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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1997
Commission file number 33-67658-NY
ROYAL CANADIAN FOODS CORP.
(Name of small business issuer in its charter)
Delaware 13-3729739
(State or other Jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1004 Second Avenue, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 980-4131
Securities registered under Section 12(b)
of the Exchange Act: NONE
Securities registered under Section 12(g)
of the Exchange Act: NONE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
--- --
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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]
State issuer's revenues for
its most recent fiscal year: $3,326,285
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $3,687,523 as of March 20, 1998.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,993,915 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format:
Yes No X
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PART I
Item 1. Description of Business.
Background
Royal Canadian Foods Corp., a Delaware corporation (the "Company"),
is engaged in the business of establishing and operating moderately priced
restaurants under the names "Royal Canadian Pancake House Restaurant" (the
"Pancake Restaurants") and "Royal Canadian Womlett(R) House" (the "Womlett
Restaurants") (the Pancake Restaurants and Womlett Restaurants are collectively
referred to herein as the "Restaurants"). The Company was formed in August 1993
as a holding company for its subsidiaries which own and operate Restaurants,
the first of which commenced operations in 1989.
The Company owns and operates three Pancake Restaurants in New York,
NY. Each Restaurant has a 75 to 80 person seating capacity. See "Item 2 -
Description of Property".
The Company owns what is effectively a controlling interest in a 104
seat Pancake Restaurant located in the South Beach community of Miami Beach,
Florida, operated by the Company and originally developed under a joint venture
arrangement. See "Item 1 - Description of Business - Joint Venture".
The Company owns and operates one Womlett Restaurant also in the
South Beach community of Miami Beach, Florida, which seats approximately 60
people. It recently signed a lease for a second Pancake Restaurant location in
the Coconut Grove community of Miami, Florida, for which it requires additional
funds to open and operate. See "Item 2 - Description of Property".
The Company completed an initial public offering of 250,000 shares of
its Common Stock in November 1993 (the "Initial Public Offering"). The offering
price was $5.00 per share and the amount raised, net of underwriting and other
offering expenses, was $1,012,170.
The Company has entered into a Letter of Intent with an underwriter
to conduct a new public offering of 1,200,000 shares
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of the Company's Common Stock for gross proceeds of approximately $6,000,000
(the "Offering"). The Offering had been delayed but the Company anticipates the
completion of the Offering by the end of the 1998 calendar year. However, no
assurance can be given as to the successful completion of the Offering. See
"Item 1 - Description of Business - Proposed Public Offering".
The Company has created a line of frozen pancakes for supermarket
distribution. The Company has developed the formulae for the pancakes, designed
the packaging, created marketing and public relations strategies, and developed
manufacturing set-ups and distributional networks. The implementation of this
line of business has been halted due to insufficient financing. See "Item 1 -
Description of Business - Proposed Wholesale Distribution," "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 4 and 21A to the Consolidated Financial Statements.
The ultimate implementation of this line of business will require
$1,500,000 of additional financing, anticipated to be provided from the
proceeds of the Company's second public offering, although there can be no
assurance of the successful completion of such offering. The Company incurred
research and development expenses of $627,778 and $34,480 in fiscal 1997 and
1996, respectively. At May 31, 1997, certain equipment and other assets
relating to this line of business and aggregating $120,550 are reported as
non-operating on the Company's consolidated balance sheet. Additional
expenditures approximating $141,300 were made subsequent to May 31, 1997. The
magnitude of the expenditures incurred in connection with the Company's attempt
to develop a wholesale line of business, coupled with the lack of any revenues
therefrom have contributed significantly to the Company's severe cash shortage.
The Company's cash shortage has been further exacerbated by its
restaurant development expenditures in Florida. The Miami Beach Pancake
Restaurant required a substantial additional investment during its first year
of operations, which was a new market for the Company. Furthermore, the
construction of the Womlett Restaurant required capital investments of
approximately $291,000 in the Company's 1997 fiscal year and an additional
capital investments of approximately $209,000 from June 1997 through January
1998. The
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Company will be required to make additional capital investment, currently
estimated to be $250,000, to fund the opening and initial operation of its
Coconut Grove Pancake Restaurant.
As a result of these expenditures and due to insufficient financing
and cash flow from operations, the Company became seriously delinquent on its
payroll taxes, sales taxes and rent tax obligations as well as its rental
payments under its various Restaurant leases. At May 31, 1997, the Company had
various delinquent tax liabilities aggregating $629,898. At such date,
delinquent rental payments were $35,513. At February 28, 1998, such delinquent
tax liabilities were approximately $630,000. At such date substantially all
rent arrearages had been paid. At certain times the various delinquencies have
resulted in landlords bringing litigation and/or eviction proceedings and
taxing authorities pursuing their various remedies including placing liens on
the Company's bank accounts and closing the subject Restaurant. See "Item 3 -
Legal Proceedings" and Notes 5, 12A and 20 to the Consolidated Financial
Statements.
Certain of the Company's financing alternatives, notably the sale of
Common Stock under Regulation S of the Securities Act of 1933, require that the
Company be current on its reporting requirements under the Securities Exchange
Act of 1934. The Company was approximately six and one-half months late in
filing its annual report on Form 10-KSB for its fiscal year ended May 31, 1997,
and has not yet filed its quarterly reports on Form 10-QSB for the quarterly
periods ended August 31, 1997 and November 30, 1997. The Company's reporting
delinquencies have in the past and may in the future restrict the type of
equity financing available to it. The Company has utilized various types of
financing including sales of Common Stock under Regulation S during the last
quarter of fiscal 1996 and in fiscal 1997 and thereafter through September 8,
1997, although the Company does not anticipate that it will be relying on this
form of financing in the future due to an amendment to Regulation S which will
take effect in April 1998. The Company has also availed itself of various
unsecured loans from certain parties, some of whom are affiliated with the
underwriter of the Company's proposed Offering. See "Item 1 - Description of
Business - Other Financing", "Item 6 - Management's Discussion and Analysis of
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Financial Condition and Results of Operations" and Notes 8A, 9, 10, 13, 18, 19
and 20B to the Consolidated Financial Statements.
Menus
Pancake Restaurants. The Pancake Restaurants feature 53 varieties of
Canadian style pancakes using proprietary recipes. They are exceptional in
their size (approximately 12 3/4 inches across) and gourmet quality. The
Pancake Restaurants also serve waffles, French toast, French Canadian crepes,
omelettes, Canadian bacon, salads, sandwiches, soups, hamburgers and a full
entree menu with Canadian salmon steak, fish and other items to appeal to a
broad customer base.
All food portions are large, consistent with the Company's concept of
projecting the warm and generous image of a Canadian pancake house. However,
prices are moderate, which gives customers a sense of value when dining at the
Restaurant.
Womlett Restaurants. The Womlett Restaurants concept is that of a
1950's gourmet diner. It features a variety of breakfast fares, burgers
(including turkey and vegetarian burgers), frittate (a flat omlette with whole
eggs or egg whites only), salads, homemade soups, desserts and bread, and a
lengthy list of sweet and savory Womletts (also available with egg whites) such
as bacon cheddar, spinach feta cheese and baked apples. The Womlett is a food
item invented by the Company and consists of an omelette dome baked onto a
waffle base. While the quality of the food at the Womlett Restaurant is high,
the prices are economical, currently ranging between $2.99 and $6.50.
Operational Procedures
The Company purchases its supplies directly from vendors, who deliver
the supplies directly to the Restaurants. Presently there are no plans to
change the distribution process. Management will review the acquisition and
distribution of its supplies as its business grows, and will make modifications
when it feels that greater efficiencies can be achieved.
The Company has standardized the preparation,
presentation and service of food, and the dress and conduct of
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restaurant employees. As a result, customers have a comfortable dining
experience with high quality food and service.
Restaurant Locations
Factors considered in Restaurant site selection include demographics
of the surrounding area, traffic patterns, access, visibility, leasing rates
and opening costs, which can vary significantly depending on the condition of a
proposed site.
The Company presently estimates that the cost of construction for
each new Restaurant, exclusive of lease and operating costs, will be between
$250,000 to $350,000, depending on the condition of the premises. The Company
estimates that the cost of construction for the Coconut Grove Pancake
Restaurant will be approximately $250,000.
The opening of any additional Restaurants would have to be financed
from a combination of available cash flow, public or private equity financing,
the availability of any of which is not assured. At present, the Company's cash
flow is not sufficient to fund the opening of new Restaurants. The Company has
entered into a Letter of Intent for a new public offering of its Common Stock.
See "Item 1 - Description of Business - Proposed Public Offering", "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 8B and 21B to the Consolidated Financial Statements.
The present financial condition of the Company prevents it from being
able to project how many more Restaurants, if any, it may develop and open in
the next twelve month period or thereafter. Until it receives significant
additional financing, the Company will focus on the construction of its Coconut
Grove Pancake Restaurant.
The Company opened its first Restaurant in October 1989 at 145 Hudson
Street, New York, N.Y. The Company closed this Restaurant on November 30, 1993
due principally to declining sales and to an overall decrease in business in
the Restaurant's remote neighborhood.
Marketing
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The Company has marketed the Restaurants in a number of ways.
Advertisements have been placed in local publications both in Miami Beach and
New York. Examples of publications where advertising has appeared include in
New York: Via New York Guide, The Resident Publications in all New York City
neighborhoods and The New York Post, and in Miami Beach: The Miami Sun Post,
Gourmet Magazine, Nuevo Herald and Miami Herald.
A radio campaign has been conducted both in Miami Beach and New York
in the commuter traffic broadcast reports.
The Company attempts to take advantage of promotional opportunities
which are available locally. One of the New York Pancake Restaurants received a
favorable mention by Sylvestor Stallone on The David Letterman Show aired on
August 7, 1997. Sheldon Golumbia, the President of the Company, is endeavoring
to arrange a guest appearance on The David Letterman Show, which is taped in
New York City, on behalf of the Restaurants.
In the Miami Beach market the Restaurants have been featured on all
of the major television networks and editorials in The Miami Herald and The
Nuevo Herald, The Sun Post, Fashion
Spectrum and Gourmet Magazine.
The Miami Beach Pancake House has hosted various events for the
Jackie Gleason Theater and for Fashion Spectrum Magazine in conjunction with
all of the major modeling agencies with a presence in Miami Beach, such as the
Ford Modeling Agency.
The Company is involved in various charitable activities to feed the
homeless both in the New York and the Miami Beach areas. In Miami Beach, the
Pancake Restaurant provides support to the Camillus House, a multi-purpose
center providing assistance to the homeless in downtown Miami Beach, with
contributions of food and hosting of special events at the Restaurant. The
Miami Beach Pancake Restaurant has also hosted a number of fund raising events
at its Restaurant sponsored by players of the Miami Heat basketball team.
In 1991 the Company's President and two of its chefs
flew to Saudi Arabia during the Gulf War to make pancakes for the
U.S. troops. National and local television stations have
broadcasted reports on the Restaurants and its promotional
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events. Articles about the Restaurants have appeared in The New York Times, The
Wall Street Journal, Women's Wear Daily, San Francisco Examiner and other
publications. The Company has been mentioned favorably in Forbes, and has twice
received the Forbes food award. In addition, the Company was featured on
Midday, a major Canadian television talk show, and the Restaurants have
received radio and newspaper publicity in Canada. Several articles have
appeared in the Japanese press as well.
The Company also markets its Restaurants by means of discounting its
meals to customers of certain credit card companies. In exchange for lump sum
payments received in advance from such companies, the Company sells its meals
at a net discount of 50% to such companies. The customer pays 75% of the menu
prices and the Company records a promotional charge for the 25% difference
which is earned by the credit card companies. In addition to enhancing cash
flow, this gives the Restaurants greater exposure to the public. See Notes 1G
and 6 to the Consolidated Financial Statements.
Competition
The restaurant business is highly competitive and is affected by,
among other things, demographic changes in a particular area, changes in eating
habits and preferences, local, regional and national economic conditions,
population trends and traffic patterns. The principal bases of competition in
the industry are the quality and prices of the food products served. Restaurant
location, quality and speed of service, advertising, name identification and
attractiveness of facilities are also important. The acquisition of sites is
highly competitive as well, with the Company often competing with other
restaurants and retail businesses for suitable sites for the development of new
Restaurants. There is no assurance that companies which are larger and/or
better capitalized than the Company will not present the Company with
substantial competition that will significantly affect the Company's future
prospects.
Intellectual Property Rights
The Company has registered the service marks "Royal
Canadian Pancake House" and "Pancakes Make People Happy" with the
United States Patent and Trademark Office. The Company also has
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registered these marks in Japan. The Company is not aware of any infringing
uses that could materially affect its business or any prior claim to these
service marks that would prevent the Company from using or licensing the use
thereof for restaurants in any area of the United States.
The Company's management believes that its registered service marks
help to promote the Restaurants and maintain its goodwill. Management also
believes that, since the Restaurants are selling food with Canadian themes, the
"Royal Canadian Pancake House" service mark identifies the food with that
country.
The Company's name, "Royal Canadian Foods Corp.", is not intended to
signify any affiliation with any Canadian entity or any official sanctioning
body or authority in Canada.
Government Regulation
The Company is subject to various federal, state and local laws
affecting its business as well as a variety of regulatory provisions relating
to zoning of restaurant sites, sanitation, health and safety. Various federal
and state labor laws govern the Company's relationship with its employees,
including such matters as minimum wage requirements, overtime and other working
conditions. Environmental requirements have not had a material effect on the
operations of the Company. However, significant additional government-imposed
increases in minimum wages, paid leaves of absence, mandated health benefits or
increased tax reporting and tax payment requirements in respect of employees
who receive gratuities could have an adverse financial effect on the
Restaurants.
Joint Venture
The Company entered into a joint venture with a third party to open a
Restaurant in Miami, Florida. A limited liability company, of which the Company
owns a contractual 50% interest, was formed to develop, own and operate the
Restaurant.
The joint venture Restaurant is located at 1216
Washington Avenue, Miami Beach, Florida. It opened in July 1996
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and seats 104 people. The cost to develop, build and commence
operations of this Restaurant was approximately $250,000.
The Company has funded a substantially larger portion of the overall
development and construction costs than its venture partner, and also has
defrayed almost all of the Restaurant's first year operating cash flow
shortfall. At May 31, 1997, the Company's cash investment was approximately
twice that of its joint-venturer. Moreover, such joint venturer's 50% share of
the joint venture's first year loss exceeds the joint-venturer's investment.
As a result of the Company's effective majority ownership, the accounts of the
joint-venture are fully consolidated with those of the Company. Further, due to
the joint-venturer's share of loss being in excess of its investment and the
lack of any legal obligation on the part of the joint-venturer to make any
additional investment, no minority interest is reflected on the Company's
consolidated balance sheet at May 31, 1997. See "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1B to the Consolidated Financial Statements.
Proposed Wholesale Distribution
From approximately April 1996 through April 1997, the Company worked
on preparations to implement the wholesale distribution of its pancakes in
frozen form to supermarkets, initially in the New York Metropolitan market.
After considering several possibilities, the Company decided on the
concept of three different versions of frozen pancakes: chocolate chip, apple
cinnamon and whole wheat with blueberries.
The Company planned for each package to contain twelve silver dollar
pancakes, each about four inches in diameter, to be oven-baked and packed into
four separate vacuum sealed compartments. The pancakes are to be made of
natural ingredients and real fruit, organic grains and with no artificial
colorings or preservatives.
The packaging features a nostalgic type box with antique family
photographs and Canadian farm scenes. The background is of a checkered table
cloth of which the color
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varies with each flavor. The back of the box features a letter to the consumer
from "the lady on the tractor" which represents the logo of the Company. The
box also illustrates all three versions of the pancakes.
Each box is expected to have a retail price of $2.99 which the
Company believes will provide a competitive price and at the same time a higher
quality product for that price point.
The Company has negotiated with a baking facility in Mexico for the
preparation and storage of its pancakes. Equipment required for customization
of production lines to the specific manufacturing needs of the Company's line
of frozen pancakes has been purchased and is on site at the baking facility's
premises.
The Company has developed the formulae for the pancakes, conducted
the analyses of the formulae required by the Food and Drug Administration, and
secured multiple sources of raw material, including organic flours, fruit,
chocolate and other components of the product's formulae.
Food brokers, which act as independent sales representatives, are to
be used to distribute the Company's product. Food brokers receive a commission
equal to 5% of sales for their services. Typically the supermarkets pick up a
shipment and charge for this service.
The Company has developed a number of marketing techniques for the
distribution of its pancakes, as well as discount coupons and in-store
demonstrations of its product. The Company's plans include producing radio and
television advertisements as well as conducting extensive public relations
activities.
The Company expects to encounter significant competition upon
launching its frozen pancake distribution business. There is intense
competition for shelving space in supermarkets from both large and small food
companies marketing their products. Supermarkets are very sensitive to whether
a particular product on their shelves produces a high sales volume and often
will quickly pull products that are not selling well. Assuming its successful
launch, of which there can be no
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assurance, this will be the first time that the Company has attempted the sale
of its pancakes in supermarkets and in frozen form and the Company cannot
accurately predict the future amount of supermarket sales that may result from
its efforts.
The Company's wholesale operations will be subject to regulation by
various governmental agencies, including the United States Food and Drug
Administration. If the Company decides that the volume of business is
sufficient to make the pancakes in its own plant, it will be subject to various
environmental laws and regulation regarding air quality, waste management and
other related land use and production matters.
The implementation of this line of business has been halted due to
insufficient financing. The Company estimates that the ultimate implementation
of this line of business will require $1,500,000 of additional financing,
anticipated to be provided from the proceeds of the Offering, although there
can be no assurance provided of the successful completion of such offering. See
"Item 1 - Description of Business - Proposed Public Offering." Moreover, other
financial obligations may result in there being insufficient funds to pursue
this line of business. There is no assurance that even if the Company receives
sufficient financing that it will receive any orders or if it does receive
orders, that they will be in sufficient amounts to make the wholesale
distribution of the Company's pancakes commercially viable. See "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 4 and 21A to the Consolidated Financial Statements.
The Company incurred research and development expenses of $627,778
and $34,480 in fiscal 1997 and 1996, respectively. At May 31, 1997, certain
equipment and other assets relating to this line of business and aggregating
$120,550 are reported as non-operating on the Company's consolidated balance
sheet. Additional expenditures approximating $141,300 were made subsequent to
May 31, 1997. The magnitude of the expenditures incurred in connection with the
Company's attempt to develop a wholesale line of business, coupled with the
lack of any revenues therefrom have contributed significantly to the Company's
severe cash shortage.
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Proposed Public Offering
The Company entered into a Letter of Intent dated March 25, 1996 with
Patterson Travis, Inc. (the "Underwriter") for the Underwriter to conduct a
"best efforts, all or none" public offering of 1,200,000 shares of the
Company's Common Stock for gross proceeds of approximately $6,000,000 (the
"Offering"), which was amended by a letter dated November 19, 1996, to be a
"firm commitment" underwriting with a 15% over-allotment option. While the
Company originally anticipated that the Offering would commence some time
shortly after the signing of the Letter of Intent, the Company now anticipates
that the Offering will occur prior to the end of the 1998 calendar year,
although there can be no assurance provided in this regard. The Company has
received a letter from the Underwriter dated February 19, 1998 affirming the
terms of the Letter of Intent.
The Letter of Intent provides for the Underwriter to receive a
commission of 10% of the gross proceeds of the Offering and a non-accountable
expense reimbursement equal to 3% of the gross proceeds. In addition, the
Letter of Intent provides for the Underwriter to receive five year warrants
exercisable for 120,000 shares of Common Stock at an exercise price equal to
120% of the price of the Common Stock sold in the Offering, together with
related demand and piggyback registration rights. See "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity", and Notes 8B and 21B to the Consolidated Financial Statements.
Other Financing
In fiscal years 1997 and 1996 the Company sold a total of 244,075
shares and 50,000 shares, respectively, of its Common Stock at $2.00 per share
to overseas investors in offerings under Regulation S, promulgated under the
Securities Act of 1933. The Company also sold a total of 199,840 shares of its
Common Stock at $2.00 per share to overseas investors in offerings under
Regulation S from June 1, 1997 through January 31, 1998. Of such shares sold
subsequent to May 31, 1997, 99,880 were sold in exchange for an aggregate of
$199,760 of existing debt, borrowed in March, April and May of 1997, and due in
90, 60 and 30 days, respectively. The Company hopes to obtain additional
financing pursuant to private sales of its Common Stock although it
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presently does not have any such commitments. The Company does not anticipate
further sales of its Common Stock under Regulation S due to the change to the
Regulation S holding period before resale from 40 days to one year, which will
become effective in April 1998. See "Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity", and
Notes 10, 13 and 19 to the Consolidated Financial Statements.
The Company received loan proceeds of $469,760 and $275,000 in fiscal
1997 and 1996, respectively, exclusive of loan transactions with Sheldon
Golumbia, the Company's President and majority shareholder. Of the $469,760 of
loans received in fiscal 1997, $199,760 were converted to Common Stock pursuant
to a Regulation S sale on June 9, 1997. The remaining $270,000 was received
from an individual affiliate of the underwriter of the proposed Offering. Such
$270,000 of loans, initially due the earlier of December 31, 1997 or the date
the Company completed its second public offering, have been extended to
December 31, 1998. Subsequent to May 31, 1997, through March 11, 1998, in nine
different transactions, the same individual loaned the Company in the aggregate
an additional $355,000 which loans are also due December 31, 1998, with the
earlier prepayment requirement upon the completion of the Company's new public
offering still in effect. In addition, in four transactions between November
13, 1997 and February 23, 1998, the Company borrowed a total of $208,000 from a
third party. The loans from both of these parties are evidenced by
non-negotiable promissory notes. The $275,000 of loans received in fiscal 1996
were from another affiliate of the underwriter of the proposed Offering and are
contingent loans in that they are only repayable in the event of and from the
proceeds of a new public offering of the Company's Common Stock. See Notes 8A,
9, 10, 18A and 20B to the Consolidated Financial Statements.
Sarah Golumbia, mother of Sheldon Golumbia, made $25,000 and $50,000
loans to the Company with interest at 9% per annum on June 23, 1997 and
February 10, 1998, respectively. The Company repaid the $25,000 loan on July
14, 1997 and repaid the $50,000 loan in two $25,000 payments, the first on
February 24, 1998 and the second on March 9, 1998.
The Company is also indebted to Sheldon Golumbia for loans
aggregating $316,380 at May 31, 1997, inclusive of accrued
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interest at 9% per annum. The maturity date of such loans has been extended
periodically, the last of such extensions being made for $250,000 of the
principal balance to June 30, 1998. See Note 7B to the Consolidated Financial
Statements.
Accrued Liabilities
As of February 28, 1998, the Company was delinquent on approximately
$630,000 of sales tax, payroll tax and rent tax liabilities, including
penalties and interest. Penalties and interest continue to accrue on delinquent
amounts. Sales tax and payroll tax delinquencies have resulted and could in the
future result in Restaurants being closed as a result of such delinquencies not
being brought current or because no arrangement has been made for an interim
installment payment agreement. See "Item 2 - Description of Property," "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity", and Notes 5 and 20B to the Consolidated Financial
Statements.
At May 31, 1997, the total amount of accrued but unpaid salaries
payable to Sheldon Golumbia, President, and Beatrice Puja, Vice President -
Operations, was $315,585 and $194,293, respectively. See "Item 10 - Executive
Compensation" and Note 7A to the Consolidated Financial Statements.
The Company intends to pay off these tax delinquencies and salary
accruals in full out of the proceeds of the Offering, the successful completion
of which there can be no assurance. Until such time the Company has and will
continue to enter into installment agreements with the taxing authorities for
the taxes owed and accrue the salaries of Mr. Golumbia and Ms. Puja.
Employees
As of March 19, 1998, the Company employed a total of 58 persons, of
which two were executive officers, and 48 were part-time restaurant personnel.
Item 2. Description of Property.
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The Company's operating subsidiaries each lease the premises for
their respective Restaurant location. The Company's subsidiaries have
frequently been involved in litigation, at times resulting in eviction warrants
being issued and in one case executed, due to their failure to timely pay the
rent on their respective leases. See "Item 3 - Legal Proceedings" and Notes 12A
and 20A to the Consolidated Financial Statements.
The following table lists the Company's existing Restuarants, all of
which are operational except for the Coconut Grove Restaurant. The lease for
the Coconut Grove Restaurant was recently signed but such Restaurant will not
open until certain construction and renovation work is completed, for which the
Company presently does not have financing. See "Item 6 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity."
Location # Seats Lease Expiration Date
- -------- ------- ---------------------
1004 Second Ave, NY, NY 75-80 December 31, 2001
2286 Broadway, NY, NY 75-80 June 30, 2005
180 Third Ave, NY, NY 75-80 January 31, 2006
1216 Washington Ave, Miami 104 December 31, 2001, with
Beach, Fl(1) two 5-year renewal
options
1505 Washington Ave, Miami 60 March 31, 2007
Beach, Fl
Commodore Plaza, Miami, Fl 70 February 28, 2003, with
(Coconut Grove) a 5-year renewal option
(1)Joint Venture. See "Item 1 - Description of Business - Joint Venture."
