminated by the landlord if the
subsequent tenant is another restaurant or like type user of the premises. The
Company has exercised the first five-year option extending the term trough May
31, 2002, and subject to the foregoing termination right, the Company has the
right to extend the lease beyond May 31, 2002 for two consecutive five-year
terms. Country Star Hollywood seats approximately 475 people, inclusive of the
approximately 150 seats on the enclosed patio.
In February 1995, the Company entered into a ten (10) year lease for an
approximately two (2) acre site located near the intersection of Las Vegas
Boulevard South and Harmon Avenue, for Country Star Las Vegas. The Company's
annual base rent was to be $1,200,000 per annum. The annual rent was to be
increased to $1,400,000 for the third year. For the remaining seven (7) year
term of the lease, the annual rent was to be subject to increases based upon a
cost of living increase; PROVIDED, HOWEVER, that notwithstanding the foregoing,
the annual rent was to be increased during such seven (7) year period by not
less than four percent (4%) and not more than six percent (6%) per year on a
compounded basis.
During December, 1997 the Company sold its interest in the Nevada
limited liability company (the "Restaurant Operator") which owned the restaurant
and entered into a new lease directly with the new owner of the restaurant. (See
"Description of Business-Country Star Las Vegas"). The new lease took effect on
February 8, 1998 upon dismissal of the bankruptcy proceeding
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commenced by the Restaurant Operator. The new lease includes the provisions of
the prior lease to Restaurant Operator with certain modifications. The
modifications include a reduction in the base rent payable from $83,334 per
month to an amount equal to one-half (1/2) of the company's positive cash flow
from operating the restaurant (with no reduction for the Company's corporate
overhead expenses other than for salary and employee related expenses for 1/2 of
an accounts payable employee, 1/2 of a payroll employee and 1/2 of an executive
chef). All arrearages currently due under the prior lease will be waived. The
new lease shall terminate on September 30, 1998, unless the landlord and the
Company mutually agree in writing to extend the lease on a month-to-month basis.
The Company agreed to continue to manage the restaurant under the existing
management agreement until the effective date of the new lease.
ITEM 3. LEGAL PROCEEDINGS.
ATLANTA AND LAS VEGAS LIEN MATTERS
Certain contractors have filed claims of lien against the Company's
Atlanta and Las Vegas restaurants that have not been cleared by the posting of a
bond or any payment. Such claims of lien total approximately $1,200,000. The
Company believes that all of the $1,200,000 represent invalid lien claims,
either because the contractor has already been paid, or because the contractor
did not perform agreed upon services or provide agreed upon materials or because
the liens have been bonded. The Company is pursuing its rights and remedies
against contractors whom it believes have filed invalid lien claims.
CONTRACTOR LITIGATION IN ATLANTA
On February 3, 1998, Pacific Southwest Design, Inc. ("PSD") filed a
suit in Atlanta against the Company claiming damages of $597,659 for failure to
pay amounts due for services rendered. The Company intends to vigorously defend
against this action and has counterclaimed for damages in an undetermined amount
for the contractor's breach of contract and failure to perform workmanlike work
which caused the Company to lose its Atlanta lease.
ATLANTA LEASE DEFAULT
The Company's restaurant in Atlanta was the subject of litigation with
the Landlord of the facility since April 1997. In this litigation, the Landlord
sought to have the restaurant turned over to it on the grounds that the Company
was holding over in the premises beyond the term for which they were leased. The
Company defended the action vigorously. The Company contended that many of the
Landlord's allegations of default were false, that others which were not false
have been cured and that others were directly caused by the Landlord's bad faith
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in performing its obligations under the lease. The Company also contended that
the Notice which purported to terminate the Lease was defective. Rental payments
under the lease had been prepaid through December 31, 1997. Additional rent in
the amount of $62,500 per month were due and payable commencing January 1, 1998.
The Company did not have the cash available to make this January rental payment.
In light of the defaults alleged in the litigation and the imminent
default of the payment of the January 1998 rent, the Company determined to agree
to a settlement of the dispute with the Landlord of the Atlanta facility. Under
the terms of the settlement, the Company removed some of its fixtures and
equipment from the premises during January 1998 with he balance to be removed on
or about May 1998. The Landlord forgave all past due rents and additional rent.
Under the terms of the settlement, the Landlord and the Company will pursue
claims against the architect and construction company that designed and built
the restaurant facility for negligent design and construction, and related
causes of action. The Landlord will advance the legal fees required to pursue
these actions.
TRADE CLAIM LITIGATIONS
A number of creditors have filed actions against the Company for
amounts allegedly owed for services provided or for goods delivered by such
creditors. Such lawsuits seek monetary damages ranging from approximately $1,700
to approximately $52,000 and approximately $125,000 in the aggregate. The
Company disputes certain of those claims and will contest them. The Company is
attempting to settle those claims it does not dispute.
EDWARD TECHNOLOGIES, INC. V. COUNTRY
STAR RESTAURANTS, INC. AND ROBERT SCHUSTER
On or about March 18, 1997, Edwards Technologies, Inc. filed an action
in Superior Court, Los Angeles County against the Company and Mr. Schuster
seeking monetary damages in the amount of approximately $318,000 in respect of
equipment sold to the Company for which the Company had allegedly not paid. On
April 7, 1997, Edwards Technologies, Inc., pursuant to a settlement agreement
with the Company, dismissed the action as against the Company in exchange for
payment of $132,000. Edwards Technologies, Inc. reserved the right to continue
to pursue its claims against Mr. Schuster. The Company may be obligated to
indemnify Mr. Schuster against any judgment obtained by Edwards Technologies,
Inc.
COUNTERCLAIM OF JOE BULAT
The Company commenced an action against Joe Bulat to terminate its
agreement with Mr. Bulat under which he was to provide parking for the Atlanta
restaurant and to recover damages
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for breaches. Mr. Bulat has counterclaimed for damages of $110,000 based on
alleged breaches of the agreement by the Company. The Company believes Mr.
Bulat's counterclaim is meritless.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Commencing on December 15, 1993, the date of the Company's initial
public offering, through April 21, 1995, the Company's Common Stock, par value
$.01 per share (the "Common Stock") and redeemable warrants (the "Redeemable
Warrants") were quoted on the NASDAQ SmallCap Market. On April 21, 1995, the
Redeemable Warrants were redeemed by the Company and delisted from the NASDAQ
SmallCap Market. From November 10, 1995 through May 10, 1997, the Company's 6%
Series A Cumulative Convertible Preferred Stock (the "Preferred Stock"), was
quoted on the NASDAQ National Market. On May 10, 1997 the Convertible Preferred
Stock was automatically converted into Common Stock. This automatic conversion
occurred pursuant to the terms and privileges of the Preferred Stock as adopted
by the Board of Directors of the Company. From November 10, 1995 through March
10, 1998 the Common Stock was quoted on the NASDAQ National Market. From March
11, 1998 to date the Common Stock was quoted on the OTC Bulletin Board. The high
and low bid quotations, on a quarterly basis, for the Common Stock for calendar
years 1996 and 1997 is set forth below. The prices for the Common Stock are
adjusted to reflect a one-for-ten reverse split which became effective February
12, 1998 and all of the prices set forth below reflect inter-dealer prices,
without retail mark up, mark down or commission and may not reflect actual
transactions:
1997 Common Stock
Quoted Bid Price
High Low
------ -------
First Quarter 15 5/8 4 11/16
Second Quarter 7 3/16 3 3/4
Third Quarter 5 5/8 1 1/4
Fourth Quarter 1 9/16 5/32
1996 Common Stock
Quoted Bid Price
High Low
------ -------
First Quarter 37 1/2 18 3/4
Second Quarter 54 3/8 30
Third Quarter 45 5/8 21 1/4
Fourth Quarter 25 5/8 2 3/16
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On April 1, 1998, the closing bid and asked prices of the Common Stock
as reported on the OTC Bulletin Board were $.19 and $.20, respectively.
On April 1, 1998, there were 280 holders of record of Common Stock and
approximately 6,650 beneficial owners of Common Stock.
On March 10, 1998, the National Association of Securities Dealers, Inc.
(the "NASD") delisted the Company's securities from the NASDAQ National Market
because of the Company's failure to meet listing requirements concerning minimum
bid price and market value of public float and advised the Company its
securities may be eligible to trade on the OTC Bulletin Board. The Company will
take all actions reasonably necessary for there to be an active trading market
for its outstanding Common Stock.
No cash dividends have been paid on the Common Stock by the Company and
management does not anticipate paying cash dividends in the foreseeable further.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Financial
Statements and the Notes thereto appearing elsewhere in this Annual Report.
INTRODUCTION
The Company was formed in May of 1993 and, prior to the opening of the
initial Country Star Restaurant on April 2, 1994, did not generate any revenue.
The Company had revenues from Country Star Hollywood in 1995, its first full
calendar year of operations, of approximately $5,200,000. During 1996, the
Company had revenues of approximately $4,200,000 from Country Star Hollywood and
approximately $3,850,000 from its other restaurants, for total revenues of
approximately $8,050,000. During 1997, the Company had revenues of approximately
$3,318,000 from Country Star Hollywood, approximately $2,686,000 from Country
Star Las Vegas, and total revenues of approximately $6,279,000. Total operating
expenses increased from approximately $11,850,000 in 1995, to approximately
$27,637,000 in 1996 and to approximately $24,574,000 in 1997. The increase in
operating expenses during 1996 and 1997 could not be funded by the increase in
revenues. The Company continued to fund its operations by the private sale of
the Company's equity securities. As of December 31, 1997, the Company
anticipated that it would continue to have substantial capital needs that would
not be funded from operations and would continue to need to raise capital
through equity or debt financings.
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New management has been implementing operational changes since February
12, 1997, that it believes will help the Company realize income from operations.
These operational changes include methods of revenue enhancement and reduction
of direct operating costs and corporate overhead. The impact of these changes
will not be realized until the second quarter of calendar year 1998 and
subsequent periods. The Company believes that it will need additional capital to
fund operations until it can obtain profitability.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1997, revenues of the Company decreased
from approximately $8,059,000 to approximately $6,279,000. The decrease was
attributable primarily to two factors: the closing of the Atlanta restaurant in
early 1997 and decreased revenues from the Hollywood restaurant. The decrease in
revenue of the Hollywood restaurant was attributable primarily the Company's
inability during 1997 to expend significant sums on advertising and promotional
activities.
For the year ended December 31, 1997, the Company had a net loss of
approximately $17,246,000. The Company believes that the loss was attributable
to the Company's inability to overcome the factors that resulted in the
Company's 1996 loss of approximately $16,780,000. During 1997 the Company
expended substantial sums on activities relating to the possible reopening of
the Atlanta restaurant. Ultimately, the Company determined that it would not be
possible to reopen the Atlanta restaurant on a profitable basis. Costs and
expenses for 1997 include a loss on disposal of assets of approximately
$10,179,000 related to the closure of Atlanta and the sale of Las Vegas.
REVENUE
FOOD AND BEVERAGE
For the year ended December 31, 1997 food and beverage revenues were
$5,745,000 representing approximately 91% of total revenue.
MERCHANDISE
For the year ended December 31, 1997 merchandise revenues were
$534,000, representing approximately 9% of total revenue.
OPERATING EXPENSES
FOOD AND BEVERAGE COST OF SALES
Food and beverage cost of sales for the year ended December 31, 1997
were $1,924,000, representing approximately 33% of food and beverage revenue.
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MERCHANDISE COST OF SALES
Merchandise cost of sales for the year ended December 31, 1997 were
$452,000, which represented 85% of merchandise revenue. Management is in the
process of reducing sales of low margin merchandise in order to reduce
merchandise costs as a percentage of merchandise sales. In addition, the Company
has introduced merchandise in the Las Vegas restaurant that emphasizes Las Vegas
oriented themes in addition to the country theme.
PAYROLL AND RELATED TAXES
Payroll and related taxes at Country Star Hollywood were $2,651,000,
representing approximately 42% of total revenues for the year ended December 31,
1997. Management believes the levels of labor costs were the result of
inadequate controls and has taken steps to reduce labor costs as a percentage of
total revenues for 1998. Such steps have included the termination of certain
personnel and the reassignment of other personnel.
RENT
Rent expenses were $2,465,000 for the year ended December 31, 1997,
representing approximately 39% of total revenue for year ended December 31,
1997. Rent expenses include amortization of total base rentals over a
straight-line basis. Consequently, $798,000 of deferred rent expenses are
included in 1997 rent expenses.
OTHER OPERATING COSTS
Other operating costs for the year ended December 31, 1997 were
$1,274,000, representing approximately 20% of total revenue for the year ended
December 31, 1997. Other operating costs consist primarily of repair and
maintenance, restaurant supplies, restaurant entertainment, insurance, credit
card fees, utilities and management fees.
INTEREST EXPENSE
Interest expense was $410,000, and embedded interest expense was
$2,346,000. Embedded interest expense arises from the discount feature of the
convertible debt instruments and line of credit advances issued by the Company.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the year ended
December 31, 1997 were $3,590,000. Selling, general and administrative expenses
include corporate salaries of $786,000 including related payroll taxes and
employee benefits, advertising and corporate promotions of $402,000, legal and
professional fees of $1,124,000, insurance expense of $118,000,
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travel related costs of $63,000 and office rent of $80,000. The Company believes
that it has taken sufficient steps to reduce selling, general and administrative
expenses to a level commensurate with current sales levels.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1996, revenues from Country Star
Hollywood decreased from approximately $5,200,000 to $4,200,000. Revenues from
the Company's two other restaurants commenced in 1996 and totaled approximately
$3,850,000.
For the year ended December 31, 1996, the Company had a net loss of
approximately $16,780,000. Current management, which took over the Company on
February 12, 1997, believes that the net loss is a result of (i) the failure of
the Company to realize opportunities for increasing revenues because of
inadequate ongoing entertainment and attractions and a lack of supervision of
the Company's restaurant sites, (ii) lack of control over selling, general and
administrative expenses in relation to revenues, (iii) lack of control over food
and beverage, merchandise and labor costs in relation to customer volume, (iv)
substantial cost overruns in the construction of Country Star Las Vegas and
Country Star Atlanta and (v) pre-opening costs in Atlanta running substantially
over budget because of construction delays. Costs and expenses for 1996 include
a charge of approximately $5,600,000 for impairment of long-lived assets. This
represents primarily a write down of the book value of leasehold improvements
based on construction cost overruns for the restaurants.
REVENUE
FOOD AND BEVERAGE
For the year ended December 31, 1996 food and beverage revenues were
$7,048,000 representing approximately 87% of total revenue
MERCHANDISE
For the year ended December 31, 1996 merchandise revenues were
$1,011,000, representing approximately 13% of total revenue.
OPERATING EXPENSES
FOOD AND BEVERAGE COST OF SALES
Food and beverage cost of sales for the year ended December 31, 1996
were $2,223,000, representing approximately 32% of food and beverage revenue.
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MERCHANDISE COST OF SALES
Merchandise cost of sales for the year ended December 31, 1996 were
$657,000, which represented 65% of merchandise revenue. Current management is in
the process of reducing sales of low margin merchandise in order to reduce
merchandise costs as a percentage of merchandise sales.
PAYROLL AND RELATED TAXES
Payroll and related taxes were $3,918,000, representing approximately
49% of total revenues for the year ended December 31, 1996. Current management
believes the levels of labor costs were the result of inadequate controls and
has taken steps to reduce labor costs as a percentage of total revenues for
1997.
RENT
Rent expenses were $1,276,000 for the year ended December 31, 1996,
representing approximately 16% of total revenue for year ended December 31,
1996. Rent expenses include amortization of total base rentals over a
straight-line basis. Consequently, $227,000 of deferred rent expenses are
included in 1996 rent expenses.
OTHER OPERATING COSTS
Other operating costs for the year ended December 31, 1996 were
$1,967,000, representing approximately 24% of total revenue for the year ended
December 31, 1996. Other operating costs consist primarily of repair and
maintenance, restaurant supplies, restaurant entertainment, insurance, credit
card fees, utilities and management fees.
INTEREST EXPENSE
Interest expense was $376,000. Of this amount, $274,000 represents
negotiated interest on Series B Preferred Stock issued and converted in the
fourth quarter of 1996. Interest liability was satisfied by the issuance of
36,565 common shares on February 12, 1997 valued at $7.50 per share.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the year ended
December 31, 1996 were $8,802,000 which exceeds total revenue for the year ended
December 31, 1996. Selling, general and administrative expenses include
corporate salaries of $1,502,000 including related payroll taxes and employee
benefits, advertising and corporate promotions of $1,782,000, legal and
professional fees of $627,000, insurance expense of $219,000, travel related
costs of $120,000, office rent of $116,000, cost overruns for restaurant
construction of $928,000, and the write off of certain pre-opening
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costs at Atlanta and Las Vegas that were in excess of budget of $2,080,000, and
$1,429,000 of other costs.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting, Standards (SFAS) No. 121, whose
provisions were adopted by the Company in 1996, requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Construction costs overruns
and continuing operating losses were indicators of potential impairment of the
Company's three restaurants.
The impaired assets, primarily leasehold improvements, were written
down by $5,584,458. This non-cash charge to operations increased the 1996 loss
by $5.04 per share.
SETTLEMENT OF STOCKHOLDERS' CLAIMS
See "Management's Discussion and Analysis - Liquidity and Capital
Resources."
LIQUIDITY AND CAPITAL RESOURCES
GOING CONCERN
The Company's independent certified public accountants included an
explanatory paragraph in their report for the year ended December 31, 1996 and
December 31,1997, which indicated a substantial doubt as to the ability of the
Company to continue as a going concern due to significant losses in 1996 and
1997 and cash flow shortages (See Independent Certified Public Accountants'
Reports, pages F-2, and Note 6 of the Notes to Financial Statements.)
At March 31, 1998 the Company had cash on hand of approximately
$10,000. For the year ended December 31, 1997, the Company has primarily funded
its capital requirements from proceeds from the issuance of debt and equity
securities.
CONVERTIBLE DEBT AND INSTITUTIONAL DEBT
In the fourth quarter of 1994 and the first and second quarters of
1995, the Company issued an aggregate of $1,000,000 of debt in private
transactions, $500,000 of which represented the Convertible Debt which bore
interest at the rate of eight percent (8%) per annum, and the balance of which
represented the Institutional Debt borrowed from Steel Partners and Leslie
Linton Entertainment, Inc. which bore interest at the rate of nine percent (9%)
per annum. Mr. Robert E. Linton, a principal of Leslie Linton Entertainment,
Inc., became a member of the Company's Board of Directors in March, 1996. The
proceeds from
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the Convertible Debt and Institutional Debt were used for entering into the
leases for, and commencing the development of, Country Star Las Vegas and
Country Star Atlanta. The Convertible Debt, which was initially due on February
21, 1995, and was convertible at any time, in whole or in part, into shares of
Common Stock at $4.00 per share, was extended a number of times. On August 1,
1995 the Company repaid $250,000 of principal of the Convertible Debt and the
balance of the principal, an additional $250,000, plus all accrued interest, was
repaid on November 14, 1995, the closing of the Company's secondary offering of
1,200,000 shares of Preferred Stock (the "Secondary Offering"). Similarly, all
principal and accrued interest with respect to the Institutional Debt was repaid
on the closing of the Company's Secondary Offering. The Institutional Debt was
due upon the earlier of (i) March 1996, one (1) year from issuance, and (ii) the
Company's raising of at least $5,000,000 in equity capital.
THE BRIDGE FINANCING
On July 28, 1995, the Company completed an interim bridge financing
arranged by and sold through the representative of the underwriters of the
Company's Secondary Offering (the "Bridge Financing"). Pursuant to the Bridge
Financing, the Company sold 37 units (the "Units") to non-affiliated, accredited
investors, each Unit consisting of (i) a $50,000, 6% promissory note due the
earlier of twelve (12) months from the date of issuance or the Company's receipt
of at least $5,000,000 in gross proceeds from a public or private sale of its
securities, a joint venture or licensing agreement (collectively, the "Notes"),
(ii) 5,000 shares of Common Stock, and (iii) 3,000 warrants, each to purchase
one share of Common Stock, exercisable at a price per share equal to the
Conversion Price of the Company's Preferred Stock, which was $2.00. The net
proceeds from the Bridge Financing were approximately $1,650,000 (after
commissions and expenses) and in connection therewith the Company issued an
aggregate of 185,000 shares of Common Stock and 111,000 warrants. In connection
with the Bridge Financing pursuant to which the Company issued 6% promissory
notes in the aggregate principal amount of $1,850,000, 185,000 shares of common
Stock and 111,000 warrants, the Company recorded an original issue discount of
$665,518 based on the relative fair market value of the Notes, the Common Stock
and the warrants on the date of issuance. The Company also incurred
approximately $200,000 of offering costs related to the Bridge Financing, of
which $129,015 was recorded as a discount to the Notes with the remainder
recorded as a reduction to the paid-in capital of the Common Stock and warrants
issued in connection therewith. The original issue discount was amortized over
the term of the Notes as an interest expense. After the Secondary Offering, at
which time all of the Institutional Debt and the Notes were repaid with a
portion of the net proceeds, the Company took a non-recurring charge to interest
expense in an amount equal to the then remaining unamortized portion of the
original issue discount and offering
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costs of $866,666, which was charged to interest expense for the year ended
December 31, 1995. Under the terms of the Bridge Financing, all 185,000 shares
of Common Stock issued in the Bridge Financing were automatically exchanged for
an aggregate of 77,089 shares of Preferred Stock upon the effective date of the
Secondary Offering. The Company used the net proceeds of the Bridge Financing to
continue the development of Country Star Las Vegas and Country Star Atlanta, to
repay certain indebtedness, and for working capital purposes.
SECONDARY OFFERING
On November 10, 1995, the Company completed its Secondary Offering of
1,200,000 shares of 6% Cumulative Convertible Series A Preferred Stock. The net
proceeds to the Company from the Secondary Offering, after deducting commissions
and expenses, were approximately $11,200,000. The Company applied such net
proceeds towards the continued development of Country Star Las Vegas and Country
Star Atlanta, repayment of certain indebtedness, and working capital. The
Company's Preferred Stock pays a cumulative, quarterly dividend at the rate of
6% per annum of the Preferred Stock's liquidation value, which is $12.00 per
share, on each of December 31, March 31, June 30 and September 30 of each year
commencing December 31, 1995, when, as and if declared by the Board of Directors
out of funds legally available therefor. Dividends are payable in cash or Common
Stock at the Company's election. The Preferred Stock is convertible into Common
Stock commencing on February 8, 1996 at a conversion rate of 6 shares of Common
Stock for each share of Preferred Stock, subject to adjustment in certain events
(a "Conversion Price" of $2.00 per share). Unless previously converted or
redeemed, The Preferred Stock was automatically converted into Common Stock May
10, 1997. Each holder of shares of Preferred Stock will be entitled to vote
together with, and on all matters submitted to, the holders of Common Stock on
an as-converted basis. Further, on or after May 8, 1996, in the event that the
Common Stock shall have a closing bid price that is at least 170% of the
Conversion Price for 20 out of 30 consecutive trading days ending within five
(5) days of the date of the notice of redemption, the Preferred Stock may be
redeemed at the Company's option, in whole or in part, at $12.00 per share, plus
any declared but unpaid dividends to the date fixed for redemption. In addition,
on or after May 8, 1996, the Preferred Stock may be redeemed at the Company's
option, in whole or in part, at the following per share prices, plus any
declared but unpaid dividends:
Period Redemption Price
------ ----------------
May 8, 1996 - July 9, 1996 $13.08
July 10, 1996 - January 9, 1997 12.72
January 10, 1997 - May 9, 1997 12.36
The liquidation preference of the Preferred Stock is $12.00 per share,
plus any declared but unpaid dividends and in the
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event of liquidation, dissolution or winding up of the Company is to be paid to
holders of the Preferred Stock before any distribution to holders of Common
Stock or any other class of capital stock junior to the Preferred Stock.
FEBRUARY 12, 1997 FINANCING AND CHANGE IN CONTROL
On February 12, 1997, the Company entered into a secured loan agreement
with Dan Rubin ("Rubin") and Cameron Capital Ltd., an institutional investor
("Cameron").