All of the Restaurants operate or are to be operated as Pancake Restaurants
except the Restaurant in Miami Beach located at 1505 Washington Avenue, which
operates as a Womlett Restaurant.
Item 3. Legal Proceedings.
In July, 1996, a summary nonpayment proceeding was brought by the
landlord of the Third Avenue Restaurant seeking rent in arrears from January
through June 1996 in the amount of
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$44,572. It was settled by stipulation dated September 11, 1996. Thereafter,
the subsidiary made intermittent rent payments but was substantially current on
its rent obligations at the end of April 1997. In May 1997 the subsidiary again
became delinquent. Although sporadic rent payments were made subsequently,
eventually a warrant of eviction issued for this Restaurant was executed in
February 1998. One week later the warrant was vacated upon payment of all
outstanding rent arrears in the amount of approximately $50,000.
In April, 1996, a summary nonpayment proceeding was brought by the
landlord of the Broadway Restaurant seeking rent in arrears from October 1994
through April 1996. It was settled through a stipulation dated June 19, 1996,
in which $55,883 of rent arrears was acknowledged and a further $7,000 was
disputed. In addition, the Company's operating subsidiary agreed to pay $637 in
legal fees of the landlord. Upon default on this stipulation by the operating
subsidiary, another stipulation was entered into on December 18, 1996, in which
$31,326 was acknowledged to be the rent in arrears. In addition, the legal fees
which the operating subsidiary agreed to pay were increased from $637 to
$2,169. After default on this stipulation by the operating subsidiary, another
stipulation dated April 15, 1997 was entered into in which a $21,858 judgment,
representing the rent arrears, was consented to by the operating subsidiary.
The operating subsidiary defaulted on this stipulation and on July 11, 1997,
another stipulation was entered into in which the operating subsidiary agreed
to pay a total of $23,966 in rent arrears plus $500 in landlord's legal fees.
Such arrears were paid and rent was brought current in July 1997.
In December, 1997, another summary nonpayment proceeding was brought
by the landlord of the Broadway Restaurant, this time seeking rent in arrears
from August 1997 through January 1998. It was settled through a stipulation
dated January 14, 1998, in which the operating subsidiary consented to the
entry of a final judgment in the amount of $53,951, which included $1,000 of
legal fees. Rent was brought current in February 1998 with a payment of
approximately $61,000.
In December, 1996, a summary nonpayment proceeding was brought by the
landlord of the Second Avenue Restaurant seeking rent in arrears from the
second half of the 1996 calendar year.
17
<PAGE>
It was settled through a stipulation dated January 29, 1997, in which the
operating subsidiary agreed to pay the $48,642 of rent arrears. A judgment of
$16,214 was entered on motion after the operating subsidiary's default, which
was subsequently satisfied by the operating subsidiary. A further judgment of
$29,782 consisting of April 1997 rent of $8,107 plus attorneys' fees of $21,675
was entered on June 27, 1997 after a hearing. The appeal of that decision is
pending and in August 1997 the operating subsidiary paid $25,000 to the
landlord without prejudice in exchange for a stay of the execution of the
warrant, which is also conditioned upon the operating subsidiary's timely
payment of monthly rent as it comes due.
On March 4, 1998, the Second Avenue Restaurant was closed by the New
York State Sales Tax authorities due to $172,267 of New York State tax
delinquencies being outstanding. On March 11, 1998, the Second Avenue
Restaurant was reopened after the Company made a $75,000 payment to New York
State and entered into an installment agreement to pay the remaining taxes due.
The installment agreement provides for 36 monthly payments of $3,887 each in
payment of the remaining tax delinquencies outstanding, including additional
penalties and interest which will accrue thereon. See Notes 5, 16 and 20B to
the Consolidated Financial Statements.
The Company is not a party to any other material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
18
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder
Matters.
The Company's Common Stock is currently quoted on the NASD Electronic
Bulletin Board. The following table sets forth the closing high and low bid
prices for the Company's Common Stock for the periods indicated as reported by
National Quotation Bureau, Inc. Such prices reflect inter-dealer prices,
without retail mark-up, markdown or commissions and may not represent actual
transactions.
Fiscal Year Ending May 31, 1998 High Low
- ------------------------------- ---- ---
1st Quarter 5.125 4.25
2nd Quarter 5.25 5.00
3rd Quarter 5.00 4.625
Fiscal Year Ended May 31, 1997 High Low
- ------------------------------ ---- ---
1st Quarter .50 .50
2nd Quarter 2.00 .50
3rd Quarter 3.25 2.125
4th Quarter 4.25 3.00
Fiscal Year Ended May 31, 1996 High Low
- ------------------------------ ---- ---
1st Quarter .75 .25
2nd Quarter .25 .125
3rd Quarter 2.50 .25
4th Quarter 3.25 .50
19
<PAGE>
On March 20, 1998, closing bid and asked prices for the Company's
Common Stock on the NASD Electronic Bulletin Board were $4.625 and $5.125,
respectively.
The payment by the Company of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any dividends. Due to the Company's present financial status,
management does not contemplate or anticipate paying any dividends on its
Common Stock in the foreseeable future.
There are approximately 34 holders of record of the Company's Common
Stock.
20
<PAGE>
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
Sales for the year ended May 31, 1997 ("fiscal 1997") increased by
$1,098,039, or 49.3%, to $3,326,285 from $2,228,246 for the year ended May 31,
1996 ("fiscal 1996"). At May 31, 1997 the Company was operating four
restaurants including its Florida joint-venture location, opened on July 28,
1996. Sales at the three New York restaurants, open throughout both years,
increased by 32.7% in the aggregate with individual sales gains of 17.3% to
$1,082,201 at Second Avenue, 29.9% to $1,071,350 at Broadway and 67.0% to
$803,087 at Third Avenue. The New York locations, particularly Third Avenue,
which marked its third year of operations, again benefited from improved
operations and increased name awareness and recognition by the public.
Renovations and improvements at all three New York restaurants also helped fuel
the sales gains. For its initial ten-month period, the Prairie joint-venture
had sales of $369,647, or approximately one-third of the Company's overall
sales increase. The Company's fifth restaurant opened in Miami Beach on January
16, 1998 and a site has also been acquired for a sixth. See Item 2-"Properties"
and Notes 3, 17B and 17D to the Consolidated Financial Statements.
The Company's investment in the Prairie joint-venture has evolved into
what is effectively a controlling interest, as the Company's total capital
contribution was almost twice that of its venture partner. Such venture partner
has advised the Company that, contrary to the parties' initial intent, it would
not maintain its 50% equity share. An unequal investment is not prohibited by
the joint-venture agreement. As the remaining economically, if not legally,
financially responsible partner, the Company has consolidated Prairie's
financial statements with its own and its other subsidiaries. The
joint-venturer's interest was completely offset by its contractual 50% share of
Prairie's first year loss; as a result, no minority interest is reflected on
the Company's May 31, 1997 consolidated balance sheet. The total capital
contributed by the venture partner is shown as a minority interest credit on
the 1997 consolidated statement of operations, which year was Prairie's first.
Absent further capital contributions by the venture partner, which are not
expected, and until such time, if ever, that the venture partner's equity
account is restored to a positive balance, by the contractually specified 50%
share of Prairie's future earnings (if any), to the extent that Prairie has
future losses, they will be fully reflected in the Company's consolidated
financial statements, without any offset for minority-interest.
Cost of sales increased by $353,513, or 48.2%, to $1,085,051 in fiscal
1997 from $731,538 in fiscal 1996. As a percentage of sales, such costs
decreased by 0.2% to 32.6% in 1997 from 32.8% in 1996. This decrease was
achieved despite Prairie's cost of sales being 36.3% as a percentage of sales
for its first year of operations. The improvement in the New York locations'
gross profit percentage reflects economies of scale associated with the
increased sales. Cost of sales during the last two years were not materially
affected by raw food price fluctuations.
21
<PAGE>
Restaurant labor increased by $268,710, or 58.4%, to $728,700 in fiscal
1997 from $459,990 in fiscal 1996. As a percentage of sales, labor costs
increased by 1.3% to 21.9% in 1997 from 20.6% in 1996. This increase is due to
Prairie's first year elevated labor level of 46.8%, expected to continue until
higher sales are achieved. For the New York locations, labor as a percentage of
sales decreased by 1.8%, chiefly due to the sales gains.
Rent expense increased by $85,493, or 29.5%, to $374,934 in fiscal 1997
from $289,441 in fiscal 1996. The increase is primarily due to the addition of
the Prairie location. As a percentage of sales, rent expense overall declined
by 1.7% to 11.3% in 1997 from 13.0% in 1996, primarily reflecting the increased
sales. For the three New York restaurants, such percentage decreased by 3.5% to
9.5% in 1997. The Prairie joint-venture initially occupied its premises
pursuant to a lease under negotiation, which was not finalized until November
1, 1997. On March 25, 1997, the Company's seventh subsidiary signed a ten-year
lease for the premises of its Womlett House Restaurant. On December 30, 1997,
the Company's eighth subsidiary signed a lease for the Company's sixth
restaurant in Coconut Grove, Florida. Rent for such restaurant is not payable
until it opens for business; however, the Company can not now project such
opening date as it presently lacks the funds necessary to adapt, equip and
renovate the premises. The Company's subsidiaries have been the defendants in
various summary proceedings for unpaid rent brought by all three New York
landlords. See "Liquidity" and Item 2 - "Description of Property," Item 3 -
"Legal Proceedings" and Notes 11, 12, 16, 17A, 17B, 17D and 20A to the
Consolidated Financial Statements.
Other occupancy and operating expenses increased by $124,177, or 18.3%, to
$802,028 in fiscal 1997 from $677,851 in fiscal 1996. Of such dollar increase,
almost one-half was due to the increased charges for depreciation and
amortization of restaurant equipment and leasehold improvements; in addition to
the new Florida joint-venture restaurant, renovations and improvements were
made to all three New York locations. Dollar increases substantially
proportionate to the sales increases occurred in most of the other accounts in
this category, reflecting their largely variable nature. Among the exceptions,
notable decreases were in utilities, due to more seasonable temperatures
throughout most of the year and also in repairs and maintenance costs, as a
result of a lessened need therefor, due to certain betterments and renewals
which were made. A smaller dollar decrease occurred in the New York City
Commercial Rent Tax, due to a statutory decrease in the effective rate. Also
noteworthy were rubbish removal charges, which although totally variable in
nature, were virtually unchanged in dollar amounts despite the large sales
gains, due to lower rates now generally available from the New York carting
industry. As a percentage of sales, other operating and occupancy expenses
decreased by 6.3% to 24.1% in 1997 from 30.4% in 1996. Salient elements of this
decrease were: Supplies: 3.0%, utilities: 1.7%, rubbish removal: 1.0%, repairs
and maintenance: 0.6%, uniforms and cleaning: 0.4%, and rent tax: 0.3%. The
only major increase occurred in depreciation and amortization, which rose by
0.6% of sales. Individually immaterial changes in other accounts resulted in a
net 0.1% increase as a percentage of sales.
22
<PAGE>
Selling expenses increased by $37,821, or 67.2%, to $94,107 in fiscal 1997
from $56,286 in fiscal 1996 while increasing as a percentage of sales by 0.3%
to 2.8% in 1997 from 2.5% in 1996. This increase is entirely attributable to
advertising in the Miami market. Advertising in the New York market declined by
0.5% of sales and charge card discounts and related selling costs decreased by
a combined 0.6% of sales. See Notes 1G and 6 to the Consolidated Financial
Statements.
General and administrative expenses increased by $249,264, or 47.1%, to
$778,332 in fiscal 1997 from $529,068 in fiscal 1996. As a percentage of sales,
these expenses increased slightly by 0.4% to 24.1% from 23.7%. Officers'
compensation, the largest item in this category, was unchanged at $270,000 in
both years. However, due to the Company's severe cash shortage, $239,052 and
$163,712 of the contractual officers' salaries were not paid in fiscal 1997 and
1996, respectively. At May 31, 1997, the total unpaid officers' salaries
accrued as a current liability is $509,878. As a percentage of sales, these
salaries decreased by 4.0% to 8.1% in 1997 from 12.1% in 1996. See "Liquidity,"
Item 10-"Executive Compensation" and Note 7A to the Consolidated Financial
Statements.
As noted above, all other general and administrative expenses rose by
$249,264 to $508,332 in fiscal 1997 from $259,068 in fiscal 1996, an increase
of 96.2%. Dollar increases generally in line with the sales gains and the
addition of Florida operations occurred in many accounts. Notable among the
exceptions to this pattern were professional fees, office expenses, travel and
penalties. Professional fees increased by almost $81,000 to approximately
$180,000 reflecting bookkeeping services and accounting fees related to the
Prairie joint-venture and legal fees in connection with (i) the formation of
new subsidiaries and the related negotiation of leases for new premises; (ii)
sales of common stock under Regulation "S"; and (iii) litigation with New York
landlords. Office expenses increased by almost $23,000 to approximately
$48,000, due in large part to those incurred by Prairie. Travel expenses
increased by almost $47,000 to approximately $99,000, due to the active
monitoring of Florida joint-venture operations as well as site selection,
development and related activities in the greater Miami area. Penalties
increased by more than $70,000 to approximately $96,000, including almost
$23,000 for Prairie, substantially all of which were imposed on delinquent
sales and payroll tax obligations. See "Liquidity," and Notes 5, 12, 16 and 20
to the Consolidated Financial Statements.
As a percentage of sales, total expenses in this sub-category rose by 3.7%
to 15.3% in 1997 from 11.6% in 1996. Notable among the increases were:
Professional fees: 0.5% to 5.4%, office expenses: 0.4% to 1.5%, travel: 0.6% to
3.0%, and penalties, 1.7% to 2.9%. Other individually immaterial items netted
to a net 0.5% increase as a percentage of sales. Management realizes that the
Company's general and administrative burden remains rather high. As recently
opened and new restaurants contribute to increased sales, or if the Company
successfully enters the wholesale distribution business, neither of which
events is assured, management is hopeful such expenses will decline as a
percentage of sales; however the Company requires additional funds for both
endeavors. See "Liquidity".
23
<PAGE>
Furthermore, the incurring of penalties and professional fees associated
with tax and rent delinquencies is expected to decrease in the future assuming
the receipt of financing proceeds then applied in payment of such obligations.
See "Liquidity," and Notes 5, 12, 16 and 20 to the Consolidated Financial
Statements.
Interest expense rose by $72,322, or 119%, to $133,028 in fiscal 1997 from
$60,706 in fiscal 1996. Of such increase, $35,750 relates to various financing
provided by certain affiliates of the underwriter of the Company's proposed
public offering as follows: $21,750 was accrued on $270,000 of new unsecured
loans from one party and $14,000 represents the increase in amounts accrued
over 1996 on $275,000 of contingently repayable loans advanced in fiscal 1996
by another party. The contingent loans, plus interest at 12%, are only
repayable if the Company completes a new public offering. However, such
interest expense, totalling $33,000 in 1997 and $19,000 in 1996, has been
recorded with an equivalent offset to additional paid-in capital. Interest of
$2,325 was also recorded on certain notes from two overseas lenders totalling
$199,760, which were converted in June 1997 to common shares of the Company
under Regulation "S". Interest accrued at 9% on the loan due to the Company's
principal stockholder decreased by $447 to $26,941 in 1997. The balance of the
increased interest expense, $34,694, is attributable to finance charges imposed
primarily on delinquent sales and payroll taxes, and to a lesser extent, on
certain of the Company's other past due obligations. See Notes 5, 7B, 8A, 9,
and 10 to the Consolidated Financial Statements.
The Company's interest expense is expected to increase further in fiscal
1998 due to additional borrowings subsequent to May 31, 1997. Unsecured loans
totalling $355,000 were obtained in the months of June 1997 through March 1998
from the same individual affiliate of the underwriter who provided $270,000
of loans in fiscal 1997. A new unrelated lender provided $208,000 of unsecured
loans in the months of November 1997 through February 1998. All loans obtained
from these two lenders bear interest at 12%. Also in June 1997 and February
1998, $25,000 and $50,000, respectively, was borrowed from Sarah Golumbia,
mother of the Company's President and majority stockholder. These two loans,
which bore interest at 9%, were repaid shortly after they were made. To the
extent that proceeds from new issuances of common stock are used to reduce
interest-bearing debt, future interest expense will decrease; however, the
receipt of such proceeds is not assured. See "Liquidity," Item 1-"Business,
Proposed Public Offering," Item 3-"Legal Proceedings" and Notes 8B, 18, 19 and
20B to the Consolidated Financial Statements.
Research and development expenses for the Company's wholesale division
increased by $593,298 to $627,778 in fiscal 1997 from $34,480 in fiscal 1996.
Further expenditures of $120,550 were classified as non-operating assets at May
31, 1997 and $141,300 more was added to such assets in the first quarter of
fiscal 1998. Shortly thereafter, despite an aggregate expenditure of $924,108
over six fiscal quarters through August 31, 1997, and just prior to starting
production of distribution-size shipments, the Company determined it did not
have sufficient funds available to produce expected reorder quantities and was
forced to suspend all activities related to this line of business.
24
<PAGE>
Machinery and equipment as well as related frozen food corrugated boxing
supplies costing a total of $261,850 are on site at the Company's contract
manufacturer in Mexico. The Company estimates it will require approximately
$1,500,000 to complete the introduction of the wholesale product line to the
market. The Company's proposed public offering is a possible source of such
financing; however there is no assurance that such offering will be completed.
Moreover, even if such offering is completed, intervening circumstances
and/or other financial obligations may result in there being insufficient funds
available to warrant resuming implementation of the wholesale distribution
business. If the related activities were to be resumed, of which there can be
no assurance, significant revenues from the division would not be expected
before fiscal 1999. See "Liquidity", "Item 1-Business, Proposed Wholesale
Distribution" and Notes 4A, 16 and 21A to the Consolidated Financial
Statements.
In fiscal 1997 and 1996, the Company recorded losses of $8,500 and
$11,875, respectively, related to the discontinuation of a second
joint-venture, formed to acquire a site for, develop, own and operate a Royal
Canadian Pancake or Womlett House Restaurant in Miami Beach, Florida. Such loss
reflects the Company's share of lease termination and related costs for a site
which was found to be unsuitable prior to commencing construction. See Note 14
to the Consolidated Financial Statements.
Before reduction for the minority interest in fiscal 1997, the Company's
consolidated operations resulted in a loss of $1,306,173 compared to $622,989
in fiscal 1996. The minority interest credit of $125,773 in 1997 reduced that
year's net loss to $1,180,400, an increase of $557,411, or 89.5%, over the net
loss for 1996.
The Company sustained taxable losses of approximately $1,072,000 and
$587,000 in fiscal 1997 and 1996, respectively. As in all years since its
inception, the Company incurred no current or deferred income tax expense in
either year. The Company adopted Financial Accounting Standard No. 109 to
account for income taxes in fiscal 1994; adoption of such standard has had no
effect on the Company's reported income tax expense since then and is not
expected to have any significant future effect. The Company has net operating
tax loss carryforwards totalling approximately $2,662,000, all attributable to
"C" Corporation losses at May 31, 1997, giving rise to a deferred tax asset of
$692,025; however, such asset is offset by an equivalent valuation allowance.
See Notes 1I and 15 to the Consolidated Financial Statements.
Net loss per share based on the weighted average number of common shares
outstanding increased to $.44 in fiscal 1997 from $.25 in fiscal 1996.
Anti-dilutive underwriter's common stock purchase warrants were excluded from
the calculation. Such warrants expire October 7, 1998. Financial Accounting
Standard No. 128, "Earnings Per Share," required for interim and annual periods
ending after December 15, 1997 is not expected to have a material impact on the
Company's per share data.
25
<PAGE>
Liquidity
The Company's working capital deficit increased by $764,156 from
$1,000,679 at May 31, 1996 to $1,764,835 at May 31, 1997, reflecting
principally (i) the fiscal 1997 net loss of $1,180,400, net of non-cash charges
of $200,933 and (ii) capital expenditures of $692,599 including investments in
non-operating assets of $120,550 related to the wholesale division less the sum
of (iii) additions to equity capital of $488,150 and (iv) various borrowings
from third-parties of $469,750, including $270,000 from an affiliate of the
Company's investment banker, net of a reclassification to current of $50,000
from long-term debt due the Company's President and majority stockholder.
Subsequent to May 31, 1997, $199,760 of third party notes were converted to
common stock. See Notes 9, 10 and 13 to the Consolidated Financial Statements.
The Company has experienced a severe cash shortage for most of its last
two fiscal years, which severe shortage has continued thereafter. Accrued
officers' salaries aggregate $509,878 at May 31, 1997. Summary non-payment
proceedings brought by all three New York landlords for rent arrearages have
resulted in warrants of eviction being issued in several cases and in one
instance executed. Sales and payroll tax delinquencies approximating $630,000
at May 31, 1997 and $705,000 at February 28, 1998 have resulted in tax liens
being issued as well as the temporary closing of one restaurant. See Item
3-"Legal Proceedings" and Notes 5, 7A, 12A, 16 and 20 to the Consolidated
Financial Statements. The Company's cash balance decreased by $5,526 from
$23,811 at May 31, 1996 to $18,285 at May 31, 1997.
The Company's operating activities required $192,337. Salient non-cash
adjustments to the Company's net loss of $1,180,400 were: Accrued officers'
compensation of $239,052; depreciation of $129,419; aggregate interest of
$81,691 accrued on various stockholder and other loans as well as on the
contingently repayable financing; deferred rent expense of $20,475; and the
second joint-venture's loss of $8,500 on the lease termination settlement; less
deferred income of $3,052. The net change in assets and liabilities related to
operations provided $511,978.
Investing activities required $701,099. Net capital expenditures were
$557,648, including $180,763 previously characterized as the Company's
investment in its first joint-venture - which investment has evolved into what
is effectively a majority interest, but reduced by $62,503 of financing
previously received but restricted to restaurant development expenditures.
Investments in non-operating assets related to the wholesale division required
$120,550. Other uses were $14,401 for security deposits and $8,500 for the
lease termination loss of the second joint-venture. Subsequent to May 31, 1997,
certain additional expenditures were made with respect to completion of the
Womlett House Restaurant and for the wholesale division. See Item 1-"Business,
Joint Venture, and Proposed Wholesale Distribution" and Notes 1B, 2, 3, 4, 8A,
14, 17D and 21A to the Consolidated Financial Statements.
26
<PAGE>
Financing activities provided $887,910, consisting of proceeds of $488,150
from common stock sold under Regulation S; proceeds of $270,000 of unsecured
loans from an individual affiliate of the Company's investment banker;
proceeds of $199,760 of unsecured notes from two overseas lenders, who
subsequently converted their notes to common stock; less loan repayments of
$70,000 made in June 1996 to the Company's President and principal stockholder.
The stockholder has periodically extended the maturity of a substantial portion
of the loans due him. As of May 31, 1997, the due date for $250,000 of the loan
principal was extended to June 30, 1998. Subsequent to May 31, 1997 and through
March 11, 1998, unsecured loans aggregating $355,000 and $208,000, were
received from the individual affiliate of the Company's investment banker and
an unrelated lender, respectively. All such loans mature December 31, 1998,
with mandatory prepayment upon the completion of the Company's proposed
offering. The due date for the $270,000 of loans advanced in fiscal 1997,
previously December 31, 1997, was extended by one year with the same prepayment
provision. Also subsequent to May 31, 1997, the Company availed itself of
certain short-term loans from Sarah Golumbia, mother of the Company's
President. See Item 1-"Business, Other Financing" and Item 12-"Certain
Relationships and Related Transactions" and Notes 8A, 9, 10, 13, 18, 19 and 20B
to the Consolidated Financial Statements.
At May 31, 1997 the Company's financial condition reflected net working
capital and stockholders' equity deficiencies of $1,764,835 and $1,056,685,
respectively. After May 31, 1997 and through March 11, 1998, the Company
received additional financing totalling $563,000, excluding the conversion to
equity of $199,760 of existing notes and the advance, later repaid, of $75,000
of short-term related party loans. On March 11, 1998, $110,000 of loan proceeds
referred to above was received by the Company and $75,000 thereof was used to
make a required New York State Sales Tax payment in order to reopen the Second
Avenue Restaurant. See Note 20B to the Consolidated Financial Statements.
The Company's continuing operating losses, its severe cash shortage and
working capital deficiencies and its tax delinquencies threaten the
continuation of the Company as a going concern. The Company's investment banker
has recently affirmed a letter of intent for a firm-commitment public offering
of 1,200,000 shares of its common stock at $5.00 per share, although there can
be no assurance of the successful completion thereof. See Notes 8B and 21B to
the Consolidated Financial Statements.
Until such time as the Company completes the proposed offering, the
Company nevertheless requires adequate financing in order to continue as a
going concern. The Company has thus far been able to obtain periodic debt
and/or equity financing from various sources, including certain affiliates of
its investment banker. The Company envisions that future debt or equity
proceeds will be applied to reduce its various tax and other past due
obligations, provide working capital, finance completion of its committed
Florida site, and if possible, fund its entry into the wholesale distribution
business. Management believes that such course of action will promote the
long-term viability of the Company. Should the Company not be successful in
such endeavors, its continuation as a going concern would be gravely
jeopardized.
27
<PAGE>
Item 7. Consolidated Financial Statements.
The consolidated financial statements of the Company, including the
notes thereto, together with the report of independent certified public
accountants, are presented at pages F-1 through F-21 which follow.
28
<PAGE>
Independent Auditors' Report
Board of Directors
Royal Canadian Foods Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of Royal Canadian
Foods Corp. and Subsidiaries as of May 31, 1997 and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
years in the two-year period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Prairie Foods, LLC, accounted for herein as a
majority-owned subsidiary, which statements reflect total assets of $208,829 at
May 31, 1997 and total revenues of $369,647 for the period from inception July
28, 1996 to May 31, 1997. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Prairie Foods, LLC, is based solely on the report of the
other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Royal Canadian Foods
Corp. and Subsidiaries as of May 31, 1997, and the consolidated results of
their operations and cash flows for each of the years in the two-year period
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As specifically discussed in
Note 16 as well as other notes to the consolidated financial statements, the
Company has suffered recurring losses from operations, has a severe working
capital deficit and is in substantial arrears on various federal, state and
local taxes as well as other current obligations. Such tax delinquencies
subject the Company's premises to closure by tax authorities. These conditions
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 16. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Floral Park, New York /s/Poillucci and Kahan, P.C.
February 23, 1998 Certified Public Accountants
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Members of Prairie Foods, LLC
Miami Beach, Florida
We have audited the accompanying balance sheet of Prairie Foods, LLC (a
Delaware limited liability company) as of May 31, 1997 and the related
statements of operations, members' equity, and cash flows from inception July
28, 1996 to May 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prairie Foods, LLC as of May
31, 1997, and the results of its operations and its cash flows from inception
July 28, 1996 to May 31, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company incurred a significant operating net loss
from inception July 28, 1996 to May 31, 1997, and is in default on its federal,
state and local taxes and in arrears on accounts with certain vendor creditors.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding those matters are
also described in Note C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Jordan Padial & Company, P.A.
Certified Public Accountants
Coral Gables, Florida
December 27, 1997
F-2
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
May 31, 1997
ASSETS
Current Assets:
Cash $ 18,285
Accounts receivable (Note 1C) 2,274
Inventory (Note 1D) 17,751
Prepaid expenses 25,000
----------
Total Current Assets $ 63,310
Property and Equipment, Net of Accumulated
Depreciation of $272,515 (Notes 1E and 2) 1,127,092
Construction in Progress and Related Costs
(Notes 3 and 17D) 290,613
Security Deposits 96,420
Non-Operating Assets (Notes 4A and 21A) 120,550
----------
Total Assets $1,697,985
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Sales, rent and payroll taxes payable
(Notes 5 and 20B) $ 769,882
Accounts payable 248,312
Accrued officers' salaries (Note 7A) 509,878
Accrued expenses, other (Note 12) 193,431
Loan payable, stockholder (Note 7B) 66,380
Deferred income (Notes 1G and 6) 36,129
Deferred rent expense (Note 1F) 4,133
----------
Total Current Liabilities $1,828,145
Deferred Rent Expense (Note 1F) 185,015
Loan Payable, Officer/Stockholder (Note 7B) 250,000
Loans Payable, Other (Notes 9, 18 and 20B) 291,750
Notes Payable, Subsequently Converted to
Common Shares (Notes 10 and 19A) 199,760
----------
Total Liabilities 2,754,670
Commitments and Contingencies (Notes 3 through 12
and 15 through 21) -
Stockholders' Deficit (Notes 8, 10, 13, 16 and 19):
Common stock, $.005 par value; 10,000,000
shares authorized; 2,794,075 shares issued
and outstanding (Notes 10 and 19) 13,970
Additional paid-in capital (Note 8) 1,911,390
Accumulated deficit (Note 16) (2,982,045)
----------
Total Stockholders' Deficit (1,056,685)
-----------
Total Liabilities and Stockholders' Deficit $1,697,985
===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended May 31, 1997 and 1996
1997 1996
---- ----
Sales $ 3,326,285 $ 2,228,246
Cost of sales 1,085,051 731,538
----------- -----------
Gross profit 2,241,234 1,496,708
----------- -----------
Operating expenses:
Restaurant labor 728,700 459,990
Rent (Notes 1F, 11, 12, 17 and 20A) 374,934 289,441
Other occupancy and operating expenses 802,028 677,851
Selling expenses 94,107 56,286
General and administrative
expenses (Note 7A) 778,332 529,068
Interest expense, net of interest income
of $27 in 1996 (Notes 7B, 8A, 9 and 10) 133,028 60,706
Research and development expenses (Notes
1H, 4 and 21A) 627,778 34,480
Loss on discontinued joint venture
(Note 14) 8,500 11,875
----------- -----------
Total expenses 3,547,407 2,119,697
----------- -----------
Loss before minority interest (1,306,173) (622,989)
Minority interest (Note 1B) 125,773 -
----------- -----------
Net loss (Notes 1I, 15 and 16) $(1,180,400) $ (622,989)
=========== ===========
Net loss per share (Note 1J) $ (.44) $ (.25)
=========== ===========
Weighted average number of shares
outstanding (Note 1J) 2,700,685 2,504,918
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit
Years Ended May 31, 1997 and 1996
Additional Accu- Total
Common Stock Paid-In mulated Stockholders'
Shares Amount Capital Deficit Deficit
------ ------ ------- ------- -------
Balances,
June 1, 1995 2,500,000 $12,500 $ 997,710 $(1,178,656) $ (168,446)
Receipt of
contingently
repayable
financing
(Note 8A) - - 275,000 - 275,000
Interest on
contingently
repayable
financing
(Note 8A) - - 19,000 - 19,000
Sale of shares
in Regulation
"S" offering
(Note 13) 50,000 250 99,750 - 100,000
Net loss for
the year ended
May 31, 1996 - - - (622,989) (622,989)
--------- ------- ---------- ----------- -----------
Balances,
May 31, 1996 2,550,000 12,750 1,391,460 (1,801,645) (397,435)
Interest on
contingently
repayable
financing
(Note 8A) - - 33,000 - 33,000
Sale of shares
in Regulation
"S" offerings
(Note 13) 244,075 1,220 486,930 - 488,150
Net loss for
the year ended
May 31, 1997 - - - (1,180,400) (1,180,400)
--------- ------- ---------- ----------- -----------
Balances,
May 31, 1997 2,794,075 $13,970 $1,911,390 $(2,982,045) $(1,056,685)
========= ======= ========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended May 31, 1997 and 1996
1997 1996
---- ----
Cash Flows From Operating Activities:
Net loss $(1,180,400) $ (622,989)
Adjustments to reconcile to net cash pro-
vided (required) by operating activities:
Deferred income (applied) net (3,052) 8,538
Deferred rent expense 20,475 27,100
Depreciation 129,419 72,851
Officers' compensation accrued 239,052 163,712
Interest accrued on loans 48,691 27,388
Interest accrued on contingently
repayable financing 33,000 19,000
Loss on discontinued joint venture 8,500 11,875
Changes in assets and liabilities:
Accounts receivable (1,821) 9,119
Inventory (4,370) (2,448)
Prepaid expenses 277 (25,000)
Sales, rent and payroll taxes payable 362,508 295,021
Accounts payable 116,608 66,626
Accrued expenses, other 38,776 42,337
----------- -----------
Total adjustments 988,063 716,119
----------- -----------
Net cash provided (required) by operating
activities (192,337) 93,130
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures, including $180,763
previously characterized as investment
in corporate joint venture in 1996 (620,151) (480,936)
Expenditure (receipt) of cash restricted
to restaurant development expenditures 62,503 (62,503)
Investment in non-operating assets (120,550) -
Investment in discontinued joint venture (8,500) (11,875)
Security deposits paid (14,401) (14,202)
----------- -----------
Net cash required by investing activities (701,099) (569,516)
----------- -----------
Cash Flows From Financing Activities:
Sale of common stock 488,150 100,000
Stockholder loan proceeds (repayments) (70,000) 112,975
Loan proceeds, other 469,760 275,000
----------- -----------
Net cash provided by financing activities 887,910 487,975
----------- -----------
Net increase (decrease) in cash (5,526) 11,589
Cash, beginning of year 23,811 12,222
----------- -----------
Cash, end of year $ 18,285 $ 23,811
=========== ===========
Additional Cash Flow Information:
Interest paid during the period $ 45,954 $ 14,318
=========== ===========
Non-cash investing/financing activities:
Interest on contingently repayable debt
added to additional paid-in capital $ 33,000 $ 19,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Organization and Basis of Presentation:
Royal Canadian Foods Corp. was incorporated in Delaware in August, 1993. At May
31, 1997 the Company had seven subsidiaries, of which five were active. Of
these, three subsidiaries each own and operate a Royal Canadian Pancake House
Restaurant in New York City, the last of which opened in July 1994. (See Note
20). A fourth subsidiary, now inactive, had operated the Company's first
restaurant in New York from October 1989 until it closed in November 1993.
The Company's initial public offering was completed November 23, 1993, pursuant
to a registration statement filed with the Securities and Exchange Commission.
The Company sold 250,000 common shares at a price of $5.00 each and received
net proceeds of $1,012,170. (See Note 8C).
On October 16, 1995 and December 6, 1995, respectively, the Company
incorporated two new subsidiaries, each for the purpose of forming a corporate
joint-venture to develop a Royal Canadian Pancake House Restaurant in Miami
Beach, Florida. The joint ventures, Prairie Foods, LLC ("Prairie") and Canadian
Foods, LLC, ("Canadian") each a Delaware limited liability company, were both
formed with the same joint-venture party. The Prairie joint-venture restaurant
opened on July 28, 1996 on Washington Avenue in Miami Beach, Florida. (See Note
1B). The Canadian joint-venture undertook but subsequently abandoned
development of a second Royal Canadian Pancake House Restaurant in Miami Beach,
Florida.
(See Note 14).
On March 26, 1997, the Company incorporated its seventh subsidiary, Begare
Enterprises, Inc., which thereafter commenced development in Miami Beach,
Florida of a Royal Canadian Womlett House Restaurant, a restaurant very similar
to the Company's other restaurants. Such restaurant opened subsequent to May
31, 1997. (See Note 17D).
During the fourth quarter of fiscal 1996, the Company formed a wholesale
division and began various research and development activities in order to
establish a frozen pancake distribution business. The Company spent
considerable sums in this endeavor in fiscal 1997 and the succeeding quarter;
however subsequent to May 31, 1997, implementation of this line of business was
suspended due to insufficient financing. No revenues from this business have
yet been realized. (See Notes 1H, 4 and 21A).
Subsequent to May 31, 1997, the Company incorporated its eighth subsidiary,
Yoystra Enterprises, Inc., for the purpose of developing the Company's sixth
restaurant in Coconut Grove, Florida. (See Note 17B).
All of the Company's subsidiaries are wholly-owned and either formed by the
Company or acquired in exchange-of-stock transactions accounted for
retroactively as if they were poolings of interests. All intercompany balances
and transactions have been eliminated in consolidation. The Company's 50% legal
interest in Prairie has evolved into what is effectively a controlling interest
and accordingly, the accounts of Prairie are fully consolidated with those of
the Company and its other subsidiaries. (See Note 1B).
F-7
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
B) Reporting of Joint-Venture Activities:
At May 31, 1996, the Company's 50% investment in Prairie was accounted for by
the equity method. At such date, the restaurant was under construction and had
not started operations. The amount previously reported of $180,763 represented
the Company's contribution to the cost of construction in progress. The
restaurant opened on July 27, 1996.
Effective as of the close of the Company's 1997 fiscal year, the Company
conclusively determined that its investment in Prairie was approximately twice
that of its joint-venture partner. Furthermore, such joint-venture partner
informed the Company that notwithstanding the intent of the parties, as
permitted by the agreement and applicable law, it would not make additional
cash investments to maintain its 50% ownership thereof.
The joint-venturer's 50% share of Prairie's first year loss is in excess of its
capital contribution. As the joint-venturer has no contractual or legal
obligation to make additional cash investments in the joint-venture, the
Company's investment has evolved into a majority interest. Accordingly, the
accounts of the joint-venture are fully consolidated in the accompanying
financial statements. As the joint-venturer's equity has been completely
absorbed by its share of Prairie's first year loss, no minority interest is
reported on the accompanying consolidated balance sheet at May 31, 1997. The
joint-venturer's entire investment is reflected as a minority interest credit
on the accompanying consolidated statement of operations.
The Company has recharacterized its investment in the joint-venture of $180,763
at May 31, 1996 as capital expenditures on the accompanying consolidated
statement of cash flows for the year then ended.
The Canadian joint-venture commenced development of a restaurant in Miami
Beach, Florida in fiscal 1996 but abandoned such activity due to construction
and building-code related difficulties. The Company's share of such losses are
reported as loss on discontinued joint-venture on the accompanying consolidated
statement of operations. Both the subsidiary and this joint venture are
presently inactive. (See Note 14).
C) Accounts Receivable:
Accounts receivable consist of bank or credit card company approved credit card
charges. A provision for uncollectibles is not needed.
D) Inventory:
Inventory, consisting of raw food and supplies, is stated at the lower of cost,
as determined by the first-in, first-out method, or market.
E) Property, Equipment and Depreciation:
Property and equipment are recorded at cost, which, for the two most recently
opened New York restaurants, includes the cost of rent incurred during
construction. (See Note 1F). Renewals and betterments are also capitalized.
Maintenance and repairs are charged to expense as incurred.
F-8
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
E) Property, Equipment and Depreciation: (Continued)
Depreciation for financial accounting is provided by the straight-line method
over useful lives of ten years for restaurant equipment and five to fifteen and
one half years (the life of the lease) for leasehold improvements. For income
tax reporting purposes, a declining balance method over seven years is used for
certain equipment and a 31.5 year or 39.5 year period is used to amortize
improvements. When depreciable assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts, and
the resulting gain or loss is reflected in operations.
F) Leases:
Rentals applicable to operating leases, which do not transfer ownership risks
and benefits, are charged to expense on the straight-line basis over the lease
term. The deferred rent liabilities reported on the accompanying balance sheet
represent rent charged to operations or capitalized during (and as a component
of) restaurant construction, but not yet payable to lessors.
G) Deferred Income:
The Company is a party to certain agreements with credit card companies; the
Company receives advance cash payments from such companies and in return agrees
to provide to customers using the credit cards restaurant meal values in
aggregate amounts equal to twice the cash advanced. Such customers receive a
discount of 25% from the credit card company when their bills are rendered. The
Company therefore records sales at 75% of their menu value and also records a
25% promotional charge representing the difference between the 50% net cash
they receive and the 75% sales value credited. (See Note 6).
H) Research and Development:
Research and development expenditures related to the formation of the Company's
wholesale division are expensed in accordance with Statement of Financial
Accounting Standards No. 2. (See Notes 4 and 21A).
I) Income Taxes:
The Company is subject to federal, state and city taxes on income. Due to
losses incurred since inception, neither the Company nor its subsidiaries have
incurred income taxes. The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Under such
standard, the Company's net operating loss carry-forwards aggregating
approximately $2,662,000 and $1,590,000 at May 31, 1997 and 1996, respectively,
give rise to deferred tax assets of approximately $692,000 and $413,000 at
those dates. However, such deferred tax assets are fully offset by valuation
allowances in equivalent amounts. Other temporary differences between financial
and income tax reporting are also given certain recognition under SFAS 109.
(See Note 15).
F-9
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
J) Loss Per Share:
Loss per share is calculated by dividing each year's net loss by the weighted
average number of common shares outstanding for that year. Underwriter's common
stock purchase warrants, issued November 23, 1993, are anti-dilutive and are
accordingly excluded from common stock equivalents when computing loss per
share. Adoption of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," required for interim and annual periods ending after
December 15, 1997, is not expected to have a material impact on the Company's
per share data.
K) Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of 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.
NOTE 2 - PROPERTY AND EQUIPMENT
This account consists of the following:
Leasehold improvements $1,087,969
Restaurant equipment 311,638
----------
Total at cost 1,399,607
Less: Accumulated depreciation 272,515
----------
Property and equipment, net $1,127,092
==========
NOTE 3 - CONSTRUCTION IN PROGRESS AND RELATED COSTS
The Company's seventh subsidiary has commenced construction of a Royal Canadian
Womlett House Restaurant at 1505 Washington Avenue in South Miami Beach,
Florida. At May 31, 1997 the costs attributable thereto
are as follows:
Leasehold improvements $207,843
Restaurant equipment 17,850
--------
Total Construction in Progress 225,693
--------
Leasehold 50,000
Other intangible costs 14,920
--------
Total Related Costs 64,920
--------
Total Construction in Progress and Related Costs $290,613
========
The Womlett House Restaurant opened subsequent to May 31, 1997. (See
Note 17D).
NOTE 4 - WHOLESALE DIVISION ACTIVITIES
A) Non-Operating Assets:
During the fiscal years ended May 31, 1997 and 1996 the Company expended
$782,208 on costs and expenses related to the development of a frozen pancake
wholesale distribution line of business. Certain additional expenditures were
also incurred thereafter. (See Notes 4B and 21A).
F-10
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 4 - WHOLESALE DIVISION ACTIVITIES (Continued)
A) Non-Operating Assets (Continued):
Subsequent to May 31, 1997 however, due to insufficient financing the Company
was forced to suspend its research and development activities related to this
line of business, on which no revenues have been realized to date. Pending
resumption of this division's activities, various expenditures resulting in
productive equipment and certain related assets at May 31, 1997 are reported as
non-operating on the accompanying consolidated balance sheet as follows:
Machinery and equipment $ 70,550
Frozen food corrugated boxing supplies 50,000
--------
Total $120,550
========
B) Research and Development Expenses:
Research and development expenditures charged to operations in fiscal 1997 and
1996 are as follows:
1997 1996
---- ----
Product development and analysis $174,166 $ 6,480
Packaging design and development 330,229 20,000
Shows, marketing and other 123,383 8,000
-------- -------
Total $627,778 $34,480
======== =======
NOTE 5 - SALES, RENT AND PAYROLL TAXES PAYABLE
The components of this account, including payroll taxes accrued but not yet
payable as well as delinquent amounts due for other than the current quarter,
together with interest and penalties thereon at May 31, 1997 are as follows:
Sales and Payroll
Rent Taxes Taxes Total
---------- ----- -----
Payroll taxes accrued but not yet
payable, applicable to accrued but
unpaid officers' salaries $ - $ 39,998 $ 39,998
Sales, rent and payroll taxes due for
the quarters beginning March 1, 1997
and April 1, 1997, respectively 72,884 27,102 99,986
Sales, rent and payroll taxes due for
all periods ended before March 1,
1997 and April 1, 1997, respectively 409,981 219,917 629,898
-------- -------- --------
Total sales, rent and payroll taxes
payable $482,865 $287,017 $769,882
======== ======== ========
The Company's operating subsidiaries have entered into deferred-payment
agreements with respect to its delinquent taxes. At various times, tax liens
have been filed against such subsidiaries. Pursuant to statute, remedies
available to tax authorities in connection with the collection of delinquent
sales and payroll taxes include closure of the Company's restaurants. (See Note
20B).
F-11
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6 - DEFERRED INCOME
Amounts advanced, applied and unapplied under deferred income agreements at May
31, 1997 are as follows:
Fiscal Fiscal
Contract inception date 1997 1996 Total
------ ------ -----
Amounts advanced $79,000 $77,200 $156,200
Less: Amounts applied 42,871 77,200 120,071
------- ------- --------
Amounts unapplied $36,129 $ - $ 36,129
======= ======= ========
The Company is required to provide restaurant meal values equal to twice the
contract amount. When the customers settle their applicable credit card bills,
however, they pay 75% of menu prices. Accordingly, the satisfaction of this
obligation will be accounted for by recording net sales of $54,194 and a
promotional charge of $18,065. (See Note 1G).
NOTE 7 - RELATED PARTY TRANSACTIONS
A) Officers' Employment Agreements and Accrued Compensation:
The Company has five-year employment contracts with its two officers, expiring
November 1998, cancelable only for cause and automatically renewable for
one-year periods unless either party gives timely written notice of
non-renewal. The contracts provide for aggregate annual base salaries of
$270,000, are subject to annual cost-of-living increases and contemplate annual
performance bonuses as determined by the Board. They also provide for health
insurance and other benefits comparable to other personnel and include
non-competition and confidentiality covenants.
At May 31, 1997, $315,585 and $194,293 ($509,878 in the aggregate) of
contractual salary obligations accrued but not paid were owed to the Company's
president and other officer, respectively.
B) Officer/Stockholder Loan:
The Company is indebted to its president and principal stockholder on an
unsecured loan totaling $316,480 including accrued interest at May 31, 1997. A
repayment of $70,000 was made during the first month of fiscal 1997; loans
aggregating $112,975 were advanced during fiscal 1996. Loan proceeds generally
have been used to develop and equip the Company's restaurants and also for
working capital. Interest accrued at 9% per annum totalled $26,941 for fiscal
1997 and $27,388 for fiscal 1996.
The officer/stockholder has periodically extended the due date of the loan or a
substantial portion thereof. As of May 31, 1997, the maturity date of $250,000
of the loan was extended until June 30, 1998, subject to mandatory earlier
prepayment if the Company completes another public common stock offering prior
thereto. (See Note 8B). The balance of the loan, $66,480, is classified as a
current liability at May 31, 1997.
Subsequent to May 31, 1997, additional loans were made to the Company from a
member of the officer/stockholder's family. (See Note 18B).
F-12
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 8 - CONTINGENT FINANCING AND RELATED MATTERS
A) Contingent Loan Payable:
In August 1995, the Company received a $300,000 financing commitment. The
financing was to be made available in two equal allotments each conditioned
upon the signing of a lease for new restaurant premises. The agreement provided
that once advanced, the funds had to be used to develop the applicable
restaurant; except, that a surplus left after the first restaurant opened could
be used to defray the costs of the second once premises therefor had been
secured; and that a surplus, if any, remaining after both restaurants had
opened could be retained by the Company. Repayments of advances and interest
thereon at 12% per year are required only if the Company completes another
public offering of common stock and only from the proceeds thereof. (See Note
8B). On August 11, 1995, the Company received the first $150,000 allotment. On
February 7, 1996, the Company received $100,000 under the second allotment. An
additional $25,000 was received on March 1, 1996. No further advances were
made. On August 30, 1996, the lender, an affiliate of the underwriter of the
Company's proposed public offering, waived certain restrictions on the
allocation and use of the amounts advanced. In October 1996, all limitations on
the use of the funds were eliminated; the amended agreement required only that
the Company use the funds in its operations.
Due to the contingent nature of the loan, all proceeds were credited to
additional paid-in capital. Interest cost at 12% is provided to reflect the
interest-bearing nature of the advance if the contingency triggering repayment
is met; the related credit is also added to paid-in capital. In the event that
repayment is required, the principal as well as the accumulated "interest" will
be deducted from such capital account.
B) Letter of Intent for New Offering:
In March 1996 the Company signed a letter of intent with an underwriter, which
proposed the sale by the Company of 1,200,000 common shares at a price per
share of $5 on a best-efforts, all or none basis. Such letter provides for a
10% underwriting fee, a 3% non-accountable expense allowance, underwriter's
warrants exercisable at 165% of the offering price and related registration
rights. Also the letter provides for damages payable by the Company to the
underwriter under certain circumstances.
On November 19, 1996, the Company's underwriter amended its letter of intent
for the Company's new offering to change from a best-efforts type to a
firm-commitment type underwriting, which provides that all shares will be sold
if one is sold. As amended, the letter grants the underwriter a 15%
over-allotment option, standard in such offerings, and also reduces the
exercise price of the underwriter's purchase warrants from 165% to 120% of the
public offering price. (See Notes 8A, 21B and 21C).
C) Common Stock Purchase Warrants and Related Registration Rights:
Upon completion of the Company's initial public offering on November 23, 1993,
the underwriter received warrants to purchase 25,000 shares of the Company's
common stock at $6.00 per share, exercisable until October 7, 1998. Until such
date, the underwriter also has one demand and one piggy-back registration right
for the warrants and/or underlying shares.
F-13
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 9 - LOANS PAYABLE
At May 31, 1997, the Company owed $291,750, including $21,750 of accrued
interest at 12% per annum, to an affiliate of the underwriter of the Company's
proposed public offering. The loans, evidenced by four non-negotiable,
unsecured notes due December 31, 1997, were subsequently extended, but must be
prepaid upon consummation of a second public offering of the Company's common
stock. (See Notes 8B, 18A and 20B).