The secured loan agreement provides that Cameron has the fully
assignable right to name three (3) members of the Board of Directors of the
Company and that the Board of Directors shall not consist of more than five (5)
members. Cameron assigned this right to Rubin as its agent. Immediately after
the closing of the secured financing, Rubin's nominees, Darren Rice, William Wei
and Robert Nardone were elected to the Board of Directors of the Company. The
Board then elected Rubin to fill the last seat on the Board of Directors. The
stockholders of the Company did not approve the granting of the security
interests to Rubin or Cameron or the grant of the right to approve three members
of the Board.
The Board then elected Dan Rubin as Chief Executive Officer and
President, and Robert L. Davidson as Secretary of the Company. Mr. Rubin assumed
control of day-to-day operations of the Company. Mr. Rubin is being compensated
at the rate of $20,000 per month, payable in cash or common stock of the
Company, valued at market value at the time of issuance. Mr. Rubin's employment
is terminable at will.
Under the secured financing agreement, Rubin has made a $3,500,000 line
of credit loan available to the Company, of which an initial advance of $500,000
was committed at closing. Rubin, in his sole discretion, may make additional
advances to the Company under this line of credit, but is not required to make
any such additional advances. All advances under the line of credit loan bear
interest at the rate of prime plus four percent (4%), payable semi-annually
commencing December 31, 1997. The principal balance of all line of credit
advances are due and payable on October 9, 1999. In consideration for the
initial line of credit advance of $500,000, the Company issued a warrant to
acquire 16,667 shares of its common stock at an exercise price of $6.25 per
share.
All additional line of credit advances shall have the same terms and
conditions as the initial line of credit advance. For each such additional
advance, Rubin shall receive one (1) common stock purchase warrant for every $30
advanced. The exercise price for these warrants shall be $6.25 per share. All of
the warrants issued or to be issued to Rubin shall be subject to adjustment in
the event of stock splits, stock dividends, mergers, consolidations, or similar
corporate events.
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Cameron exchanged its 4,000 shares of Series B Convertible Preferred
Stock of the Company, with an aggregate liquidation preference of $4,000,000,
for a convertible term note in the principal amount of $4,000,000. The
convertible term note bears interest at the rate of seven percent (7%) per
annum, payable semi-annually commencing December 31, 1997. The principal balance
is due and payable on October 9, 1999. Any portion or all of the principal
amount of the note outstanding may be converted into common stock of the Company
commencing ninety (90) days after the date of closing of the financing. Upon
conversion, the Company shall issue that number of shares of its common stock
obtained by dividing the principal amount of the loan converted by the lesser of
(i) $13.30; or (ii) 80% of the average closing bid price of the common stock for
the five (5) consecutive trading days preceding the date of conversion. The
maximum number of shares into which the convertible note may be converted shall
not exceed 2,000,000. The conversion formula is subject to adjustment in the
event of stock splits, stock dividends, mergers, consolidations, or similar
transactions.
In connection with the commitment to make the line of credit loan,
Rubin and other investors in the Company agreed to settle certain claims against
the Company for the amount of $1,950,000, plus $50,000 in fees and expenses. The
Company has issued its convertible term notes in the aggregate amount of
$1,950,000 and agreed to pay $50,000 to Rubin and these investors, in settlement
of their claims. These convertible term notes contain the same terms and
conditions as the convertible term note issued to Cameron, except that the
holders of these convertible term notes may exercise their conversion feature at
any time following the closing. The issuance was in settlement of claims arising
out of the sale by the Company to Dan Rubin and other investors of 170,371
shares of Series A Preferred Stock and 30,667 shares of Common Stock Purchase
Warrants for aggregate consideration of $2,300,000. The claims related to
alleged misrepresentations of the financial condition of the Company and alleged
misrepresentations concerning the Company's proposed future sales of equity. The
amount of damages was determined as the difference between the aggregate
purchase price of the securities paid by Mr. Rubin and the investors and the
aggregate consideration of $350,000 received upon the sale of the securities.
The line of credit advances by Rubin, Cameron's convertible term note
and the convertible term notes issued in settlement of claims were all secured
by a lien on substantially all of the tangible and intangible assets of the
Company. In the event of default, the secured parties shall participate in the
proceeds of the collateral in proportion to their outstanding debt.
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<PAGE>
FEBRUARY 18, 1998 FINANCIAL RESTRUCTURING
Cameron Capital, Ltd. ("Cameron"), an institutional investor, had
originally held $4,000,000 of convertible long term debt due on October 9, 1999
and bearing interest at the rate of seven percent (7%) per annum. Cameron had
converted approximately $1,000,000 principal amount of the debt into Common
Stock of the Company, leaving a balance due of approximately $3,000,000. A
dispute between the Company and Cameron had arisen regarding the proper use of
the proceeds realized by the Company from the agreements dated December 30,
1997, it had entered into regarding the modification of the lease of its Las
Vegas facility. Cameron contended that the Company was obligated to use the
proceeds to prepay its debt; the Company believed that the proceeds were needed
for working capital and the repayment of other debt. Cameron had commenced legal
action against the Company on February 13, 1998 in United States District Court
for the Northern District of Illinois in which it sought recovery of the full
$1,550,000 received by the Company in connection with the lease modification.
Cameron had obtained a temporary restraining order which prohibited the Company
from using any of the proceeds of the lease modification until the dispute could
be resolved. The Company and Cameron agreed to settle Cameron's legal action in
order to avoid the uncertainty of litigation and the expense of proceeding
through discovery and trial.
Under the terms of the Settlement Agreement dated February 18, 1998
(the "Settlement Agreement"), Cameron agreed to dismiss its legal action against
the Company and to accept as a full settlement of its long term debt aggregate
consideration consisting of a cash payment of $1,300,000 payable at closing and
the issuance of 670,000 shares of the Company's Common Stock, par value $.01 per
share. Cameron does not have any registration rights with respect to the Common
Stock but is eligible to resell certain amounts immediately pursuant to the
provisions of Rule 144 under the Securities Act of 1933, as amended. The
Settlement Agreement provides for mutual releases of all claims held by the
Company against Cameron and by Cameron against the Company and Dan Rubin, its
Chief Executive Officer and President.
The Company was able to fund the cash payment of the Agreement with
Cameron with the proceeds it received from a $1,300,000 line of credit loan to
the Company made by an institutional investor (the "Lender"). The institutional
investor is a pension trust controlled by Dan Rubin's father. This sum was lent
to the Company pursuant to the terms and conditions of the Loan and Security
Agreement dated February 12, 1997 between the Company, Cameron and various
lenders. This loan is due on October 9, 1999 and bears interest at the rate of
prime plus four percent (4%). The Lender also received warrants to acquire
43,333 shares of the Company's Common Stock at an exercise price of $6.25 per
share. Any portion or all of the principal amount of the line of credit advance
made by Lender
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<PAGE>
outstanding may be converted into Common Stock of the Company. Upon conversion,
the Company shall issue that number of shares of its Common Stock obtained by
dividing the principal amount of the loan converted by the lesser of (i) $13.30,
or (ii) 80% of the average closing bid price of the Common Stock for the five
(5) consecutive trading days preceding the date of conversion. The conversion
formula is subject to adjustment in the event of stock splits, stock dividends,
mergers, consolidations, or similar transactions. The Loan and Security
Agreement was also amended to provide for immediate repayment of the loan in the
event of any change in control of the Company.
PRIVATE PLACEMENTS DURING 1997 AND 1998
On May 7, 1997, the Company sold pursuant to Regulation S under the
Securities Act of 1933, as amended (the "Act") 5% Convertible Debentures for
$700,000 to institutional investors abroad, convertible 41 days after closing at
a price equal to 70% of the average closing bid price during the 5 days
preceding the conversion date.
On May 28, 1997, the Company sold pursuant to Regulation S under the
Act 5% Convertible Debentures for $500,000 to institutional investors abroad,
convertible 41 days after closing at a price equal to 70% of the average closing
bid price during the 5 days preceding the conversion date.
On June 30, 1997, the Company issued warrants to acquire 150,000 shares
of its Common Stock at an exercise price of $2.10 per share to a private
investor. The warrants were exercised immediately and the Company issued 150,000
shares of its Common Stock to the private investors. The Company received net
proceeds from the exercise of the warrants of $315,000. No commissions or fees
were paid by the Company.
During July/August 1997, the Company sold in a private offering an
aggregate of 357,857 shares of its Common Stock at a price of $2.80 per share,
for a total offering price of $1,002,000. Josephthal Lyon & Ross Inc. acted as
placement agent and received commissions of approximately $107,000. The net
proceeds received by the Company were approximately $895,000.
During October, 1997 the Company issued 1,045,743 shares of Common
Stock to investors in consideration for a full release of alleged claims arising
out of securities sold to them by the Company from May, 1997 through August,
1997. These claims alleged that the securities sold had been unfairly priced and
the additional shares were issued to give the investors an overall price that
reflected the market value of the Common Stock at the time of settlement.
During December, 1997, the Company issued 225,000 shares of Common
Stock to Cirrus LLC in partial consideration for the
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<PAGE>
Company's purchase of Cirrus' interest in the limited liability company which
owned the Company's restaurant in Las Vegas.
During February, 1998, the Company issued 670,000 shares of Common
Stock to Cameron under a Settlement Agreement relating to settlement of the
Company's long term debt obligation to Cameron.
On February 12, 1997, all of the outstanding shares of Series B
Convertible Preferred Stock were exchanged by the holder, Cameron Capital Ltd.
for a Convertible Term Note ("Note") in the principal amount of $4,000,000. The
Note may be converted into common stock commencing ninety (90) days after the
date of closing of the financing. Upon conversion, the Company shall issue that
number of shares of its Common Stock obtained by dividing the principal amount
of the loan converted by the lesser of (i) $13.30, or (ii) 80% of the average
closing bid price of the Common Stock for the five (5) consecutive trading days
preceding the date of conversion. According to the Note Agreement, the maximum
number of shares into which the Note may be converted shall not exceed 300,000.
The maximum number of shares into which the note was convertible has been
amended without obtaining shareholder approval to a maximum of 2,000,000 shares.
As of December 31, 1997, Cameron had converted $1,004,643 principal amount of
its note into 1,505,000 shares. As of November 4, 1997, Rubin and the other
investors who received convertible notes in the aggregate principal amount of
$1,950,000 had converted the entire $1,950,000 principal amount into 1,780,000
shares of Common Stock plus an additional 300,000 shares of common stock for
interest and penalty.
SEASONALITY
The Company does not believe that seasonality will have a material
impact on the Company's overall operations once it has fully established Country
Star Las Vegas. Country Star Hollywood is in a location that experiences
significantly higher traffic during the summer months due to its popularity as a
tourist destination.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, the Company had a net operating loss carryforward
for Federal tax purposes of approximately $35,500,000 which, if unused to offset
future taxable income, will expire between 2008 and 2012, and approximately
$12,000,000 for state purposes which will expire if unused between 1998 and
2002. A valuation allowance has been recognized for 1997 and 1996 to offset the
related deferred tax assets due to the uncertainty of realizing any benefit
therefrom. During 1997, no changes occurred in the conclusions regarding the
need for a 100% valuation allowance in all tax jurisdictions.
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<PAGE>
Under Section 382 of the Code ("Section 382"), the utilization of net
operating loss carryforwards is limited after an ownership change, as defined in
Section 382, to an annual amount equal to the market value of the loss
corporation's outstanding stock immediately before the date of the ownership
change multiplied by the highest Federal long-term tax exempt rate in effect for
any month in the three (3) calendar month period ending with the calendar month
in which the ownership change occurred. Due to the ownership change as a result
of the secondary offering completed in November, 1995, the Company is subject to
an annual limitation on the use of its pre-1996 net operating losses of
approximately $1,000,000 per year. Therefore, in the event that the Company
achieves profitability in excess of the annual limitation amount, such
limitation would have the effect of increasing the Company's tax liability and
reducing the net income and available cash resources of the Company in such
year. The determination of whether a change in control has occurred can be a
very complex and time consuming process. The Company is not currently in a
position to determine whether additional changes in control might have occurred
since November 1995.
IMPACT OF INFLATION
Increases in food and labor costs and interest rates directly affect
the Company. Many of the Company's employees at Country Star Hollywood are paid,
and many of the Company's employees at Country Star Las Vegas will be paid at
hourly rates related to the Federal minimum wage. Any increases in the Federal
minimum wage in the future would further increase the Company's operating
expenses. In addition, the Company's leases at Country Star Hollywood and
Country Star Las Vegas require the Company, among other things, to pay taxes,
maintenance, insurance, repairs and utility costs, all of which are subject to
inflation, as well as percentage rent and periodic escalations of annual rents.
Any future leases that the Company may enter into with respect to any future
Country Star Restaurants may also contain similar provisions.
FORWARD LOOKING STATEMENTS
Any statements that are not historical facts contained in this Report
are forward looking statements that involve risks and uncertainties, including
but not limited to those relating to demand for the Company's services, pricing,
market acceptance, competition, the effect of economic conditions, the results
of financing efforts, the Company's ability to complete proposed transactions
and negotiate terms with its creditors, and other risks.
ITEM 7. FINANCIAL STATEMENTS.
See financial statements following Part IV - Item 13 of this Annual
Report on Form 10-KSB.
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<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On January 5, 1996, the Company was informed by its independent
auditor, Ernst & Young, LLP ("E&Y") that E&Y had resigned as the Company's
independent auditor, effective immediately. Contemporaneously, the Company filed
a Current Report on Form 8-K relating to the resignation of E&Y. The Company had
retained E&Y to act as its independent auditor on March 2, 1994. For the period
beginning with the retention of E&Y and ending with the resignation of E&Y, the
reports of E&Y on the financial statements of the Company did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. Since initially retaining
E&Y, the Company has not had any disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
On March 18, 1996, the Company engaged BDO Seidman, LLP to replace E&Y
as the Company's independent auditor, effective immediately, and
contemporaneously filed a Current Report on Form 8-K relating thereto. On
November 12, 1996, the Company terminated the firm of BDO Seidman, LLP as
independent auditor, and contemporaneously filed a Current Report on Form 8-K
relating thereto. For the period beginning with the retention of BDO Seidman,
LLP and ending with its termination, its reports on the financial statements of
the Company did not contain any adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. Since retaining BDO Seidman, LLP, the Company has not had any
disagreements with it on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
On January 16, 1997, the Company engaged the services of Deloitte &
Touche LLP to serve as the Company's independent auditor, and contemporaneously
filed a Current Report on Form 8-K relating thereto. On March 29, 1997, the
Company terminated the firm of Deloitte & Touche LLP as its independent auditor.
For the period beginning with the retention of Deloitte & Touche LLP and ending
with its termination, Deloitte & Touche LLP did not prepare any reports or
render any adverse opinion or disclaimer of opinion on the financial statements
of the Company. Since initially retaining Deloitte & Touche LLP the Registrant
has not had any disagreements with it on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
On March 29, 1997, the Company engaged the services of Cacciamatta
Accountancy Corporation to serve as the Company's independent auditor.
Contemporaneously with the dismissal of Deloitte & Touche LLP and the retention
of Cacciamatta Accountancy Corporation the Company filed a Current Report on
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<PAGE>
Form 8-K relating thereto. (See Part IV Item 13 "Exhibits and Reports on Form
8-K.)
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
Set forth below is biographical information for each director of the
Company.
DAN RUBIN, age 26, became Chief Executive Officer, President and a
director of the Company on February 12, 1997. He has been a private investor
during the past five years. He is the President and Chief Executive Officer of
Rubin Investment Group, a private investment company which makes equity and debt
investments in private and publicly held companies. Prior to joining the
Company, Mr. Rubin had no experience in managing or supervising the operations
of a business comparable to the Company.
ROBERT A. NARDONE, JR., age 31, became a Director of the Company on
February 12, 1997. He has been a senior loan officer of Summit Bank since
November, 1992.
DARREN C. RICE, age 28, became a Director of the Company on February
12, 1997. He has been President of Cornerstone Financial, Inc., a mortgage
banking company since October, 1995. From November, 1992 to October, 1995 he was
a mortgage sales representative for Norwest Mortgage, Inc.
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors and executive officers of the
Company continuing in office, and of executive officers who held office during
1997 are set forth below.
NAME AGE POSITION HELD
---- --- -------------
Dan J. Rubin 26 President, Chief Executive
Officer and Director
Robert A. Nardone, Jr. 31 Director
Darren C. Rice 28 Director
Robert L. Davidson 46 Secretary
Robert J. Schuster(1) 53 Formerly Chairman of the Board
of Directors, Chief Executive
Officer and Secretary
- ----------------------------
(1) ROBERT J. SCHUSTER was Chairman of the Board, Chief Executive Officer
and Secretary of the Company from its inception to February, 1997.
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<PAGE>
Mr. Nardone and Mr. Rice serve on the Audit Committee and Compensation
Committee of the Company's Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE: Section 16(a)
of the Exchange Act requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities ("Reporting Persons"), to file reports of ownership and changes in
ownership with the SEC and with The NASDAQ Stock Market. Reporting Persons are
required by SEC regulations to furnish the Company with copies of all forms they
file pursuant to Section 16(a). Based solely on its review of the copies of such
reports received by it, or written representations from certain Reporting
Persons that no other reports were required for those persons, the Company
believes that, during the year ended December 31, 1997, the Reporting Persons
complied with all Section 16(a) filing requirements applicable to them.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
the Chief Executive Officer and executive officers of the Company whose total
annual salary and bonus exceeded $100,000 for the years ended December 31, 1995,
1996 and 1997.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND YEAR SALARY($) BONUS COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION SATION($) AWARDS($) SARS(#) PAYOUTS($) SATION($)
- ------------------ --------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dan Rubin 1997 $ 42,769(1) 35,000(2) --- --- --- --- ---
President and 1996 --- --- --- --- --- --- ---
Director 1995 --- --- --- --- --- --- ---
Robert J. Schuster 1997 $ 31,250 --- --- --- --- --- ---
Former Chief Executive 1996 $ 250,000 $ 40,000 $ 0 $ 0 --- $ 0 $ 0
Officer, Secretary and 1995 $ 250,000 $ 0 $ 0 $ 0 --- $ 0 $ 0
Director
</TABLE>
- ----------------------------
(1) Mr. Rubin's compensation is payable at the rate of $20,000 per month.
To date, Mr. Rubin has received $42,769 of his 1997 salary from the
Company and the balance of $170,000 has been accrued.
(2) Mr. Rubin's bonus was paid by this issuance of 37,000 shares of Common
Stock of the Company, valued at $35,000.
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<PAGE>
1997 OPTION GRANTS
The following table shows information regarding grants of stock options
in 1997 to the executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Executive Officer Granted in Fiscal Year Price ($/Sh) Exp. Date
- ----------------- ------- -------------- ------------ ---------
Dan Rubin --- --- --- ---
Robert J. Schuster --- --- --- ---
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<PAGE>
1997 OPTION EXERCISES AND YEAR-END VALUES
The following table shows information regarding the exercise of stock
options during 1997 by the executive officers named in the Summary Compensation
Table and the number and value of any unexercised stock options as of December
31, 1997.
(a) (b) (c) (d) (e)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired FY-End (#) FY-End ($)
on Value Exercisable/ Exercisable/
Executive Officer Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Dan Rubin --- --- --- ---
Robert J. Schuster --- --- --- ---
</TABLE>
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows as of April 9, 1998 the beneficial ownership
of Common Stock by any holder of more than five percent (5%) of the outstanding
shares, each nominee, by each of the incumbent executive officers and directors,
and such directors and executive officers as a group.
COMMON STOCK
------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
EXERCISABLE PERCENT
NAME AND ADDRESS OF DIRECTLY OPTIONS OF
BENEFICIAL OWNER OWNED AND NOTES TOTAL
---------------- ----- --------- -----
Dan J. Rubin --- 5,041,667 36.9%
c/o Country Star Restaurants, Inc.
4929 Wilshire Boulevard, Suite 428
Los Angeles, California 90010
Robert A. Nardone, Jr. --- --- ---
c/o Country Star Restaurants, Inc.
4929 Wilshire Boulevard, Suite 428
Los Angeles, California 90010
Darren C. Rice --- --- ---
c/o Country Star Restaurants, Inc.
4929 Wilshire Boulevard, Suite 428
Los Angeles, California 90010
Cameron Capital Ltd. 749,589 --- 9.1%
10 Cavendish Road
Hamilton HM 19, Bermuda
All incumbent officers, directors --- --- 36.9%
and director nominees as a
group
- ----------------------------
(1) The shares of Common Stock owned by each person or by the group, and
the shares included in the total number of shares of Common Stock
outstanding, have been adjusted in accordance with Rule 13d-3 under the
Securities Act of 1934, as amended, to reflect the ownership of shares
issuable upon exercise of outstanding options, warrants, convertible
debt or other common stock equivalents which are exercisable within 60
days. As provided in such Rule, such shares issuable to any holder are
deemed outstanding for the purpose of calculating such holder's
beneficial ownership but not any other holder's beneficial ownership.
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Management's Discussion and Analysis of Operations - Capital
Resources, February 12, 1997 Financing and Change in Control, Private Placements
During 1997 and 1998 and February 18, 1998 Financial Restructuring."
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
1 3.1 Certificate of Incorporation of the Company
2 3.2 Amendment to Certificate of Incorporation
* 3.3 Amendment to Certificate of Incorporation dated June 27,
1997 (authorization of additional shares)
* 3.4 Amendment to Certificate of Incorporation dated February
10, 1998 (reverse split)
3 3.5 Amended By-Laws of the Company
* 10.1 Lease between Copperfield Investment and Development
Company and the Company relating to office space at 4929
Wilshire Boulevard, Los Angeles, California, dated May 28,
1997
4 10.2 (a) Lease Agreement by and between MCA Development Company
and Roma, LA, Inc., dated May 27, 1987
(b) First Amendment to Lease dated May 27, 1987, by and
between MCA Development Company and Roma California, Inc.,
as successor-in-interest to Roma LA, Inc., dated July 28,
1998
(c) Assignment and Assumption of Lease by and between Roma
California, Inc., a successor-in-interest to Roma LA, Inc.,
Romacorp., Inc., as successor-in-interest to Roma
Corporation and the Company, dated January 31, 1994
(d) Consent to Lease Assignment by and among MCA
Development Company, Roma California, Inc., Roma LA, Inc.,
Roma Corporation and the Company, dated February 1, 1994
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<PAGE>
5 10.3 Lease by and between Four Seas Investment Company, M.D.
Hope Close Trust R-21 and the Company with respect to the
Las Vegas restaurant, dated February 15, 1995
6 10.4 Agreement regarding new lease for Las Vegas restaurant
between Restaurant Ventures of Nevada, Inc. and Country
Star Restaurants, Inc., dated December 30, 1997
6 10.5 LLC Interest Purchase Agreement and Assignment between the
Company and Mirage Resorts, Inc., dated December 30, 1997
* 10.6 Settlement Agreement by and between 3030 Peachtree, L.L.C.
and the Company, dated December 23, 1997
7 10.7 Secured Loan Agreement among Dan Rubin, Cameron Capital
Ltd. and the Company, dated February 12, 1997
* 10.8 Settlement Agreement between Cameron Capital Ltd. and the
Company, dated February 18, 1998
* 10.9 Refinancing Agreement between Roy B. Rubin, M.D., P.C.,
M.P.P.P. and the Company1* Filed herewith., dated February
18, 1998
- ----------------------------
1 Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2, File No. 33-67526-A.
2 Previously filed as an exhibit to the Company's Registration Statement
on Form S-1, File No. 33-96450.
3 Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, File No. 333-05105.
4 Previously filed as an exhibit to the Company's Form 10-KSB for the
year ended December 31, 1993. (filed March 30, 1994).
5 Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, File No. 33-33393.
6 Previously filed as an exhibit to the Company's Form 8-K dated January
20, 1998.
7 Previously filed as an exhibit to the Company's Form 8-K dated February
12, 1997.
* Filed herewith.
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<PAGE>
(b) Reports on Form 8-K.
On January 16, 1997, the Company filed a Current Report on Form 8-K in
connection with the engagement of Deloitte & Touche LLP as Registrant's
independent auditor (See Item 8, "Changes in and Disagreement with Accountants
in Accounting and Financial Disclosures.")
On February 12, 1997 the Company filed a current report on Form 8-K in
connection with the February 12, 1997 Financing and Change in Control. (See Item
6, "Management's Discussion and Analysis.")
On March 29, 1997, the Company filed a current report on Form 8-K in
connection with the termination of Deloitte & Touche LLP as the Company's
independent auditor and the retention of Cacciamatta Accountancy Corporation as
the Company's independent auditors. (See Item 8, "Changes in and Disagreement
with Accountants in Accounting and Financial Disclosures.")
On April 29, 1997, the Company filed a Current Report on Form 8-K on
litigation involving its Atlanta restaurant.
On May 7, 1997, the Company filed a Current Report on Form 8-K in
connection with a sale pursuant to Regulation S under the Act of 5% Convertible
Debentures in the amount of $700,000 to institutional investors.
On May 28, 1997 the Company filed a Current Report on Form 8-K in
connection with the sale pursuant to Regulation S under the Act of Convertible
Debt in the amount of $500,000.
On November 7, 1997, the Company filed a Current Report on Form 8-K in
connection with a sale pursuant to Regulation S under the Act of 5% Convertible
Debentures in the amount of $150,000 to institutional investors and the issuance
of 5,000,000 shares of Common Stock to institutional investors in consideration
of the release of alleged claims against the Company arising out of securities
sold by the Company.
On January 20, 1998, the Company filed a Current Report on Form 8-K on
the sale of its interest in the restaurant operations of the Company's Las
Vegas, Nevada restaurant and entering into a new lease of the restaurant
directly to the Company.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly executed this 15th day of April, 1998.
COUNTRY STAR RESTAURANTS, INC.
By: /s/ DAN J. RUBIN
--------------------------------
Dan J. Rubin, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
President, Chief
Executive Officer
/s/ DAN J. RUBIN and Director April 15, 1998
- --------------------- -----------------
Dan J. Rubin
/s/ ROBERT A. NARDONE Director April 15, 1998
- --------------------- ---------------
Robert A. Nardone
/s/ DARREN RICE Director April 15, 1998
- --------------------- ---------------
Darren Rice
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants ..........................F-2
Consolidated Balance Sheet as of December 31, 1997 ..........................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996 .........................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996 .........................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 .........................................F-6
Notes to Consolidated Financial Statements ..................................F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Country Star Restaurants, Inc.
We have audited the accompanying consolidated balance sheet of Country Star
Restaurants, Inc. as of December 31, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Country
Star Restaurants, Inc. as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years ended December 31,
1997 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 6 to the
consolidated financial statements, the Company has experienced significant
losses in 1996 and 1997, and is experiencing cash flow shortages. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 6. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
April 8, 1998
F-2
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Consolidated Balance Sheet
December 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,218,845
Inventories 231,762
Other 189,757
------------
TOTAL CURRENT ASSETS 1,640,364
------------
PROPERTY AND EQUIPMENT AT COST, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION OF $1,061,470:
Leasehold improvements 3,431,250
Furniture and equipment 1,382,755
Memorabilia 372,367
------------
TOTAL PROPERTY AND EQUIPMENT 5,186,372
OTHER 267,423
------------
$ 7,094,159
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 900,000
Accounts payable 375,988
Accrued legal expenses 332,000
Accrued salaries 264,352
Other accrued expenses 121,074
------------
TOTAL CURRENT LIABILITIES 1,993,414
CONVERTIBLE DEBT 3,145,358
------------
TOTAL LIABILITIES 5,138,772
------------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.001 par value, 2,000,000 shares authorized,
no shares issued and outstanding --
COMMON STOCK, $0.01 par value, 250,000,000 shares authorized,
7,872,755 shares issued and outstanding 78,728
ADDITIONAL PAID-IN CAPITAL 47,201,242
ACCUMULATED DEFICIT (45,324,583)
------------
NET STOCKHOLDERS' EQUITY 1,955,387
------------
$ 7,094,159
============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage $ 5,744,789 $ 7,048,023
Merchandise 534,273 1,011,392
------------ ------------
6,279,062 8,059,415
------------ ------------
COST AND EXPENSES:
Cost of revenues:
Food and beverage 1,924,113 2,222,506
Merchandise 451,942 656,760
Labor 2,650,871 3,917,988
Rent 2,465,450 1,275,860
Other restaurant operating 1,273,895 1,967,020
Selling, general and administrative 3,590,291 8,801,764
Depreciation and amortization 1,058,608 1,210,685
Settlement of stockholders' claims 980,384 2,000,000
Loss on disposal of assets 10,178,560 --
Impairment of long-lived assets -- 5,584,458
------------ ------------
24,574,114 27,637,041
------------ ------------
LOSS FROM OPERATIONS (18,295,052) (19,577,626)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 7,254 302,626
Interest expense (410,281) (375,936)
Embedded interest expense (2,346,286) --
------------ ------------
(2,749,313) (73,310)
------------ ------------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM (21,044,365) (19,650,936)
MINORITY INTEREST 2,124,446 2,870,554
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (18,919,919) (16,780,382)
EXTRAORDINARY ITEM - SETTLEMENT OF TRADE PAYABLES 1,673,629 --
------------ ------------
NET LOSS $(17,246,290) $(16,780,382)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item $ (5.90) $ (15.54)
Extraordinary item 0.52 --
------------ ------------
Net loss per common share $ (5.38) $ (15.54)
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 3,208,465 1,107,481
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996
Preferred Stock Preferred Stock
Series A Series B
---------------------------- ----------------------------
Number Number
of Shares Amount of Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 1,277,089 $ 1,277 -- $ --
Common stock issued in settlement of legal claim -- -- -- --
Common stock issued in a private placement -- -- -- --
Preferred stock converted to common (1,047,015) (1,047) -- --
Common stock issued for dividends on preferred stock -- -- -- --
Common stock issued for the exercise of warrants -- -- -- --
Common stock issued for payment of financing charges -- -- -- --
Issuance of preferred stock in a private placement 170,371 170 -- --
Issuance of preferred stock in a private placement -- -- 4,000 4
Preferred stock converted to convertible debt -- -- (4,000) (4)
Unamortized stock option cost -- -- -- --
Amortization of stock option cost -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1996 400,445 400 -- --
Common stock issued for dividends on preferred stock -- --
Preferred stock converted to common (400,445) (400) -- --
Common stock issued for the exercise of warrants -- -- -- --
Common stock issued upon conversion of debt -- -- -- --
Common stock issued in private placements
net of issuance costs of $107,357 -- -- -- --
Common stock issued in settlement of trade payables -- -- -- --
Common stock issued for purchase of CSLV interest -- -- -- --
Common stock issued in settlement of claims -- -- -- --
Additional paid-in capital related to embedded interest -- -- -- --
Common stock issued for officer bonus -- -- -- --
Common stock issued for payment of financing charges -- -- -- --
Common stock issued for services -- -- -- --
Amortization of stock option cost -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1997 -- $ -- -- $ --
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Common Stock
------------------------------------------
Amount Additional Unamortized
Number of ---------------------------- Paid-in Stock Option
Shares Per Share Total Capital Cost
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 594,758 $ -- $ 5,948 $ 29,454,152 $ (232,892)
Common stock issued in settlement of legal claim 4,319 $ 18.52 43 79,957 --
Common stock issued in a private placement 120,619 $20.00-35.00 1,206 3,406,051 --
Preferred stock converted to common 628,209 6,282 (5,235) --
Common stock issued for dividends on preferred stock 20,082 $ 7.20-41.80 201 432,579 --
Common stock issued for the exercise of warrants 24,200 $ 20.93 242 506,258 --
Common stock issued for payment of financing charges 36,565 $ 7.50 366 273,873 --
Issuance of preferred stock in a private placement -- -- -- 2,209,830 --
Issuance of preferred stock in a private placement -- -- -- 3,667,496 --
Preferred stock converted to convertible debt -- -- -- (3,667,496) --
Unamortized stock option cost -- -- -- 249,250 (249,250)
Amortization of stock option cost -- -- -- -- 336,935
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 1,428,752 14,288 36,606,715 (145,207)
Common stock issued for dividends on preferred stock 2,117 $ 5.63 21 11,889 --
Preferred stock converted to common 240,267 2,403 (2,003) --
Common stock issued for the exercise of warrants 200,000 $ .75-4.00 2,000 405,500 --
Common stock issued upon conversion of debt 3,700,670 $ .25-2.84 37,007 4,117,635 --
Common stock issued in private placements
net of issuance costs of $107,357 407,244 $ .62-2.80 4,072 973,209 --
Common stock issued in settlement of trade payables 260,962 $ 2.50-4.25 2,610 980,579 --
Common stock issued for purchase of CSLV interest 225,000 $ 1.44 2,250 322,750 --
Common stock issued in settlement of claims 1,045,743 $ .94 10,457 969,927 --
Additional paid-in capital related to embedded interest -- -- 2,346,286 --
Common stock issued for officer bonus 37,000 $ .95 370 34,630 --
Common stock issued for payment of financing charges 300,000 $ .88-2.80 3,000 325,000 --
Common stock issued for services 25,000 $ 4.38 250 109,125 --
Amortization of stock option cost -- -- -- 145,207
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1997 7,872,755 $ 78,728 $ 47,201,242 $ --
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Stockholders'
Deficit Equity
------------ ------------
<S> <C> <C>
Balance, January 1, 1996 $(10,853,221) $ 18,375,264
Common stock issued in settlement of legal claim -- 80,000
Common stock issued in a private placement -- 3,407,257
Preferred stock converted to common -- --
Common stock issued for dividends on preferred stock (432,780) --
Common stock issued for the exercise of warrants -- 506,500
Common stock issued for payment of financing charges -- 274,239
Issuance of preferred stock in a private placement -- 2,210,000
Issuance of preferred stock in a private placement -- 3,667,500
Preferred stock converted to convertible debt -- (3,667,500)
Unamortized stock option cost -- --
Amortization of stock option cost -- 336,935
Net loss (16,780,382) (16,780,382)
------------ ------------
Balance, December 31, 1996 (28,066,383) 8,409,813
Common stock issued for dividends on preferred stock (11,910) --
Preferred stock converted to common -- --
Common stock issued for the exercise of warrants -- 407,500
Common stock issued upon conversion of debt -- 4,154,642
Common stock issued in private placements
net of issuance costs of $107,357 -- 977,281
Common stock issued in settlement of trade payables -- 983,189
Common stock issued for purchase of CSLV interest -- 325,000
Common stock issued in settlement of claims -- 980,384
Additional paid-in capital related to embedded interest -- 2,346,286
Common stock issued for officer bonus -- 35,000
Common stock issued for payment of financing charges -- 328,000
Common stock issued for services -- 109,375
Amortization of stock option cost -- 145,207
Net loss (17,246,290) (17,246,290)
------------ ------------
Balance, December 31, 1997 $(45,324,583) $ 1,955,387
============ ============
</TABLE>
F-5
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,246,290) $(16,780,382)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,058,608 1,210,685
Stock issued in settlement of legal claim -- 80,000
Embedded interest expense 2,346,286 --
Stock issued for settlement of stockholders' claims 980,384 2,000,000
Stock issued for services 109,375 --
Stock issued for settlement of trade payables 670,689 --
Stock issued for financing charges 328,000 274,239
Stock issued for officer bonus 35,000 --
Amortization of stock options cost 145,207 336,935
Loss on disposal of assets 10,178,560 --
Impairment of long-lived assets -- 5,584,458
Extraordinary gain on settlement of trade payables (1,673,629) --
Minority interests (2,124,446) (2,870,554)
Changes in assets and liabilities:
Decrease (increase) in inventories 512,845 (363,999)
Decrease (increase) in preopening costs -- (300,000)
Decrease (increase) in prepaid expenses and other 141,378 (467,830)
Decrease (increase) in other non-current assets 45,901 (104,899)
(Decrease) increase in accounts payable (506,086) 2,955,362
Increase in accrued expenses 177,234 563,990
------------ ------------
Net cash used by operating activities (4,820,984) (7,881,995)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets -- (15,109,955)
Proceeds from disposal of assets 1,550,000 --
Proceeds received from minority interests -- 4,500,000
------------ ------------
Net cash provided (used) by investing activities 1,550,000 (10,609,955)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 900,000 --
Proceeds from convertible debt 1,350,000 --
Net proceeds from issuance of common and preferred stock 1,384,781 9,791,257
Capital lease payments (94,157) (110,777)
------------ ------------
Net cash provided by financing activities 3,540,624 9,680,480
------------ ------------
Net increase (decrease) in cash 269,640 (8,811,470)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 949,205 9,760,675
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,218,845 $ 949,205
============ ============
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired with capital leases $ -- $ 288,474
Common stock issued to settle capital lease obligations 312,500 --
Common stock issued in acquisition of additional CSLV interest 325,000 --
Pre-development costs transferred to leasehold improvements -- 1,142,012
Investments in and advances to Las Vegas, LLC transferred
to leasehold improvements -- 852,488
Note payable transferred to the equity in Las Vegas, LLC -- 495,000
Warrants given for promotional services to be provided
in the future -- 249,250
Common stock issued upon conversion of debt 4,154,642 --
Conversion of preferred stock to convertible debt net of
$332,500 of debt issuance costs -- 3,667,500
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest $ 82,281 $ 44,810
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Country Star Restaurants, Inc. and its majority owned subsidiary, Country
Star Las Vegas, LLC (CSLV) (collectively, the "Company"). Effective
December 30, 1997, as discussed in Note 3, the Company sold its interest
in CSLV. All material intercompany transactions and accounts have been
eliminated in consolidation.
NATURE OF BUSINESS
The Company was formed for the purpose of owning and operating country
music, theme-oriented, casual dining restaurants in various locations
throughout the United States. The restaurants are operated under the name
"Country Star" followed by the name of the city.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand deposits, and
short-term investments with original maturities of three months or less.
At December 31, 1997, the Company had no cash equivalents, and virtually
all demand deposits were with one financial institution. The Company has
not experienced any losses in such accounts and believes it is not exposed
to any significant credit risks.
INVENTORIES
Inventories, consisting primarily of merchandise, are stated at the lower
of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
SFAS 121, whose provisions were adopted by the Company in 1996, requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. Construction costs overruns and continuing operating
losses were indicators of potential impairment of the Company's three
restaurants. Accordingly, the carrying values of these assets were written
down to the Company's estimates of fair values. Fair value was based
principally on a thorough analysis of comparable theme-based restaurant
assets and an appraisal of one of the Company's restaurants.
F-8
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
The impairment recorded in 1996 by restaurant location and asset type was
as follows:
LEASEHOLD FURNITURE AND
IMPROVEMENTS EQUIPMENT TOTAL
------------ ------------- ------------
Country Star Hollywood $ 1,307,363 $ 365,063 $ 1,672,426
Country Star Las Vegas 2,354,330 -- 2,354,330
Country Star Atlanta 1,557,702 -- 1,557,702
------------ ------------- ------------
$ 5,219,395 $ 365,063 $ 5,584,458
============ ============= ============
This non-cash charge to operations increased the 1996 loss by $5.04 per
share.
Property and equipment are stated at cost, less accumulated depreciation.
Amortization of leasehold improvements is provided over the estimated
useful life of the asset or the lease term, including option periods,
whichever is shorter. Depreciation of memorabilia commences when it is
placed in service upon its installation at a unit location. Depreciation
is provided for by using the straight-line method over the following
useful lives:
YEARS
-----
Furniture and equipment 5 - 8
Memorabilia 5
Leasehold improvements 18
Expenditures for additions and improvements which extend the life of the
assets are capitalized. Expenditures for normal repairs and maintenance
are charged to expense as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes."
Under the asset and liability method of SFAS 109, deferred income taxes
are recognized for the tax consequences of temporary differences by
applying enacted statutory rates applicable to future years to the
difference between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
F-9
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MINORITY INTERESTS
Minority interests represent the minorities' equity in the earnings or
losses in the entity which is majority owned by the Company.
FOOD, BEVERAGE AND MERCHANDISE REVENUES
Food, beverage and merchandise revenues are recognized as the products are
sold to customers.
STOCK-BASED COMPENSATION
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion 25
("APB 25"). APB 25 requires compensation costs for stock-based
compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of grant and the
option exercise price. In October 1995, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established
a fair value-based method of accounting for compensation costs related to
stock options and other forms of stock-based compensation plans. However,
SFAS 123 allows an entity to continue to measure compensation costs using
the principles of APB 25 if certain pro forma disclosures are made. SFAS
123 is effective for fiscal years beginning after December 15, 1995. The
Company adopted the provisions for pro forma disclosure requirements of
SFAS 123 in fiscal 1996. Options granted to non-employees are recognized
at their estimated fair value at the date of grant.
ADVERTISING AND PROMOTIONAL COSTS
Costs of advertising and promotion are expensed either as incurred or the
first-time advertising and promotion takes place. Such costs were $402,000
in 1997 and $1,782,000 in 1996.
F-10
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET EARNINGS PER SHARE
The Company adopted FASB Statement No. 128, Earnings Per Share ("SFAS
128"), which is effective for all interim and annual periods ending after
December 15, 1997. Those entities that have only common stock outstanding
are required to present basic earnings per share amounts. All other
entities are required to present basic and diluted per share amounts.
Diluted per share amounts assume the conversion, exercise or issuance of
all potential common stock instruments unless the effect is to reduce a
loss or increase the income per common share from continuing operations.
As required by SFAS 128, earnings per share is computed based upon the
weighted average common shares outstanding for the year. Earnings per
share excludes the effect of outstanding warrants and stock options and
the conversion of convertible debt because the effect of their inclusion
would be antidilutive, as defined in the Statement. In conjunction with
SFAS 128, the Company has restated the accompanying 1996 consolidated
financial statements for all per share data presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, consisting principally of the
line of credit and convertible debt, is based on interest rates available
to the Company and comparison to quoted prices. The fair value of these
financial instruments approximates carrying value.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform with the 1997 presentation.
F-11
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS
REVERSE COMMON STOCK SPLIT
On February 12, 1998 the Company effected a one for ten reverse common
stock split. Accordingly, all references to number of common shares,
except shares authorized, and to per share information in the consolidated
financial statements have been adjusted to reflect the reverse stock split
on a retroactive basis.
PREFERRED STOCK - SERIES A
On November 10, 1995, the Company sold 1,200,000 shares of 6% Cumulative
Convertible Series A Preferred Stock ("Series A") at $12.00 per share. The
net proceeds totaled $12,372,500 after expenses of $2,027,500. Dividends
are payable quarterly in cash or common stock at the Company's election.
Liquidation value is $12.00 per share. Each share of Series A is
convertible into .6 shares of common stock with unconverted shares
automatically converting on May 10, 1997. The Company issued to
underwriters, for nominal consideration, warrants to purchase 120,000
shares of Series A with an exercise price of $14.40, expiring in five
years. No value was assigned to these warrants. These warrants were
automatically converted into warrants to purchase 72,000 of common stock
at $24.00 per share on May 10, 1997 and remain outstanding at December 31,
1997. Concurrent with this offering, 18,500 shares of common stock
included in units sold in a Private Placement on July 28, 1995 were
converted into 77,089 shares of Series A.
On August 28, 1996, the Company sold 170,371 shares of Series A to Dan
Rubin, the pension plan of Dr. Roy Rubin (Dan's father) and another
individual (collectively, the "Rubin Group") at $13.50 per share for
aggregate proceeds of $2,210,000 after expenses of $90,000. In connection
with this transaction, the purchasers received 30,667 common stock
purchase warrants exercisable at $22.50 per share, expiring in 5 years. No
value was assigned to these warrants. These warrants were surrendered in
conjunction with the February 12, 1997 settlement outlined below.
All Series A shares were converted as follows: 1,047,015 shares in 1996,
165,264 shares prior to May 10, 1997 and the remaining 235,181 shares on
May 10, 1997.
PREFERRED STOCK - SERIES B
On October 10, 1996 the Company sold 4,000 shares of newly issued 7%
Convertible Preferred Stock, par value $.001 per share at $1,000 per share
("Series B"). The sale was made to Cameron Capital Ltd., a foreign
institutional investor ("Cameron"), for aggregate net proceeds of
$3,667,500. On February 12, 1997, all the outstanding shares of Series B
were exchanged for a Convertible Term Note in the principal amount of
$4,000,000, as outlined below.
F-12
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
FEBRUARY 12, 1997 - FINANCING AGREEMENTS AND SETTLEMENTS OF CLAIMS
Following the sale of the Series B shares to Cameron, the Rubin Group
asserted claims against the Company relating to alleged misrepresentations
of the financial condition of the Company and concerning the Company's
proposed future sales of its equity instruments. Negotiations ensued, and
on February 12, 1997, the Company finalized the secured loan agreements
with Cameron and the Rubin Group described below.
Cameron exchanged its 4,000 Series B shares purchased on October 10, 1996,
with an aggregate liquidation preference of $4,000,000, for a convertible
term note in the principal amount of $4,000,000. The convertible term note
bears interest at the rate of 7% per annum, payable semi-annually
commencing December 31, 1997. The principal balance is due and payable on
October 9, 1999. Any portion or all of the principal amount of the note
outstanding may be converted into common stock of the Company commencing
90 days after February 12, 1997. Upon conversion, the Company shall issue
that number of shares of its common stock obtained by dividing the
principal amount of the loan converted by the lesser of (i) $13.30, or
(ii) 80% of the average closing bid price of the common stock for the five
(5) consecutive trading days preceding the date of conversion. In
addition, the Company shall pay the lenders a premium of 3% per month of
the outstanding convertible note balance if it does not file the required
Registration Statement with the SEC by May 1, 1997 or if such filing is
not declared effective by July 1, 1997. Because such Registration
Statement was not filed by May 1, 1997 and became effective on August 20,
1997, the Company is liable for four months of premium, or 12%. The
maximum number of shares into which the convertible note may be converted,
which was initially set at 300,000, was ultimately increased to 2,000,000.
The conversion formula is subject to adjustment in the event of stock
splits, stock dividends, mergers, consolidations, or similar transactions.
The Company's recording of this exchange transaction included a charge to
debt issuance costs of $332,500, which were fully amortized at February
12, 1997. In addition, the Company recorded $1,000,000 as additional
paid-in capital for the discount related to the embedded interest in the
convertible debentures and amortized this expense over 90 days from
February 12, 1997 to May 13, 1997, when the debentures were first
convertible. This interest expense is included in the caption "Embedded
interest expense" in the accompanying 1997 statement of operations. The
exchange of the 4,000 Series B shares for $4,000,000 debentures was
reflected in the December 31, 1996 balance sheet because substantially all
the conditions precedent to the occurrence of this transaction and those
described below had taken place as of the end of fiscal 1996. Cameron
waived the 7% accrued interest on the convertible debt and the aggregate
12% premium related to the timing of the Registration Statement and
converted $1,004,642 of these debentures into 1,505,000 shares of common
stock in 1997.
F-13
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
FEBRUARY 12, 1997 - FINANCING AGREEMENTS AND SETTLEMENTS OF CLAIMS
(CONTINUED)
As part of the secured financing agreement, the Rubin Group agreed to
settle all claims against the Company for $2,000,000. Accordingly, the
Company issued convertible term notes in the aggregate amount of
$1,950,000 and agreed to pay $50,000 cash to the Rubin Group. The
$2,000,000 charge to "Settlement of stockholders' claims" is included in
the 1996 statement of operations and the related liabilities are reflected
in the December 31, 1996 balance sheet. The convertible term notes contain
the same terms and conditions as the convertible term note issued to
Cameron, except that the Rubin Group may convert at any time following the
closing. The maximum number of shares into which the convertible notes may
be converted is 2,350,000. The Company has recorded $487,500 as additional
paid-in capital for the discount related to the embedded interest in the
convertible debentures and fully amortized the expense on February 12,
1997, when the debentures became convertible. This interest expense is
included in the caption "Embedded interest expense" in the accompanying
1997 statement of operations. In October 1997, the Board of Directors
approved the issuance of 300,000 common shares at a 20% discount in full
payment of the 7% accrued interest and the 12% accrued premium due to the
Rubin Group. Accordingly, the Company has recorded $82,000 in additional
paid-in capital and related embedded interest expense for such discount
feature. During 1997 the Rubin Group converted the entire $1,950,000
debentures into 1,780,000 shares of common stock.