NOTE 10 - NOTES PAYABLE, SUBSEQUENTLY CONVERTED TO COMMON SHARES
On March 25, April 18, and May 13, 1997, the Company borrowed a total of
$178,000 and $21,760 from two individual overseas lenders, respectively. The
aggregate amounts borrowed on the above dates were $70,000, $69,980 and
$59,780, respectively. These notes bore interest at 12% per annum and were
payable 90, 60 and 30 days after issuance on the 23rd, 17th and 12th of June
1997, respectively. Subsequent to May 31, 1997, the notes were converted to
common stock of the Company. (See Note 19A).
NOTE 11 - MINIMUM OPERATING RENT COMMITMENTS
The Company has operating leases for each of its restaurant premises. In
addition to base rent, the Company pays its proportionate share of certain
utility charges and realty tax increases. The leases for the three New York
restaurants expire December 2001, June 2005, and January 2006, respectively;
none of these leases contain renewal provisions.
The Prairie joint-venture initially occupied its premises pursuant to a lease
in negotiation. Such lease was not finalized until subsequent to May 31, 1997.
Monthly amounts of $4,763 paid prior to the signing of the lease were accepted
in exchange for an occupancy retrospectively deemed to have been pursuant to a
verbal understanding. (See Note 17A).
On March 25, 1997, the Company's seventh subsidiary entered into a ten year
lease expiring March 31, 2007 for the premises of the Womlett House Restaurant,
opened subsequent to May 31, 1997. (See Note 17D). The Company may terminate
the lease after five years; however, exercise of this option is considered
unlikely in light of the economic penalty that would be incurred resulting from
the early abandonment of the premises. The lease provides for a two-month rent
holiday through May 31, 1997. Initial annual rent of $24,000 increases by four
percent cumulatively throughout the term of the lease beginning March 1, 1998.
The annual minimum rental commitments for the next five years and thereafter
through expiration of the three New York leases, the Miami joint-venture lease
as subsequently finalized, and the Womlett House lease are as follows:
Year Ending May 31, Amount
------------------- ------
1998 $ 351,211
1999 359,279
2000 373,837
2001 392,046
2002 356,520
2003-2007 1,242,949
2008-2012 367,194
----------
Total $3,443,036
==========
F-14
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 11 - MINIMUM OPERATING RENT COMMITMENTS (Continued)
Each of the New York restaurants has been the subject of rent litigation and
liens for New York State Sales Taxes. (See Notes 5, 12A and 20).
Subsequent to May 31, 1997, the Company entered into a lease for the Company's
sixth restaurant in Coconut Grove, Florida. (See Notes 17B).
Base rentals, contingent rentals and total rent expense for fiscal 1997 and
1996 are as follows:
Base Contingent Total Rent
Fiscal Year Ended May 31, Rentals Rentals Expense
- ------------------------- ------- ------- -------
1997 $353,497 $21,437 $374,934
======== ======= ========
1996 $250,831 $38,610 $289,441
======== ======= ========
NOTE 12 - LITIGATION
A) Rent Litigation - New York Restaurants (See Note 21A):
At several times during the past two fiscal years the Company has been the
defendant in various summary proceedings brought for non-payment of rent by all
of the landlords of the Company's New York restaurants. Such rent arrears,
included in "Accrued expenses, other" on the accompanying consolidated balance
sheet, approximated $105,000 and $35,500 at May 31, 1996 and 1997,
respectively. At the latter date, approximately $29,300 of the delinquent rent
was attributable to the Broadway restaurant.
Historically, the Company has settled such actions prior to eviction by signing
stipulation agreements and paying initially agreed-upon amounts. However, the
Company often has failed to timely make further payments specified in the
stipulations or to timely pay subsequent monthly rent; accordingly summary
proceedings have been brought more than once in the last two years and
thereafter for the same restaurant. (See Note 20A).
B) Litigation - Discontinued Joint-Venture:
Litigation related to the Company's Canadian joint-venture was settled
in May 1996. (See Note 14).
NOTE 13 - CAPITAL STOCK TRANSACTIONS
On April 26, 1996, the Company sold 50,000 newly issued, unregistered common
shares under Regulation "S" of the Securities Act of 1933 to an overseas
investor at $2 per share for net proceeds of $100,000.
In four transactions between July 12 and August 6, 1996, the Company sold an
aggregate of 129,101 newly issued, unregistered common shares, all at a per
share price of $2. Net proceeds were $258,202. The shares, all sold under
Regulation "S", were purchased by two overseas investors.
Generally, shares sold to overseas investors under Regulation "S" may be resold
after forty days. However, the purchasers referred to above agreed to (i) not
resell any shares for a period of three months and (ii) a further restriction
on resale for one-half of their shares for an additional three months.
F-15
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13 - CAPITAL STOCK TRANSACTIONS (Continued)
On January 9 and January 30, 1997, the Company sold an aggregate of 114,974
newly issued, unregistered common shares, all at a per share price of $2. Net
proceeds were $229,948. The shares, all sold under Regulation "S", were
purchased by one overseas investor. However at the time these shares were sold,
the Company was not current on its periodic reporting requirements under the
Securities Exchange Act of 1934; therefore, these shares were issued subject to
a one-year resale restriction.
Subsequent to May 31, 1997, certain existing debt of the Company was converted
to common stock and additional shares were also sold, all under Regulation "S".
(See Notes 10 and 19).
NOTE 14 - LOSS ON DISCONTINUED JOINT VENTURE
The Canadian joint-venture entered into a lease for premises on Lincoln Road,
Miami Beach, Florida. Canadian paid a $8,750 security deposit and hired a
contractor to prepare detailed design plans for the construction of the
restaurant. Prior to starting construction, Canadian learned of certain
misrepresentations the landlord made as to the extent of certain improvements
being made by the City of Miami Beach to the area's infra- structure: They
would extend the construction period for the restaurant; increase the cost and
more important, the delay would mean this location could not open in time for
the 1996-1997 winter season. Also, late in 1995, after Hurricane Andrew, the
City enacted substantial changes to its building codes, which would further
increase the construction cost and delay the opening. The parties were unable
to reach an accommodation regarding these matters. When rent became due under
the lease, the landlord brought an action to enforce payment. On May 14, 1996,
the parties settled the litigation and terminated the lease. Canadian
surrendered the $8,750 security deposit. Since the contractor's plans were
specific to the Lincoln Road premises, their cost of $15,000 was also written
off. The Company's share of this loss in fiscal 1996 was $11,875. In fiscal
1997 the Company recognized an additional loss of $8,500 related to the
abandonment of this project. At May 31, 1997 the Company has no further
obligation thereunder either to the landlord or the joint-venturer and the
Canadian joint-venture remains inactive.
NOTE 15 - INCOME TAXES
The Company sustained taxable losses of approximately $1,072,000 in 1997
and $587,000 in 1996. The Company and its subsidiaries have incurred no
income tax since inception. Approximately $2,662,000 of tax loss carry-
forwards may be offset against future years' taxable income, expiring as
follows: 2005: $77,000; 2006: $33,000; 2007: $2,000; 2008: $93,000;
2009: $322,000; 2010: $476,000; 2011: $587,000; 2012: $1,072,000.
At May 31, 1997 and 1996, the Company had no deferred tax liabilities and the
following deferred tax assets:
1997 1996
---- ----
Net operating loss carryforward $692,025 $413,480
Deferred rent, net of amounts capitalized 34,285 27,177
Property and equipment depreciation differences 28,604 10,427
Corporate joint-venture investments 3,074 3,087
-------- --------
Total $757,988 $454,171
======== ========
F-16
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - INCOME TAXES (Continued)
The above deferred tax assets were completely offset by equivalent valuation
allowances, which increased by $303,817 and $167,018 during the fiscal years
ended May 31, 1997 and 1996, respectively.
NOTE 16 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As set forth on such financial
statements, the Company sustained net losses of $1,180,400 in fiscal 1997 and
$622,989 in fiscal 1996. Also as of May 31, 1997, the Company has net working
capital and stockholders' equity deficiencies of $1,764,835 and $1,056,685,
respectively. In addition, the Company's New York landlords have all brought
summary non-payment proceedings against the Company's subsidiaries; warrants of
eviction have been issued on several occasions and one warrant, issued
subsequent to May 31, 1997 was executed. (See Note 20A). Further, payroll tax
and sales tax liens have been filed with respect to each operating subsidiary
and the restaurants are also subject to closure by applicable taxing
authorities. Subsequent to May 31, 1997, one New York restaurant was
temporarily closed due to the Company's failure to stay current on a
deferred-payment arrangement. (See Note 20B). All of these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Since the inception of the Company, management has concentrated on developing
the restaurants, creating name recognition and attracting a loyal patron base.
Significant operating losses during the period of such development were
expected. However, the extent and duration of such losses have each been far
greater than anticipated. Management believes that the Company has achieved a
valuable name recognition and a certain level of customer acceptance.
Management also believes that profitable restaurant operations can be attained
by increasing volume at existing locations while nonetheless controlling costs
and successfully developing new restaurants. Management has been hampered in
implementing its expansion plans by longer than expected construction periods,
higher than anticipated costs and insufficient capital. Moreover, while sales
at the New York restaurants have increased, operating margins are still
significantly below hoped-for levels.
In the last quarter of fiscal 1996, the Company began development of a
wholesale division. Research and development activities related thereto were
conducted throughout fiscal 1997. However, during the subsequent fiscal
quarter, management was forced to suspend activities related to this new line
of business due to insufficient financing. (See Note 21A). Management believes
that the name recognition gained by its restaurants as well as favorable
responses to early market testings of its wholesale product augur well for its
successful entry into wholesale distribution, assuming adequate financing can
be obtained. (See Note 21B).
The Company has signed a letter of intent for a second public offering of its
shares. Management believes that if successful, the proceeds thereof will be
sufficient to pay outstanding current liabilities, including significant sales
and payroll tax delinquencies and provide needed working capital; finance the
expansion of restaurant operations and complete the entry into the wholesale
distribution business.
F-17
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 16 - GOING CONCERN (Continued)
There is no assurance that such goals will be achieved, nor is there any
assurance that if sufficient financing is obtained that the Company's future
operations will be profitable. Moreover, given the Company's current financial
condition, completion of the proposed public offering or securing adequate
alternative financing is essential if the Company is to remain viable. Lastly,
the Company's ability to obtain financing has been in the past, and is at
present impeded by its failure to remain current on its periodic reporting
requirements to the Securities and Exchange Commission. Although management
believes that it will soon become and thereafter remain current on its
reporting obligations, there can be no assurances given in this regard. (See
Note 21C).
The continuation of the Company as a going concern is dependent upon the
successful completion of its financing and expansion plans. Management is
hopeful that it will be successful in these endeavors, although no assurances
in this regard can be given. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the classification and amounts of liabilities that
might be necessary if the Company is unable to continue in existence.
NOTE 17 - SUBSEQUENT EVENTS: FLORIDA RESTAURANTS
A) Finalization of Lease for Prairie Joint-Venture Restaurant:
On November 1, 1997, the lease for the Prairie joint-venture's premises,
previously occupied pursuant to a verbal understanding, was signed by the
parties. Such lease provides for an initial term of four years, commencing
January 1, 1998 and expiring December 31, 2001. The lease, which may be
extended for two terms of five years each, requires initial annual rent of
$48,451, payable monthly, together with Florida rent tax thereon. Base rent
increases by 4% per year cumulatively over all terms of the lease. Due to the
economic penalty that would be incurred if the restaurant's leasehold
improvements were abandoned before the expiration of the renewal terms, the
Company expects that both renewal options will be exercised, assuming the
Company's continuation through such periods. (See Note 14). Total base rent,
together with rent tax thereon, payable over all terms of the lease through
December 31, 2012 is $977,214. Such amount is included in the minimum annual
lease commitments reported at May 31, 1997. (See Note 11).
B) Formation of New Subsidiary; Related Agreement of Lease:
On December 30, 1997, the Company's new subsidiary, Yoystra Enterprises, Inc.
was incorporated in Florida. This subsidiary, the Company's eighth, was formed
to develop, own and operate a Royal Canadian Pancake House Restaurant in
Coconut Grove, Florida. On the same date, the subsidiary entered into a lease
agreement for the premises of the new restaurant. Construction costs for this
location, the Company's sixth, are estimated at $250,000. The lease allows for
immediate occupancy by the Company to adapt the premises for use as a
restaurant; however, due to the present lack of financing, such work has not
begun. At present the source of such financing is not committed. (See Notes 8B,
16 and 21B).
F-18
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 17 - SUBSEQUENT EVENTS: FLORIDA RESTAURANTS (Continued)
B) Formation of New Subsidiary; Related Agreement of Lease (Continued):
The lease for the Coconut Grove premises has an initial five-year term,
expiring February 28, 2003, with one five-year renewal option. The lease
requires payment of rent commencing on the date the restaurant opens for
business at the rate of $5,000 per month, together with applicable Florida rent
tax. Base rent increases by 10% on March 1, 2001 and every third year
thereafter throughout the initial and renewal term if extended. Assuming the
continuation of the Company through such renewal date, election of the renewal
option is expected based on the economic penalty that would be incurred if the
leasehold improvements were surrendered earlier. (See Note 16). Rent due under
the lease, assuming an opening of June 1, 1998, aggregates $699,490 as follows:
1999: $63,900; 2000: $63,900; 2001: $64,965; 2002: $70,290; 2003-2008;
$436,435. Such amounts are not reflected in the minimum annual rental
commitments reported at May 31, 1997. (See Note 11).
C) Litigation - Prairie Joint Venture:
Prairie is the defendant, along with two of its officers, in a complaint filed
to recover the cost of certain goods sold to the joint-venture in July 1996.
The amount sought is less than $15,000 and the Company does not expect that any
material liability will result from this matter.
D) Opening of Womlett House Restaurant (Unaudited):
On January 16, 1998, the Company's fifth restaurant, a Royal Canadian Womlett
House, opened at 1505 Washington Avenue, Miami Beach, Florida. The restaurant's
aggregate development and construction costs were approximately $500,000, of
which approximately three-fifths had been incurred and are reported on the
accompanying consolidated balance sheet at May 31, 1997. (See Note 3).
NOTE 18 - SUBSEQUENT EVENTS: LOANS PAYABLE, OTHER
A) Loans Payable:
In eight separate transactions from June 19 through October 14, 1997, the
Company borrowed an aggregate of $245,000 from the same party who had loaned it
a total of $270,000 during fiscal 1996. The new loans bear interest at 12% per
annum and are evidenced by non-negotiable notes due December 31, 1998. These
loans must be prepaid upon the completion of a new public offering of the
Company's common stock. The lender, an affiliate of the underwriter of the
Company's proposed public offering, also extended the maturity of the loans
made during fiscal 1997 to the same due date; accordingly all loans from such
party, including accrued interest, are due December 31, 1998. (See Notes 8A,
8B, 20B and 21B).
In four separate transactions from November 13, 1997 thru February 23, 1998,
the Company borrowed a total of $208,000 from a third party. Such loans are
evidenced by non-negotiable notes bearing interest at 12% per year and are due
December 31, 1998, subject to mandatory prepayment upon the consummation of a
new public offering of the Company's common stock.
(See Notes 8B and 21B).
F-19
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 18 - SUBSEQUENT EVENTS: LOANS PAYABLE, OTHER (Continued)
B) Related Party Loans (Unaudited):
On June 23, 1997 and February 10, 1998, the Company borrowed $25,000 and
$50,000, respectively, from a family member of the Company's president and
majority shareholder. Such loans, both of which were repaid shortly after they
were made, bore interest at 9% per annum.
NOTE 19 - SUBSEQUENT EVENTS: CAPITAL STOCK TRANSACTIONS
A) Conversion of Notes Payable:
On June 9, 1997, the two holders of an aggregate of $199,760 of the Company's
notes agreed to convert such loans to common stock of the Company at the rate
of $2.00 per share. A total of 99,880 shares were issued, pursuant to
Regulation "S" of the Securities and Exchange Commission, promulgated under the
Securities Act of 1933. (See Note 10).
B) Additional Sales of Common Stock under Regulation "S"
On August 8, August 19, and September 8, 1997, the Company sold 49,980, 24,990
and 24,990 shares of the company's common stock to one overseas investor, all
at a price of $2.00 per share, and received, net proceeds, in the aggregate, of
$199,920. All 99,960 shares were sold pursuant to Regulation "S", as
promulgated under the Securities Act of 1933.
NOTE 20 - SUBSEQUENT EVENTS: NEW YORK RESTAURANTS (Unaudited)
A) Landlord Litigation:
Subsequent to May 31, 1997, landlord litigation continued in varying degrees
for the New York locations. At various times, stipulation agreements were
signed for all three New York restaurants. Warrants of eviction were issued for
the Second and Third Avenue restaurants and one warrant applicable to the
latter was executed. Upon payment by the Company of stipulated amounts,
applicable warrants were vacated. As of February 28, 1998, the Company has paid
substantially all of its rent arrearages, utilizing various loan and equity
proceeds.
B) Temporary Sales Tax Related Restaurant Closure:
On March 4, 1998, the Company's Second Avenue restaurant was closed by the
Sales Tax Division of the New York State Department of Taxation and Finance due
to the Company's failure to pay an agreed-upon amount so as to remain current
on its deferred payment arrangement.
On March 11, 1998, the Second Avenue restaurant was reopened upon the Company
paying $75,000 against its sales tax liability and entering into a new 36-month
installment agreement for the remaining balance of approximately $100,000.
After making such payment, delinquent sales, rent and payroll taxes owed by the
Company were approximately $630,000. The payment was funded from the proceeds
of a $110,000 loan, borrowed from the same lender who had advanced a total of
$515,000 in twelve previous transactions in fiscal 1997 and 1998. (See Note
18A).
F-20
<PAGE>
ROYAL CANADIAN FOODS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Concluded)
NOTE 21 - SUBSEQUENT EVENTS: OTHER
A) Wholesale Division/Research and Development Activities (Unaudited):
During the quarter ended August 31, 1997, the Company's research and
development activities for its new wholesale division consisted of the
expenditure of an additional $141,300 on corrugated boxes and related supplies.
Prior to commencing production of distribution-size shipments, the Company
determined it did not have sufficient financing to produce expected re-order
quantities and was forced to suspend all activities related to this line of
business. The Company estimates that it will require approximately $1,500,000
to complete the introduction of this wholesale product line to the market. The
Company anticipates that the source of such financing will be the proposed new
offering of its common stock. Assuming such proposed offering is consummated,
of which there can be no assurance, significant revenues from the wholesale
division are not expected prior to fiscal 1999. (See Notes 4 and 16).
B) Affirmed Letter of Intent for New Public Offering:
On February 19, 1998, the Company's underwriter re-affirmed to the Company in
writing its intention of proceeding with a second public offering of the
Company's common shares, despite the passage of time since November 19, 1996
when the first letter of intent dated March 25, 1996 was amended to reflect a
firm commitment type offering. There is no assurance that such offering will be
completed; also the Company must be current on its reporting obligations under
the Securities Exchange Act of 1934 in order to proceed with the related
registration statement under the Securities Act of 1933. (See Note 21C).
C) Delinquent Filing of Exchange Act Reports (Unaudited):
On or about March 22, 1998, the Company completed preparation of its Annual
Report on Form 10-KSB for the year ended May 31, 1997, which report was then
readied for electronic transmission to the Securities and Exchange Commission.
Such report was approximately six and one-half months late. At such date, the
Company was also delinquent with respect to two reports on Form 10-QSB for the
quarterly periods ended August 31, 1997 and November 30, 1997. Timely filing of
periodic reports specified by the Securities Exchange Act of 1934 is required
by law; moreover, the Company's ability to obtain equity financing is impeded
during periods when it is not in compliance with such requirements. (See Note
16).
F-21
<PAGE>
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act.
The executive officers and directors of the Company are set forth
below. Each director serves for a period of one year and until his successor is
elected and qualified. Officers are appointed and serve at the discretion of
the Board of Directors.
Name Age Position
Sheldon Golumbia 47 President, Treasurer and
Director
Beatrice Puja 44 Vice President-Operations
Secretary and Director
Sheldon Golumbia has been President, Treasurer and a Director of the
Company since its inception in August 1993, president and sole director of the
Hudson Street, Second Avenue, Broadway and Third Avenue subsidiaries since
their inceptions in 1989, 1992, 1993 and 1994, respectively.
Beatrice Puja has been Vice President-Operations since the completion
of the Initial Public Offering in November 1993. She rendered managerial
services to the Company as a consultant on a full-time basis for approximately
60 days prior to the completion of the Initial Public Offering and the
commencement of her employment agreement. She has been Secretary and a Director
of the Company since its inception in August 1993. She has been the secretary
of the Company's subsidiaries since their inceptions and had, from time to
time, rendered limited consulting services to the Company and its subsidiaries
since 1989. From 1989 until becoming a full-time employee of the Company, Ms.
Puja did not engage in any other business activity.
29
<PAGE>
The By-laws of the Company provide for indemnification of officers
and directors to the fullest extent permitted by Delaware law.
Item 10. Executive Compensation.
The following table sets forth the cash compensation paid by the
Company for each of its last three fiscal years ended May 31, to the individual
acting as its chief executive officer and its other executive officer.
Name and Principal
Position Fiscal Year Salary(1)
- ------------------ ----------- -------
Sheldon Golumbia 1997 $13,524(2)
President and 1996 $48,775(3)
Treasurer 1995 $72,116(4)
Beatrice Puja 1997 $17,424(2)
Vice President- 1996 $57,513(3)
Operations 1995 $90,770(4)
(1) Represents cash compensation. The Company paid no other type of
compensation to either officer and has no other type or form of compensation
plans.
(2) Of the total salaries payable to Mr. Golumbia and Ms. Puja pursuant
to their employment agreements for the 1997 fiscal year, $136,476 and $102,576,
respectively, have been accrued and not paid, and are not reflected in the
amounts set forth in the above table. At May 31, 1997, the total amount of
accrued but unpaid salaries payable to Mr. Golumbia and Ms. Puja was $315,585
and $194,293, respectively.
(3) Of the total salaries payable to Mr. Golumbiaand Ms. Puja pursuant to their
employemnt agreement for the 1996 fiscal year,$101,225 and $62,487,
respectively, have been accrued and not paid, and are not reflected in the
amounts set forth in the above table.
(4) Of the total salaries payable to Mr. Golumbia and Ms. Puja pursuant to
their employment agreements for the 1995 fiscal year, $77,884 and $29,230,
respectively, were accrued and have not been paid, and are not reflected in
the amounts set forth in the above table.
30
<PAGE>
Directors are not paid any fee for their services as directors, but
are reimbursed for their reasonable travel expenses incurred in attending
meetings of the Board.
Prior to the completion of the Initial Public Offering, neither the
Company nor its subsidiaries had paid any compensation to its officers.
However, the Company did impute compensation for Sheldon Golumbia and Beatrice
Puja aggregating $150,000 and $5,000, respectively, for all fiscal years thru
May 31, 1993. Salary also was imputed for fiscal 1994 up to the date of the
closing of the Initial Public Offering in the amounts of $36,000 and $1,000 for
Mr. Golumbia and Ms. Puja, respectively. In addition, Ms. Puja was paid $25,000
after completion of the Initial Public Offering for consulting services she
rendered on a full-time basis for approximately 60 days prior thereto in
connection with the closing of the Hudson Street Restaurant and opening of the
Broadway Restaurant.
The Company entered into five-year employment agreements with Sheldon
Golumbia and Beatrice Puja, for initial annual salaries of $150,000 and
$120,000, respectively, which commenced upon the completion of the Initial
Public Offering in November 1993 and are automatically renewed at the end of
the employment term for additional one year periods, unless either party gives
written notice of non-renewal to the other at least 60 days prior to the end of
the then existing period. These salaries are subject to cost-of-living
adjustments and bonuses based upon performance, such bonuses to be determined
each year by the Company's Board of Directors. The employment agreements also
contain confidentiality and non-competition provisions.
The Company does not have any employee compensation plans in effect
at the present time, but will consider the adoption thereof if and when it
believes they would be appropriate to foster the development and growth of the
Company.
Item 11. Security Ownership of Certain Beneficial
Owners and Management.
31
<PAGE>
The following table sets forth as of February 28, 1997, certain
information regarding the number and percentage of shares of Common Stock
beneficially owned by each person known by the Company to own more than five
percent of its outstanding Common Stock, each officer and director of the
Company, and all officers and directors as a group. All persons listed below
have sole voting and investment power with respect to their shares of Common
Stock.
Name and Address Number of
of Beneficial Owner Shares % Ownership
------------------- ------ -----------
Sheldon Golumbia 2,137,500 71.4%
Royal Canadian Foods Corp.
1004 Second Avenue
New York, New York 10022
Beatrice Puja 100,000 3.3%
Royal Canadian Foods Corp.
1004 Second Avenue
New York, New York 10022
Officers and Directors as
a group (2 persons) 2,237,500 74.7%
Item 12. Certain Relationships and Related Transactions.
From time to time, Sheldon Golumbia, President, Director and
principal shareholder of the Company, has made loans to the Company,
principally for the purpose of funding construction costs of the Restaurants
and to a lesser degree for working capital purposes. In fiscal 1997, $70,000 of
loans were repaid. The amounts of principal advanced during the 1996 and 1995
fiscal years were $112,975 and $89,009. In addition, interest at 9% per annum
was accrued in fiscal 1997, 1996 and 1995 in the amounts of $26,941, $27,388
and $12,770, respectively. At May 31, 1997, the aggregate amount of principal
and accrued interest outstanding was $315,380.