Also as part of the secured financing agreement, the Rubin Group has made
a $3,500,000 line of credit available to the Company at prime plus 4%,
payable semi-annually, commencing on December 31, 1997, due on October 9,
1999. In addition, the Company will issue one warrant to purchase its
common stock for each $30 advanced. These warrants are exercisable at
$6.25 per share and expire on October 9, 1999. As of December 31, 1997,
there was $900,000 outstanding under the line of credit, and the Company
issued 30,000 warrants, none of which has been exercised at December 31,
1997. No value was assigned to these warrants. In October 1997, the terms
of this line of credit were amended to provide that amounts advanced may
be converted to common stock under the same terms and conditions as the
convertible term notes issued to the Rubin Group. Accordingly, the Company
recorded $225,000 as additional paid-in capital for the discount related
to the embedded interest in the line of credit advances and fully
amortized the expense. This interest expense is included in the caption
"Embedded interest expense" in the accompanying 1997 statement of
operations.
F-14
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
FEBRUARY 12, 1997 - FINANCING AGREEMENTS AND SETTLEMENTS OF CLAIMS
(CONTINUED)
The line of credit advances and all convertible term notes are secured by
a lien on substantially all of the assets of the Company. In the event of
default, the secured parties shall participate in the proceeds of the
collateral in proportion to their outstanding debt. Cameron has the right
to name three of the five members of the board. Cameron assigned this
right to the Rubin Group, as its agent, and immediately after the closing,
Dan Rubin was elected Chief Executive Officer and President of the
Company.
MAY 1997 - CONVERTIBLE DEBT TRANSACTIONS
In May 1997, the Company sold pursuant to Regulation S of the Securities
Act of 1933 5% Convertible Debentures for $1,200,000 to institutional
investors abroad, convertible 41 days after closing at a price equal to
70% of the average closing bid price during the 5 days preceding the
conversion date. The Company has recorded $514,286 as additional paid-in
capital for the discount related to the embedded interest in the
convertible debentures and amortized the expense over the 41 day period
before the debentures became convertible. This interest expense is
included in the caption "Embedded interest expense" in the accompanying
1997 statement of operations. In October 1997, the Company issued 500,000
shares of common stock to these investors in consideration for a full
release of claims arising out of the securities sold to them. These claims
alleged that the securities sold in May 1997 had been unfairly priced and
the additional shares were issued to give the institutional investors an
overall price that reflected the market value of the common stock at the
time of settlement. Accordingly, $468,750 has been charged to "Settlement
of stockholders' claims" in the accompanying 1997 statement of operations
reflecting the fair value of the common stock surrendered. All these
debentures were converted into 415,670 shares of common stock during 1997.
OCTOBER 1997 - CONVERTIBLE DEBT TRANSACTIONS
In October 1997, the Company sold pursuant to Regulation S of the
Securities Act of 1993 5% Convertible Debentures due January 31, 1998 for
$150,000 to institutional investors abroad, convertible immediately after
closing at a price equal to 80% of the average closing bid price during
the 5 days preceding the conversion date. The Company has recorded $37,500
as additional paid-in capital for the discount related to the embedded
interest in the convertible debentures and amortized the expense in
October 1997, when the debentures were first convertible. This interest
expense is included in the caption "Embedded interest expense" in the
accompanying 1997 statement of operations. All these debentures were
automatically converted as of January 31, 1998 into 461,504 shares.
F-15
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
FEBRUARY 18, 1998 - FINANCIAL RESTRUCTURING AND SETTLEMENT OF CLAIMS
After Cameron had converted $1,004,642 of its $4,000,000 7% convertible
debt, leaving a balance of $2,995,358, a dispute arose regarding the
proper use of the proceeds realized from the sale of CSLV (See Note 3).
Cameron contended that the Company was obligated to use the proceeds to
prepay its debt; the Company believed that the proceeds were needed for
working capital and the repayment of other debt. Cameron commenced legal
action against the Company on February 13, 1998 in which it sought
recovery of the full $1,550,000 received by the Company in connection with
the sale of CSLV, and obtained a temporary restraining order prohibiting
the Company from using the proceeds until the dispute was resolved.
Under the terms of the Settlement Agreement dated February 18, 1998,
Cameron agreed to dismiss its legal action against the Company and to
accept as payment in full of its unconverted debt $1,300,000 in cash and
670,000 shares of the Company's common stock with a market value of
$167,500. Cameron does not have any registration rights with respect to
the common stock but is eligible to resell certain amounts immediately
pursuant to the provisions of Rule 144 under the Securities Act of 1933.
The Settlement Agreement provides for mutual releases of all claims held
by the Company against Cameron and by Cameron against the Company and Dan
Rubin.
The Company funded Cameron's settlement with an advance of $1,300,000 on
the Rubin Group's $3,500,000 line of credit described above. The lender
also received warrants to acquire 43,333 shares of the Company's common
stock at an exercise price of $6.25 per share. No value was assigned to
these warrants. The Company has recorded $325,000 as additional paid-in
capital for the discount related to the embedded interest in the line of
credit advances and fully amortized the expense on February 18, 1998.
COMMON STOCK
In 1996, the Company sold shares of its common stock in various private
placement transactions as follows:
<TABLE>
<CAPTION>
DATE COMMON STOCK WARRANTS
- ------------------------- --------------------------------------- -----------------------------------
NET EXERCISE TERMS IN
SHARES PRICE PROCEEDS NUMBER PRICE YEARS
--------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
February 12, 1996 24,190 $ 26.25 $ 635,000 -- n/a n/a
March 28, 1996 75,000 30.00 2,192,257 37,500 $ 30.00 5
July 10, 1996 11,429 35.00 380,000 8,572 35.00 5
September 10, 1996 10,000 20.00 200,000 10,000 20.00 5
-------------- -----------
120,619 $ 3,407,257
============== ===========
</TABLE>
No value was assigned to these warrants.
F-16
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
COMMON STOCK (CONTINUED)
During May through July 1997, the Company issued an aggregate of 260,962
shares of its common stock with a value of $983,189 to certain creditors
and vendors in full settlement of their claims against the Company. The
resulting extraordinary item is more fully described in Note 7.
In June 1997, the Company issued warrants to acquire 150,000 shares of its
common stock at an exercise price of $2.10 per share to private investors.
The warrants were exercised immediately and the Company issued 150,000
shares of its common stock, receiving net proceeds of $315,000. No
commissions or fees were paid by the Company as a part of this
transaction. In October 1997 the Company issued 102,000 shares of common
stock to these investors in consideration for a full release of claims
arising out of the securities sold to them. These claims alleged that the
securities sold in June 1997 had been unfairly priced and the additional
shares were issued to give the investors an overall price that reflected
the market value of the common stock at the time of settlement.
Accordingly, $95,625 has been charged to "Settlement of stockholders'
claims" in the accompanying 1997 statement of operations, reflecting the
fair value of the common stock surrendered.
During July and August 1997, the Company sold in a private offering an
aggregate of 357,857 shares of its common stock at $2.80 per share for net
proceeds of $894,643 after deducting expenses of $107,357. In October 1997
the Company issued 443,743 shares of common stock to these investors in
consideration for a full release of claims arising out of the securities
sold to them. These claims alleged that the securities sold in July and
August 1997 had been unfairly priced and the additional shares were issued
to give the investors an overall price that reflected the market value of
the common stock at the time of settlement. Accordingly, $416,009 has been
charged to "Settlement of stockholders' claims" in the accompanying 1997
statement of operations reflecting the fair value of the common stock
surrendered.
In November 1997, the Company granted a bonus of $35,000 to its President
and CEO, in the form of 37,000 shares of its common stock.
INCENTIVE STOCK OPTION PLAN
In July 1993, the Company adopted an Incentive Stock Option Plan covering
10,000 shares of common stock. In 1994, 9,000 options were granted at an
exercise price of $40.00 per share. During 1997, these 9,000 options were
canceled.
F-17
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
NONQUALIFIED STOCK OPTION PLAN
In January 1994, the Company adopted the 1994 Nonqualified Stock Option
Plan ("NSOP") covering 100,000 shares of common stock. The exercise price
shall not be less than 100% of the fair market value of the common stock
on the date of grant. In April 1994, the Company granted options to
purchase 52,100 shares. During 1997, 48,850 of these options were canceled
and the remaining 3,250 are outstanding, with an exercise price of $20.00
per share.
OTHER OPTIONS
In 1994, the Company granted options to purchase 46,700 common shares at
$40.00 per share to certain non-employees for services to be performed. Of
this amount, 35,000 options were granted to certain celebrities pursuant
to license agreements with such celebrities. The Company recognized a
charge to earnings over the period services were rendered by the
non-employees based on the fair market value of the options at the date
granted. The entire amount has been amortized as of December 31, 1997.
Options totaling 36,250 were canceled in 1997 and 10,450 are outstanding
at December 31, 1997.
NON-EMPLOYEE WARRANTS
The Company had 134,500 common stock purchase warrants outstanding as of
January 1, 1996. Of these, 10,000 issued as part of CSLV's financing
agreement were canceled in 1997, and 124,500 issued to underwriters remain
outstanding. In 1996, the Company issued 5,000 warrants to non-employee
members of the Board of Directors, which were canceled in 1997, and 50,850
warrants were issued to celebrities. Of these 17,000 were canceled in 1997
and 33,850 remain outstanding. An additional 127,238 warrants were issued
in 1996 in conjunction with various private placement transactions. Of
these, 20,000 were exercised in 1997, 86,238 were canceled, and 21,000 are
outstanding at exercise prices ranging from $20.00 to $40.00. In 1997, a
warrant to purchase 150,000 shares was granted and immediately exercised,
and warrants to acquire 30,000 shares at $6.25 were granted in conjunction
with the line of credit advances described above.
F-18
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
NON-EMPLOYEE WARRANTS (CONTINUED)
Combined transactions in non-employee warrants for 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Warrants outstanding January 1 317,588 $ 24.40 134,500 $ 24.00
Granted 180,000 2.44 183,088 24.70
Canceled (118,238) 26.83 -- --
Exercised (170,000) 2.24 -- --
----------- --------- ---------- ---------
Warrants outstanding December 31 209,350 $ 19.23 317,588 $ 24.40
=========== ========= ========== =========
</TABLE>
EMPLOYEE WARRANTS
Combined transactions in employee warrants for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Warrants outstanding January 1 151,900 $ 21.58 -- $ --
Granted 105,000 1.25 151,900 21.58
Canceled (96,500) 31.40 -- --
Exercised (30,000) 0.90 -- --
----------- --------- ---------- ---------
Warrants outstanding December 31 130,400 $ 2.21 151,900 $ 21.58
=========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
The following information applies to employee warrants outstanding at December 31, 1997:
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
---------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$1.25 77,500 5 $ 1.25 77,500 $ 1.25
$2.50 50,000 4 $ 2.50 50,000 $ 2.50
$20.00 2,900 4 $ 20.00 2,900 $ 20.00
------------- ------------- -------------- ----------- --------------
130,400 4.5 $ 2.21 130,400 $ 2.21
============= ============= ============== =========== ==============
</TABLE>
F-19
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 2 - CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
EMPLOYEE WARRANTS (CONTINUED)
Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, "Accounting for stock Issued to employees,"
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value
of the warrants at the grant dates consistent with the method of SFAS 123,
the Company's net loss and loss per share would have been:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Net loss
As reported $ (17,246,290) $ (16,780,382)
Pro forma (17,439,290) (22,227,382)
Basic and diluted earnings per share
As reported $ (5.38) $ (15.54)
Pro forma (5.44) (20.46)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1995. In addition, potential deferred tax
benefits of approximately $77,000 in 1997 and $1,852,000 in 1996 have not
been reflected in the pro forma amounts due to the uncertainty of
realizing any benefit. The fair value of these options was estimated at
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions for 1997 and 1996:
Expected life (years) 5
Risk-free interest rate 6.00%
Volatility 120%-200%
The weighted fair value of warrants granted during 1997 and 1996 for which
the exercise price approximated the market price on the grant date was
$1.25 and $33.90, respectively.
F-20
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 3 - LOSS ON DISPOSAL OF ASSETS
COUNTRY STAR ATLANTA
Pursuant to a settlement agreement effective as of December 23, 1997
between the Company and its Atlanta landlord, the Company agreed to
voluntarily relinquish its rights, title, interest and possession to real
property under the lease agreement for the Atlanta restaurant facility.
Accordingly, as of that date, the Atlanta lease ceased and expired. See
Note 5.
Except for $320,000 of furniture, equipment and memorabilia to be
relocated, all property and equipment associated with this location has
been written off in 1997. The write off amounted to $5,754,000 of
leasehold improvements and $728,267 of furniture and equipment.
COUNTRY STAR LAS VEGAS
During 1996, in connection with certain financing arrangements, the
Company acquired a 50.05% ownership position in CSLV. Pursuant to certain
concurrent agreements concluded on December 30, 1997, the Company first
acquired the remaining interest in CSLV not held by the purchaser for
$200,000 cash and 225,000 shares of common stock valued at $325,000, then
sold its entire interest in CSLV for $1,550,000. Accordingly, the Company
surrendered its properties, interest and rights in CSLV and entered into a
new lease as tenant to operate the restaurant facility, as more fully
disclosed in Note 5. In conjunction with the Las Vegas restaurant facility
transaction, the minority interests' equity in the 1997 loss of CSLV was
limited to their capital balance of $2,124,446.
Except for $268,000 of furniture, equipment and memorabilia still owned by
the Company, all property and equipment associated with this location has
been written off in 1997. The write off amounted to $4,700,000 of
leasehold improvements and $546,293 of furniture and equipment.
The loss on disposal of the Atlanta and Las Vegas assets reflected in the
1997 consolidated statement of operations is as follows:
Country Star Atlanta $ 6,482,267
Country Star Las Vegas 5,246,293
Sale of CSLV - gross proceeds (1,550,000)
----------------
$ 10,178,560
================
F-21
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 4 - INCOME TAXES
A reconciliation between the actual income tax benefit and the federal
statutory rate follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
AMOUNT % AMOUNT %
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computed income tax benefit at
statutory rate $ 5,863,000 34% $ 5,705,000 34%
Operating loss with no current
tax benefit (5,863,000) -34% (5,705,000) -34%
----------- ----------- ----------- -----------
Income tax benefit $ -- 0% $ -- 0%
=========== =========== =========== ===========
</TABLE>
At December 31, 1997, the Company had a net operating loss carryforward
for federal tax purposes of approximately $35,500,000 which, if unused to
offset future taxable income, will expire between 2008 and 2012, and
approximately $12,000,000 for state tax purposes which will expire if
unused between 1998 and 2002. A valuation allowance has been recognized
for 1997 and 1996 to offset the related deferred tax assets due to the
uncertainty of realizing any benefit therefrom. During 1997, no changes
occurred in the conclusions regarding the need for a 100% valuation
allowance in all tax jurisdictions.
Under Section 382 of the Internal Revenue Code, the utilization of net
operating loss carryforwards is limited after an ownership change, as
defined, to an annual amount equal to the market value of the loss
corporation's outstanding stock immediately before the date of the
ownership change multiplied by the highest Federal long-term tax exempt
rate in effect for any month in the 3 calendar month period ending with
the calendar month in which the ownership change occurred. Due to the
ownership change as a result of the secondary offering completed in
November 1995, the Company's utilization of pre-1996 net operating losses
is limited to approximately $1,000,000 per year. The determination of
whether a change in control has occurred can be a very complex and time
consuming process. The Company is not currently in a position to determine
whether additional changes in control might have occurred since November
1995.
Significant components of the Company's deferred tax assets are as
follows:
1997 1996
-------------- -------------
Net operating loss carryforwards $ 13,142,000 $ 6,721,000
Impairment of long-lived assets 618,000 2,066,000
Other 199,000 5,000
-------------- -------------
13,959,000 8,792,000
Depreciation (265,000) 152,000
Valuation allowance (13,694,000) (8,944,000)
-------------- -------------
Net deferred tax assets $ -- $ --
============== =============
F-22
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LEASES
As of December 31, 1997 the Company has lease agreements to operate its
two restaurant facilities in Hollywood, California and Las Vegas, Nevada
and for its corporate offices in Los Angeles, California.
COUNTRY STAR HOLLYWOOD
The Hollywood restaurant's lease was extended during 1997 under
substantially the same terms as the prior lease, and under certain
conditions, is subject to two additional extensions of five years each.
The lease requires annual minimum payments of $312,000, subject to annual
adjustment. The adjusted amount was $318,800 for 1997. Additionally, the
lease requires percentage rent to be paid, ranging from 6%-10% of annual
sales volume, although such percentage rent payments will be forgone by
the landlord until such time as the Company recoups its investment in the
leasehold improvements from amounts that would otherwise be payable to the
landlord as percentage rent.
COUNTRY STAR LAS VEGAS
As discussed in Note 3, the prior lease for the Las Vegas restaurant
facility was terminated on December 30, 1997 and replaced with a new
lease. The new lease, which is to terminate on September 30, 1998 unless
mutually extended on a month-to-month basis, provides for the Company to
pay a monthly base rent of 50% of positive cash flow from operating the
restaurant (with no reduction for the Company's corporate overhead except
for half the salary and related expenses for an accounts payable employee,
a payroll employee and an executive chef).
CORPORATE OFFICES
The lease on the corporate office expires in June 2002 and provides for a
basic rent of $5,175 per month through June 2000 and $5,558 per month
thereafter.
The Company is subject to minimum annual lease payments as follows:
YEAR ENDING DECEMBER 31, AMOUNT
---------------------------------- --------------
1998 $ 380,809
1999 380,809
2000 349,851
2001 318,804
2002 318,804
Thereafter 3,188,040
--------------
$ 4,937,117
==============
F-23
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
ATLANTA AND LAS VEGAS LIEN MATTERS
Certain contractors have filed claims of lien against the Company's
Atlanta and Las Vegas restaurants that have not been cleared by the
posting of a bond or any payment. Such claims of lien total approximately
$1,200,000. Of that amount, the Company believes that all of the
$1,200,000 represent invalid lien claims, either because the contractor
has already been paid, or because the contractor did not perform agreed
upon services or provide agreed upon materials or because the liens have
been bonded. The Company is pursuing its rights and remedies against these
contractors, whom it believes have filed invalid lien claims.
CONTRACTOR LITIGATION IN ATLANTA
On February 3, 1998, Pacific Southwest Design, Inc. filed a suit in
Atlanta against the Company claiming damages of $597,659 for failure to
pay amounts due for services rendered. The Company intends to vigorously
defend against this action and has counterclaimed for damages in an
undetermined amount for the contractor's breach of contract and failure to
perform work which caused the Company to lose its Atlanta lease.
Management believes that the probable resolution of the litigation matters
described above will not materially affect the consolidated financial
position or results of operations of the Company.
NOTE 6 - GOING CONCERN
The Company has experienced a loss of over $34,000,000 for the two year
period ended December 31, 1997 and its cash balance at March 25, 1998 is
less than $10,000.
New management took over the Company on February 12, 1997 and determined
that a major overhaul of corporate strategy was required to deal with the
Company's financial problems. Measures taken by new management include (i)
the permanent closing of Country Star Atlanta and the sale of CSLV in
December 1997, (ii) the expansion of the "country" theme, (iii) planned
expansion through joint ventures and licensing rather than expensive
construction of new restaurant facilities, and (iv) settlement with trade
creditors.
Management continues to make operational changes to improve revenues,
control operating costs, and limit corporate overhead. The Company will
need to raise additional capital before it can obtain profitability from
operations. Management believes it can raise this capital through private
placements of equity and the granting by lenders of discretionary advances
under outstanding lines of credit.
F-24
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 7 - EXTRAORDINARY ITEM
During 1997, the Company recognized an extraordinary gain of $1,673,629 on
the settlement of trade payables and capital leases whereby certain
vendors and lessors accepted cash payments and/or common stock for the
full release of their claims.
<TABLE>
<CAPTION>
Value of
Recorded Cash Stock
Liability Payments Issued Gain
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Trade payables $ 3,005,024 $ 845,667 $ 670,689 $ 1,488,668
Capital leases 497,461 -- 312,500 184,961
--------------- ---------------- --------------- ---------------
$ 3,502,485 $ 845,667 $ 983,189 $ 1,673,629
=============== ================ =============== ===============
</TABLE>
NOTE 8 - BASIC AND DILUTED NET LOSS PER SHARE
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
loss per share computations:
<TABLE>
<CAPTION>
1997 1996
------------------ --------------------
<S> <C> <C>
BASIC AND DILUTED LOSS PER SHARE:
Numerator
Loss before extraordinary item $ (18,919,919) $ (16,780,382)
Preferred dividend (11,910) (432,780)
------------------ --------------------
(18,931,829) (17,213,162)
Extraordinary item 1,673,629 --
------------------ --------------------
$ (17,258,200) $ (17,213,162)
================== ====================
Denominator
Basic and diluted weighted average number of
common shares outstanding during the period 3,208,465 1,107,481
================== ====================
Basic and diluted net loss per share:
Loss before extraordinary item $ (5.90) $ (15.54)
Extraordinary item 0.52 --
------------------ --------------------
Net loss per common share $ (5.38) $ (15.54)
================== ====================
</TABLE>
Potential common stock instruments at December 31, 1997, which include
13,700 options, 339,750 warrants, convertible line of credit advances of
$900,000, and convertible debt of $3,145,358 are not included in the loss
per share calculation because their inclusion would be anti-dilutive.
F-25
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 9 - RECENT PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income",
which established standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). SFAS 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 requires an enterprise to (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Management
has determined that the adoption of SFAS 130 will not have a material
impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" which established standards for public
business enterprises to report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific
revenue and expense items, segment assets, information about the revenues
derived from the enterprise's products or services and major customers.
SFAS 131 also requires that the enterprise report descriptive information
about the way that the operating segments were determined and the products
and services provided by the operating segments. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years to
be restated. SFAS 131 need not be applied to interim financial statements
in the initial year of application, but comparative information for
interim periods in the initial year of application is to be reported in
financial statements for interim periods in the second year of
application. Management has determined that the adoption of SFAS 131 will
not have a material impact on the Company's financial reporting.
F-26
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 10 - REVISED QUARTERLY INFORMATION (UNAUDITED)
The unaudited financial statements included in the Company's 1997 Forms
10-QSB did not include the additional paid-in capital and the equivalent
charge to operations resulting from the discount related to the embedded
interest in the convertible debentures issued in February and May 1997.
Accordingly, the following table shows the pertinent financial statement
information as was originally presented and as now revised. The revisions
affect only equity and embedded interest expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR TO DATE
---------------------------- -------------------------------
ORIGINALLY ORIGINALLY
FILED REVISED FILED REVISED
------------ ------------ ------------- -------------
Q1 - MARCH 31, 1997
-------------------
<S> <C> <C> <C> <C>
Preferred stock $ 235 $ 235
Common stock 15,364 15,364
Additional paid in capital 36,180,881 37,190,603
Unamortized stock option cost (136,579) (136,579)
Accumulated deficit (29,823,540) (30,833,262)
------------ ------------
Total stockholders' equity $ 6,236,361 $ 6,236,361
============ ============
Net loss $ (2,189,938) $ (3,199,600)
============ ============
Basic and diluted loss per common share
Loss before extraordinary item $ (1.49) $ (2.18)
Extraordinary item -- --
------------ ------------
Net loss $ (1.49) $ (2.18)
============ ============
Weighted average number of shares 1,470,760 1,470,760
============ ============
Q2 - JUNE 30, 1997
-------------------
Preferred stock $ -- $ --
Common stock 23,619 23,619
Additional paid in capital 38,156,860 40,158,646
Unamortized stock option cost (118,428) (118,428)
Accumulated deficit (30,002,625) (32,004,411)
------------ ------------
Total stockholders' equity $ 8,059,426 $ 8,059,426
============ ============
Net loss $ (179,084) $ (1,171,148) $ (2,369,022) $ (4,370,808)
============ ============ ============= =============
Basic and diluted loss per common share
Loss before extraordinary item $ (0.86) $ (1.43) $ (2.31) $ (3.55)
Extraordinary item 0.76 0.76 0.84 0.84
------------ ------------ ------------- -------------
Net loss $ (0.10) $ (0.67) $ (1.47) $ (2.71)
============ ============ ============= =============
Weighted average number of shares 1,752,408 1,752,408 1,612,239 1,612,239
============ ============ ============= =============
</TABLE>
F-27
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Consolidated Financial Statements
NOTE 10 - REVISED QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR TO DATE
---------------------------- -----------------------------
ORIGINALLY ORIGINALLY
FILED REVISED FILED REVISED
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Q3 - SEPTEMBER 30, 1997
----------------------------
Preferred stock $ -- $ --
Common stock 38,887 38,887
Additional paid in capital 40,649,812 42,651,598
Unamortized stock option cost (100,276) (100,276)
Accumulated deficit (31,057,219) (33,059,005)
------------ ------------
Total stockholders' equity $ 9,531,204 $ 9,531,204
============ ============
Net loss $ (1,054,591) $ (1,054,591) $ (3,423,616) $ (5,425,402)
============ ============ ============= ============
Basic and diluted loss per common share
Loss before extraordinary item $ (0.45) $ (0.45) $ (2.44) $ (3.39)
Extraordinary item 0.10 0.10 0.79 0.79
------------ ------------ ------------- ------------
Net loss $ (0.35) $ (0.35) $ (1.65) $ (2.60)
============ ============ ============= ============
Weighted average number of shares 3,041,412 3,041,412 2,083,525 2,083,525
============ ============ ============= ============
</TABLE>
F-28
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
COUNTRY STAR RESTAURANTS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called
the "Corporation") is:
COUNTRY STAR RESTAURANTS, INC.
2. The Certificate of Incorporation of the Corporation is
hereby amended by striking out Article Fourth thereof and substituting in lieu
of said Article Fourth the following new Article:
"FOURTH: (a) The total number of shares of stock
which the Corporation shall have authority to
issue is Two Hundred Fifty Two Million
(252,000,000), consisting of Two Hundred Fifty
Million (250,000,000) shares of Common Stock, all
of a par value of One Mil ($.001), and Two
Million (2,000,000) shares of Preferred Stock, all
of a par value of One Mil ($.001).
The rights, preferences, designations and series
of the Preferred Stock shall be established from
time to time by the Board of Directors."
Signed and attested to
on June 27, 1997
/s/ DAN J. RUBIN
---------------------------
Dan J. Rubin, President
Attest:
/s/ ROBERT L. DAVIDSON
- -----------------------
Secretary
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
COUNTRY STAR RESTAURANTS, INC.
(Filed pursuant to ss.242 of the General Corporation Law of thE State of
Delaware.)
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is:
COUNTRY STAR RESTAURANTS, INC.
2. The Certificate of Incorporation of the Corporation is
hereby amended by striking out Article Fourth paragraph (c) thereof and
substituting in lieu thereof the following new Article Fourth paragraph (c) as
follows:
(c) REVERSE STOCK SPLIT. Effective as of the close of
business on the date of filing this Amendment to the
Certificate of Incorporation with the Secretary of
State of Delaware, there shall be effected a reverse
split of the outstanding shares of Common Stock on
the basis of one new share of common stock, par value
$.01, for each ten then issued and outstanding shares
of Common Stock, par value $.001. Without any action
by the holders of outstanding shares of Common Stock,
certificates representing each ten outstanding shares
of Common Stock shall represent for all purposes, and
each ten shares of Common Stock then issued and
outstanding shall automatically be converted into,
one share of Common Stock.
No scrip or fractional shares of Common Stock shall
be issued in connection with such reverse split. In
lieu thereof each record holder of shares of Common
Stock who would otherwise have been entitled to
receive a fractional share of common stock shall be
entitled to receive a cash payment equal to the
closing sale price of one share on The NASDAQ
National Market on the date of filing
<PAGE>
EXHIBIT 3.4
of this Amendment, or, if there are not reported
sales on such date, the average of the last reported
high bid and low asked prices on such day, multiplied
by the fractional share which would otherwise be
issuable after giving effect to the reverse split,
and such amount shall in no event accrue any
interest. Any such fractional shares shall not
represent equity interests in the Corporation, and
shall not be entitled to any voting, dividend or
other rights, but shall represent only the right to
receive the cash payment described in this paragraph.
When this Amendment becomes effective (i) the
aggregate amount of capital represented by all issued
and outstanding shares of Common Stock immediately
after the effectiveness of this Amendment will not be
less than the aggregate amount of capital represented
by all issued and outstanding shares of Common Stock
immediately before the effectiveness of the Amendment
and, therefore, the capital of the Corporation will
not be reduced under or by reason of this Amendment
and (ii) the par value of the Corporation's
authorized shares of Common Stock shall be $.01 per
share.
Signed and attested to
on February 10, 1998
/s/ DAN J. RUBIN
---------------------------
Dan J. Rubin, President
Attest:
/s/ ROBERT L. DAVIDSON
----------------------
Secretary
-2-
EXHIBIT 10.1
COPPERFIELD INVESTMENT & DEVELOPMENT COMPANY
OFFICE LEASE
1. BASIC LEASE PROVISIONS ("BASIC LEASE PROVISIONS").
1.1 PARTIES: This lease, dated, for reference purposes only,
MAY 28, 1997 is made by and between Copperfield Investment &
Development Company (herein called "Lessor") and COUNTRY STAR
RESTAURANTS, INC. doing business under the name of SAME
(herein called "Lessee").
1.2 PREMISES: Suite Number(s) 428 on the 10TH floor,
consisting of approximately 3,833 rentable square feet, more
or less, as defined in paragraph 2 and shown on Exhibit "A"
hereto (the "Premises).
1.3 BUILDING: Commonly described as being located at 4929
Wilshire Boulevard, in the City of Los Angeles, County of Los
Angeles, State of California, and as defined in paragraph 2.
1.4 USE: GENERAL OFFICE USE subject to paragraph 6.
1.5 TERM: FIVE (5) YRS. commencing JULY 1, 1997
("Commencement Date") and ending as defined in paragraph 3.
1.6 BASE RENT: FIVE THOUSAND ONE HUNDRED SEVENTY FIVE
($5,175.00) per month, payable on the 1ST day of each month,
per paragraph 4.1. mos 1-36, then $5,558.00 mos. 37-60.
1.7 BASE RENT INCREASE: None.
1.8 RENT PAID UPON EXECUTION: FIVE THOUSAND ONE HUNDRED
SEVENTY FIVE ($5,175.0) for the FIRST month(s) of the lease
term.
1.9 SECURITY DEPOSIT PAID UPON EXECUTION: $5,175.00.
1.10 LESSEE'S SHARES OF OPERATING EXPENSE INCREASE: N/A% as
defined in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building,
herein sometimes referred to as the "Building" identified in
paragraph 1.3 of the Basic Lease Provisions. "Building" shall
include adjacent
<PAGE>
parking structures used in connection therewith. The Premises,
the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee
and Lessee leases from Lessor for the term, at the rental, and
upon all of the conditions set forth herein, the real property
referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and
subject to the rules and regulations attached hereto, and as
established by Lessor from time to time, Lessee shall be
entitled, but not obligated to rent and use 10 parking spaces
in the Office Building Project at the monthly rate applicable
from time to time for monthly parking as set by Lessor and/or
its licensee.
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the
rules then in effect, then Lessor shall have the
right, without notice, in addition to such other
rights and remedies that it may have, to remove or
tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.2.2 The monthly parking rate per parking space
will be the prevailing rate per month at the
commencement of the term of this Lease, and
is thereafter subject to change upon five (5)
days prior written notice to Lessee. Monthly
parking fees shall be payable once month in
advance prior to the first day of each
calendar month. (See Par. 53)
2.3 COMMON AREAS-DEFINITION: The term "Common Areas" is
defined as all areas and facilities outside the Premises and
within the exterior boundary line of the Office Building
Project that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor,
Lessee and all other lessees of the Office Building Project
and their respective employees, suppliers, shippers, customers
and invitees, including but not limited to common entrances,
lobbies, corridors, stairways and stairwells, public
restrooms, elevators, escalators, parking areas to the extent
not otherwise prohibited by this Lease, loading and unloading
areas, trash areas,
-2-
<PAGE>
roadways, sidewalks, walkways, parkways, ramps, driveways,
landscaped areas and decorative walls.
2.4 COMMON AREAS-RULES AND REGULATIONS: Lessee agrees to
abide by and conform to the rules and regulations attached
hereto as Exhibit "C" with respect to the Office Building
Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint
shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to modify,
amend and enforce said rules and regulations. Lessor shall not
be responsible to Lessee for the noncompliance with said rules
and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 COMMON AREA-CHANGES: Changes, Lessor shall have the
right, in Lessor's sole discretion, from time to time:
(a) To make changes to the Building interior and
Common Areas, including, without limitation,
changes in the location, size, shape, number, and
appearance thereof, including but not limited to
the lobbies, windows, stairways, air shafts,
elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction
of traffic, decorative walls, landscaped areas
and walkways; provided, however, Lessor shall at
all times provide the parking facilities required
by applicable law;
(b) To close temporarily any of the Common Areas
for maintenance purposes so long as reasonable
access to the Premises remains available.
(c) To designate other land and improvements
outside the boundaries of the Office Building
Project to be a part of the Common Area, provided
that such other land and improvements have a
reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements
to the Common Area;
(e) To use the Common Area while engaged in
making additional improvements, repairs or
-3-
<PAGE>
alterations to the Office Building Project, or
any portion thereof;
(f) To do and perform such other acts and make
such other changes in, to or with respect to the
Common Areas and Office Building Project as
Lessor may, in the exercise of sound business
judgment deem to be appropriate.
3. TERM.
3.1 TERM: The term of the Lease shall be SIXTY (60) months,
provided that if the Commencement Date (as defined herein) is
other than on the first day of the calendar month, the term of
the Lease shall be SIXTY (60) months plus the partial month in
which the Commencement Date occurs. The term of the Lease
shall begin and rent shall commence to accrue on the later of
(i) the day on which the improvements to the Premises to be
provided by Lessor (as set forth in the Work Letter attached
to this Lease) are substantially completed and possession of
the Premises is tendered to Lessee, or (ii) JULY 1, 1997 (the
later of said dates being the "Commencement Date").
Notwithstanding the Commencement Date, the parties acknowledge
that all obligations under the Lease are fully enforceable as
of the date the Lease is executed and delivered by the
parties. Once the Commencement Date has been ascertained, the
parties shall execute a Confirmation of Term of Lease in the
form and content set forth as Exhibit "B" hereto, incorporated
herein by this reference, however, the failure to execute the
Confirmation of Term of Lease shall not serve, in any way, to
delay or postpone the Commencement Date. Should the
Commencement Date be other than the first day of the calendar
month, the Base Rent for the initial partial month in which
the Commencement Date occurs shall be prorated on the basis of
a thirty (30) day month at the rate of ONE HUNDRED FIFTEEN AND
87/100 ($115.87) per day, and shall be due and payable on the
Commencement Date.
3.2 EARLY ENTRY: Provided that Lessee shall in no way impede,
disrupt or otherwise interfere with Lessor's readying of the
Premises for Lessee's occupancy, Lessee shall have the right,
on three (3) days' prior written notice to Lessor, to enter
upon the Premises prior to the Commencement Date (the "Early
Entry"), in order to install trade fixtures and equipment and
to commence construction of any permitted improvements to the
Premises pursuant to the provisions of Paragraph 7.3 of the
Lease. Lessee shall pay all utility charges
-4-
<PAGE>
reasonably allocated to Lessee by Lessor as a result of
Lessee's Early Entry. Lessee further agrees to indemnify,
protect, defend and hold Lessor and the Premises harmless from
and against any and all liens, liabilities, losses, damages,
costs, expenses, demands, actions, causes of action and claims
(including, but not limited to, attorney's fees and legal
costs) arising out of the use, renovation or occupancy of the
Premises by Lessee or Lessee's agents or contractors in
connection with such Early Entry, Lessee understands and
agrees that Lessor's review of plans and specifications as
provided in Paragraph 7.3 of the Lease is solely to protect
the interests of Lessor in the Premises and the Office
Building Project and that Lessor shall in no way be deemed the
guarantor of, or responsible for, the accuracy or adequacy of
such plans and specifications or compliance of such plans and
specifications with applicable laws, ordinances or
regulations. Lessee's failure to complete such fixturization
and renovation work, if any, prior to the Commencement Date
shall in no way delay the Commencement Date or affect the
rental or other obligations of Lessee under the Lease.
3.3 DELAY IN POSSESSION: Notwithstanding said Commencement
Date, if for any reason Lessor cannot deliver possession of
the Premises to Lessee on said date and subject to paragraph
3.3.2, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof;
but, in such case, Lessee shall not be obligated to pay rent
or perform any other obligation of Lessee under the terms of
this Lease, except as may be otherwise provided in this Lease,
until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall
not have delivered possession of the Premises within ninety
(90) days following said Commencement Date, as the same may be
extended under the terms of a Work Letter executed by Lessor
and Lessee, Lessee may, at Lessee's option, by notice in
writing to Lessor within ten (10) days thereafter, cancel this
Lease, in which event the parties shall be discharged from all
obligations hereunder; provided, however, that as to Lessee's
obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard improvements and, as to Lessor's
obligations, Lessor shall return any money previously
deposited by Lessee (less any offsets due Lessor for
Non-Standard improvements); and provided further, that if such
written notice by Lessee is not received by Lessor within said
ten (10) day period, Lessee's right to cancel this Lease
hereunder shall
-5-
<PAGE>
terminate and be of no further force or effect.
3.3.1 POSSESSION TENDERED-DEFINED: Possession of the
Premises shall be deemed tendered to Lessee ("Tender
of Possession") when (1) the improvements to be
provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for
use in the Premises, (3) Lessee has reasonable access
to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of
the occurrence of the matters described in (1), (2)
and (3), above of this paragraph 3.3.1.
3.3.2 DELAYS CAUSED BY LESSEE: There shall be no
abatement of rent, and the ninety (90) day period
following the Commencement Date before which Lessee's
right to cancel, this Lease accrues under paragraph
3.2, shall be deemed extended to the extent of any
delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.4 EARLY POSSESSION: If Lessee occupies the Premises prior
to said Commencement Date, such occupancy shall be subject to
all provisions of this Lease, such occupancy shall not change
the termination date, and Lessee shall pay rent for such
occupancy.
3.5 UNCERTAIN COMMENCEMENT: In the event commencement of the
Lease term is defined as the completion of the improvements,
Lessee and Lessor shall execute a Confirmation of Term of
Lease, in the form annexed hereto as Exhibit "B" to this
Lease, establishing the date of Tender of Possession (as
defined in paragraph 3.3.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT: Except as may be otherwise expressly provided
in this Lease, Lessee shall pay to Lessor the Base Rent for
the Premises set forth in paragraph 1.6 of the Basic Lease
Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any
period during the term hereof which is for less than one month
shall be prorated on the basis of a thirty (30) day month.
Rent shall be payable in lawful money at the United States to
Lessor at the address stated herein or to such other persons
or at such other places as Lessor
-6-
<PAGE>
may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the security deposit set forth in paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default, for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all
or any portion of said deposit, Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly Base Rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the than Current Base Rent as the initial
security deposit bears to the Initial Base Rent set forth in paragraph 1.6 of
the Basic Lease Provisions. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE: The Premises shall be used and occupied only for the
purpose set forth in Paragraph 1.4 of the Basic Lease
Provisions or any other use which is reasonably comparable to
that use and for no other purpose.
6.2 COMPLIANCE WITH LAW:
(a) Lessor warrants to Lessee that the Premises,
in the state existing on the date that the Lease
term commences, but without regard to alterations
or improvements made by Lessee or the use for
which Lessee will occupy the Premises, does not
violate any covenants or restrictions of record,
or any applicable building code, regulation or
ordinance in effect on such Lease term
-7-
<PAGE>
Commencement Date, in the event it is determined
that this warranty has been violated, then it
shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a)
Lessee shall, at Lessee's expense, promptly
comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and
restrictions of record, and requirements of any
fire insurance underwriters or rating bureaus,
now in effect or which may hereafter come into
effect, whether or not they reflect a change in
policy from that now existing, during the term or
any part of the term hereof, relating in any
manner to the Premises and the occupation and use
by Lessee of the Premises. Lessee shall conduct
its business in a lawful manner and shall not use
or permit the use of the Premises or the Common
Areas in any manner that will tend to create
waste or a nuisance or shall tend to disturb
other occupants of the Office Building Project.
6.3 CONDITION OF PREMISES:
(a) Lessor shall deliver the Premises to Lessee
in a clean condition on the Lease Commencement
Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing,
lighting, air conditioning, and heating system in
the Premises shall be in good operating
condition. In the event that it is determined
that this warranty has been violated, then it
shall be the obligation of Lessor, after receipt
of written notice from Lessee setting forth with
specificity the nature of the violation, to
promptly, at Lessor's sole cost, rectify such
violation.
(b) Except as otherwise provided in this Lease,
Lessee hereby accepts the Premises and the Office
Building Project in their condition existing as
of the Lease Commencement Date or the date that
Lessee takes possession of the Premises,
whichever is earlier, subject to all applicable
zoning, municipal, county and state laws,
ordinances and regulations governing and
regulating the
-8-
<PAGE>
use of the Premises, and any easements, covenants
or restrictions of record, and accepts this Lease
subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto.
Lessee acknowledges that it has satisfied itself
by its own independent investigation that the
Premises are suitable for its intended use, and
that neither Lessor nor Lessor's agent or agents
has made any representation or warrant as to the
present or future suitability of the Premises,
Common Areas, or Office Building Project for the
conduct of Lessee's business.
6.4 FLOOR LOAD; PREVENTION OF VIBRATION AND NOISE: Lessee
shall not place a load upon the Premises exceeding an average
rate of seventy (70) pounds of live load per square foot of
floor area; partitions shall be considered as part of the live
load. Lessor may prescribe the weight and position of all
safes, files and heavy equipment that Lessee desires to place
in the premises, so as to properly distribute their weight.
Lessee's business machines and mechanical equipment which
cause vibration or noise that may be transmitted to the
Building structure or to any other space in the Building shall
be installed, maintained and used by Lessee in such manner as
to eliminate such vibration or noise. Lessee shall be
responsible for the cost of all structural engineering
required to determine structural load and all acoustical
engineering required to address any noise or vibration problem
caused by Lessee.
6.5 ENVIRONMENTAL COMPLIANCE; HAZARDOUS MATERIALS OR
ACTIVITIES: Lessee shall at all times and in all respect
comply with all federal, state and local laws, ordinances and
regulations relating to industrial hygiene, environmental
protection and/or the use, analysis, generation, manufacture,
storage, presence, disposal or transportation of any
"Hazardous Materials" (as hereinafter defined). Lessee shall
not cause or permit any hazardous wastes, toxic substances or
toxic or hazardous materials (collectively "Hazardous
Materials") to be brought upon, used, generated, stored or
disposed of on, under or about, or transported to or from, the
Premises (collectively, "Hazardous Materials Activities")
without first receiving Lessor's written consent, which
consent may be withheld by Lessor in its absolute discretion
and may be revoked at any time. If Lessor consents to any such
Hazardous Materials Activities, Lessee shall conduct them in
strict compliance (at Lessee's sole cost and expense) with all
applicable Regulations, as hereinafter defined, and
-9-
<PAGE>
using all necessary and appropriate precautions. Lessor shall
not be liable to Lessee for any Hazardous Materials Activities
by Lessee, Lessee's employees, agents, contractors, licensees
or invitees, whether or not consented to by Lessor. For
purposes hereof, Hazardous Materials shall include, but not be
limited to, substances defined as "hazardous substances,"
toxic substances," or "hazardous wastes" in the Comprehensive
Environmental Response, Compensation and Liability Act of
1980; Resource Conservation and Recovery Act of 1976;
Hazardous Materials Transportation Act; section 25117 of the
California Health and Safety Code; all other laws and
ordinances governing similar matters; and any regulations
adopted and publications promulgated pursuant to said laws
(collectively "Regulations"). Prior to using, storing or
maintaining any Hazardous Materials on or about the Premiss,
Lessee shall provide Lessor with a list of the types and
quantities thereof, and shall update such list as necessary
for continued accuracy. Lessee shall also provide Lessor with
a copy of any Hazardous Materials inventory statement required
by any applicable Regulation, and any update file in
accordance with any applicable Regulation. If Lessee's
activities violate or create a risk of violation of any
Regulation, Lessee shall cease such activities immediately,
including (but not limited to) upon notice from Lessor. Lessee
shall immediately notify Lessor both by telephone and in
writing of any spill or unauthorized discharge of Hazardous
Materials or of any condition constituting an "imminent
hazard" under any Regulation. Lessor, Lessor's representatives
and employees shall have the right to enter the Premises at
any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with
this Lease and all laws, rules, regulations, ordinances and
directives relating in any manner to the Premises, including
but not limited to matters pertaining to the use, generation,
manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous
Materials. Lessee shall indemnify, protect, defend (with
counsel acceptable to Lessor) and hold Lessor, its agents,
employees, lenders and the Premises, harmless from and against
any and all loss of rents and/or damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, permit
fees, and attorney's and consultant's fees arising out of or
involving any Hazardous Materials brought onto, manufactured,
produced or stored at, discharged or transported from, the
Premises by or for Lessee, its agents, contractors, invitees,
successors or assigns, or in any way under Lessee's control.
Lessee's
-10-
<PAGE>
obligations under this Paragraph shall include, but not be
limited to, the effects of any contamination or injury to any
person, property or the environment created or permitted by
Lessee, and the cost of investigation (including consultant's
and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or
release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with
respect to Hazardous Materials or Hazardous Materials
Activities, unless specifically so agreed by Lessor in writing
at the time of such agreement.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES:
7.1 LESSOR'S OBLIGATIONS: Lessor shall keep the Office
Building Project, including the Premises, interior and
exterior walls, roof, and common areas, and the equipment
whether used exclusively for the Premises or in common with
other premises, in good condition and repair; provided,
however, Lessor shall not be obligated to paint, repair or
replace wall coverings, or to repair or replace any
improvements that are not ordinarily a part of the Building or
are above then Building standards. Except as provided in
paragraph 9.5, there shall be no abatement of rent or
liability of Lessee on account of any injury or interference
with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building
Project or any part thereof. Lessee expressly waives the
benefits of any statute nor or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure
to keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS:
(a) Notwithstanding Lessor's obligation to keep
the Premises in good condition and repair, Lessee
shall be responsible for payment of the cost
thereof to Lessor as additional rent for that
portion of the cost of any maintenance and repair
of the Premises, or any equipment (wherever
located) that serves only Lessee or the Premises,
to the extent such cost is attributable to causes
beyond normal wear and tear, including, but not
limited excessive use. Lessee shall be
responsible for the cost of
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painting, repairing or replacing wall coverings,
and to repair or replace any Premises
improvements that are not ordinarily a part of
the Building or that are above then Building
standards. Lessor may, at its option, upon
reasonable notice, elect to have Lessee perform
any particular such maintenance or repairs the
cost of which is otherwise Lessee's
responsibility hereunder.
(b) On the last day of the term hereof, or on
any sooner termination, Lessee shall surrender
the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean
and free of debris. Any damage or deterioration
of the Premises shall not be deemed ordinary wear
and tear if the same could have been prevented by
good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises
occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings
and equipment. Except as otherwise stated in this
Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting
fixtures, air conditioning, window coverings,
wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior
written consent make any alterations,
improvements, additions, Utility Installations or
repairs in, on or about the Premises, or the
Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window and wall coverings,
power panels, electrical distribution systems,
lighting fixtures, air conditioning, plumbing,
and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor
may require the removal of any or all of said
alterations, improvements, additions or Utility
Installations, and the restoration of the
Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should
Lessor permit Lessee to make its own alterations,
improvements, additions or Utility Installations,
Lessee shall use
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only such contractor as has been expressly
approved by Lessor. Lessor may require Lessee to
provide Lessor, at Lessee's sole cost and
expense, a lien and completion bond in an amount
equal to one and one-half times the estimated
cost of such improvements, to insure Lessor
against any liability for mechanic's and
materialmen's liens and to insure completion of
the work, and evidence of such contractor(s)
general liability insurance and worker
compensation insurance in form and amounts
reasonably satisfactory to Lessor and naming
Lessor as an additional insured. Should Lessee
make any alterations, improvements, additions or
Utility Installations without the prior approval
of Lessor, or use a contractor not expressly
approved by Lessor, Lessor may, at any time
during the term of this Lease, require that
Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or
Utility Installations in or about the Premises or
the Office Building Project that Lessee shall
desire to make shall be presented to Lessor in
written form, with proposed detailed plans. If
Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility
Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do
so from the applicable governmental agencies,
furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by
Lessee with all conditions of said permit in a
prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have
been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured
by any mechanic's or materialmen's lien against
the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten
(10) days' notice prior to the commencement of
any work in the Premises by Lessee, and Lessor
shall have the right to post notices of
non-responsibility in or on the Premises or the
Building as provided by
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law, if Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself
and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof
against the Lessor or the Premises, the Building
of the Office Building Project, upon the
condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such
contested lien, claim or demand indemnifying
Lessor against liability for the same and holding
the Premises, the Building and the Office
Building Project free from the effect of such
lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees
and costs in participating in such action if
Lessor shall decide it is to Lessor's best
interest to do so.