Mr. Golumbia has periodically extended the maturity date of a
substantial portion of the loan and at times has increased the loan amount
subject to such extended maturity. As
32
<PAGE>
of May 31, 1997, he extended the due date for $250,000 of the loan until June
30, 1998, subject to mandatory earlier prepayment if the Company completes
another public offering of its Common Stock prior thereto. See "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7B to the Consolidated Financial Statements.
Mr. Golumbia also has guaranteed the payment of any amounts due under
the Broadway Lease at the time the Company vacates the subject premises.
Sarah Golumbia, mother of Sheldon Golumbia, made $25,000 and $50,000
loans to the Company with interest at 9% per annum on June 23, 1997 and
February 10, 1998, respectively. The Company repaid the $25,000 loan on July
14, 1997 and repaid the $50,000 loan in two $25,000 payments, the first on
February 24, 1998 and the second on March 9, 1998.
33
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation(1)
3.2 By-Laws(1)
10.1 Hudson Street Lease(1)
10.2 Second Avenue Lease(1)
10.3 Broadway Lease(1)
10.4 Third Avenue Lease(2)
10.5 Promissory Note(1)
10.6 Letter Agreement Regarding Loans(1)
10.7 Employment Agreement of Sheldon Golumbia(1)
10.8 Employment Agreement of Beatrice Puja(1)
10.9 Note Extension(3)
10.10 Note Extension dated August 22, 1995(4)
10.11 $300,000 Loan Agreement(4)
10.12 $150,000 Promissory Note(4)
10.13 Note Extension Dated as of May 31, 1996(5)
10.14 Modification of $300,000 Loan Agreement(5)
10.15 Limited Liability Agreement of Prairie Foods,
LLC(5)
10.16 Prairie Foods Pancake Restaurant Lease(6)
10.17 Miami Beach Womlett Restaurant Lease(6)
10.18 Coconut Grove, Florida Pancake Restaurant
Lease(6)
10.19 $100,000 Promissory Note dated February 7,
1996(6)
10.20 $25,000 Promissory Note dated March 1, 1996(6)
10.21 Second Modification of $300,000 Loan
Agreement(6)
10.22 Second Note Extension dated as of May 31,
1997(6)
10.23 $50,000 Promissory Note dated June 5, 1996(6)
10.24 $50,000 Promissory Note dated June 26, 1998(6)
10.25 $100,000 Promissory Note dated September 16,
1996(6)
10.26 $70,000 Promissory Note dated March 13, 1997(6)
10.27 Extension Agreement for $270,000 of loans
(evidenced by Notes contained in Exhibits
10.23, 10.24, 10.25 and 10.26)(6)
34
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10.28 $30,000 Promissory Note dated June 19, 1997(6)
10.29 $25,000 Promissory Note dated July 14, 1997(6)
10.30 $50,000 Promissory Note dated September 4,
1997(6)
10.31 $20,000 Promissory Note dated September 8,
1997(6)
10.32 $20,000 Promissory Note dated September 12,
1997(6)
10.33 $20,000 Promissory Note dated September 17,
1997(6)
10.34 $50,000 Promissory Note dated September 22,
1997(6)
10.35 $30,000 Promissory Note dated October 14,
1997(6)
10.36 $110,000 Promissory Note dated March 11,
1998(6)
10.37 $70,000 Promissory Note dated March 25, 1997(6)
10.38 $48,220 Promissory Note dated April 18, 1997(6)
10.39 $59,780 Promissory Note dated May 13, 1997(6)
10.40 $178,000 Loan to Equity Conversion Agreement
dated June 9, 1997(6)
10.41 $21,760 Promissory Note dated April 18, 1997(6)
10.42 $21,760 Loan to Equity Conversion Agreement
dated June 9, 1997(6)
10.43 $38,000 Promissory Note dated November 13,
1997(6)
10.44 $50,000 Promissory Note dated December 19,
1997(6)
10.45 $20,000 Promissory Note dated January 26,
1998(6)
10.46 $100,000 Promissory Note dated February 23,
1998(6)
21 List of Subsidiaries(6)
- -----------------
(1) Incorporated by reference from an Exhibit of the same Exhibit number to
Registrant's Registration Statement No. 33-67658-NY on Form SB-2.
(2) Incorporated by reference from Exhibit 10 of a Current Report filed on Form
8-K dated February 7, 1994.
35
<PAGE>
(3) Incorporated by reference from an Exhibit of the same Exhibit number to
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1994.
(4) Incorporated by reference from an Exhibit of the same Exhibit number to
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1995.
(5) Incorporated by reference from an Exhibit of the same Exhibit number to
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1996.
(6) Filed herewith.
b. Reports on Form 8-K for the Quarter ended May 31, 1997
None.
36
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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 authorized.
Royal Canadian Foods Corp.
By: /s/ Sheldon Golumbia
Sheldon Golumbia, President
March 23, 1998
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Sheldon Golumbia President, Treasurer, March 23, 1998
Sheldon Golumbia Principal Executive
Officer, Principal
Financial Officer,
Principal Accounting
Officer and Director
/s/ Beatrice Puja Vice President-Operations, March 23, 1998
Beatrice Puja Secretary and Director
Supplemental Information to be Furnished With Reports
Filed Pursuant to Section 15(d) of the Exchange Act
By Non-reporting Issuers
37
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The issuer has not and will not be sending proxy materials to its
security holders. The Company will send a copy of this Annual Report to
its security holders upon request.
38
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COURTHOUSE SQUARE
RETAIL LEASE AGREEMENT
This LEASE AGREEMENT, dated November 1, 1997, is by and between FMS
South Beach, L C., hereinafter called the Landlord, and PRAIRIE FOODS
CORPORATION, a Delaware corporation d/b/a ROYAL CANADIAN PANCAKE HOUSE
hereinafter called the Tenant, whereby in consideration of the mutual covenants
contained herein, the parties agree to the following terms and conditions:
1. PREMISES: The Landlord hereby leases to the Tenant and the Tenant hereby
leases from the Landlord, the following described space, hereinafter called the
Premises:
Space which is deemed to be approximately 2.000 rentable square feet,
as shown on Exhibit "A" attached hereto and made a part hereof, being
located on the 1st floor at 1216 Washington Avenue, Miami Beach, Florida.
2. TERM: Tenant to have and to hold the above described Premises for a term of
48 months commencing on January 1, 1998 ("Commencement Date") and terminating
on December 31 2001.
3. BASE RENT: Tenant hereby covenants and agrees to pay to the Landlord,
together with any and all sales and use taxes levied upon the use and occupancy
of the Premises the annual Base Rent of 48.451 32, ("Initial Base Rent") in
equal monthly installments of 4.037.61 plus applicable sates tax, payable in
advance without demand beginning on the Commencement Date of this Lease
Agreement and on the first day of each and every month thereafter. Rental
payments are due on the first day of each month and shall be considered late if
not received by the fifth (5th) day of each month. Late payments shall be
assessed a late charge of five percent (5%) of the rental due, which charge
shall be treated as Additional Rent and shall be immediately due and payable
and shall not be waived by acceptance of rental payments. This charge is not a
penalty but liquidated damages to the Landlord occasioned by the delay in
receipt of its funds, including any additional bookkeeping which may be caused
thereby.
4. RENT INCREASES: (A) The Initial Base Rent shall be adjusted after the first
twelve (12) month period of the term in the manner hereafter set forth. The
Base Rent for the twelve (12) month period subsequent to the first complete
twelve7 (12) month period of the term of this Lease shall be computed by
multiplying the Initial Base Rent by one hundred four percent (Rent x 1.04).
(B) The Base Rent for each twelve (12) month period subsequent to the first
complete twenty-four (24) month period during the term of this Lease, or any
renewal thereof, shall be computed by multiplying the Base Rent, as adjusted
for the prior twelve (12) month period one hundred four percent (Rent x 1.04).
5. EXPENSES: Tenant hereby covenants and agrees to pay Landlord Additional Rent
based upon the following:
(A) Tenant shall pay Landlord an amount equal to Tenant's Pro Rata
Share of Taxes assessed on the Property. When computing this obligation, any
discounts for early payment of Taxes shall not be considered.
(B) Tenant shall pay Landlord an amount equal to Tenant's Pro Rata
share of Insurance expenses incurred by the Landlord for the Property.
(C) Tenant shall pay Landlord an amount equal to Tenant's Pro Rata
share of Operating Expenses incurred by the Landlord
(D) The Tenant's pro rata share of Taxes, Insurance, and Operating
Expenses is equal to 12.85% of the total Taxes, Insurance and Operating
Expenses incurred by the Landlord.
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(E) Said Additional Rent shall be paid in the following manner:
(1) Landlord may reasonably estimate in advance the amounts Tenant
shall owe for Taxes, Insurance, and Operating Expenses for any full or partial
calendar year of the Term. In such event, Tenant shall pay such estimated
amounts, together with applicable sales tax, on a monthly basis, on or before
the first day of each calendar month, together with Tenant's payment of Base
Rent. Such estimate may be reasonably adjusted from time to time by Landlord.
(ii) Within 120 days after the end of each calendar year, or as soon
thereafter as practicable, Landlord shall provide a statement (the "Statement")
to Tenant showing: (a) the amount of actual Taxes, Insurance, and Operating
Expenses for such calendar year, with a listing of amounts for major categories
of Operating Expenses, for such calendar year, (b) any amount paid by Tenant
toward Taxes, Insurance, and Operating Expenses during such calendar year on an
estimated basis, and (c) any revised estimate of Tenant's obligations for
Taxes, Insurance, and Operating Expenses for the current calendar year.
(iii) If the Statement shows that Tenant's estimated payments were
less than Tenant's actual obligations for Taxes, Insurance, and Operating
Expenses for such year, Tenant shall pay the difference. If the Statement shows
an increase in Tenant's estimated payments for the current calendar year,
Tenant shall pay the difference between the new and former estimates, for the
period from January I of the current calendar year through the month in which
the Statement is sent to Tenant. Tenant shall make such payments within 30 days
after Landlord sends the Statement.
(iv) If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Taxes, Insurance, and Operating Expenses, such
sum shall be applied towards future obligations.
(F) If the term commences other than on January 1, or ends other than
on December 31, Tenant's obligations to pay estimated and actual amounts
towards Taxes, Insurance, and Operating Expenses for such first or final
calendar years shall be prorated to reflect the portion of such years included
in the term. Such proration shall be made by multiplying the total estimated or
actual (as the case may be) Taxes, Insurance, and Operating Expenses, for such
calendar years, by a fraction, the numerator of which shall be the number of
days of the term during such calendar year, and the denominator of which shall
be 365.
(G) Landlord shall maintain records respecting Taxes, Insurance, and
Operating Expenses and determine the same in accordance with sound accounting
and management practices, consistently applied. Although this Lease Agreement
contemplates the computation of Taxes, Insurance, and Operating Expenses on a
cash basis, Landlord shall make reasonable and appropriate accrual adjustments
to ensure that each calendar year, including the Base Years, includes
substantially the same recurring items. Landlord reserves the right to change
to a full accrual system of accounting so long as the same is consistently
applied and Tenant's obligations are not materially adversely affected. Tenant
or its representative shall have the right to examine such records upon
reasonable prior notice specifying such records Tenant desires to examine,
during normal business hours at the place or places where such records are
normally kept by sending such notice no later than 60 days following the
furnishing of the Statement. Tenant may take exception to matters included in
Taxes, Insurance, or Operating Expenses, or Landlord's computation of Tenant's
Pro Rata Share of either, by sending notice specifying such exception and the
reasons therefor to Landlord no later than 30 days after Landlord makes such
records available for examination. Tenant acknowledges that Landlord's ability
to budget and incur expenses depends on the finality of such Statement, and
accordingly agrees that time is of the essence of this paragraph. Failure of
Tenant to send the above notices within the specified time periods, shall be
conclusively presumed as Tenant's acceptance of such Statement. If Tenant takes
exception to any manner contained in the Statement as provided herein, Landlord
or Tenant shall refer the matter to an independent certified public accountant,
reasonably acceptable to the other party, whose certification as to the proper
amount shall be final and conclusive as between Landlord and Tenant. Tenant
shall promptly pay the cost of such certification, unless such certification
determines that Tenant was overbilled by more than 5%, in which case the cost
of certification shall be borne by the Landlord. Pending resolution of any such
exceptions in the foregoing manner, Tenant shall continue paying Tenant's Pro
Rata Share of Taxes, Insurance, and Operating Expenses in the amounts
determined by Landlord, subject to adjustment after any such exceptions are so
resolved.
6. RENTAL DEPOSIT: Upon execution of this Lease Agreement, Tenant shall pay
$000 as one month's rental deposit to be applied to the first month's rent.
7. SECURITY DEPOSIT: Upon execution of this Lease Agreement, Tenant shall
deposit with Landlord $0.00, as security for Tenant's full and faithful
performance of its obligations hereunder. Landlord will return same to Tenant
within thirty (30) days following the end of the Lease term or the earlier
termination of this Lease Agreement, provided that Tenant is not then in
default. In the event of Tenant's default, the security deposit then held by
Landlord may be applied by Landlord to cure all or a portion of such default,
and Tenant will redeposit the full amount of the security deposit within five
(5) days after Landlord's demand.
8. PARKING: No parking is available on the Property.
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<PAGE>
9. CONSTRUCTION, DEFINITIONS AND SEVERABILITY: The captions of the articles and
paragraphs of this Lease Agreement are for convenience of reference only and
shall not be considered or referred to in resolving questions of
interpretation. Any underlined terms contained herein arc for convenience of
drafting this agreement and are to be given no greater or lesser weight than
those terms not underlined. If any term or provision of this Lease shall be
found invalid, void, illegal, or unenforceable with respect to any particular
Person by a court of competent jurisdiction, it shall not affect, impair or
invalidate any other terms or provisions hereof, or its enforceability with
respect to any other Person, the parties hereto agreeing that they would have
entered into the remaining portion of this Lease Agreement, notwithstanding the
omission of the portion or portions adjudged invalid, void, illegal, or
unenforceable with respect to such Person.
(A) "Building" shall mean the entire structure, which fronts
Washington Avenue between the addresses 1200 to 1224 Washington Avenue, and
also maintains addresses on Drexel Avenue, as well as the office facilities and
storage facilities of the structure.
(B) "Holidays" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
(C) "Insurance" shall mean any flood, windstorm, property, liability,
boiler and machinery, business interruption, or commercial coverage applicable
to the Property, which the Landlord deems appropriate in an amount, and written
through an insurance company which the Landlord deems appropriate.
(D) "Landlord" and "Tenant" shall be applicable to one or more
Persons as the case may be, and the singular shall include the plural, and the
neuter shall include the masculine and feminine; and if there be more than one,
the obligations thereof shall be joint and several. For purposes of any
provisions indemnifying or limiting the liability of Landlord, the term
"Landlord" shall include Landlord's present and future partners, beneficiaries,
trustees, officers, directors, employees, shareholders, members, principals,
agents, affiliates, successors and assigns.
(E) "Law" shall mean all federal, state, county and local
governmental and municipal laws, statutes, ordinances, rules, regulations,
codes, decrees, orders and other such requirements, applicable equitable
remedies and decisions by courts in cases where such decisions are considered
binding precedents in the state in which the Property is located, and decisions
of federal courts applying the laws of such State or applicable federal law.
(F) "Mortgage" shall mean all mortgages, deeds of trust, ground
leases and other such encumbrances now or hereafter placed upon the Property or
Building, or any part thereof, and all renewals, modifications, consolidations,
replacements or extensions thereof, and all indebtedness now or hereafter
secured thereby and all interest thereon.
(G) "Operating Expenses" shall mean all expenses, costs and amounts
(other than Taxes and Insurance) which Landlord shall pay during the calendar
year, any portion of which occurs during the Term, in direct connection with
ownership, management, repair, maintenance and operation of the Property,
including without limitation, any amounts paid for: a) utilities for the
Property, including but not limited to electricity, power, gas, steam, oil or
other fuel, water, sewer, lighting, heating, air conditioning and ventilating,
(b) permits, licenses and certificates necessary to operate, manage and lease
the Property, (c) supplies, tools, equipment and materials used in the direct
operation, repair and maintenance of the Property, (d) accounting, legal,
inspection, consulting, concierge and other services, (e) any equipment rental
(or installment equipment purchase or equipment financing agreements), or
management agreements (including the cost of any reasonable and customary
management fee) actually paid thereunder and the fair rental value of any
office space provided thereunder, up to customary and reasonable amounts, (f)
wages, salaries and other compensation and benefits (including the fair value
of any parking privileges provided) for all persons directly engaged in the
operation, maintenance or security of the Property, and employer's Social
Security taxes, unemployment taxes or insurance, and any other taxes which may
be levied on such wages, salaries, compensation and benefits, (g) payments
under any easement, operating agreement, declaration, restrictive covenant, or
instrument pertaining to the sharing of costs in any planned development, and
(h) operation, repair, and maintenance of all systems and equipment and
components thereof (including replacement of components), janitorial service,
alarm and security service, window cleaning, trash removal, elevator
maintenance, cleaning of walks, parking facilities and Building walls,
replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies,
corridors, restrooms and other common or public areas or facilities,
maintenance and replacement of shrubs, trees, grass, sod and other landscaped
items, irrigation systems, drainage facilities, fences, awnings, curbs, and
walkways, re-paving and restriping parking facilities, and roof repairs.
Notwithstanding the foregoing, Operating Expenses shall not, however, include:
(I) depreciation, interest and amortization on Mortgages, and
other debt costs, legal fees in connection with new leases or
renewals, tenant disputes or enforcement of leases; real estate
brokers' leasing commissions; improvements or alterations to tenant
spaces, including tenant improvements made pursuant to a lease for a
new tenant;
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(ii) capital expenditures, except those: (a) made primarily to
reduce Operating Expenses, or to comply with any Laws or other
governmental requirements, or (b) for replacements (as opposed to
additions or new improvements) of nonstructural items located in the
common areas of the Property required to keep such areas in good
condition; provided, all such permitted capital expenditures
(together with reasonable financing charges) shall be amortized for
purposes of this Lease Agreement over the shorter of: (1) their
useful lives, (ii) the period during which the reasonably estimated
savings in Operating Expenses equals the expenditures.
(H) "Person" shall mean an individual, trust, partnership, joint
venture, association, limited liability company, corporation, and any other
entity.
(I) "Property" shall mean the Building, and any common or public
areas or facilities, easements, corridors, lobbies, sidewalks, loading areas,
driveways, landscaped areas, parking garages, and any and all other structures
or facilities operated or maintained in connection with or for the benefit of
the Building, and all parcels or tracts of land on which all or any portion of
the Building or any of the other foregoing items are located, and any fixtures,
machinery, equipment, apparatus, systems and equipment, furniture and other
personal property located thereon or therein and used in connection therewith,
whether title is held by Landlord or its affiliates. Possession of areas
necessary for utilities, services, safety and operation of the Property,
including the systems and equipment, fire stairways, perimeter walls, space
between the finished ceiling of the Premises and the slab of the floor or roof
of the Property above, and the use thereof together with the right to install,
maintain, operate, repair and replace the systems and equipment, including any
of the same in, through, under or above the Premises in locations that will not
materially interfere with Tenant's use of the Premises, are hereby excepted and
reserved by Landlord, and not demised to Tenant.
(J) "Rent" shall include all payments due Landlord by Tenant,
including but not limited to all Base Rent and Additional Rent as well as those
obligations set forth in Paragraphs 3, 4, 5, 13, 30 and 31.
(K) "Rentable Square Feet" is a good faith estimate of the space
occupied by Tenant, inclusive of the walls in and around the Premises as well
as Tenant's share of common areas and service areas within the Building.
(L) "Taxes" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including
without limitation, real estate taxes, general and special assessments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent including
gross receipts or sales taxes applicable to the receipt of rent or service or
value added taxes (except where such taxes are required to be paid by Tenant),
personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, systems, appurtenances, furniture and other personal property used
in connection with the Property which Landlord shall pay during any calendar
year, any portion of which occurs during the Term (without regard to any
different fiscal year used by such government or municipal authority) because
of or in direct connection with the ownership, leasing and operation of the
Property.
10. RENT PAYMENTS AND NOTICES: For the purpose of notice or demand, the
respective parties shall be served by certified or registered mail, return
receipt requested, in which event the notice or demand shall be deemed to have
been served upon Tenant when deposited in the United States mail and deemed to
have been served upon Landlord upon actual receipt by Landlord. Notwithstanding
the foregoing, "Three Day Notices" for non payment of rent may be served upon
Tenant by hand delivery to Tenant's Premises.
Notices to Tenant shall be sent to Tenant's Premises. Unless otherwise advised
in writing, rent payments and notices to Landlord shall be sent to Capital
Realty Services, Inc., 4601 Ponce de Leon Blvd., Suite 300, Coral Gables,
Florida 33146.
11. ORDINANCES AND REGULATIONS: The Tenant hereby covenants and agrees to
comply with all rules, regulations and laws of the City, County or State having
jurisdiction over the Premises, and with all ordinances and regulations of
governmental authorities wherein the Premises are located, at Tenant's sole
cost and expense.
12. SIGNS: The Tenant will not place any signs or other advertising manner or
material on the exterior or on the interior of the Premises or of the Building
in which the Premises are located, without the prior written consent of the
Landlord. Any lettering or signs shall be of a type, kind, character and
description to be approved in writing by Landlord.
13. MAINTENANCE AND SERVICES:
(A) Tenant shall at all times keep the Premises (including
maintenance of exterior entrances, all glass and all glass and show window
moldings) and all partitions, doors, fixtures, equipment and appurtenances
thereof (including lighting, heating plumbing, and plumbing fixtures,
electrical equipment and any air conditioning system) in good order, condition,
and repair (including reasonable periodic painting as determined by Landlord),
damage by unavoidable casually excepted, except for structural
4
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portions of the Premises, which shall be maintained by Landlord,
but if Landlord is required to make repairs to structural portions by reason of
Tenant's negligent act or omission to act, Landlord may add the cost of such
repairs to the rent as Additional Rent, which shall thereafter become due. It
is understood that the maintenance of all utility lines and appurtenances from
the Premises at the points at which such utility lines and appurtenances
serving only the Premises connect into main utility lines serving portions of
the Building other than the Premises are not for the purposes hereof, part of
the structural portions of the Building. Tenant shall keep the interior and
exterior of all doors and show windows clean and neat. In the event Tenant
fails to do so, Landlord may clean said doors and show windows and charge
Tenant for the cost thereof as Additional Rent.
(B) Tenant shall keep in force throughout the term of this Lease
Agreement, a maintenance contract written by an air conditioning maintenance
company approved by Landlord. Air conditioning equipment shall be maintained in
such a manner that any water emitted from said equipment shall not be permitted
to run onto the roof of the Building or onto the public areas adjacent to the
Building.
(C) Any structure supporting or enclosing any equipment serving the
Premises shall be maintained by Tenant.
(D) Tenant shall maintain the Premises and appurtenances thereto in
such condition to prevent damages, actual or consequential, to adjoining
buildings and tenants. Tenant shall be responsible for, and shall indemnity and
hold harmless the Landlord for any and all costs and expenses resulting from
such damage, actual or consequential, resulting from Tenant's failure to
properly maintain the Premises and appurtenances thereto.
(E) If Tenant fails, refuses or neglects to repair properly, the
Premises or appurtenances thereto, as required hereunder and to the reasonable
satisfaction of Landlord as soon as reasonably possible after written demand,
Landlord may make such repairs without liability to Tenant for any loss, or
damage that may occur to Tenant's merchandise, fixtures, or other property or
to Tenant's business by reason thereof, and upon completion thereof, Tenant
shall pay Landlord's costs for making such repairs plus twenty (20%) percent
for overhead, upon presentation of bill therefor, as Additional Rent. Said bill
shall include interest at eighteen (18%) percent on said cost from the date of
completion of repairs by Landlord. In the event that Landlord shall undertake
any maintenance or repair in the course of which it shall be determined that
such maintenance or repair work was made necessary by the negligence or willful
act of Tenant or any of its employees or agents or that the maintenance or
repair is, under the terms of this Lease Agreement, the responsibility of the
Tenant, Tenant shall pay Landlord's costs plus overhead and interest as above
provided.
(F) All garbage and refuse shall be kept in the kind of
container specified by Landlord, and shall be placed outside of the Premises
and prepared for collection in the manner and at the times and place specified
by Landlord. Tenant shall pay the cost of removal of any of Tenant's refuse or
rubbish. If Landlord shall provide or designate a service for picking up refuse
and garbage, Tenant shall use same at Tenant's cost. Failure of Tenant to pay
for waste removal when due shall be deemed a breach of this Lease Agreement.
(G) No radio or television or other similar device shall be installed
without first obtaining in each instance the Landlord's consent in writing. No
aerial shall be erected on the roof or exterior walls of the Building, or on
the Property, without the written consent of the Landlord. Any aerial so
installed without such written consent shall be subject to removal without
notice at any time.
(H) No loud speakers, televisions, audio equipment, radios or other
devices shall be used in a manner so as to be heard or seen outside of the
Premises without the prior written consent of the Landlord.
(I) The outside areas immediately adjoining the Premises shall be
kept clean and free from dirt and rubbish by the Tenant to the satisfaction of
the Landlord and Tenant shall not place or permit any obstruction or
merchandise in such areas.
(J) The plumbing facilities shall not be used for any other purpose
than that for which they are constructed, and no foreign substance of any kind
shall be thrown therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be borne by Tenant, who
shall, or whose employees, agents or invitees shall have caused it.
(K) Tenant shall keep the Premises free from nuisances, noises or
odors objectionable to the public, to other tenants or to the Landlord.
(L) Tenant shall pay the cost of water, gas, electricity, fuel,
light, heat, power, and all other utilities furnished to the Premises or used
by Tenant in connection therewith, whether such utility costs are determined by
separate metering or are billed by Landlord to Tenant as Additional Rent.
Tenant shall not install any equipment nor shall Tenant use the Premises in a
manner that will exceed or overload the capacity of any utility facilities. If
Tenant's use of the Premises shall require additional facilities, the same
shall be installed only after obtaining Landlord's prior written approval,
which may be withheld in Landlord's absolute discretion, and shall be installed
at Tenant's expense in accordance with the plans and specifications approved in
writing by Landlord. If
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Tenant's use and occupancy of the Premises results in an increase to Landlord
of any utilities expense or results in connection or tapin fees, changes for
increased usage or capacity, or assessments of any kind whatsoever, Tenant
shall pay the entire amount thereof within ten (10) days of Landlord's written
demand. In no event shall Landlord be liable for any interruption or failure in
the supply of utilities to the Premises.
(M) Tenant shall pay prior to delinquency all taxes, both real and
personal, assessed against or levied upon the leasehold and upon its fixture,
furnishings, equipment, leasehold improvements, and all other personal property
of any kind owned by or used in connection with the Premises by Tenant.
(N) Tenant shall provide for its own pest control services.
14. ALTERATIONS: Tenant, by occupancy hereunder, accepts the Premises as being
in good repair and condition. Tenant shall maintain the Premises in good repair
and condition, ordinary wear and tear excepted. Tenant shall not make or suffer
to be made any alterations, additions or improvements to or of the Premises
without the prior written consent of Landlord. In the event Landlord consents
to the proposed alterations, additions, or improvements, the same shall be
performed by licensed contractors at Tenant's sole cost and expense, and Tenant
shall hold Landlord harmless on account of the cost thereof. Any such
alterations shall be made at such times and in such manner as not to
unreasonably interfere with the occupation, use and enjoyment of the remainder
of the Building by the other tenants thereo(pound) If required by Landlord,
such alterations shall be removed by Tenant upon the termination or sooner
expiration of the term of this Lease Agreement and Tenant shall repair damage
to the Premises caused by such removal, all at Tenant's cost and expense.
Tenant accepts the premises "As Is" except Landlord agrees to pay for the
construction of Tenant Improvements, if any, as described in Exhibit "B". Any
costs incurred for improvements except those set forth in Exhibit "B" shall be
at Tenant's sole cost and expense.
15. USE AND POSSESSION: It is understood that the Premises are to be used only
for a restaurant and for no other purpose without prior written consent of
Landlord, determined by Landlord in its absolute discretion. The Tenant, at the
expiration of the term, shall deliver up the Premises in good repair and
condition, ordinary wear and tear excepted. The Landlord covenants and agrees
that Tenant on paying Rent and performing the covenants herein, shall and may
peaceably and quietly hold and enjoy the said Premises. If Landlord is unable
to give possession of the Premises to the Tenant on the date of commencement of
the term hereof, by reason of the holding over of possession of a prior tenant
or occupant, or for any similar reason, or if repairs, improvements or
decorations of the Premises have not been completed, Landlord shall not be
subject to any liability occasioned by such delay in the delivery of the
Premises and such delay shall not affect the validity of this Lease or the
obligations of the Tenant hereunder. In the event of such delay the rent shall
not start to accrue until possession of the Premises is tendered to the Tenant
and a pro rata abatement of the annual rent to be paid hereunder shall be
allowed Tenant and the expiration of this Lease Agreement shall be extended
to allow for the total months set forth in paragraph two (2) above.
16. LANDLORD'S RIGHT TO INSPECT AND DISPLAY: The Landlord shall have the right,
at reasonable times during the term of this Lease, to enter the Premises for
the purpose of examining or inspecting same and of making such repairs or
alterations or other modifications as the Landlord shall deem necessary. The
Landlord shall also have the right to enter the Premises at all reasonable
hours for the purpose of displaying said Premises to prospective Tenants within
180 days prior to the termination of this Lease Agreement.
17. DESTRUCTION OF PREMISES: (a) If the Premises are totally destroyed by fire
or other casualties, the Landlord or Tenant shall have the option of
terminating this Lease Agreement or any renewal thereof, upon giving written
notice at any time within 30 days from the date of such destruction, and if the
Lease Agreement be so terminated, all Rent shall cease as of the date of such
destruction and any prepaid rent shall be refunded by Landlord.
(b) If such Premises are partially damaged by fire or other casualty,
or totally destroyed hereby and the Landlord elects not to terminate this Lease
Agreement within the provisions of paragraph (a) above or (c) below, then the
Landlord agrees, at Landlord's sole cost and expense, to restore the Premises
to a kind and quality substantially similar to that which existed immediately
prior to such destruction or damage but limited to the Building's standard
finishes supplied by Landlord to tenants in the building. Said restoration
shall be commenced within a reasonable time and complied without delay on the
part of the Landlord and in any event shall be accomplished within 180 days
from the date of the fire or other casualty. In such case, all Rents paid in
advance shall be proportioned as of the date of damage or destruction and all
Rent thereafter accruing shall be equitably and proportionately suspended and
adjusted according to the nature and extent of the destruction or damage,
pending completion of rebuilding, restoration, or repair, except that in the
event the destruction or damage is so extensive as to make it unfeasible for
the Tenant to conduct Tenant's business on the Premises, the Rent shall be
completely abated until the Premises are restored by the Landlord or until the
Tenant resumes use and occupancy of the Premises, whichever shall first occur.
The Landlord shall not be liable for any inconvenience or interruption of
business of the Tenant occasioned by fire or other casualty.
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(c) If the Landlord undertakes to restore, rebuild or repair the
Premises, and such restoration, rebuilding or repair is not accomplished within
180 days, and such failure does not result from causes beyond the control of
Landlord, the Tenant shall have the right to terminate this Lease Agreement by
written notice to the Landlord within 30 days after expiration of said 180
days.
(d) Landlord shall not be required to carry fire, casualty or
extended damage insurance on the personal property of the Tenant or
any personal property which may now or hereafter be placed in the Premises, nor
shall Landlord have any liability for losses incurred by Tenant regarding same.
18. CONDEMNATION: If during the term of this Lease or any renewal thereof, if
any, the whole of the Premises, or such portion thereof as will make the
Premises unusable for its purpose shall, be condemned by public authority for
public use, then, in either event, the term hereby granted shall cease and come
to an end as of the date of the vesting of title in such public authority, or
when possession is given to such public authority, whichever event last occurs.
Upon such occurrence, the rent shall be proportioned as of such date and any
prepaid rent shall be resumed to the Tenant. The Landlord shall be entitled to
the entire ward for such taking. If a portion of the Premises is taken or
condemned by public authority for public use so as not to make the remaining
portion of the Premises unusable for its purposes, this Lease Agreement will
not be terminated, but shall continue. In such case, the Rent shall be
equitably and fairly reduced or abated for the remainder of the term in
proportion to the amount of the Premises taken. In no event shall the Landlord
be liable to the Tenant for any business interruption, diminution in use or for
the value of any unexpired term of this Lease Agreement. Nothing contained
herein shall prohibit the Tenant from having its own right to apply for any
entitlement or separate award from the condemning authority, provided that same
does not reduce the award to Landlord.
19. ASSIGNMENT AND SUBLETTING: (A) Tenant shall not, without the prior written
consent of Landlord: (1) assign, mortgage, pledge, hypothecate, encumber, or
permit any lien to attach to, or otherwise transfer, this Lease Agreement or
any interest hereunder, by operation of law or other`vise, (ii) sublet the
Premises or any part thereof, or (iii) permit the use of the Premises by any
Persons other than Tenant and its employees (all of the foregoing are
hereinafter sometimes referred to collectively as "Transfers" and any Person to
whom any Transfer is made or sought to be made is hereinafter sometimes
referred to as a "Transferee"). If Tenant shall desire Landlord's consent to
any Transfer, Tenant shall notify Landlord in writing, which notice shall
include: (a) the proposed effective date (which shall not be less than 30 nor
more than 180 days after Tenant's notice), (b) the portion of the Premises to
be Transferred (herein called the "Subject Space"), (c) the terms of the
proposed transfer and the consideration therefor, the name and address of the
proposed Transferee, and a copy of all documentation pertaining to the proposed
Transfer, and (d) current financial statements of the proposed Transferee
certified by an officer, partner or owner thereof, and any other information to
enable Landlord to determine the financial responsibility, character, and
reputation of the proposed Transferee, the nature of such Transferee's business
and proposed use of the Subject Space, and such other information as Landlord
may reasonably require. Any Transfer made without complying with this article
shall, at Landlord's option, be null, void and of no effect, or shall
constitute a default under this Lease Agreement. Whether or not
Landlord shall grant consent, Tenant shall pay all reasonable legal fees
incurred by Landlord, within 30 days after written request by Landlord.
(B) Landlord will not unreasonably withhold its consent to any
proposed Transfer of the Subject Space to the Transferee on the terms specified
in Tenant's notice. The parties hereby agree that it shall be reasonable under
this Lease Agreement and under any applicable Law for Landlord to withhold
consent to any proposed Transfer where one or more of the following applies
(without limitation as to other reasonable grounds for withholding consent):
(1) the Transferee is of a character or reputation or engaged in a business
which is not consistent with the quality of the Property, (ii) the Transferee
intends to use the Subject Space for purposes which arc not permitted under
this Lease, (iii) the Subject Space is not regular in shape with appropriate
means of ingress and egress suitable for normal renting purposes, (iv) the
Transferee is either a governmental agency or instrumentality thereof, (v) the
Transferee is an existing Tenant or an occupant of the Property, (vi) the
proposed Transferee does not have a reasonable financial condition in relation
to the obligations to be assumed in connection with the Transfer, or (vii)
Tenant has committed and failed to cure a Default at the time Tenant requests
consent to the proposed Transfer.
(C) If Landlord consents to a Transfer, Tenant shall pay to Landlord
as Additional Rent, fifty percent (50%) of any Transfer Premium received by
Tenant from such Transfer. "Transfer Premium" shall mean all Rent, Additional
Rent or other consideration paid by such Transferee in excess of the Rent
payable by Tenant under this Lease (on a monthly basis during the Term, and on
a per rentable square foot basis, if less than all of the Premises is
transferred), after deducting the reasonable expenses incurred by Tenant for
any changes, alterations and improvements to the Premises, any other economic
concessions or services provided to the Transferee, and any customary brokerage
commissions paid in connection with the Transfer. If part of the consideration
for such Transfer shall be payable other than in cash, Landlord's share of such
non cash consideration shall be in such form as is reasonably satisfactory to
Landlord. The percentage of the Transfer Premium due Landlord hereunder shall
be paid within 10 days after Tenant receives any Transfer Premium from the
Transferee.
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(D) Notwithstanding anything to the contrary contained in this
Article, Landlord shall have the option, by giving written notice to Tenant
within 30 days following receipt of Tenant's notice of any proposed Transfer,
to recapture the Subject Space. Such recapture notice shall cancel and
terminate this Lease Agreement with respect to the Subject Space as of the date
stated in Tenant's notice as the effective date of the proposed Transfer (or at
Landlord's option, shall cause the Transfer to be made to Landlord or its
agent, in which case the parties shall execute the Transfer documentation
promptly thereafter).
(E) Landlord also reserves the right to elect to step into the
position of the Tenant in connection with any proposed assignment or sublease.
20. HOLDOVER: If the Tenant, any assignee or subtenant shall continue to occupy
the Premises after the termination of this Lease, without prior written consent
of the Landlord, such tenancy shall be a Tenancy at Sufferance. Acceptance by
the Landlord of rent after such termination shall not constitute a renewal of
this Lease Agreement or a consent to such occupancy, nor shall it waive
Landlord's right of reentry or any other right contained herein. Rent during
this holdover period shall be in an amount two times that of all Base Rent plus
Additional Rent due under the Lease and will be payable on the first day of
each month.
21. INDEMNIFICATION AND SUBROGATION: The Landlord shall not be liable for any
damage or injury to any person or property whether it be the person or property
of the Tenant or the Tenant's employees, agents, guests, invitees or any other
persons whomsoever by reason of Tenant's occupancy of the Premises or because
of fire, flood, windstorm, Acts of God or for any other reason. The Tenant
agrees to indemnify, defend and save harmless the Landlord from and against any
and all loss, damage, claim, demand, liability or expense by reason of injury
or death of any person or damage to or loss of property which may arise or be
claimed to have arisen as a result of the occupancy or use of said Premises by
the Tenant or by reason thereof, or in connection therewith, or in any way
arising on account of any injury or damage caused to any person or property on
or in the Premises, providing however, that Tenant shall not indemnify as to
the loss or damage due to gross negligence or intentional misconduct of
Landlord, its agents, employees, or contractors. If Tenant's use of the
Premises causes Landlord's insurance premium(s) for the Building to be
increased, the Tenant agrees to pay, as Additional Rent, the entire cost of
such increase, plus any applicable sales or use taxes.
The Tenant hereby waives on behalf of each and every insurer under any
insurance policies relating to the Premises or the Building in which the
Premises is located, or related to the contents thereof, or any personal
property of the Tenant, all of Tenant's rights of recovery from or claims
against Landlord, its employees, agents, and agent's employees, by means of any
loss, damage or injury to said contents, leasehold improvements or personal
property whether by way of subrogation, assignment of claims or otherwise.
22. DEFAULT: In the event the Tenant shall default in the payment of Rent or
any other sums payable by the Tenant herein, and such default shall continue
for a period of three (3) days after receipt of written notice thereof, or, if
the Tenant shall default in the performance of any other covenants or
agreements of this Lease Agreement and such default shall continue for seven
(7) days after written notice thereof, or if the Tenant should become bankrupt
or any debtor proceedings be taken by or against the Tenant, then, and in
addition to any and all other legal remedies and rights the Landlord may have,
the Landlord may declare the entire balance of the rent for the remainder of
the term to be due and payable and may collect the same by distress or
otherwise. The Tenant covenants and agrees to pay any deficiency after Tenant
is credited with the Rent thereby obtained, less all repairs and expenses
(including the expenses of obtaining possession and of reletting the Premises).
The Landlord may resort to any two or more of such remedies or rights, and
adoption of one or more of such remedies or rights shall not necessarily
prevent the enforcement of others concurrently or thereafter.
23. SUCCESSORS AND ASSIGNS: This Lease Agreement shall bind and inure to the
benefit of the successors, permitted assigns, heirs, executors, administrators
and legal representatives of the parties hereto.
24. NON-WAIVER: No waiver of any covenant or condition of this Lease Agreement
by either party shall be deemed to imply or constitute a further waiver of the
same covenant or condition or any other covenant or condition of this Lease
Agreement.
25. RIGHTS RESERVED BY LANDLORD: Except to the extent expressly limited herein,
Landlord reserves full rights to control the Property (which rights may be
exercised without subjecting Landlord to claims for constructive eviction,
abatement of Rent, damages or other claims of any kind), including more
particularly, but without limitation, the following rights:
(A) To change the name and/or street address of the Property or to
install and maintain signs on the exterior and interior of the Property.
(B) To enter the Premises at reasonable hours for reasonable
purposes, including for inspection and/or supplying cleaning service or other
services to be provided Tenant hereunder, to show the Premises to current and
prospective mortgage lenders, insurers, and prospective purchasers, tenants or
brokers. In the event that Tenant shall abandon or vacate the Premises at any
time, or shall
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vacate the same during the last three (3) months of the Term, Landlord may
enter to decorate, remodel, repair, or alter the Premises without being liable
for trespass.
(C) In case of fire, accident disaster, civil disorder, public
excitement or any other dangerous condition, or threat thereof to limit or
prevent access to the Property, shut down elevator service, activate elevator
emergency controls, or otherwise take such action or preventative measures
deemed necessary by Landlord for the safety of Tenants or other occupants of
the Property or the protection of the Property and other property located
thereon or therein.
(D) To decorate and to make alterations, additions and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street or alley
(including without limitation changes and/or reductions in corridors, lobbies,
parking facilities and other public areas and the installation of planters,
sculptures, displays, mezzanines, stairwells, and other structures, facilities,
amenities and features therein, and changes for the purpose of connection with
or entrance into or use of the Property in conjunction with any adjoining or
adjacent building or buildings, now existing or hereafter constructed). In
connection with such matters, or with any other repairs, maintenance,
improvements or alterations, in or about the Property, Landlord may erect
scaffolding and other structures reasonably required, and during such
operations may enter upon the Premises and take into and upon or through the
Premises, all materials required to make such repairs, maintenance, alterations
or improvements, and may close public entry ways, other public areas,
restrooms, stairways or corridors.
(E)
(F) In the event that any check, bank draft or negotiable instrument
given for any money payment hereunder, shall be dishonored at any time and from
time to time. for any reason whatsoever not attributable to Landlord, Landlord
shall be entitled. in addition to any other remedy that may be available, to
collect an administrative charge of $50.00 from Tenant. In the event payments
from Tenant are dishonored more than once during the lease term, Landlord may
require that payment from Tenant be made by certified check.
26. RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a Building in sufficient quantities, may provide health risks to
persons who are exposed to it over time. Levels of Radon that exceed Federal
and State guidelines have been found in buildings in Florida. Additional
information regarding Radon and Radon testing may be obtained from your County
Public Health Unit.
27. SUBORDINATION. ESTOPPEL CERTIFICATES, AND ATTORNMENT: This Lease Agreement
and the rights of the Tenant shall be and are subject to and subordinate at all
times to the lien of any ]cases and mortgages which may now or hereafter affect
the Property. The Tenant shall, within five (5) days of Landlord's request,
execute any estoppel certificate and subordination documents which Landlord may
deem necessary and/or any modification of this Lease Agreement that might be
required by any entity that may become a mortgagee as to the Property. Tenant
also agrees that if it shall fail at any time to execute, acknowledge or
deliver any such instrument or document requested by Landlord, Landlord may, in
addition to any other remedies available to it, execute, acknowledge and
deliver such instrument as the attorney-in-fact of Tenant and in the Tenant's
name; and Tenant hereby makes constitutes and irrevocably appoints Landlord as
it's attorney-in-fact for that purpose. Tenant agrees that any such estoppel
certificate or subordination documents may be relied upon by a prospective
purchaser or mortgagee of the Property.
In the event any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale under any mortgage made by Landlord, or
Landlord's predecessor(s) in title, covering the Premises, or, in the event a
deed is given in lieu of foreclosure of any such mortgage, or upon the
assignment of this Lease Agreement by Landlord, Tenant shall attorn to the
purchaser or grantee in lieu of foreclosure, upon any such foreclosure or sale,
and recognize such purchaser or grantee in lieu of foreclosure as Lessor under
this Lease Agreement. Such Landlord, mortgagee or purchaser at said foreclosure
sale, shall not be (i) liable for any act or omission of any prior Landlord,
(ii) subject to any offsets or defenses which Tenant may have against any prior
Landlord, or (iii) bound by any prepaid Rent or Security Deposit, which Tenant
may have paid to any prior Landlord for more than the current month.
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28. CHANGES TO THE BUILDING: Tenant shall not be required to pay for any costs
necessary for the Building to comply with any laus, orders, or regulations
which require structural changes or improvements relating to the structural
components of the Premises or common areas of the Building, except as may be
required as a result of Tenant's use permitted hereunder. However, Tenant shall
be solely responsible for the costs of its failure to comply with any such laws
or regulations in connection with its Tenant improvements or Premises. Landlord
may take a portion of Tenant's Premises and adjust the Base Rent on a pro-rata
basis if Landlord is required by laws, orders or regulations which necessitates
the taking to make required structural changes or improvements.
29. INSURANCE: Tenant shall, at Tenant's expense, procure and maintain
throughout the Term of this Lease a policy or policies of comprehensive public
liability insurance, contractual liability insurance, and property damage
insurance, issued by insurers of recognized responsibility, authorized to do
business in the State in which the Building is located, insuring Tenant and
Landlord, with Landlord specified as an additional insured, against any and all
liability for injury to or death of a person or persons, occasioned by or
arising out of or in connection with the use or occupancy of the Premises. The
limits of such policy or policies shall be in an amount of not less than
$1,000,000 combined single limit with respect to any one occurrence, and shall
furnish a certificate satisfactory to Landlord of the maintenance of such
insurance. Tenant shall obtain a written obligation on the part of each insurer
to notify Landlord at least 45 days prior to modification or cancellation of
such insurance. In the event Tenant shall not have delivered to Landlord a
certificate evidencing such insurance at least ten (10) days prior to the
Commencement Date and at least 45 days prior to the expiration dates of each
expiring policy, Landlord may obtain such insurance as Landlord may reasonably
require to protect Landlord's interest. The cost for such policies shall be
paid by Tenant to Landlord as Additional Rental upon demand, together with an
administrative charge of twenty percent (20%) of such cost.
30. PLATE GLASS INSURANCE: Tenant shall, during the entire term hereof, keep in
full force and effect a policy of plate glass insurance covering all the plate
glass of the Premises. The policy shall name Landlord and any person, firm or
corporation designated by Landlord and Tenant as insured and shall contain a
clause that the insured will not cancel or materially change the insurance
without first giving the Landlord ten (10) days prior to written notice. The
insurance shall be written by an insurance company approved by the Landlord and
a copy of the policy or a certificate of insurance shall be delivered to
Landlord. The replacement of any plate glass damaged or broken from any cause
whatsoever in and about the Premises shall be Tenant's responsibility and
expense.
31. COVENANTS AGAINST LIENS: Notwithstanding any other provisions of this Lease
Agreement, Landlord and Tenant expressly acknowledge and agree that the
interest of Landlord in and to the Property and Building, or any part,
including without limitation, the Premises, shall not be subject to liens for
any work, labor, services performed or materials supplied, or claimed to have
been performed or supplied, or any other lien cognizable under Chapter 713,
Florida statutes (collectively herein "Liens"), by Tenant, or Tenant's
Contractors, subcontractors, laborers and material suppliers supplying labor
and/or material for the Premises (collectively herein "Contractors"). Upon the
execution of this Lease Agreement, Tenant acknowledges that Landlord, at
Landlord's sole option and cost, may then or thereafter record among the Public
Records in the county in which the Building is located, this Lease Agreement or
short form thereof (or such other memorandum in form and substance satisfactory
to Landlord, in Landlord's sole discretion) for the purpose of insulating the
interest of Landlord from any and all such Contractor's Liens, without
mitigating or otherwise affecting any other provisions of this Lease Agreement.
Tenant hereby acknowledges that Landlord shall further be permitted to do or
perform any act necessary or appropriate, in Landlord's sole discretion, to
prevent the filing of any Lien against the Premises or any part thereof. In
addition to the foregoing and not in lieu thereof, Tenant shall do all things
necessary to prevent the filing of any Liens against the Premises or the
interest of Landlord or the interest of any mortgages or holders of any deed of
trust covering the Premises or any ground or underlying lessors therein, if
any, by reasons of any work, labor, services, or materials performed or
supplied or claimed to have been performed or supplied to Tenant or anyone
holding the Premises, or any part thereof, by, through, or under Tenant. If any
such Lien shall at any time be filed, Tenant shall cause the same to be vacated
and canceled of record within thirty (30) days after the date of the filing
thereof. If any such Lien shall be filed notwithstanding the provisions of this
subparagraph, then, in addition to any other right or remedy of Landlord
resulting from Tenant's default, occasioned by such filing, Landlord may, but
shall not be obligated to, contest such Lien or vacate or release the same
either by paying the amount claimed to be duc or by procuring the release of
such Lien by giving security or in such other manner as may be prescribed by
law. Tenant shall repay to Landlord, as Additional Rent hereunder on demand,
all sums disbursed or deposited by Landlord pursuant to the foregoing
provisions of this paragraph, including Landlord's costs and expenses,
including an administrative charge of twenty percent (20%) of such sum, and
attorneys' fees incurred in connection therewith. Nothing contained herein
shall imply a consent or agreement on the part of Landlord or mortgagees or
holders of deeds of trust or any ground or underlying lessors, if any, of the
Premises to subject their respective estates or interests to liability under
any mechanics' or other lien law, whether or not the performance or the
furnishing of such work, labor, services, or materials to Tenant or anyone
holding the Premises, or any part thereof, by, through or under Tenant shall
have been consented to by Landlord and/or any of such other parties.