(e) All alterations, improvements, additions and
Utility Installations (whether or not such
Utility Installations constitute trade fixtures
of Lessee), which may be made to the Premises by
Lessee, including but not limited to floor
covering, panelings, doors, drapes, built-ins,
moldings, sound attenuation, and lighting and
telephone or communication systems, conduit,
wiring and outlast, shall be made and done in a
good and workmanlike manner and of good and
sufficient quality and materials and shall be the
property of Lessor and remain upon and be
surrendered with the Premises at the expiration
of the Lease term, unless Lessor requires their
removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the
provisions of this paragraph 7.3(e), Lessee's
personal property and equipment, other than that
which is affixed to the Premises so that it
cannot be removed without material change to the
Premises or the Building, and other than Utility
Installations, shall remain the property of
Lessee and may be removed by Lessee subject to
the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built
plans and specifications for any alterations,
improvements, additions or Utility Installations.
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7.4 UTILITY ADDITIONS: Lessor reserves the right to install
new or additional utility facilities throughout the Office
Building Project for the benefit of Lessor or Lessee, or any
other lessee of the Office Building Project, including, but
not by way of limitation, such utilities as plumbing,
electrical systems, communications systems, and fire
protection and detection systems, so long as such
installations do not unreasonably interfere with Lessee's use
of the Premises.
8. INSURANCE; INDEMNITY:
8.1 LIABILITY INSURANCE-LESSEE: Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this
Lease a policy of Comprehensive General Liability Insurance
utilizing an insurance Services Office standard form with
Broad Form General Liability Endorsement (GLO404), or
equivalent, in an amount of not less than $1,000,000 per
occurrence of bodily injury and property damage combined or in
a greater amount as reasonably determined by Lessor and shall
insure Lessee with Lessor as an additional insured against
liability arising out of the use, occupancy or maintenance of
the Premises. Compliance with the above requirement shall not,
however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR: Lessor shall obtain and keep
in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Broad Form Property Damage
insurance, plus coverage against such other risks Lessor deems
advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy
or maintenance of the Office Building Project in an amount not
less than $5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE-LESSEE: Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this
Lease for the benefit of Lessee, replacement cost fire and
extended cooperage insurance, with vandalism and malicious
mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than
100% of the full replacement cost, as the same may exist from
time to time, of all of Lessee's personal property, fixtures,
equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR: Lessor shall obtain and keep
in force during the term of this Lease a policy or policies of
insurance covering loss or damage
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in the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements,
in the amount of the full replacement cost thereof, as the
same may exist from time to time, utilizing Insurance Services
Office standard form, or equivalent, providing protection
against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass,
and such other perils as Lessor deems advisable or may be
required by a lender having a lien on the Office Building
Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating
Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the
aforesaid lender may determine. In the event that the Premises
shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance
policies shall be deemed an Operating Expense. Lessee shall
not do or permit to be done anything which shall invalidate
the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the property insurance premium for
the Office Building Project over what it was immediately prior
to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by
the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 INSURANCE POLICIES: Lessee shall deliver to Lessor copies
of liability insurance policies required under paragraph 8.1
or certificate evidencing the existence and amounts of such
insurance within seven (7) days after the Commencement Date of
this Lease. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after
thirty (30) days prior written notice to Lessor. Lessee shall,
at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION: Lessee and Lessor each hereby
release and relieve the other, and waive their entire right of
recovery against the other, for direct consequential loss or
damage arising out of or incident to the perils covered by
property insurance carried by such party, whether due to
negligence of Lessor or Lessee or their agents, employees,
contractors and/or
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invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so
provide.
8.7 INDEMNITY: Lessee shall indemnify and hold harmless
Lessor and its agents, Lessor's master or ground lessor,
partners and lenders, from and against any and all claims for
damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or
from the conduct of Lessee's business or from any activity,
work or things done, permitted or suffered by Lessee in or
about the Premises or elsewhere and shall further indemnify
and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or
omission of Lessee, or any of Lessee's agents, contractors,
employees, or invitees, and from and against all costs,
attorney's fees, expenses and liabilities incurred by Lessor
as the result of any such use, conduct, activity, work, things
done, permitted or suffered, breach, default or negligence and
in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or
proceeding involved therein; and in case any action or
proceeding involved therein; and in case any action or
proceeding be brought against Lessor by reason of any such
matter, Lessee upon notice from Lessor shall defend the same
at Lessor's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be
so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the
Office Building Project arising from any cause and Lessee
hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY: Lessee hereby agrees
that Lessor shall not be liable for injury to Lessee's
business or any loss of income therefrom or for loss of or
damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building
Project, nor shall Lessor be liable for injury to the person
of Lessee, Lessee's employees, agents or contractors, whether
such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, for from the
breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air
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conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising
upon the Premises or upon other portions of the Office
Building Project, or from other sources or places, or from new
construction or the repair, alteration or improvement of any
part of the Office Building Project, or of the equipment,
fixtures or appurtenances applicable thereto, and regardless
of whether the cause of such damage or injury or the means of
repairing the same is unaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other
leases, occupant or user of the Office Building Project, nor
from the failure of Lessor to enforce the provisions of any
other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE: Lessor makes no
representation that the limits or forms of coverage of
insurance specified in this paragraph 8 are adequate to cover
Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION:
9.1 DEFINITIONS:
(a) "Premises Damage" shall mean if the Premises
are damaged or destroyed to any extent.
(b) "Premises Building Partial Damage" shall
mean if the Building of which the Premises are a
part is damaged or destroyed to the extent that
the cost to repair is fifty percent (50%) or more
of the then Replacement Cost of the Building.
(c) "Premises Building Total Destruction" shall
mean if the Building of which the Premises are a
part is damaged or destroyed to the extent that
the cost to repair is fifty percent (50%) or more
of the then Replacement Cost of the Building.
(d) "Office Building Project Buildings" shall
mean all of the buildings on the Office Building
Project site.
(e) "Office Building Project Total Destruction"
shall mean if the Office Building Project
Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or
more of the
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then Replacement Cost of the Office Building
Project Buildings.
(f) "Insured Loss" shall mean damage or
destruction which was caused by an event required
to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a
deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of
money necessary to be spent in order to repair or
rebuild the damaged area to the condition that
existed immediately prior to the damage
occurring, excluding all improvements made by
lessees, other than those installed by Lessor at
Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE:
(a) INSURED LOSS: Subject to the provisions of
paragraphs 9.4 and 9.5, if at any time during the
term of this Lease there is damage which is an
insured Loss and which falls into the
classification of either Premises Damage or
Premises Building Partial Damage, then Lessor
shall, as soon as reasonably possible and to the
extent the required materials and labor are
readily available through usual commercial
channels, at Lessor's expense, repair such damage
(but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to
its condition existing at the time of the damage,
and this Lease shall continue in full force and
effect.
(b) UNINSURED LOSS: Subject to the provisions of
paragraphs 9.4 and 9.5, if at any time during the
term of this Lease there is damage which is not
an Insured Loss and which falls within the
classification of Premises Damage or Premises
Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which
event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from
making any substantial use of the Premises,
Lessor, may at Lessor's option either (i) repair
such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall
continue fin full force and effect, or
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(ii) give written notice to Lessee within thirty
(30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the
occurrence of such damage, in which event this
Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING
PROJECT TOTAL DESTRUCTION: Subject to the provisions of
paragraphs 9.4 and 9.5, if at any time during the term of this
Lease there is damage, whether or not it is an insured Loss,
which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project
Total Destruction, then Lessor may at Lessor's option either
(1) repair such damage or destruction as soon as reasonably
possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial
channels) to its condition existing at the time of the damage,
but not Lessee's fixtures, equipment or tenant improvements,
and this Lease shall continue fin full force and effect, or
(ii) give written notice to Lessee within thirty (30) days
after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case
this Lease shall terminate as of the date of the occurrence of
such damage.
9.4 DAMAGE NEAR END OF TERM:
(a) Subject to paragraph 9.4(b), if at any time
during the last twelve (12) months of the term of
this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of
occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so
within thirty (30) days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the
event that Lessee has an option to extend or
renew this Lease, and the time within which said
option may be exercised has not yet expired,
Lessee shall exercise such option, if it is to be
exercised at all, no later than twenty (20) days
after the occurrence of an Insured Loss falling
within the classification of Premises Damage
during the last twelve (12) months of the term of
this
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Lease. If Lessee duly exercises such option
during said twenty (20) day period, Lessor shall,
at Lessor's expense, repair such damages, but not
Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and
this Lease shall continue in full force and
effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor
may at Lessor's option terminate and cancel this
Lease as of the expiration of said twenty (20)
day period by giving written notice to Lessee of
Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day
period, notwithstanding any term or provision in
the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES:
(a) In the event Lessor repairs or restores the
Building or Premises pursuant to the provisions
of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss
of access or essential services), the rent
payable hereunder (including Lessee's Share at
Operating Expense Increase) for the period during
which such damage, repair or restoration
continues shall be abated, provided (1) the
damage was not the result of the negligence of
Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of
Lessee's business as operated from the Premises
is adversely affected. Except for said abatement
of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason
of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or
restore the Premises or the Building under the
provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety
(90) days after such occurrence, or if Lessor
shall not complete the restoration and reaper
within six (6) months after such occurrence,
Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time
prior to the commencement or completion,
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respectively, of such repair or restoration. In
such event this Lease shall terminate as of the
date of such notice.
(c) Lessee agrees to cooperate with Lessor in
connection with any such restoration and repair,
including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS: Upon termination of this
Lease pursuant to this paragraph 9, an equitable adjustment
shall be made concerning advance rent and any advance payments
made by Lessee to Lessor. Lessor shall, in addition, return to
Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER: Lessor and Lessee waive the provisions of any
statute which relates to termination of leases when leased
property is destroyed and agree that such event shall be
governed by the term of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES: Lessor shall pay the real property
taxes, as defined in paragraph 10.3, applicable to the Office
Building Project, subject to reimbursement by Lessee of
Lessee's Share of such taxes in accordance with the provisions
of paragraph 4.2, except as otherwise provided in paragraph
10.2
10.2 ADDITIONAL IMPROVEMENTS: Lessee shall not be responsible
for paying any increase in real property tax specified in the
tax assessor's records and work sheets as being caused by
additional improvements placed upon the Office Building
Project by other lessees or by Lessor for the exclusive
enjoyment of any other lessee. Lessee shall, however, pay to
Lessor at the time that Operating Expenses are payable under
paragraph 4.2(c) the entirety of any increase in real property
tax if assessed solely by reason of additional improvements
placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX:" As used herein, the
term "real property tax" shall include any form of real estate
tax or assessment, general, special, ordinary or extraordinary
and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any
portion thereof by any authority having the direct
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or indirect power to tax, including any city, county, state or
federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof,
as against any legal or equitable interest of Lessor in the
Office Building Project or in any portion thereof, as against
Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Office Building
Project. The term ":real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property
tax," or (ii) the nature of which was hereinbefore included
within the definition "real property tax," or (iii) which is
imposed for a service or right not charged prior to June 1,
1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a change in
ownership, as defined by applicable local statutes for
property tax purposes, of the Office Building Project or which
is added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this
transaction, any modification or changes hereto, or any
transfers hereof.
10.4 JOINT ASSESSMENT: If the improvements or property, the
taxes for which are to be paid separately by Lessee under
paragraph 10.2 or 10.5 are not separately assessed, Lessee's
portion of that tax shall be equally determined by Lessor from
the respective valuations assigned in the assessor's work
sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be
conclusive.
10.5 PERSONAL PROPERTY TAXES:
(a) Lessee shall pay prior to delinquency all
taxes assessed against and levied upon trade
fixtures, furnishing, equipment an all other
personal property of Lessee contained in the
Premises or elsewhere.
(b) If any of Lessee's said personal property
shall be assessed with Lessor's real property,
Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a
written statement setting forth the taxes
applicable to Lessee's property.
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11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR: Lessor shall provide
heating, ventilation, air conditioning, and janitorial
services as reasonably required, reasonable amounts of
electricity for normal lighting and office maintenance, water
for reasonable and normal drinking and lavatory use, and
replacement of light bulbs and/or fluorescent bulbs and
ballasis for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE: Lessee shall pay for all
water, gas, heat, light, power, telephone and other utilities
and services specially or exclusively supplied and/or metered
exclusively to the Premises or to Lessee, together with any
taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either
Lessee's Share or a reasonable portion to be determined by
Lessor of all charges jointly metered with other premises in
the Building.
11.3 HOURS OF SERVICE: Said services and utilities shall be
provided during generally accepted business days and hours or
such other days or hours as may hereafter be set forth.
Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to
Lessor of the cost thereof. (See Par. 54).
11.4 EXCESS USAGE BY LESSEE: Lessee shall not make connection
to the utilities except by or through existing outlets and
shall not install or use machinery or equipment in or about
the Premises that uses excess water, lighting or power, or
suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security
services, over standard office usage for the Office Building
Project. Lessor shall require Lessee to reimburse Lessor for
any excess expenses or costs that may arise out of a breach of
this subparagprah by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment
and/or separate metering applicable to Lessee's excess usage
or loading.
11.5 INTERRUPTIONS: There shall be no abatement of rent and
Lessor shall not be liable in any respect whatsoever for the
adequacy, stoppage, interruption or discontinuance of any
utility or service due to riot, strike, labor dispute,
breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request
or directions.
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12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED: Lessee shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or
otherwise transfer or encumber all or any party of Lessee's
interest in the Lease or in the Premises, without Lessor's
prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment,
transfer, mortgage, encumbrance or subletting without such
consent shall be void and shall constitute a material default
and breach of this Lease without the need for notice to Lessee
under paragrpah 13.1. "Transfer" within the meaning of this
paragraph 12 shall include the transfer or transfers
aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such
corporation, or (b) if Lessee is a partnership, more than
twenty-five percent (25%) of the profit and loss participation
in such partnership.
12.2 LESSEE AFFILIATE: Notwithstanding the provisions of
paragraph 12.1 hereof, Lessee may assign or sublet the
Premises, or any portion thereof, without Lessor's consent to
any corporation which control, is controlled by or is under
common control with Lessee, or to any corporation resulting
from the merger or consolidation with Lessee, or to any person
or entity which acquires all the assets of Lessee as a going
concern of the business that is being conducted on the
Premises, all of which are referred to as "Lessee Affiliates,"
provided that before such assignment shall be effective, (a)
said assignee shall assume, in full, the obligations of Lessee
under this Lease and (b) Lessor shall be given written notice
of such assignment and assumption. Any such assignment shall
not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or
subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom
shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND
SUBLETTING:
(a) Regardless of Lessor's consent, no
assignment or subletting shall release Lessee of
Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the rent and
other sums due Lessor hereunder including
Lessee's Share of Operating Expense
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Increase, and to perform all other obligations to
be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other
than Lessee pending approval or disapproval of
such assignment.
(c) Neither a delay in the approval or
disapproval of such assignment or subletting, nor
the acceptance of rent shall constitute a waiver
or estoppel of Lessor's right to exercise its
remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease
have been guaranteed by third parties, then an
assignment or sublease, and Lessor's consent
thereto, shall not be effective unless said
guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or
subletting shall not constitute a consent to any
subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or
subletting by the sublessee. However, Lessor may
consent to subsequent sublettings and assignments
of the sublease or any amendments or
modifications thereto without notifying Lessor or
anyone else liable on the Lease or sublease and
without obtaining their consent and such action
shall not relieve such persons from liability
under this Lease or said sublease; however, such
persons shall not be responsible to the extent
any such amendment or modification enlarges or
increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this
Lease, Lessor may proceed directly against
Lessee, any guarantors or any one else
responsible for the performance of this Lease,
including the sublessee without first exhausting
Lessor's remedies against any other person or
entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
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(g) Lessor's written consent to any assignment
or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no default then
exists under this Lease of the obligations to be
performed by Lessee nor shall such consent be
deemed a waiver of any then existing default,
except as may be otherwise stated by Lessor at
the time.
(h) The discovery of the fact that any financial
statement relied upon by Lessor in giving its
consent to an assignment or subletting was
materially false shall, at Lessor's election,
render Lessor's said consent null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING:
Regardless of Lessor's consent, the following terms and
conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all
subleases under this Lease whether or not expressly
incorporated therein.
(a) Lessee hereby assigns and transfers to
Lessor all of Lessee's interest in all rentals
and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same
toward Lessee's obligations under this Lease;
provided, however, that until a default shall
occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and
enjoy the rents accruing such sublease. Lessor
shall not, by reason of this or any other
assignment of such sublease to Lessor nor by
reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for
any failures by Lessee too perform and comply
with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from
Lessor stating that a default exists in the
performance of Lessee's obligations under this
Lease, to pay to Lessor the rents due and to
become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon
any such statement and request from Lessor, and
that such sublessee shall pay such rents to
Lessor without any obligation or right to inquire
as to whether
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such default exists and notwithstanding any
notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by
said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be
effective unless and until it has been approved
in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of
sublease as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be
changed or modified without Lessor's prior
written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be
deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with
each and every obligation herein to be performed
by Lessee other than such obligations as are
contrary to or inconsistent with provisions
contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the
performance of its obligations under this Lease,
Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to
Lessor, in which event Lessor shall undertake the
obligations of Lessee under such sublease from
the time of the exercise of said option to the
termination of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to
Lessee or for any other prior defaults of Lessee
under such sublease.
(d) No sublessee shall further assign or sublet
all or any part of the Premises without Lessor's
prior written consent.
(e) With respect to any subletting to which
Lessor has consented, Lessor agrees to deliver a
copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to
cure a default of Lessee with three (3) days
after service of said notice of default upon such
sublessee, and the sublessee shall have a right
of reimbursement and offset from and against
Lessee for any such defaults cured by the
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sublessee.
12.5 LESSOR'S EXPENSES: In the event Lessee shall assign or
sublet the Premises or request the consent of Lessor to any
assignment or subletting or if Lessee shall request the
consent of Lessor for any act Lessee proposes to do then
Lessee shall pay Lessor's reasonable costs and expenses
incurred in connection therewith, including attorneys',
architects', engineers' or other consultants' fees.
12.6 CONDITIONS TO CONSENT: Lessor reserves the right to
condition any approval to assign or sublet upon Lessor's
determination that (a) the proposed assignee or sublessee
shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the
general character of the other occupants of the Office
Building Project and not in violation of any exclusives or
rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible
as Lessee was expected to be at the time of the expiration of
this Lease of such assignment or subletting, whichever is
greater.
12.7 CONDITIONS TO TRANSFER: The transfer (whether by means of
an assignment, sublease or other voluntary or involuntary
transfer or encumbrance) or all or any part of Lessee's
interest in this Lease is subject to the following conditions,
in addition to the above requirements for Lessor's consent (i)
all rent received by Lessee from a sublessee or assignee in
excess of the rent payable by Lessee to Lessor under this
Lease shall be paid to Lessor; (ii) any sum, bonus or premium
paid by an assignee to Lessee in consideration (directly or
indirectly) of the assignment of this Lease shall be paid to
Lessor; and (iii) the rent payable under this Lease shall be
subject to readjustment by Lessor to the then fair market
rental for the Premises, if greater than the stated rent under
this Lease.
12.8 NOTICE TO LESSOR; LESSOR'S RIGHTS; LESSOR'S OBLIGATIONS:
Before entering into any assignment of this Lease or into a
sublease of all or any portion of the Premises, Lessee shall
give written notice to Lessor identifying the intended
assignee or sublessee by name and address and specifying the
terms of the intended assignment or sublease. Lessee shall
also furnish to Lessor such information as to the financial
responsibility and standing of the intended assignee or
sublessee as Lessor may request. For a period of thirty (30)
days after such notice is given, Lessor shall have the right
(notwithstanding anything to the
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contrary contained in the foregoing subparagraphs of this
Paragraph 12), by written notice to Lessee, to terminate this
Lease as of a date specified in such notice, which date shall
not be less than thirty (30) days or more than sixty (60) days
after the date such notice is given. If Lessor so terminates
this Lease, Lessor may, if it elects, enter into new lease
covering the Premises on such terms as Lessor and such
intended assignee or sublessee may agree, or may enter into a
new lease covering the Premises with any other person or
entity. In such event, Lessee shall not be entitled to any
portion of the profit, if any, which Lessor may realize on
account of such termination and reletting. From and after the
date of such termination of this Lease (i.e., pursuant to this
paragraph 12.8), Lessee shall have no further obligations to
Lessor hereunder, except for matters occurring or obligations
arising or accruing hereunder prior to the date of such
termination, and also except with respect to Lessee's
obligations regarding hazardous Materials or Hazardous
Materials Activities as set forth in Paragraph 6.5 of this
Lease. Lessor's right to terminate this Lease pursuant to this
Paragraph 12.8 shall not apply to an assignment or sublease to
a Lessee Affiliate as defined in Paragraph 12.2 above.
13. DEFAULT; REMEDIES.
13.1 DEFAULT: The occurrence of any one or more of the
following events shall constitute a material default of this
Lease by Lessee:
(a) The vacation or abandonment of the Premises
by Lessee. Vacation of the Premises shall include
the failure to occupy the Premises for a
continuous period of sixty (60) days or more,
whether or not the rent is paid.
(b) The breach by Lessee of any of the
covenants, conditions or provisions of paragraphs
7.3(a) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) vacation or abandonment),
13.1(e) (insolvency), 13.1(f) (false statement),
16(a) estoppel certificate), 30(b)
(subordination), 33 (auctions), or 40.1
(easements), all of which are hereby deemed to be
material, non-curable defaults without the
necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payments
of rent or any other repayment
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required to be made by Lessee hereunder, as and
when due, where such failure shall continue for a
period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that
Lessor serves Lessee with a Notice to Pay Rent or
Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall
also constitute the notice required by this
subparagraph.
(d) The failure by Lessee to observe or perform
any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b)
and (c), above, where such failure shall continue
for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided;
however, that if the nature of Lessee's
noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty
(30) day period and thereafter diligently purses
such cure to completion. To the extent permitted
by law, such thirty (30) day notice shall
constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) The discovery by Lessor that any financial
statement given to Lessor by Lessee, or its
successors in interest or by an guarantor of
Lessee's obligations hereunder, was materially
false.
13.2 REMEDIES: In the event of any material default or breach
of this Lease by Lessee, Lessor may at any time thereafter,
with or without notice or demand and without limiting Lessor
in the exercise of any right or remedy which Lessor may have
by reason of such default:
(a) Terminate Lessee's right to possession of
the Premises by any lawful means, in which case
this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession
of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all
damages incurred by Lessor by reason of Lessee's
default including, but not limited to, the
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cost of recovering possession of the Premises;
expenses of reletting, including necessary
renovation and alteration of the Premises,
reasonable attorneys' fees, and any real estate
commission actually paid; the worth at the time
of award by the court having jurisdiction thereof
of the amount by which the unpaid rent for the
balance of the term after the time of such award
exceeds the amount of such rental loss for the
same period that Lessee proves could be
reasonably avoided; that portion of the leasing
commission paid by Lessor pursuant to paragraph
15 applicable to the unexpired term of this
Lease.
(b) Maintain Lessee's right to possession in
which case this Lease shall continue in effect
whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor
shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including
the right to recover the rent as it becomes due
hereunder.
(c) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial
decisions of the state wherein the Premises are
located. Unpaid installments of rent and other
unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the
date due at the maximum rate then allowable by
law.
(d) Nothing contained in this Lease shall limit
or prejudice the right of Lessor to prove and
obtain, in proceedings for bankruptcy or
insolvency, by reason of the termination of this
Lease, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time
when, and governing the proceedings in which, the
damages are to be proved, whether or not the
amount be greater than, equal to, or less than
the amount of the loss or damages set forth in
this Paragraph 13.2.
13.3 DEFAULT BY LESSOR: Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within
a reasonable time, but in no event later than thirty (30) days
after written notice by Lessee to Lessor and to the holder of
any first mortgage or deed of trust covering the Premises
whose name and address
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shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform each
obligation; provided, however, that if the nature of Lessor's
obligations is such that more than thirty (30) days are
required for performance then Lessor shall not be in default
if Lessor commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 LATE CHARGES: Lessee hereby acknowledges that late
payment by Lessee to Lessor of Base Rent, Lessee's Share of
Operating Expense Increase or other sums due hereunder will
cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may
be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase , or any
other sum due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after such amount shall
be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to 6% of such
overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession.
15. BROKERS.
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(a) The brokers involved in this transaction are
GRUBB & ELLIS, R. MILLER as "listing broker" and
URBAN WEST COMM. REAL ESTATE, R. HELLER as
"cooperating broker."
(b) Lessee and Lessor each represent and warrant
to the other that neither has had any dealings
with any person, firm, broker or finder (other
than the person(s), if any, whose names are set
forth in paragraph 15(a), above) in connection
with the negotiation of this Lease and/or the
consummation of the transaction contemplated
hereby, and no other broker or other person, firm
or entity is entitled to any commission or
finder's fee in connection with said transaction
and Lessee and Lessor do each hereby indemnify
and hold the other harmless from and against any
costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by
any such unpaid broker, finder or other similar
party by reason of any dealings or actions of the
indemnifying party.
(c) It is expressly agreed that the execution of
this Lease by Lessor, shall not obligate Lessor
for the payment of any brokerage or ????
commissions, except for those commissions
specifically set forth in a separate commission
agreement executed by Lessor.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responsible party") shall at
any time upon not less than ten (10) days prior
written notice from the other party ("requesting
party") execute, acknowledge and deliver to the
requesting party a statement in writing (i)
certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating
the nature of such modification and certifying
that this Lease as so modified, is in full force
and effect) and the date to which the rent and
other charges are paid in advance, if any, and
(ii) acknowledging that there are not to the
responding party's knowledge any uncured defaults
on the part of the requesting party, or
specifying such defaults if any are claimed.
(b) At the requesting party's option, the
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failure to deliver such statement within such
time shall be a material default of this Lease by
the party who is to respond, without further
notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full
force and effect, without modification except as
may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting
party's performance, and (iii) if Lessor is the
requesting party, not more than one month's rent
has been paid in advance.
(c) If Lessor desires to finance, refinance, or
sell the Office Building Project, or any part
thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such
financial statements of Lessee as may be
reasonably required by such lender or purchaser.
Such statements shall include the past three (3)
years' financial statements of Lessee. All such
financial statements shall be received by Lessor
and such lender or purchaser in confidence and
shall be used only for the purposes herein set
forth.
17. LESSOR'S LIABILITY. The term "Lessor: as used herein shall mean only the
owner or owners, at all time in questions, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and in the event of
any transfer of such title or interest, Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer in which Lessee has an interest, shall be delivered
to the grantee. The obligations contained in this lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease, provided,
however, that interest shall not be payable on late charges incurred by the
Lessee.
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20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase or any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the lessor or any employee or agents of any said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to lessee
or to lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of
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Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
25. RECORDING. Lessee shall not, without the prior express written consent of
Lessor, record either this Lease or any "short form" memorandum of this Lease.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent(200%) of the rent payable immediately preceding the
termination date of this Lease, and all Options, if any, granted under the terms
of this Lease shall be deemed terminated and be of no further affect during said
month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Leave performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraphs
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws to he State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION.
(a) This Lese, and any Option or right of first
refusal granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage,
deed of trust or any other hypothecation or
security now or hereafter placed upon the Office
Building Project and to any and all advances made
on the security thereof and to all renewals,
modifications, consolidations, replacements and
extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee
is not in default and so long as Lessee shall pay
the rent and observe and perform all of the
provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its
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terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options
granted hereby prior to the lien of its mortgage,
deed of trust or ground lease, and shall give
written notice thereof to Lessee, this lease and
such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether
this Lease or such Options are dated prior or
subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents
required to effectuate an attornment, a
subordination, or to make this Lease or any
Option granted herein prior to the lien of any
mortgage, deed of trust or ground lease, as the
case may be. lessee's failure to execute such
documents within ten (10) days after written
demand shall constitute a material default by
Lessee hereunder without further notice to Lessee
or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's
attorney-in- fact. Lessee does hereby make,
constitute and irrevocably appoint Lessor as
Lessee's attorney-in-fact and in Lessee's name,
place and stead, to execute such documents in
accordance with this paragraph 30(b).
31. ATTORNEY'S FEES.
31.1 If either party brings an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to
his reasonable attorneys' fees to be paid by the losing party
as fixed by the court in the same or a separate suit, and
whether or not such action us pursued to decision or judgment.
31.2 The attorneys' fee award shall not be computed in
accordance with any court fee schedule, but shall be such as
to fully reimburse all attorneys' fees reasonably incurred in
good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees
and all other costs and expenses incurred in the preparation
and service of notice of default and consultations in
connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
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<PAGE>
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting
the same, performing any services required of Lessor, showing
the same to prospective purchasers, lenders or lessees, taking
such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office
Building Project as Lessor may reasonably deem necessary or
desirable and the erecting, using and maintaining of
utilities, services, pipes and conduits through the Premise
and/or other premises as long as there is no material adverse
effect to Lessee's use of the Premises. lessor may at any time
place on or about the Premises or the Building any ordinary
"For Sale" signs and Lessor may at any time during the last
120 days of the term hereof place on or about the Premises any
ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall
be without abatement of rent, nor shall Lessor have any
liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the
Premises and to unlock all doors in or upon the Premises other
than to files, vaults and safes, and in the case of emergency
to enter the Premises by any reasonably appropriate means, and
any such entry shall not be deemed a forceable or unlawful
entry or detainer of the Premises or an eviction. Lessee
waives any charges for damages or injuries or interference
with Lessee's property or business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premiss or Common Areas in violation
of this paragraphs shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premise or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of
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Lessor terminate all or any existing subtenancies or may at the option of
Lessor, operate as an assignment to Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premise and observing
and performing all of the covenants, conditions and provisions on Lessee' part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. SECURITY MEASURES - LESSOR'S RESERVATIONS.
39.1 Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other
security measures for the benefit of the Premises or the
Office Building Project. lessee assumes all responsibility for
the protection of Lessee, its agents and invitees and the
property of Lessee and of Lessee's agents and invitees from
acts of third parties. Nothing herein contained shall prevent
Lessor, at Lessor's sole option, from providing security
protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included
within the definition of Operating Expenses , as set forth in
paragraph 4.2(b).
39.2 Lessor shall have the following rights:
(a) To change the name, address or title of the
Office Building Project or building in which the
Premises are located upon not less than sixty
(60) days prior to written notice;
(b) To, at Lessee's expense, provide and install
Building standard graphics on the door of the
Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
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(c) To permit any lessee the exclusive right to
conduct any business as long as such exclusive
does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as
Lessor reasonably deems necessary or advisable
upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the
Common Areas.
39.3 Lessee shall not:
(a) Use a representation (photographic or
otherwise) of the Building or the Office Building
Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in
emergency, to go upon the roof of the Building.
40. EASEMENTS.
40.1 Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor
deems necessary or desirable, and to cause the recordation of
Parcel Maps and restrictions, so long as such easements,
rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall
sign any of *the aforementioned documents upon request of
Lessor and failure to do so shall constitute a material
default of this Lease by Lessee without the need for further
notice to Lessee.
40.2 The obstruction of Lessee's view, air, or light by any
structure erected in the vicinity of the Building, whether by
Lessor or third parties, shall in no way affect this Lease or
impose any liability upon Lessor.
41. LESSEE'S FINANCIAL STATEMENTS. Attached hereto as Exhibit "E" and
Incorporated herein by this reference are the most recent financial statements
(the "Financial Statements") of Lessee. Lessee represents and warrants that the
Financial Statements were prepared by a certified public accountant in
accordance with generally accepted accounting principles consistently applies,
are in all material respects true and complete statements of the financial
condition of Lessee for the period(s) therein specified, contain and reflect all
necessary and material adjustments so as to present a true, accurate and
complete statement of lessee's current financial condition, and do not
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fail to disclose any fact or facts which might materially and aversely affect
Lessee's current financial condition. Lessee further represents and warrants
that since the last date covered by the Financial Statements, there has not been
any materially adverse change in the financial condition of Lessee or any other
event or condition of any character that had or might reasonably be expected to
have a materially adverse effect on the financial condition of Lessee. lessee
acknowledges that lessor is materially relying on the truthfulness, accuracy and
completeness of the Financial Statements an d of the further representations
with respect thereto contained herein, and that Lessor would not enter into the
lease with Lessee if it did not believe that the Financial Statements and all
such further representations contained herein are true, accurate and complete.
Lessee further acknowledges that the certified public accountant who prepared
the Financial Statements was apprised, or has been apprised, that the Financial
Statements would be furnished to Lessor for Lessor's review and consideration in
connection with Lessor's decision to enter into the Lease.
42. RELOCATION OF LESSEE. At Lessor's written request, Lessee shall move from
the Premises to any other premises and location in the Office Building Project
designated by Lessor. In the event of such relocation, the new premises and
location shall be substituted for the Premises described in Paragraph 1.2 of
this Lease, but all other terms of the Lease shall remain the same, with the
exception that the rent provided for in the Lease shall be abated during such
reasonable period that Lessee is closed for business as a result of its
relocation; provided, however, that Lessee shall not be moved to premises of
substantially less square footage than those of the Premises described in said
Paragraph 1.2 and provided further, that Lessor shall reimburse Lessee for all
actual cash moving expenses reasonably incurred by Lessee in relocating to a new
premises and for the reasonable *costs of fixturization of the new premises
comparable to the Premises. It is understood and agreed that Lessor will
relocate Lessee only for sound business practices and the overall betterment of
the Office Building Project.
43. DIRECTORY AND DOOR SIGNAGE. Lessee understands and agrees that directory
signage for the Premises, in the lobby of the Building is offered to tenants of
the Office Building Project on an "as available" basis and subject, as to both
form and content, to the prior written approval of Lessor. Lessee further agrees
that all costs of any such signage for Lessee, including but not limited to
lettering, installation and repair, shall be borne entirely by Lessee. All
signage on or adjacent to Lessee's entrance door(s) shall be constructed, at
Lessee's sole cost and expense, utilizing building standard materials, colors
and format, and shall be approved in writing, by the Lessor, prior to the
commencement of construction.
44. PERFORMANCE UNDER PROTEST. If at any time a dispute shall
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arise as to any amount or sum of money to be paid by one party to the other
under the provisions hereof, the party against whom the obligation to pay the
money is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such sum.
It if shall be adjudged that there was no legal obligation on the part of said
obligation on the part of said party to pay such sum or any part thereof, said
party shall be entitled to recover such sum or so much thereof as it was not
legally required to pay under the provisions of this Lease.
45. AUTHORITY. If Lessee is a corporation, trust or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
46. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
47. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
48. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
49. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
50. WORK LETTER. This lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit "D" and
incorporated herein by this reference.
51. ATTACHMENTS. Attached hereto are the following documents which constitute a
part of this Lease:
Exhibit "A" - Approximate Diagram of Premises
Exhibit "B" - Confirmation of Term of Lease Form
Exhibit "C" - Rules and Regulations
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Exhibit "D" - Work Letter
Exhibit "E" - Financial Statements of Lessee
Exhibit "F" - Lessee Improvement Specifications
Exhibit "G" - Guaranty of Lease
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
Par. 52: OPTIONS. Three 5-year options to renew at the then
prevailing market rate for similar space in
comparable buildings in the area.
Par. 53: PARKING RATES. First 12 months no charge. Then
prevailing rates during Lease term.
Par. 54: HVAC HOURS. 20 hours per month after hours at no
cost. Unused allocation shall accrue.
OVERTIME RATE: - Currently $15 per hour. Normal
business hours: Mon-Fri: 7AM-6PM; Sat.: 9AM - 1PM
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
LESSOR OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE TO THE TRANSACTION
RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR: LESSEE:
COPPERFIELD INVESTMENT & COUNTRY STAR RESTAURANTS, INC.
DEVELOPMENT COMPANY ______________________________f
By____________________________ By____________________________
DANIEL LAI
Its PRESIDENT Its___________________________
______________________________
Executed at Los Angeles, CA Executed at __________________
on ___________________________ on____________________________
Address: Address:
4929 Wilshire Boulevard ______________________________
Suite 428 ______________________________
Los Angeles, CA 90010 ______________________________
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EXHIBIT 10.6
CONFIDENTIAL MUTUAL RELEASE AND SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is made and entered as of
this 31st day of January, 1998, to be effective as of the 23rd day of December,
1997, by and between 3030 PEACHTREE, L.L.C. (referred to hereinafter as "3030
PEACHTREE") and COUNTRY STAR RESTAURANTS, INC. (referred to hereinafter as
"COUNTRY STAR").
WITNESSETH:
WHEREAS, 3030 PEACHTREE, as landlord, and COUNTRY STAR, as tenant,
entered into a Lease Agreement dated March 9, 1995, a First Amendment to Lease
Agreement dated October 13, 1995, and a Letter Agreement dated December 12, 1996
(hereinafter collectively referred to as the "Lease") concerning the property
located at 3030 Peachtree Road, NW, Atlanta, Georgia 30305 (the "Premises");
WHEREAS, 3030 PEACHTREE and COUNTRY STAR entered into an Escrow
Agreement dated October 13, 1995, with Chicago Title and Trust Company as the
Escrow Agent (the "Construction Escrow Agreement");
WHEREAS, 3030 PEACHTREE and COUNTRY STAR entered into an Escrow
Agreement dated October 13, 1995, with The Dime Savings Bank of New York, FSB as
the Lender and with Chicago Title and Trust Company as the Escrow Agent (the
"FF&E Escrow Agreement");
WHEREAS, COUNTRY STAR was solely responsible for making all
improvements to the Premises and was solely responsible for all costs associated
with such improvements;
WHEREAS, 3030 PEACHTREE demanded that COUNTRY STAR cure Events of
Default arising out of and related to the Lease by letters dated January 3,
1997, March 25, 1997, April 14, 1997, and September 19, 1997 (the "Dispute");
WHEREAS, 3030 PEACHTREE has filed a dispossessory action against
COUNTRY STAR in the Magistrate Court of Fulton County, State of Georgia, in the
case styled 3030 PEACHTREE, L.L.C. V. COUNTRY STAR RESTAURANTS, INC., Civil
Action File No. 97-ED-0320400 (the "Action");
WHEREAS, the Dispute and Action involve, among other matters, liens
filed against the Premises, construction defects on the Premises, the payment of
real estate taxes, and COUNTRY STAR's abandonment of the Premises;
WHEREAS, COUNTRY STAR has agreed to waive all defenses to said Action
and voluntarily relinquish possession of the Premises as set forth in Paragraph
1 of this Agreement;
WHEREAS, 3030 PEACHTREE and COUNTRY STAR have agreed to terminate the
Lease effective December 23, 1997;
<PAGE>
WHEREAS, 3030 PEACHTREE and COUNTRY STAR have also agreed to a release
and assignment of claims as set forth herein; and
WHEREAS, 3030 PEACHTREE and COUNTRY STAR (sometimes collectively
referred to herein as the "Parties") seek to amicably resolve all controversies
between them as described herein.
NOW, THEREFORE, for and in consideration of the mutual agreements,
covenants, and releases, and other good and valid consideration as set forth
herein, the receipt and adequacy of which are hereby acknowledged by each of the
Parties hereto, the Parties do hereby covenant, represent, warrant, promise, and
agree to the following:
TERMINATION OF LEASE.
3030 PEACHTREE and COUNTRY STAR agree that the Lease is terminated as
of December 23, 1997 and that all right, title and interest of COUNTRY STAR
under the Lease shall wholly cease and expire as of that date. However, except
as modified herein, any and all provisions of the Lease which by their terms
survive the termination of the Lease shall likewise survive this Agreement. Such
provisions include, but are not limited to, Article 23, Paragraph 24.3 and
Article 19 of the Lease.
POSSESSION OF PREMISES.
COUNTRY STAR agrees to vacate and deliver possession of the Premises to
3030 PEACHTREE no later than 11:59 p.m. on Saturday, January 31, 1998 (the
"Vacation Date"). COUNTRY STAR agrees that when it vacates and delivers
possession of the Premises, it will deliver the Premises free and clear of any
and all lessees, sublessees, licensees, sublicensees, or other third party
claiming any right of possession to the Premises; provided, however, that with
respect to Joe Bulat d/b/a ODS Security, Inc. ("Bulat"), with whom Tenant
entered into a Parking Lease Agreement sublease dated March 1, 1997, COUNTRY
STAR has informed 3030 PEACHTREE that COUNTRY STAR has terminated said Parking
Lease Agreement with Bulat, and has filed a dispossessory action against Bulat
(Civil Action No. 97dd3O5OH, State Court of Fulton County, Georgia), and that
Bulat has claimed by way of counterclaim that his right to possession should not
be terminated. COUNTRY STAR agrees that 3030 PEACHTREE has no obligation to
prosecute or defend such action, and COUNTRY STAR agrees not to acknowledge or
concede in any manner whatsoever that Bulat has any right of possession to the
Premises. Until such time as COUNTRY STAR vacates and delivers possession of the
Premises, COUNTRY STAR's occupancy of the Premises shall be subject to and in
accordance with the terms and conditions set forth in the Lease, except as
modified herein.
COUNTRY STAR has provided to 3030 PEACHTREE immediately upon execution
of this Agreement a set of keys to all locks on or in the Premises. COUNTRY STAR
also agrees that 3030 PEACHTREE may enter the Premises at any time following the
execution of this Agreement.
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Simultaneously with the execution of this Agreement, the Parties agree
to execute a Consent Writ of Possession in the form of the Consent Writ of
Possession attached hereto and incorporated herein by reference as EXHIBIT "A."
The Parties hereby agree to, and direct their counsel to obtain, the entry of
said Writ of Possession no later than January 30, 1998; provided, however, that
3030 PEACHTREE agrees that it will not execute upon such Writ of Possession in a
manner that is inconsistent with COUNTRY STAR's right to "Tenant's Property" as
set forth in Paragraph 5 of this Agreement.
INSURANCE.
COUNTRY STAR agrees that it will provide insurance for the Premises in
accordance with the terms of the Lease and that such insurance coverage shall
remain in full force and effect at least through and including January 31, 1998.
DOCUMENTS.
Within ten (10) business days after the execution of this Agreement,
COUNTRY STAR will give to 3030 PEACHTREE a copy of any and all as-built plans,
contracts, subcontracts, and settlement agreements with any contractor,
subcontractor supplier and any other party performing services or providing
supplies relating in any way to the Premises.
FURNITURE, FIXTURES AND EQUIPMENT.
3030 PEACHTREE agrees that COUNTRY STAR may remove Tenant's Property
(as that term is defined in the Lease) from the Premises pursuant to and in
accordance with Article 23 of the Lease; provided, however, that Country Star
shall leave all of the items identified on the lists (except for the items
labeled as "going") attached as EXHIBIT B hereto (which lists include certain
items which 3030 PEACHTREE contends do not constitute Tenant's Property) within
the Premises through and including May 1, 1998. Upon conducting an inventory of
the items it has removed from the Premises (but no later than February 13,
1998), COUNTRY STAR shall update the list of items it left in the Premises. On
or before February 27, 1998, 3030 PEACHTREE will inform COUNTRY STAR of any
errors in the list. So long as Tenant's Property is then on the Premises,
Country Star may negotiate to sell or lease, on such terms and conditions as are
acceptable to Country Star, Tenant's Property remaining in the Premises to any
other person or entity who, with 3030 Peachtree's consent, becomes a tenant or
other occupant of the Premises after the Vacation Date, and Country Star shall
be entitled to all proceeds of such sale or lease of Tenant's Property, without
deductions or set off by 3030 PEACHTREE for any purpose. 3030 Peachtree agrees
that it shall not assess Country Star rental or storage charges relating to any
Tenant's Property remaining in the Premises. 3030 Peachtree covenants and agrees
that, while any portion of Tenant's Property remains in the Premises, it will
take all reasonable steps to secure the Premises, and 3030 Peachtree further
agrees that representatives of Country Star will, upon reasonable notice, be
allowed access to the Premises following the Vacation Date for the purposes of
inspecting Tenant's Property and removing any items labeled on EXHIBIT B as
"going" which have not already been removed from the Premises by COUNTRY STAR.
3030 Peachtree agrees that, after May 1, 1998, any Tenant's Property remaining
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in the Premises, and which has not been sold, leased or otherwise
conveyed by Country Star to another occupant of the Premises, may, upon five (5)
days written notice to 3030 PEACHTREE, be removed from the Premises by Country
Star, and 3030 Peachtree agrees to grant Country Star reasonable access to the
Premises for such purpose. Anything herein or in Article 23 of the Lease to the
contrary notwithstanding, 3030 Peachtree may, at its option, provide Country
Star and its counsel, Jeffrey W. Kelley, with thirty (30) days' written notice
to remove all remaining Tenant's Property from the Premises, and in such event,
3030 Peachtree shall provide Country Star and its representatives with
reasonable access to the Premises for the purpose of removing Tenant's Property,
which removal shall be governed by Article 23 of the Lease. Any Tenant's
Property not removed by Country Star upon expiration of said thirty (30) day
period shall be deemed to be abandoned and may be retained or disposed of by
3030 Peachtree as it may reasonably determine. The provisions of this Agreement
and of Article 23 of the Lease relating to abandonment shall not apply to any
portion of Tenant's Property which 3030 Peachtree for any reason refuses to
permit Country Star to remove from the Premises or delays in permitting Country
Star to remove from the Premises.
3030 Peachtree agrees that, unless there is written approval from
Country Star, then so long as (i) 3030 PEACHTREE, or its affiliates, owns an
interest in the Premises, and (ii) COUNTRY STAR is in business operating under a
name including the term "Country Star", no business shall be conducted on the
Premises, whether by a successor tenant or otherwise, under the name "Country
Star" or under a name which includes the term "Country Star."
INDEMNITY.
COUNTRY STAR hereby agrees to indemnify and hold harmless 3030
PEACHTREE, its parent and subsidiary companies, affiliates, officers, directors,
shareholders, partners, members, employees, agents, insurers, mortgagees,
successors and assigns, from any and all liability, loss or damage 3030
PEACHTREE may suffer as a result of claims, demands, costs, liens, attorney's
fees or judgments arising out of or relating to COUNTRY STAR's possession of the
Premises from December 23, 1997 until the Vacation Date.
UTILITIES.
COUNTRY STAR agrees to pay all utilities for the Premises through and
including the Vacation Date.
ESCROW ACCOUNTS.
COUNTRY STAR agrees to and does hereby relinquish its claims to any
remaining funds in the accounts described in the Construction Escrow Agreement
and the FF&E Escrow Agreement. Accordingly, COUNTRY STAR agrees to execute
letters for the relinquishment and release of such funds simultaneously with the
execution of this Agreement in the form of the letters attached hereto and
incorporated herein by reference AS EXHIBITS "C" AND "D."
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DISMISSAL WITHOUT PREJUDICE.
Following entry of the Writ of Possession contemplated in this
Agreement, 3030 PEACHTREE shall dismiss without prejudice any remaining claims
in Civil Action File No. 97-ED-0320400.
AD VALOREM REAL ESTATE TAXES.
3030 PEACHTREE agrees that COUNTRY STAR shall not be required to make
any payments for 1997 AD VALOREM real estate taxes other than those taxes, if
any, which are imposed on or assessed against COUNTRY STAR's personal property.
PARTIAL ASSIGNMENT OF CLAIMS.