32. LANDLORD'S LIEN: In addition to the statutory Landlord's Lien, Landlord
shall have at all times a valid security interest to secure payment of all Rent
and other sums of money becoming due hereunder from Tenant and to secure
payment of any damages or loss which Landlord may suffer by reason of the
breach by Tenant of any covenant agreement or condition contained herein. Such
security interests shall be upon all goods, wares, equipment, fixtures,
furniture, improvements and other personal property of Tenant
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presently located in, or which may hereafter be situated in the Premises, and
all proceeds therefrom, and such property shall not be removed therefrom
without the consent of Landlord until all arrearage in rental as well as any
and all other sums of money then due to Landlord hereunder shall first have
been paid and discharged and all the covenants, agreements and conditions
hereof have been fully complied with and performed by Tenant. Tenant agrees and
acknowledges that this Lease Agreement also serves as a security agreement
under Chapter 679 of the Florida Statutes (Article 9 of the Uniform Commercial
Code) to impose a lien upon the Lien Property to secure the payment of all
rentals, charges and other sums to be paid by Tenant and reserved hereunder and
Tenant agrees to execute, acknowledge and deliver to Landlord such financing
statements and other instruments as Landlord may request in order to
commemorate the foregoing within ten (10) days after Landlord's request
therefore. Upon the occurrence of an event of default by Tenant, Landlord may,
to the extent permitted by law and in addition to any other remedies provided
herein, enter upon the Premises and possession of any and all goods, wares,
equipment, fixtures, furniture, improvements and other personal property of
Tenant situated in the Premises, without liability for trespass or conversion,
and sell the same at public or private sale, with or without having such
property at the sale, after giving Tenant reasonable notice of the time and
place of any Public sale or of the time after which any private sale is to be
made, at which sale Landlord or Landlord's assigns may purchase such property,
unless otherwise prohibited by law. Unless otherwise provided by law, and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice is
given in the manner prescribed in this Lease Agreement at least ten (10) days
prior to the time of sale. Any sale made pursuant to the provisions of this
paragraph shall be deemed to have been a public sale conducted in a
commercially reasonable manner if held in the Premises or wherever else the
property may be located, after the time, place and method of sale and a general
description of the types of property to be sold, have been advertised in a
daily newspaper published in the county in which the Building is located, for
five (5) consecutive days before the date of the sale. The proceeds from any
such disposition, less any and all expenses connected with the taking of
possession, holding and selling of the property (including reasonable
attorneys' fees) shall be applied as a credit against the indebtedness secured
by the security interest granted in this paragraph. Any surplus shall be paid
to Tenant as otherwise required by law or Tenant shall pay any deficiencies
forthwith to the Landlord.
33. LANDLORD'S EXCULPATION: The liability of Landlord to Tenant for any default
by Landlord under the terms of this Lease Agreement shall be limited to the
proceeds of sale on execution of the interest of Landlord in the Building and
neither Landlord, nor any party comprising Landlord, shall be personally liable
for any deficiency.
34. BROKERAGE: Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction and that no broker,
agent or other person brought about this transaction, other than Capital Realty
Services. Inc., and Tenant agrees to indemnify and hold Landlord harmless from
and against any claims by any other broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with Tenant
with regard to this leasing transaction. At all times material hereto, Capital
Realty Services, Inc. was acting as Landlord's Agent. Capital has a fiduciary
duty of loyalty, confidentiality, obedience, full disclosure, accounting and
the duty to use skill, care and diligence on behalf of the Landlord. Capital
owed a duty of honesty and fair dealing to Landlord and Tenant. The provisions
of this Paragraph shall survive the termination of this Lease Agreement.
35. MISCELLANEOUS: (A) In all instances where Tenant is required to pay any sum
or do any act at a particular indicated time or within an indicated period, it
is understood that time is of the essence.
(B) Under no circumstances whatsoever, shall Landlord ever by liable
hereunder for consequential damages or special damages.
(C) Whenever a period of time is herein prescribed for action to be
taken by Landlord, Landlord shall not be liable or responsible for, and there
shall be excluded from the computation for any such period of time, delays due
to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, or any other causes of any kind
whatsoever which are beyond the reasonable control of Landlord.
(D) Tenant shall not record this Lease Agreement or a memorandum
thereof, without Landlord's prior written consent.
(E) Unless specifically set forth to the contrary, Landlord and
Tenant are to act in a reasonable manner and in good faith as to one another.
(F) Landlord may institute reasonable rules and regulations and
modify or amend such rules and regulations at any time.
36. PREVAILING PARTY: It is understood and agreed between Landlord and Tenant
that in the event of any litigation resulting out of the terms and conditions
outlined in this Lease Agreement, that the prevailing party shall be entitled
to recover all reasonable attorneys' fees and court costs up to and including
the appellate level. Landlord and Tenant acknowledge that the exclusive venue
for any and all court actions arising from this Lease Agreement shall be the
appropriate court in the county within which the
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Property is located.
37. WAIVER OF JURY TRIAL: LANDLORD AND TENANT WAIVE THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER
OF THIS LEASE AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR
ANY PERSON ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS
EFFECT. TENANT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
EFFECT OF THIS WAIVER PROVISION.
IN WITNESS WHEREOF, Tenant and Landlord have caused this instrument to be
executed by their respective officers or parties, "hereunto duly authorized.
Prairie Foods Corporation
("Tenant")
Witnesses:
By:
-------------------------
Title:
----------------------
FMS South Beach, L.C.
("Landlord")
Witnesses:
By:
-------------------------
Title:
----------------------
GUARANTY
In consideration of the execution of this Lease Agreement by Landlord, the
undersigned hereby guarantees to Landlord, jointly and severally, its
successors and assigns, the full payment, performance and observance of all the
covenants, conditions, obligations, and agreements therein provided to be
performed and observed by the Tenant. Neither the failure of the Landlord to
enforce its rights against the Tenant nor the making of concessions by the
Landlord to the Tenant shall affect the liability hereunder, nor the
Guarantor's obligation to make payment in accordance with the terms of this
Guaranty, and any remedy for the enforcement of this Guaranty shall not be
impaired or released whatsoever by an impairment, modification, change, release
or limitation of the liability of the Tenant, its Estate in Bankruptcy or of
any remedy for the enforcement thereof, resulting from the operation of any
present or future provision of the National Bankruptcy Act or other statute, or
from the decision of any court. The undersigned waives notice of any breach or
default by Tenant under the Lease Agreement and any and all notices and
demands.
--------------------------
Guarantor
--------------------------
Guarantor
12
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EXHIBIT A
Floor plan showing Premises cross hatched
[Picture of map]
13
<PAGE>
EXHIBIT "B"
TENANT IMPROVEMENTS
1. Landlord, at Landlord's sole cost and expense, shall make the
following alteration to the Premises:
None, Tenant takes possession of the Premises "As Is".
14
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EXHIBIT "C"
RULES & REGULATIONS
1. DEFINITIONS: Wherever in these Rules and Regulations the word
"Tenant" is used, it shall be taken to apply to and include the Tenant and its
agents, employees, invitees, licensees, subtenants, and contractors, and is to
be deemed of such number and gender as the circumstances require. The words
"Room" and "Premises" are to be taken to mean and include the space covered by
this Lease. The word "Landlord" shall be taken to include the employees and
agents of Landlord.
2. OPERATIONS: The streets, sidewalks, entrances, halls, passages,
elevators, stairways, and other common area provided by Landlord shall not be
obstructed by Tenant, or used by him for any purpose other than for ingress and
egress.
3. WASHROOMS: Toilet rooms, water closets, and other water apparatus
shall not be used for any purpose other than those for which they were
constructed.
4. INSURANCE REGULATIONS: Tenant shall not do anything in the
Premises, or bring or keep anything therein, which will in any way increase or
tend to increase the risk of fire or the rate of fire insurance, or which will
conflict with the regulations of the Fire Department or the Fire laws, or with
the rules and regulations of the Fire Insurance Rating Organization, or any
equivalent body.
5. GENERAL PROHIBITIONS: In order to ensure proper use and
care of the Premises, Tenant shall not:
a. Keep animals or birds in the Premises.
b. Use the Premises or any rooms therein as sleeping apartments.
c. Allow any sign, advertisement, or notice to be affixed to the
Building, inside or outside, without the Landlord's prior written consent.
d. Make improper noises or disturbances of any kind; sing, play or
operate any musical instrument, radio or televisions ("whereby the sound
extends outside of the Premises"), without consent of Landlord: or othenvise do
anything to disturb other Tenants or tend to injure the reputation of the
Building.
e. Mark or deface elevators, water closets, toilet rooms, walls,
windows, doors, or any other part of the Building.
f. Place anything on the outside of the Building, including roof
setbacks, window ledges, and other projections, or drop anything from the
windows, stairways, or parapets or place trash or other matter in the halls,
stairways, elevators, or light wells of the Building.
g. Install any shades, blinds, or awnings, except Building standard
window coverings, without consent of landlord.
h. Interfere with the heating or cooling systems or apparatus.
k. Install any medical waste or other disposal or package delivery
units on the exterior of the Premises or the building without Landlord's prior
written approval.
l. Use any electric heating device without consent of Landlord.
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m. Install call boxes, or any kind of wire in or on the Premises or
the Building without Landlord's permission and direction.
n. Manufacture any commodity, or prepare or dispense any foods or
beverages, whether by vending or dispensing machines or otherwise, or alcoholic
beverages, tobacco, drugs, flowers, or other commodities or articles without
the written consent of Landlord except for consumption by the Tenant.
o. Secure duplicate keys for rooms or toilets, except from Landlord,
or change the locks of any doors to or in the Premises. Landlord shall have
access, however, to the Premises dunging all reasonable times and emergency
situations.
p. Give its employees or other persons permission to go upon
the roof of the Building without the prior written consent of Landlord.
q. Place door mats in public corridors without the consent of
Landlord.
r. Use elevators for freight during normal business hours as defined
in the Lease or otherwise move furniture, fixtures or equipment into or out of
the building, except during those times which have been approved in advance by
Landlord.
s. Use, store, and dispose of toxic or dangerous substances.
t. Allow cigarette, cigar or pipe smoking in the lobby, elevator,
halls, stairwells or other common areas within the building
6. BUSINESS MACHINES: Business machines and mechanical equipment
which cause vibration, noise, cold or heat that may be transmitted to the
Building structure, or to any lcased space outside the Premises shall be placed
and maintained by Tenant, at its sole cost and expcnsc, in settings of cork
rubber, or spring type vibration eliminators suffcient to absorb and prevent
such vibration, noise, cold or heat. No business machines or mechanical
equipment which exceed the existing floor load capacity or require unusually
high amounts of electricity shall be used or installed in the Premises without
Landlord's prior written consent.
7. PUBLIC ENTRANCE: Landlord reserves the right to exclude the
general public from the Building upon such days and at such hours as in
Landlord's judgment will be for the best interest of the Building and its
Tenants.
8. REGULATION CHANGE: Landlord shall have the right to make such
additional rules and regulations as in the judgment of Landlord may from time
to time be needed for the safety, appearance, care, and cleanliness of the
Building and for the preservation of good order therein; Landlord shall not be
responsible to Tenant for violation of any rules and regulations by other
Tenants.
9. CERTAIN RIGHTS RESERVED TO LANDLORD: The Landlord
reserves the following rights:
a. To name or change the name of the Building and to change the
street address of the Building.
b. To install and maintain a sign or signs on the exterior
or interior of the Building.
--------------------
Tenant (initial)
--------------------
Landlord (initial)
16
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EXHIBIT D
LEASE AGREEMENT ADDENDUM
Except as amended and modified by this Addendum, all of the terms,
covenants, and conditions of the Lease Agreement shall remain in full force and
effect. In the event of any conflict between the provisions of the Lease
Agreement and the provisions of this Addendum, this Addendum shall control.
1. Upon execution of this Lease Agreement of November 1, 1997, all prior
leases, contracts or agreements between Landlord and Tenant are null and void,
except Tenant will pay December 1997 rent in accordance with past practices
between the parties.
2. OPTION TO EXTEND: Provided Tenant is not in default of this Lease Agreement,
Tenant may extend the lease term for two five year terms. In order to exercise
an addidonal five year term, Tenant must provide Landlord with written notice
of extension no later than March 30, 2001 to extend the original term and no
later than March 30, 2006 to exercise the second option term. If Tenant does
not exercise the fust opHon term by March 30, 2001 the second option term will
be void. Upon any extension of this Lease Agreement all terms and conditions
will remain in effect, including but not limited to the rental increases set
forth in Paragraph 4 of the Lease Agreement.
IN WITNESS WHEREOF, Tenant and Landlord have caused this instrument to be
executed by their respective of ficers or parties, thereunto duly authorized.
Prairie Foods Corporation
("Tenant")
Witnesses:
- ------------------------- By:
------------------------
- ------------------------- Title:
---------------------
FMS South Beach, L.L.C.
("Landlord")
Witnesses:
- ------------------------- By:
------------------------
- ------------------------- Title:
---------------------
17
<PAGE>
BUSINESS PROPERTY LEASE
THIS LEASE, executed this 25 day of March, 1997 between WASHINGTON
GARDENS, INC., a Florida corporation ("Lessor") and BEGARE ENTERPRISES, INC. a
Florida corporation ("Lessee").
WITNESSETH: The Lessor, for and in consideration of the rent herein
reserved to be paid by the Lessee, and in consideration of the covenants herein
to be kept and performed by the Lessee, does hereby lease and demise unto the
Lessee the following described premises (the "premises") situated in the City
of Miami Beach, County of Dade, State of Florida:
1505 Washington Avenue
Miami Beach, Florida 33139
TO HAVE AND TO HOLD the premises unto the Lessee, from the 1st day of April,
1997, to and including the 31st day of March, 2007, the Lessee yielding and
paying to the Lessor the following rental:
A. There is no rent due for the months of April and May,
1997.
B. $2,000 plus $130 sales tax simultaneously herewith
representing the rent for the month of June, 1997 receipt of
which is acknowledged by Lessor.
C. $2,000 on July 1, 1997 and $2,000 on the first day of each
month thereafter up to and including March 1, 1998.
D. $2,080 on April 1, 1998 and $2,080 on the first day of each
month thereafter up to an including March 1, 1999.
E. $2,163.20 on April 1, 1999 and $2,163.20 on the first day
of each month thereafter up to an including March 1,
2000.
F. $2,249.73 on April 1, 2000 and $2,249.73 on the first day
of each month thereafter up to an including March 1,
2001.
G. $2,339.72 on April 1, 2001 and $2,339.72 on the first day
of each month thereafter up to an including March 1,
2002.
H. $2,433.31 on April 1, 2002 and $2,433.31 on the first day
of each month thereafter up to an including March 1,
2003.
I. $2,530.46 on April 1, 2003 and $2,530.46 on the first day
of each month thereafter up to an including March 1,
2004.
J. $2,631.68 on April 1, 2004 and $2,631.68 on the first day
of each month thereafter up to an including March 1,
2005.
K. $2,736.95 on April 1, 2005 and $2,736.95 on the first day
of each month thereafter up to an including March 1,
2006.
L. $2,846.43 on April 1, 2006 and $2, 846.43 on the first
day of each month thereafter up to an including March 1,
2007.
Lessee shall also pay, as additional rent, all sales or use or excise
tax imposed, levied or assessed against the rent or any other charge or payment
required hereby any governmental authority
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having jurisdiction thereover, even though the taxing statute or ordinance may
purport to impose such sales tax against the Lessor. The payment of sales tax
shall be made by Lessee on a monthly basis, concurrently with payment of the
fixed minimum annual rental.
The Lessee agrees to keep, conform to and abide by each of the
following covenants which are hereby made conditions of this Lease:
1. To pay the rent set forth herein in advance, at the times and in
the manner aforesaid, and should the rent herein provided at any time remain
unpaid after same shall become due, the Lessor shall have such remedies as may
be granted pursuant to the laws of the State of Florida. All rent payments
shall be made to the Lessor at the office of the Lessor, located at 1228 Alton
Road, Miami Beach, Florida 33139 or at such other place as the Lessor may, from
time to time, designate in writing. In addition, Lessee agrees to pay a late
charge of five (5%) percent of the amount of any rental payment or other
monetary payment due hereunder which is not paid within five (5) days after its
due date.
2. To pay all charges for electricity and other illuminent and power
and water and sewage used upon and in connection with the premises, not more
than ten (10) days after the same shall become due and payable. To pay Lessee's
Proportionate Share of cost of garbage collection used upon and in connection
with the building of which the premises is a part ("Building") simultaneously
with and on the dates rental payments are due and payable. "Lessee's
Proportionate Share" as used herein means 20%. Lessee may elect to arrange for
its own garbage and trash collection and to pay for it independent of the other
tenants in the Building. In such event Lessee will not be required to pay its
proportionate share of the cost of garbage collection.
3. Not to assign the Lessee's interest in this Lease, nor underlet
the whole or any part of the premises, nor to use the same for any purpose
other than the sale of food and beverage without first having obtained the
written consent to such assignment or underletting, or to such change of
purpose for the use of the premises, from the Lessor, and the Lessee further
covenants that the premises will not be used for (i) any purpose that will
invalidate any policies of insurance now or hereafter written on the building
on which the premises are located, or will increase the rate of premium thereof
(ii) a grocery store or (iii) a bakery. Lessor agrees that it will not
unreasonably withhold or delay its consent to any of the matters set forth in
this paragraph 3.
4. To use the premises in pursuance with all laws and ordinances now
or hereinafter applicable; also to exercise all reasonable care in the use of
halls, stairs, corridors, toilets and other fixtures and parts of the premises
used in common with other tenants in said building which may be necessary for
the preservation of the property and comfort of the other tenants.
5. Not to permit or suffer any noise, disturbance or nuisance
whatsoever on the premises detrimental to same or annoying to the neighbors.
Lessee acknowledges that Lessee is familiar with the condition of the premises
and is taking it in its present "as is" condition; and that no representations
as to the condition of the premises have been made by the Lessor, or the
Lessor's agent, and that no obligation as to the repairing, adding to, or
improving the premises has been assumed by the Lessor, and that no oral
arrangements have been entered into in consideration of making this obligation
of both parties hereto.
6. To keep the interior of the premises in good during the
continuation of the term herein demised, and every part thereof, including the
plumbing, doors and windows, and awnings, if any (which said awnings, if any,
the Lessor shall not be called
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<PAGE>
upon to furnish or replace during the term of the Lease), and will keep the
same in good, sound, clean condition and repair, ordinary wear and tear, fire,
hurricane or other act of God alone excepted, and will not suffer or permit any
strip or waste of the premises, and the Lessee shall within ten (10) days after
entry and occupancy of the premises cause to be written a policy of plate glass
insurance in a company to be approved by the Lessor, insuring all of the plate
glass in the premises, which said policy will bear an endorsement thereon,
naming the Lessor as the party to whom all payments that may accrue from said
policy of insurance shall be payable and should the Lessee fail and omit to
cause said policy of insurance to be written, and should the Lessor waive
Lessor's option to cancel this Lease for breach of this covenant, then, and in
that event, the Lessee shall be responsible for any breakage that may occur
from any cause whatsoever to the plate glass windows, and agrees to replace the
same at Lessee's cost. If the Lessee desires to furnish awnings, he shall first
obtain the written approval of the Lessor as to style, color and quality of
material.
7. Not to make any alterations or changes in the premises without the
written consent of the Lessor, and all additions, fixtures, or improvements,
except only store and office furniture and fixtures which shall be readily
removable without injury to the premises, shall be and remain a part of the
premises at the expiration of this Lease. Provided, however, Lessor hereby
consents to the changes Lessee desires to make in order to use the premises for
Lessee's intended purpose so long as such changes are lawful and permitted by
the City of Miami Beach.
8. To permit the Lessor, or the Lessor's agent, at any reasonable
time, to enter and inspect the premises, and make repairs, if in the Lessor's
sole judgment, the Lessor should elect to do so.
9. If the Lessee shall not pay the rents herein reserved at the time
and in the manner stated, or shall fail to keep and perform any other
condition, stipulation or agreement herein contained, on the part of the Lessee
to be kept and performed, or if the Lessee shall suffer to be filed against the
Lessee an involuntary petition in bankruptcy or shall be adjudged a voluntary
or involuntary bankrupt or make an assignment for the benefit of creditors, or
should there be appointed a Receiver to take charge of the premises either in
the State or Federal courts, or if the Lessee shall vacate or abandon the
premises prior to the end of the term hereof, then, in any such events, the
Lessor may, at the Lessor's option, terminate and end this Lease and re-enter
upon the premises, whereupon the term hereby granted, and at the Lessor's
option, all of the Lessee's right, title and interest in this Lease shall end
and the Lessee shall become a tenant at sufferance; or else the Lessor may, at
the Lessor's option, elect to declare the entire rent for the balance of the
term, or any part thereof, due and payable forthwith, and may proceed to
collect the same by distress or otherwise, and thereupon the term hereof shall
terminate, at the option of the Lessor, or else the Lessor may take possession
of the premises and rent the same for the account of the Lessee. The exercise
of any options herein contained shall not be deemed to be exclusive and the
Lessor shall at all times in the event of the Lessee's default hereunder, have
such remedies as may be provided by the laws of the State of Florida; the
expression "entire rent for the balance of the term" as used herein, shall mean
all of the rent prescribed to be paid by the Lessee unto the Lessor for the
full term of the Lease, less, however, any payments that shall have been made
on account of any rent due pursuant to the terms of the Lease.
10. If the Lessee shall abandon, vacate or remove the major portion
of the goods, wares and merchandise usually kept on the premises when the same
is open for business and shall cease doing business in the premises, then, at
the option of the Lessor, this
3
<PAGE>
Lease shall immediately terminate, and all payments made by the Lessee shall be
retained by the Lessor as payment in full for the period of time the premises
are occupied by the Lessee and the Lessee shall not be entitled to any monies
so paid by him, even though such payment is for time subsequent to such closing
of the premises and removal of goods, wares and merchandise.
11. The Lessee pledges with and assigns unto the Lessor all the
furniture and fixtures, goods and chattels of the Lessee (collectively
"Personally"), which may be brought or put on the premises, as security for the
payment of the rent herein reserved, and agrees that the Lessor's lien for the
payment of said rent may be enforced by distress, foreclosure or otherwise, at
the option of the Lessor, and the Lessee agrees that such lien is granted to
the Lessor and vested in the Lessor. Lessor agrees that it will subordinate (or
waive, if required by the lender) its lien and its statutory lien on Lessee's
Personalty in favor of any lender or retain title holder who furnishes
financing for the purchase or acquisition of Lessee's Personalty.
12. In the event the premises, or any part thereof, shall at any time
be destroyed or so damaged by fire other elements so as to be unfit for
occupancy or use by the Lessee, then and in that event, the Lessor shall have
the option to terminate this Lease or to repair and rebuild the premises,
waiving rents hereby reserved, or a fair and just proportion thereof, according
to the damage sustained, until the premises are reinstated and made fit for
occupancy and use; and in the event the Lessor elects to exercise the option to
repair and rebuild, the same shall be done and completed within a reasonable
time.
13. Except for Lessor's negligence, the Lessee takes all risk of any
damage to the Lessee's property that may occur by reason of water or the
bursting or leaking of any pipes or waste water about the premises, or from any
act of negligence of any co-tenant or occupants of the building, or any other
person, or fire, or hurricane, or other act of God, or from any cause
whatsoever.
14. The Lessee shall not attach any signs to the premises, or place
any lettering on the plate glass windows, unless such signs, and such
lettering, are in compliance with applicable laws and codes.
15. If the Lessee shall occupy the premises with or without the
consent of the Lessor after the expiration of this Lease, and the rent is
accepted from the Lessee during such period, such occupancy and payment shall
be construed as an extension of this Lease on a month-to-month basis only from
the date of such expiration, unless other terms of such extension are endorsed
hereon in writing and signed by the parties hereto.
16. The Lessee shall indemnify and save harmless the Lessor from and
against any and all claims, suits; actions, damages and/or causes of action
arising during the term of this Lease for any personal injury, loss of life
and/or damage to property sustained in or about the premises arising out of the
Lessee's occupancy thereof or caused by the Lessee~s negligence, and from and
against any orders, judgments, and/or decrees which may be entered thereon, and
from and against all costs, counsel fees, expenses and liabilities incurred in
and about the defense of any such claim and the investigation thereof.
17. The Lessee agrees that this Lease shall be subject and
subordinate to any mortgage or deed of trust presently encumbering the
premises, or which may hereafter be made on account of any proposed loan to be
placed on the premises by the Lessor to the full extent of all debts and
charges secured thereby, and to any renewals and extensions of all or any part
thereof, which the Lessor may thereafter at any time elect to place on the
premises, and the Lessee agrees upon request to hereafter execute any
4
<PAGE>
document which the Lessor may deem necessary to accomplish that end, and in
default of the Lessee's so doing, the Lessor is hereby empowered to execute
such document in the name of the Lessee and as the act and deed of the Lessee
and this authority is declared to be coupled with an interest and not
revocable.