COUNTRY STAR hereby assigns to 3030 PEACHTREE all of COUNTRY STAR's
claims, cause or causes of action, whether known or unknown, against any and all
third parties, including but not limited to architects, contractors,
subcontractors, and suppliers, for any design and/or construction services or
materials supplied with respect to the Premises in an amount and to the extent
necessary to remedy any and all construction defects on the Premises; provided,
however, that COUNTRY STAR shall have the right to recover from said third
parties all other damages, but only to the extent the recovery of such damages
does not reduce 3030 PEACHTREE's claims or damages arising out of defective
design and/or construction of the Premises. COUNTRY STAR shall have the right to
pursue claims for design and/or construction performed on the Premises if 3030
PEACHTREE fails to pursue such claims within two (2) years of the date of this
Agreement; however, neither COUNTRY STAR nor 3030 PEACHTREE shall have an
obligation to pursue said claims. This provision shall have no effect on COUNTRY
STAR's and/or 3030 PEACHTREE's ability to assert defenses of defective design or
construction against claims filed by third parties against COUNTRY STAR. Nothing
in this provision shall be construed as an acceptance by 3030 PEACHTREE of any
responsibility for the requirements, obligations, and/or responsibilities of
COUNTRY STAR for any construction contracts entered into or involving the
construction performed on the Premises.
MUTUAL RELEASES.
3030 PEACHTREE for itself, its officers, directors, shareholders,
partners, trustees, representatives, employees, agents, subsidiaries,
affiliates, parent corporations, successors, heirs, executors, administrators,
assigns, attorneys, and insurance carriers, release and forever discharge
COUNTRY STAR, its officers, directors, shareholders, partners, representatives,
employees, agents, subsidiaries, affiliates, parent corporations, successors,
heirs, executors, administrators, assigns, attorneys, and insurance carriers,
from any and all claims, cause or causes of action, damages, claims for costs,
attorneys' fees, losses, or demands, whether known or unknown arising out of the
Dispute or Action or matters related thereto, including but not limited to any
claim for rent or other charge due or allegedly due under the Lease and any
claim or other cause of action which otherwise might be alleged or could have
been brought in the Action; provided, however, that such release excludes
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any and all losses or damages suffered or incurred by 3030 PEACHTREE in
connection with any liens or lien claims, and/or claims of unjust enrichment
asserted by any third party claiming to have supplied design and/or construction
services or materials with respect to the Premises. 3030 PEACHTREE agrees to pay
the costs of defending any and all claims relating to liens asserted by any
third party against 3030 PEACHTREE, and COUNTRY STAR agrees to cooperate in good
faith in the defense of such claims. Nothing in this provision shall be
construed as an agreement on behalf of 3030 PEACHTREE to defend against any
claims asserted by third parties against COUNTRY STAR.
COUNTRY STAR for itself, its officers, directors, shareholders,
partners, trustees, representatives, employees, agents, subsidiaries,
affiliates, parent corporations, successors, heirs, executors, administrators,
assigns, attorneys, and insurance carriers, release and forever discharge 3030
PEACHTREE, its officers, directors, shareholders, partners, trustees,
representatives, employees, agents, subsidiaries, affiliates, parent
corporations, successors, heirs, executors, administrators, assigns, attorneys,
mortgagees (including, without limitation, The Dime Savings Bank of New York,
FSB) and insurance carriers from any and all claims, cause or causes of action,
damages, claims for costs, attorneys' fees, losses, or demands, whether known or
unknown arising out of the Dispute or Action or matters related thereto,
including but not limited to any claim or other cause of action which otherwise
might be alleged or could have been brought in the Action.
AUTHORITY.
COUNTRY STAR hereby represents that the execution of this Agreement and
the performance of its obligations hereunder has been duly and fully authorized
by its board of directors or its partners, as applicable. Simultaneously with
the execution of this Agreement, COUNTRY STAR will provide to 3030 PEACHTREE a
secretary's certificate with a resolution attached authorizing the execution and
performance of this Agreement by COUNTRY STAR.
ATTORNEY'S FEES AND COSTS.
3030 PEACHTREE and COUNTRY STAR agree that each shall bear its own
costs and attorney's fees with respect to the Action and with respect to this
Agreement.
SEVERABILITY.
If any term or condition of this Agreement or application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
neither the remainder of this Agreement nor the application thereof shall be
affected thereby; and each remaining term or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
CONFIDENTIALITY
It is the intent of COUNTRY STAR and 3030 PEACHTREE that the
circumstances at issue in this dispute, the fact of the settlement, and the
terms and amount of the settlement be treated as
-6-
<PAGE>
strictly confidential. Pursuant to this, COUNTRY STAR and its attorneys agree
that they will not from this date forward, divulge to or discuss with any other
person, either directly or indirectly, the fact of the monetary or other terms
of this settlement, any facts or circumstances of the underlying matter, except
pursuant to valid legal process, an unsolicited request of a regulatory agency
or self-regulatory organization with a legal right to demand such information,
or as otherwise required by law.
TIME IS OF THE ESSENCE.
Time is of the essence of this Agreement.
ENTIRE AGREEMENT.
This Agreement contains the entire agreement between the Parties and
supersedes and replaces all prior negotiations, proposed amendments and
agreements, written or oral. The terms of this Agreement are contractual and not
mere recitals.
NO ASSIGNMENT.
The Parties warrant and represent that they have not sold, assigned,
granted, conveyed or transferred to any other person, firm, corporation or
entity any of the claims, demands or causes of action referred to or released in
this Agreement.
AMENDMENTS.
The terms of this Agreement shall not be altered, amended, modified or
otherwise changed in any respect or particular except by a writing duly executed
by the Parties hereto. The Parties hereby acknowledge and agree that they will
make no claim at any time that the terms of this Agreement have been orally
altered or modified in any respect whatsoever.
NO REPRESENTATION.
The Parties hereby represent and acknowledge that they have carefully
read the foregoing Agreement and the contents thereof, and sign the same as
their own free act without any promise, inducement, or representation not fully
expressed herein. COUNTRY STAR acknowledges and warrants that it has been
represented by independent counsel and that it has reached this Agreement with
full understanding of its terms, and that its lawyer has explained to its
satisfaction each and all of the Agreement's terms and the legal effects of
these terms, and that it executes this Agreement upon the advice, consent, and
approval of its attorney.
MULTIPLE ORIGINALS.
Each of the undersigned hereby represents, covenants, and warrants that
this Agreement is, for convenience, being executed by the Parties in multiple
originals, each of which contains the
-7-
<PAGE>
entire agreement of the Parties and is intended to be and is as valid and
binding as its counterpart original.
CHOICE OF LAW.
This Agreement shall be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the undersigned set their hand on the day and year
first written above.
"3030 PEACHTREE"
3030 Peachtree, L.L.C.
By: /s/ PETER E. BLUM
----------------------------
PETER E. BLUM
Managing Member,
3030 Peachtree, L.L.C.
Sworn and subscribed to me
this ____ day of ___________ 1998.
__________________________________
Notary Public
My commission expires:
__________________________________
[NOTARY SEAL]
"COUNTRY STAR"
Country Star Restaurants, Inc.
By: /s/ DAN J. RUBIN
-------------------------------
name Dan J. Rubin
position at CSR CEO
(corporate seal)
Sworn and subscribed to me
this ____ day of ___________ 1998.
__________________________________
Notary Public
My commission expires:
__________________________________
[NOTARY SEAL]
-8-
EXHIBIT 10.8
SETTLEMENT
AGREEMENT AND RELEASE
This Settlement Agreement and Release (hereinafter "Agreement") is
entered into as of the 18th day of February, 1998, by and between plaintiff
Cameron Capital Ltd. and defendants Country Star Restaurants, Inc. and Dan Rubin
according to the following terms and conditions:
I
DEFINITIONS
1.1 As used herein, "Cameron" and/or "Plaintiff" refers collectively to
Cameron Capital Ltd., a Bermuda limited company, and all of its predecessors and
successors in interest, parent and subsidiary corporations, divisions,
affiliates, and related entities, as well as all of their present, former and
future officers, directors, stockholders, employees, agents, representatives,
attorneys, and insurers.
1.2 As used herein, "Country Star" means Country Star Restaurants,
Inc., a Delaware corporation, and all of its predecessors and successors in
interest, parent and subsidiary corporations, divisions, affiliates, and related
entities, as well as all of their present, former and future officers,
directors, stockholders, employees, agents, representatives, attorneys, and
insurers.
1.3 As used herein, "Defendants" refers collectively to Country Star
and Rubin.
1.4 As used herein, "Lawsuit" means the action filed by Plaintiff
against Defendants, entitled CAMERON CAPITAL LTD. V. COUNTRY STAR RESTAURANTS,
INC. AND DANIEL RUBIN, Case No. 98 C 924, in the United States District Court
for the Northern District of Illinois, Eastern Division, including the Verified
Complaint and Motion for Temporary Restraining Order.
1.5 As used herein, "Loan Transactions" means transactions reflected in
the Loan and Security Agreement (dated February 12, 1997) between Cameron, Rubin
and Country Star (the
<PAGE>
"Loan Agreement"), the Convertible Note (dated February 12, 1997) issued to
Cameron by Country Star, each as amended to date, the Purchase and Assignment
Agreement between Cameron and Rubin, the Agency and Intercreditor Agreement
(dated February 12, 1997) between Cameron and Rubin, and any and all related
transactions, documents or instruments.
1.6 As used herein, "Rubin" means Dan J. Rubin, a resident of New
Jersey, and all of his predecessors and successors in interest, heirs,
employees, agents, representatives, attorneys, and insurers.
II
PREAMBLE
2.1 The undersigned parties desire to enter into this Agreement in
order to provide for certain payments in full and complete release, discharge
and settlement of the claims against Defendants set forth in the Lawsuit, as
well as all past, present and future claims that could be asserted against
Defendants now or in the future by Plaintiff as a result of or arising out of
the Loan Transactions upon and subject to the terms and conditions set forth
herein without the necessity of completing discovery or proceeding to trial on
the merits with all of the attendant expense.
2.2 The undersigned parties further desire that, effective upon the
date hereof, this Agreement shall fully and finally resolve all matters in
controversy between them relating to the Lawsuit or the Loan Transactions and
that, except as provided herein, no party shall attempt to revisit or litigate
the same.
III
PAYMENT
3.1 In consideration of Plaintiff's agreement to move to vacate the
Temporary Restraining Order entered on February 13, 1998 (the "TRO") and to
dismiss with prejudice the Lawsuit, as well
-2-
<PAGE>
as the release and remaining promises set forth in this Agreement, Defendants
agree: (i) to make a one-time, total cash payment in the amount of One Million
Three Hundred Thousand and no/100 dollars ($1,300,000.00) on or before 5:00 p.m.
(EST) on February 18, 1998, such payment to be made by wire transfer to the
client trust account of Freeborn & Peters, counsel to Plaintiff, in accordance
with the following wire transfer instructions:
Norwest Bank Colorado, N.A.
1050 Seventeenth Street
Denver, CO 80265
Account #2648016089
ABA #102000076
(303) 893-9881
and (ii) to deliver to Freeborn & Peters a duly executed stock certificate or
certificates, registered in the name of Cameron Capital Ltd., representing Six
Hundred Seventy Thousand (670,000) (post- reverse split) fully-paid and
non-assessable shares of Country Star Common Stock on or before 5:00 p.m. (EST)
on February 26, 1998, provided however, that such deadline for delivery of such
certificates may be extended once for a reasonable period of time if Country
Star's transfer agent fails to perform its duties in a timely manner. Such
certificate or certificates shall bear a restrictive legend under the Securities
Act of 1933 as follows:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED UNLESS (A) A REGISTRATION STATEMENT IS IN EFFECT FOR
SUCH SHARES UNDER SUCH ACT OR THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED, OR (B) THE SECURITIES
ARE SOLD PURSUANT TO RULE 144 PROMULGATED UNDER SUCH ACT.
3.2 Defendants further agree to use their best efforts to permit
resales by Plaintiff under Rule 144, including supplying Country Star's transfer
agent with opinions of Country Star's counsel, it being acknowledged and agreed
by Country Star that Cameron may "tack" its holding period for
-3-
<PAGE>
the Convertible Note to the holding period for the shares delivered hereunder.
3.3 Defendants shall have no further responsibility or liability for
disbursements (such as attorneys' fees) that Plaintiffs make or are obligated to
make from this settlement payment.
IV
PLAINTIFFS' RELEASE AND AGREEMENT RESPECTING
PRESENT AND FUTURE CLAIMS AND CAUSES OF ACTION
In consideration of and effective upon the above payment and delivery,
as well as the other promises set forth in this Agreement, Plaintiff agrees to
the following:
4.1 Immediately upon receipt of the payment set forth in Section 3.1(i)
herein, Plaintiff and its attorneys shall file, or cooperate in filing, and take
all further steps that may be necessary to secure the Court's entry of an
appropriate Order vacating the TRO, and upon receipt of the stock certificates
described in Section 3.1(ii), Plaintiff and its attorneys shall file, or
cooperate in filing, and take all further steps that may be necessary to secure
such an Order dismissing with prejudice the Lawsuit and all of Plaintiff's
claims against Defendants. Should Defendants fail to make such payment or
deliver such certificates by such date, then Plaintiff shall not be required to
dismiss the Lawsuit and the mutual releases herein shall not be effective.
However, should such payment be made, but such certificates not be so delivered
then (i) Plaintiff shall be obligated to vacate the TRO as set forth above, but
shall not further be obligated to dismiss the Lawsuit, and (ii) the Obligations
(as defined in the Loan Agreement) to Plaintiff shall be deemed to have been
reduced by $2.6 million in consideration of such $1.3 million payment.
4.2 Plaintiff releases and forever discharges Defendants, Roy B. Rubin,
Rob Lyszczarz, Roy B. Rubin, M.D., P.C., M.P.P.P., and all of their assignees,
(hereinafter all collectively referred to as the "Defendant Released Parties"),
of and from all past, present or future claims, demands,
-4-
<PAGE>
obligations, actions, or causes of action, however denominated, known or
unknown, related to the Lawsuit or arising directly or indirectly from the Loan
Transactions or Plaintiff's status as a stockholder of Country Star and/or
Plaintiff's damages sustained as a result thereof, including, but not limited
to, all claims that were or that could have been asserted in the Lawsuit,
excepting any actions necessary to enforce this Agreement. The parties intend
for the Defendant Released Parties that are not parties to this Agreement to be
third-party beneficiaries of the release provided for by this paragraph.
4.3 Except as may be necessary to enforce this Agreement, Plaintiff
will indemnify and hold the Defendant Released Parties harmless against any
future or further exposure or payment with reference to the matters set forth in
this Agreement, including, but not limited to, any lawsuit or claim, however
presented, which may hereafter be instituted, presented or effected against them
by or on behalf of Plaintiff.
4.4 Plaintiff acknowledges that the payment reflected in this Agreement
is full and fair compensation, is made to compromise and settle claims disputed
as to both liability and amount, and is made to Plaintiff in settlement and
release of all past, present and/or future claims against any of the Defendant
Released Parties as a result of the events described in the Lawsuit. Neither
payment of the sums reflected herein nor any statements or communications made
by Defendants or their agents during the negotiations leading to this Agreement
shall be considered admissions of liability by or on behalf of any of them.
4.5 To the extent that any payment made by Defendants to Plaintiff is
subsequently invalidated, declared to be fraudulent or preferential, disgorged,
set aside and/or otherwise required to be repaid to any person, then, subject to
applicable law, to the extent of such payment, repayment
-5-
<PAGE>
or disgorgement, that part of Country Star's Obligations (as defined in the Loan
Agreement) that had been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the day before such
initial payment under this Agreement. Furthermore, subject to applicable law, in
the event that all or any part of this Agreement is declared invalid or illegal,
or all or any part of the payment set forth in Section III herein is declared to
be fraudulent or preferential, disgorged, set aside and/or otherwise required to
be repaid to any person, then the parties agree that they shall, at Plaintiff's
election, be restored to STATUS QUO existing as of February 16, 1998, to the
extent of twice the amount of such disgorgement payment.
V
DEFENDANTS' RELEASE AND AGREEMENT RESPECTING
PRESENT AND FUTURE CLAIMS AND CAUSES OF ACTION
In consideration of the release by Plaintiff and dismissal with
prejudice of the Lawsuit set forth in Section IV herein, as well as the other
promises set forth in this Agreement, Defendants jointly and severally agree to
the following:
5.1 Defendants jointly and severally release and forever discharge
Plaintiff, and all of its assignees, (hereinafter all collectively referred to
as the "Plaintiff Released Parties"), of and from all past, present or future
claims, demands, obligations, actions, or causes of action, however denominated,
known or unknown, related to the Lawsuit or arising directly or indirectly from
the Loan Transactions including, but not limited to, all claims, counterclaim,
cross-claims, or affirmative defenses that could have been asserted in the
Lawsuit by Defendants, excepting any actions to enforce this Agreement. The
parties intend for the Plaintiff Released Parties that are not parties to this
Agreement to be third-party beneficiaries of the release provided for by this
paragraph.
5.2 Except as may be necessary to enforce this Agreement, Defendants
jointly and
-6-
<PAGE>
severally will indemnify and hold the Plaintiff Released Parties harmless
against any future or further exposure or payment with reference to the matters
set forth in this Agreement, including, but not limited to, any lawsuit or
claim, however presented, which may hereafter be instituted, presented or
effected against them by or on behalf of: Defendants.
VI
MISCELLANEOUS PROVISIONS
6.1 Except as expressly set forth herein, neither Plaintiff nor
Defendants make any representation or warranty to the other.
6.2 All parties agree to execute any and all supplementary documents
and to take all additional steps reasonably necessary to give full force and
effect to the basic terms and intent of this Agreement. Not in limitation of the
generality of the foregoing, Plaintiff agrees that it shall, upon request, on or
after ninety-one days after the date of the payment described in Section 3.1(i)
herein, execute and deliver (i) for cancellation all of the promissory notes
representing the Obligations, except for those promissory notes previously
delivered for conversion to Country Star or its agents; and (ii) such U.C.C.
termination statements and other documents and instruments as may be reasonably
necessary to reflect the termination of Plaintiff's status as a secured creditor
of Country Star; provided, however, that Plaintiff shall not be so obligated if
Country Star files a petition in bankruptcy, or if an involuntary petition in
bankruptcy is filed against Country Star, within such ninety-one day period.
6.3 Plaintiff and Defendants shall separately bear their own respective
attorneys' fees and costs arising from the Lawsuit and/or the actions of their
own respective counsel in connection with the matters referred to in this
Agreement.
-7-
<PAGE>
6.4 The undersigned parties acknowledge that they are fully informed of
the terms, contents and conditions of this Agreement. The undersigned parties
warrant that no promise or representation of any kind has been made to them by
any other party or by anyone acting on behalf of any other party, except as
expressly stated in this instrument. In making this settlement and signing this
Agreement, the undersigned parties represent that they have relied solely and
completely upon their own judgment and upon the advice of their attorneys, and
that they fully understand and voluntarily accept the terms of the Agreement.
6.5 This Agreement shall be binding upon and inure to the benefit of
the personal representatives, administrators, heirs, successors and assigns of
Plaintiff and Defendants.
6.6 This Agreement should be deemed to have been entered into in the
State of Illinois and shall be construed and interpreted in accordance with its
laws (without regard to its conflicts or choice of law provisions).
6.7 The undersigned parties stipulate to the continuing subject matter
and IN PERSONAM jurisdiction of the Court to whom the Lawsuit was assigned to
the extent necessary, if any, for the enforcement and interpretation of the
parties' rights and obligations under this Agreement.
6.8 This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and supersedes
any prior oral or written agreements or negotiations.
[SIGNATURE PAGE TO FOLLOW]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto subscribe their names. This
Agreement may be executed in one or more counterparts, each of which will be
deemed an original once all parties have signed one of the counterparts.
DAN J. RUBIN
/s/ DAN J. RUBIN
---------------------------------
Dan J. Rubin
CAMERON CAPITAL LTD. COUNTRY STAR RESTAURANTS, INC.
By: /s/ NIC SNELLING By: /s/ DAN J. RUBIN
----------------------------- ------------------------------
Nic Snelling Dan J. Rubin
SIGNATURE PAGE TO CAMERON CAPITAL LTD., DAN RUBIN AND COUNTRY STAR
SETTLEMENT AGREEMENT
-9-
EXHIBIT 10.9
FUNDING AGREEMENT
This Funding Agreement (the "Agreement") is dated as of February 18,
1998 among Country Star Restaurants, Inc., a Delaware corporation, with an
office at 4929 Wilshire Boulevard, Suite 428, Los Angeles, California 90010
("Borrower") and Roy B. Rubin, M.D., P.C., M.P.P.P., 9 Amherst Place, Woodland,
California 95695 ("Lender").
WHEREAS, Borrower has previously entered into a Loan and Security
Agreement dated as of February 12, 1997 among Borrower, Cameron Capital Ltd.
("Cameron") as agent for Lenders under the Loan and Security Agreement and other
lenders to Borrower from time to time hereafter;
WHEREAS, Cameron has previously assigned its rights as agent under the
Loan and Security Agreement to Dan J. Rubin ("Agent") pursuant to that certain
Purchase and Assignment Agreement and Agency and Intercreditor Agreement, both
dated as of February 12, 1997, among Cameron, Borrower and Agent;
WHEREAS, Lender desires to make an advance to Borrower pursuant to and
in accordance with the terms and conditions of the Loan and Security Agreement
as modified by this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. LINE OF CREDIT ADVANCE. Lender hereby agrees to make, and
Borrower hereby agrees to accept, a line of credit advance in
the amount of $1,300,000 (the "Advance") to be made by Lender
to Borrower
<PAGE>
on February 18, 1998 by wire transfer of immediately available
funds from Lender to Borrower. The Advance from Lender to
Borrower shall for all purposes be treated as a "Line of Credit
Loan" within the meaning of Section 2.2 of the Loan and
Security Agreement, except as otherwise provided herein. Lender
hereby consents to being bound by and subject to the Loan and
Security Agreement as a "lender" thereunder.
2. WARRANTS. Pursuant to the terms of the Loan and Security
Agreement, Borrower hereby issues to Lender a warrant to
acquire 43,333 of its shares of Common Stock for an exercise
price of $6.25, and subject to all of the other terms and
conditions of the Warrant Agreement annexed hereto as Exhibit
A.
3. WAIVER OF WAITING PERIOD FOR CONVERSION. Notwithstanding
anything to the contrary set forth in the Loan and Security
Agreement, Lender may convert all or a portion of the principal
amount of the Advance and interest thereon into Common Stock of
the Company, in accordance with the terms and conditions of the
Loan and Security Agreement and the Convertible Note annexed
hereto as Exhibit B, issued by Borrower to Lender to evidence
payment terms of the Advance.
4. CHANGE OF CONTROL. Notwithstanding anything
-2-
<PAGE>
to the contrary in the Loan and Security Agreement, the entire
amount of indebtedness owed by Borrower to Lender, including
all accrued interest and penalties thereon, shall be
immediately due and payable without notice or any other
condition in the event of a "change of control" of Borrower.
For the purposes of this paragraph, a change of control shall
include any merger or consolidation of Borrower, any sale of
all or substantially all of the assets of Borrower, or any
change in the majority of the members of the Board of Directors
then serving Borrower, unless Lender approves in writing of
such change within three (3) days after such change has
occurred.
5. MISCELLANEOUS. Except as specifically provided herein, the
terms of the Advance to Borrower shall be governed by the Loan
and Security Agreement and the Convertible Note issued to
Lender.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and date first above written.
COUNTRY STAR RESTAURANTS, INC.
By: /s/ DAN J. RUBIN
--------------------------------
Dan J. Rubin, President
ROY B. RUBIN, M.D., P.C., M.P.P.P.
By: /s/ ROY B. RUBIN
--------------------------------
Roy B. Rubin, Trustee
-3-
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<ARTICLE> 5
<CIK> 0000911220
<NAME> Country Star Restaurants, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,218,845
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 231,762
<CURRENT-ASSETS> 1,640,364
<PP&E> 6,247,842
<DEPRECIATION> 1,061,470
<TOTAL-ASSETS> 7,094,159
<CURRENT-LIABILITIES> 1,993,414
<BONDS> 0
0
0
<COMMON> 78,728
<OTHER-SE> 1,876,659
<TOTAL-LIABILITY-AND-EQUITY> 7,094,159
<SALES> 6,279,062
<TOTAL-REVENUES> 6,279,062
<CGS> 2,376,055
<TOTAL-COSTS> 24,574,114
<OTHER-EXPENSES> (2,124,446)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,749,313
<INCOME-PRETAX> (18,919,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,919,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,673,629
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<NET-INCOME> (17,246,290)
<EPS-PRIMARY> (5.38)
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