18. At the expiration of the term hereof, the Lessee shall quietly
and peaceably deliver the premises to the Lessor in the same repair and
condition in which they were received, ordinary wear and tear excepted. No
estate for years is created by this Lease.
19. The Lessor hereby covenants with the Lessee that, upon the
performance of the Lessee of all the conditions hereinabove set forth on the
part of the Lessee to be kept and performed, the Lessee may quietly have, hold,
occupy and use the premises.
20. The Lessor covenants that Lessor will keep the exterior roof and
walls of the building in which premises are situated, in good repair. The
Lessee shall give to the Lessor seven (7) days written notice of needed
repairs, and the Lessor shall have a reasonable time thereafter within which to
commence said repairs.
21. The terms Lessor and Lessee as herein contained shall include the
singular and/or plural, masculine, feminine, and/or neuter, and heirs,
successors, personal representatives and/or assigns of the parties hereto.
22. The failure of the Lessor in one or more instances to insist upon
strict performance or observance of one or more of the covenants or conditions
hereof or to exercise any remedy, privilege or option herein conferred upon or
reserved to the Lessor, shall not operate or be construed as a relinquishment
or waiver for the future of such covenant or condition or of the right to
enforce the same or to exercise such privilege, option, or remedy, but the same
shall continue in full force and effect. The receipt by the Lessor of rent, or
additional rent, or any other payment required to be made by the Lessee, or any
part thereof, shall not be a waiver of any other additional rent or payment
then due, nor shall such receipt, though with knowledge of the breach of any
covenant or condition hereof, operate as or be deemed to be a waiver of such
breach, and no waiver by the Lessor of any of the provisions hereof, or any of
the Lessor's rights, remedies, privileges or options hereunder shall be deemed
to have been made unless made by the Lessor in writing. If the Lessor shall
consent to the assignment of this Lease or to a subletting of all or a part of
the premises, no further assignment or subletting shall be made without the
written consent of the Lessor first obtained. No surrender of the premises for
the remainder of the term hereof shall be valid unless accepted by the Lessor
in writing.
23. The Lessee agrees to carry public liability insurance during the
term of this Lease, covering the premises, which insurance shall name an
insurer qualified to do business within the State of Florida and satisfactory
to the Lessor. Such insurance shall name the Lessor as an insured and shall be
in limits of not less than ONE MILLION ($1,000,000.00) DOLLARS for any one
person; ONE MILLION ($1,000,000.00) DOLLARS for any one accident; and FIFTY
THOUSAND ($50,000.00) DOLLARS for property damage. The Lessee agrees to furnish
the Lessor with copies of such policies or endorsements thereto, and
satisfactory proof that the premiums for such policies have been paid, upon
demand by the Lessor.
24. Lessor hereby acknowledges receipt from Lessee of the sum of FIVE
THOUSAND ($5,000.00) DOLLARS which sum shall held by Lessor without liability
for interest as security for the faithful performance by Lessee of all of the
terms and conditions of this Lease. In the event Lessee defaults under any of
the terms and conditions of this Lease Lessor may, at Lessor's option, apply
the above security, or so much thereof as may be necessary, to
5
<PAGE>
compensate Lessor for any loss or damages sustained by Lessor due to such
default on the part of Lessee, and Lessee shall forthwith upon demand restore
said security to the original sum deposited. Upon expiration of this Lease,
said security shall be returned in full to Lessee, provided this Lease is in
good standing and no outstanding defaults exist hereunder.
25. Lessee may at its option terminate this lease on April 1, 2002 by
giving notice of such termination to Lessor on or before December 31, 2001.
Upon the giving of such notice this lease will terminate at midnight March 31,
2002 and Lessor and Lessee will be relieved of all obligations hereunder
accruing after such dated. Failure of Lessee to exercise the option timely
shall mean conclusively that this lease will continue for the full term.
26. Should any mechanics' or other liens be filed against the
premises or any part thereof for any reason whatsoever by reason of
Lessee's acts or omissions or because of a claim against Lessee, Lessee shall
cause the same to be canceled and discharged, of record, by bond or otherwise
within twenty (20) days after the filing of such lien. The interest of the
Lessor shall not be subject to liens for improvements made by the Lessee.
27. Lessee agrees to abide by all of the following rules and
regulations: (a) All deliveries or shipments of any kind to and from the
premises, including loading and unloading of goods, shall be made only by way
of the rear of the premises or at any other location within the building area
designated by Lessor, and only at such times during business hours designated
for such purpose by Lessor; (b) garbage and refuse shall be kept in the kind of
container specified by Lessor and shall be placed at the location designated by
Lessor, for collection at the times specified by Lessor; (c) the outside areas
immediately adjoining the premises shall be kept clean and free from dirt and
rubbish by Lessee, and Lessee shall not place, suffer or permit any
obstructions or merchandise in such areas; (d) plumbing facilities shall not be
used for any purpose other than that for which they are constructed, and no
foreign substance of any kind shall be thrown therein; (e) Lessee shall use, at
Lessee~s cost, a pest extermination contractor for the premises at such
intervals as Lessor may require.
28. In the event of any litigation or lawsuit between Lessor and
Lessee for any matter arising as a result of this lease, the prevailing party
shall be entitled to recover from the other party the prevailing party's
reasonable attorney fees and court costs as the same may be determined by the
court having jurisdiction of the matter.
29. Lessee agrees during the term of this Lease to pay its
Proportionate Share of all ad valorem real estate taxes, special or general
assessments and governmental charges of any kind or nature whatsoever levied or
assessed against the Building (hereinafter collectively referred to as
"Taxes"). Lessee also agrees to pay its Proportionate Share of premiums for
fire and extended coverage insurance, liability insurance and flood insurance
maintained by the Lessor for the Building ("Insurance Premiums"). Lessee's
Proportionate Share is 11.11 percent. Upon request of Lessee, Lessor will
furnish to Lessee copies of Tax Bills and Insurance Premium Invoices. If Lessee
shall fail to pay any Taxes or Insurance Premiums required to be paid by Lessee
hereunder, in addition to any other remedies provided herein, Lessor may, if it
so elects, pay Lessee's Proportionate thereof. Any sums which Lessee fails to
pay shall be deemed to be additional rental due from Lessee entitling Lessor to
all rights and remedies available to Lessor for Lessee's failure to pay rent.
30. Lessee agrees that the premises will not be used for the storage
or disposition of hazardous waste and toxic materials in violation of any
applicable laws or ordinances. In the event Lessee
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<PAGE>
violates the foregoing covenant, Lessee will be responsible for and will pay
for the cost of any remediation and will hold Lessor harmless from any fines or
costs in connection therewith.
31. Radon is a naturally occurring radioactive gas that, when it is
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of Radon that exceed Federal
and State guidelines have been found in buildings in Florida. Additional
information regarding Radon and Radon testing may be obtained from your County
Public Health Unit.
32. During the term of this Lease and at no additional cost or
expense to the Lessee, Lessor hereby gives and grants to Tenant the right to
place tables and chairs in the patio east of and directly behind the demised
premises. Lessee agrees that it will keep the patio area clean and sanitary and
sightly during the time that it is using the patio.
33. Notice shall be deemed properly given hereunder when made in
writing and deposited in the United States certified or registered mails, with
sufficient postage prepaid thereon to carry it to its addressed destination;
and the said notices shall be addressed as follows:
For the Lessor: Washington Gardens, Inc.
1228 Alton Road
Miami Beach, Florida 33139
With a copy to: Leo Rose, Jr., Esq.
Therrel Baisden & Meyer Weiss
1111 Lincoln Road
Suite 500
Miami Beach, Florida 33139
For the Lessee:
or to such other address as shall from time to time be supplied in writing by
any party to the other.
7
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year stated above.
Signed, sealed and delivered
in the presence of:
LESSOR:
WASHINGTON GARDENS INC.,
a Florida corporation
/s/ Samuel Blum By: /s/ James Resnick
- --------------------- -----------------------
Witness #1 Signature
Samuel Blum Its: V.P.
- --------------------- ----------------------
(Print Name) James Resnick
--------------------------
/s/ Donna Ashby (Print Name)
- ---------------------
Witness #2 Signature
Donna Ashby LESSEE:
- ---------------------
(Print Name) BEGARE ENTERPRISES, INC.,
a Florida corporation
/s/ Samuel Blum By: /s/ Sheldon Golumbia
- --------------------- -----------------------
Witness #1 Signature
Samuel Blum Its: Pres.
- --------------------- ----------------------
(Print Name) Sheldon Golumbia
--------------------------
/s/ Donna Ashby Print Name
- ---------------------
Witness #2 Signature
Donna Ashby
- ---------------------
(Print Name)
8
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
December 11, 1997, is made by end between 3138 Commodore Plaza Ltd.("Lessor")
and Yoystra Enterprises Inc. (collectively the "Parties," or individually a
"Party").
1.2(a) Premises: That certain portion of the Building, Including all
Improvements therein or to be provided by Lessor under the forms of this Lease,
commonly known by the street address of 3138 Commodore Plaza , located in the
City of Miami County of Dade, State of Florida , with zip code 33133 , as
outlined on Exhibit A attached hereto ("Premises"). The "Building" Is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): ("Lessee"), Multi Stores Retail Building.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have
any rights to the roof, exterior walls or utility raceways of the Building or
to any other buildings in the Industrial Center. The Premises, the Building,
the Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and none reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 Term: 5 years and 0 months ("Original Term") commencing March 1,
1998 ("Commencement Date.")and ending February 28, 2003 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: Signature date of Lease Early Possession
Date"). (Also see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $ 5,000. 00 per month ("Base Rent"), payable on
the 1st day of each month commencing March 1, 1998 (Also see
Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum . attached hereto.
1.6(a) Base Rent Paid Upon Execution: $ N/A as Base Rent for
the period N/A
1.6(b) Lessee's Share of Common Area Operating Expenses: N/A percent
( %) ("Lessee's Share") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or I I other
criteria as described in Addendum
1.7 Security Deposit $l0,000.00 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted use: Restaurant
("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
Transaction and are consented,d to by the Parties (check applicable boxes):
[X] represents Lessor exclusively ("Lessor's Broker");
[ ] represents Lessee exclusively ("Lessee's Broker"); or
[ ] represents both Lessor and Lessee ("Dual Agency"). (Also see
Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is
no separate written agreement between Lessor and said Broker(s), the sum of
$12,480 for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease
are to be guaranteed by N/A.
("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 49 through 53 and addendum 1-6, and Exhibits
A through, all of which constitute a pan of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors venting system, if any, in
the Premises, other than those constructed by Lessee, shall be in good
operating condition on the Commencement Date. If a non-compliance with said
warranty exists as of the Commencement Date, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify same at Lessor's expense. If Lessee does not give Lessor written notice
of a non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions or record and applicable
building codes, regulations and ordinances exist with regard to the Premises as
of the Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or
ordinances exist with regard to the Premises as of the Commencement Date. Said
warranties shall not apply to any Alterations or Utility Installations (defined
in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not
comply with said warranties. Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice form Lessee given within six
(6) months following the Commencement Date and setting forth with specifity the
nature and extent of such non-compliance, take such action, at Lessor's
expense, as may be reasonable or appropriate to rectify the non-compliance.
Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted
for the Premises under Applicable Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security environmental aspects, seismic and earthquake
requirements, any compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"Applicable Laws") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of nor force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any compliance of the Premise with said warranties.
<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor.
(Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, 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.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 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 Industrial Center and interior utility raceways within the Premises
that are provided ana designated by the Lessor from time to time for the
general non-exclusive use of Lessor, Lessee and other lessees of the Industrial
Center and their respective employees, suppliers, shippers, customers,
contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped
areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center. Under
no circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or permanently,
in the Common Areas. Any such storage shall be permitted only by the prior
written consent of Lessor or Lessor's designated agent, which consent may be
revoked at any time. In the event that any unauthorized storage shall occur
then Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. 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 establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(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 outside the boundaries o( the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date. Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation to
pay Base Rent shall be abated (or the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises is
not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that it such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall
be prorated based upon the actual number of days of the month involved. Payment
of Base Rent and other charges shall be made to Lessor at its address stated
herein or to such other persons or at such other addresses as Lessor may from
time to time designate In writing to Lessee.
2
<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall upon written request
from Lessor, deposit additional monies with Lessor as an addition to the
Security Deposit so that the total amount of the Security Deposit shall at all
times bear the same proportion to the then current Base Rent as the initial
Security Deposit bears to the Initial Base Rent set forth in Paragraph 1.5.
Lessor shall not be required to keep all or any pan of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration of earlier
termination of the term hereof and after Lessee has vacated the Premises,
return to Lessee for, at Lessor's option, to the last assignee, if any, of
Lessee's interest herein), that portion of the Security Deposit not used or
applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other Increment for Its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage to
the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health,
safety or welfare, the environment, the Premises; (ii) regulated or monitored
by any governmental authority, or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that
requires a permit from, or with respect to which a report, notice registration
or business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk
of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to any Reportable Use of any Hazardous Substance by Lessee upon
Lessee's giving Lessor such additional assurances as Lessor, in its reasonable
discretion, deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability therefor,
including but not limited to the installation (and, at Lessor's option, removal
on or before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning
the presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including but not limited to all such documents as may be involved in
any Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' end consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultants' and attorneys' 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 Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "Applicable Requirements " which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil
and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect. Lessee shall, within five (5) days after receipt of Lessors
written request, provide Lessor with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") 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
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default
or Breach of this Lease by Lessee or a violation of Applicable Requirements or
a contamination, caused or materially contributed to by Lessee, is found to
exist or to be imminent, or unless the inspection Is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion
of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the part of such portion of the Premises), including without limiting the
generally of the foregoing, all equipment or facilities specifically serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any terms which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2, 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14
(Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2,
shall keep in good order, condition and repair the foundations, exterior walls,
structural condition of interior bearing walls, exterior roof, fire sprinkler
and/or standpipe and hose (if located in the Common Areas) or other automatic
fire extinguishing system included fire alarm and/or smoke
3
<PAGE>
detection systems and equipment, fire hydrants, parking lots, walkways,
pathways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all pasts thereof, Lessor shall not be obligated to paint the
exterior or Interior surfaces of exterior walls nor shall Lessor be obligated
to maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now 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
Building, Industrial Center or Common Areas in good order, condition and
repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, tire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises. The term "Alterations" shall
mean any modification of the improvements on the Premises which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessors prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the root) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not Involve puncturing,
relocating or removing the root or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring ali
applicable permits required by governmental authorities: (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
thereto". Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration or
Utility Installation.
(c) Lien Protection. 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 on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest Herein.
Lessee shalt give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shalt have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shalt, at its sole expense, defend and
protect itself, Lessor and the Premises 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. It Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-hall times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys' fees and costs in participating in such action H Lessor shall decide
it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed In writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of tints Lease,
notwithstanding that theft Installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any of or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, alt as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. Insurance; Indemnity.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises.
endorsement and contain the "Amendment of the Pollution Exclusion. endorsement
for damage caused by heat, smoke or fumes from a hostile tire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "Insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said Insurance required by this
Lease or as canted by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any
Lender(s), but in no event more than the commercially reasonable and available
insurable value thereof it, by reason of the unique nature or age of the
improvements involved such latter amount is less than full replacement cost.
Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessees
personal property shall be insured by Lessee pursuant to Paragraph 8.4. if the
coverage is available and commercially appropriate, Lessor's policy or policies
shall insure against all risks of direct physical loss or damage (except the
perils of flood and/or earthquake unless required by a Lender), including
coverage for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered loss, but
not including plate glass insurance. Said policy or policies shall also contain
an agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lesee's Improvements. Since Lessor is the insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a). Such insurance shall be fully replacement cost coverage with a
deductible not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property and
the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other ratings as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide,"
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in
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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven
(7) days after the earliest of the Early Possession Date or the Commencement
Date, certified copies of, or certificate evidencing the existence and amounts
of, this insurance required under Paragraph 8.2(a) and 8.4. No such policy
shall be cancelable or subject to 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 evidence of renewals or
Insurance binders. evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be Insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. Lessor and Lessee agree to have their
respective insurance companies issuing property damage Insurance waive any
right to subrogation that such companies may have against Lessor or Lessee, as
the case may be, so long as the insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages
costs, liens, judgments, penalties, loss of permits, attorneys and consultants
tees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's
business, any act, omission or neglect of Lessee, its agents, contractors,
employees or invitees, and out of any Default or Breach by Lessee In the
performance In a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters Lessee upon
notice from Lessor shall defend the same at Lessee s expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee s employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from tire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, tire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
pan, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor
9. Damage or Destruction.
9.1 Definitions.
(a) Premises Partial Damage shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1 (d)) of the Premises
(excluding Lessee-Owned Alterations and Utility installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) Premises Total Destruction shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility installations,
the repair cost of which damage or destruction is fifty percent (50%) or more
of the then Replacement Cost of the Premises (excluding Lessee Owned
Alterations and Utility Installations and Trade Fixtures) immediately prior to
such damage or destruction. In addition, damage or destruction to the Building,
other than Lessee-Owned Alterations and Utility installations and Trade
Fixtures of any lessees of the Building, the cost of which damage or
destruction is fifty percent (50%) or more of the then Replacement Cost
(excluding Lessee-Owned Alterations and Utility installations and Trade
Fixtures of any lessees of the Building) of the Building shad, at the option of
Lessor, be deemed to be Premises Total Destruction.
(c) Insured Loss shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
Insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) Replacement Cost shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) Hazardous Substance Condition shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), Tn, on, or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial
Damage that Is an insured Loss occurs, then Lessor shall, at Lessor s expense,
repair such damage (but not Lessee s Trade Fixtures or Lessee-Owned Alterations
and Utility installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. in the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force any effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days after to
make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain In full
force and effect. It Lessor does not receive such funds or assurance within
such ten (10) day period, and if Lessor does not so elect to restore and
repair, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises
Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3
rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available
for the repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. It Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee s expense and
this Lease shall continue in full force and effect), Lessor may at Lessor s
option, either (i) repair such damage as soon as reasonably possible at Lessor
s expense, in which event this Lease shall continue in full force and effect,
or (ii) give written notice to Lessee within shiny (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessees
commitment to pay for the repair of such damage totally at Lessee s expense and
without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as soon
as reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified In
Lessor s notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof it
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or wilful
act of Lessee. In the event, however, that the damage or destruction was caused
by Lessee, Lessor shall have the right to recover Lessor s damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month s Base Rent, whether or not an Insured Loss, Lessor may at
Lessor s option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor
s election to do so within shiny (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the
repairs on or before the earlier of (i) the date which is ten (10) days after
Lessee s receipt of Lessor s written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee
duly exercises such option during such period and provides Lessor with funds
(or adequate assurance thereof) to cover any shortage in insurance proceeds.
Lessor shall. at Lessor's expense repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee
fails to exercise such option and provide such funds or assurance during such
period, then this Lease shall terminate as of the date set forth in the first
sentence of this paragraph 9.5
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Damage or (ii) Hazardous
Substance Condition which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for Abatement of Base Rent, Common Area Operating Expenses and other charges,
if any, as aforesaid, all other obligations of Lessee hereunder shall be
performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any damage, destruction, repair, remediation or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after the receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph 9.6 shall mean either
the unconditional authorization of the preparation of the required plan, or
the beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such Hazardous Substance Condition of
Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give such
notice of lessor's intention to terminate this Lease Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the excess costs of (a)
investigation and remediation of such Hazardous Substance Condition to the
extent required by Applicable Requirements, over (b) an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee
shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following said commitment by Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the time
period specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. Real Property Taxes.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and ail other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement seeing forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and
services supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any taxes
thereon. If any such utilities or services are not separately metered to the
Premises or separately billed to the Premises, Lessee shall pay to Lessor a
reasonable proportion to be determined by Lessor of all such charges jointly
metered or billed with other premises in the Building, in the manner and within
the time periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five percent
(25%) of such Net Worth of Lessee as it was represented to Lessor at the time
of full execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment
of this Lease by Lessee to which Lessor may reasonably withhold its consent.
"Net Worth of Lessee" for purposes of this Lease shall be the net worth of
Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon shiny
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessors Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted
to require that the base index be determined with reference to the index
applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new rental bears to the Base Rent In effect
immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limned to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of 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 assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or any one else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, including any sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request
for consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply
with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
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(g) The occurrence of a transaction described In Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. 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 of all or
a portion of the Premises 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 Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of the foregoing provision or any other assignment of such sublease to
Lessor, nor by reason of the collection of the rents from a sublessee, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee under such Sublease. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon any
such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to Inquire as to whether such
Breach exists and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against such sublessee, or, until
the Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee 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 the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and of(set from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor In connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs In
said notice as rent due and payable to cure said default. A "Default" by Lessee
is defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under U,is Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure alter notice Is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease it required under Paragraphs 1.11 and 37,
(vii) the execution of any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days alter written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors, (ii) Lessee's becoming a "debtor as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days, provided,
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, Such provision shall be of no force or effect,
and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) 11 the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, Insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check, in the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(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: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of the award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary of things would be likely
to result therefrom, including but caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the premises, reasonable attorney's
fees, and that portion of any leasing commission paid by the Lessor in
connection with this Lease applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of the
award plus one percent (1%). Efforts by Lessor to mitigate damages caused by
Lessee's Default of Breach of this Lease shall not waive Lessor's right to
recover damages under this paragraph 13.2. If termination of this Lease is
obtained through the provisional remedy or unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under Subparagraph 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or grace period purposes
required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable
grace period under the unlawful detainer statue shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lesee's right to possession.
(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.
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(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by
Lessor for free or abated rent or other charges applicable to the
Premises, or for the giving or paying by Lessor to or for Lessee of any cash
or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "Inducement
Provisions" shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease to be
performed or observed by Lessee during the term hereof as the same may be
extended. Upon the occurrence of a Breach (as defined in Paragraph 13.1) of
this Lease by Lessee, any such Inducement Provision shall automatically be
deemed deleted from this Lease and of no further force or effect, and any rent,
other charge, bonus, inducement or consideration theretofore abated, given or
paid by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the
provisions of this Paragraph 13.3 unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and 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 upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or 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 six percent (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 or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall In no event be less than thirty (30) days after receipt by
Lessor and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof 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. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of
such power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease
is not terminated by reason of such condemnation, Lessor shall to the extent of
its net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by tho Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. 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 the owner
or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the Transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed
by the Lessor shall be binding only upon the Lessor as hereinabove defined.
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. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due
at the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality, and character of the premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing any may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or US Postal Service Express Mail, with postage prepaid, or by
facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may be
written notice to the other specify a different mailing or delivering notices
to Lessee. 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 written notice
to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the
same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone or facsimile confirmation of receipt
of the transmission thereof, provided a copy is also delivered via delivery or
mail. If notice is received on a Saturday or a Sunday or a legal holiday, it
shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies E
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
sublet and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into
by Lessor after the execution of this lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. 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. Lessor shall be entitled to attorneys' fees, costs and
expenses incurred in preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. Lessor's Access, Showing Premises Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee for
any Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. Guarantor.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the convenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
9
<PAGE>
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first refusal to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is
in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior options to extend or renew this Lease have been validly
exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default Is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during the twelve (12) month period immediately preceding the
exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the terms of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to ellectuate any such easement
rights, dedication, map or restrictions.
43. Performances Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
assessed shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. It either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an alter to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
49. Lessee shall have one (1) 5-year option to renew the lease upon the
expiration of the original term.
50. Starting in the original term, and in the option term if any, the rent
shall be increased by 10% every 3 years (first increase to occur on March 1,
2001).
51. In addition to payment of its utilities per par. 11, Lessee shall pay for
its own Trash container, oil containers and any other expense directly related
to its use of the premises as a Restaurant. This shall include any fees charged
(if any) by the City of Miami which is due to the use of the premises as a
Restaurant versus regular Retail. Lessee represents that it has inquired with
the City regarding such potential additional charges, and is satisfied with
such. Lessee shall also pay Sales Tax per Florida laws.
52. Lessee shall prepare a list of any equipment currently in the premises it
wishes to use. Said equipment shall remain the property of Lessor. Lessee shall
have the right to use said equipment at no additional cost, provided it pays
all property Taxes due to the equipment during the original term and the option
term (if any).
53. Lessee shall have the right for 3 parking stalls in the enclosed structure
for its employees, at a cost of $50.00 per stall per month.
10
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE 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.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR TRANSACTION TO WHICH IT RELATES;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS
IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above their respective signatures.
Executed at: Santa Monica, CA Executed at:
----------------------- ---------------------------
on: 12/30/97 on:
-------------------------------- ------------------------------------
By LESSOR: By LESSEE: YOYSTRA
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
By: /s/ Eri Kroch By: /s/ Sheldon Golumbia
-------------------------------- ------------------------------------
Name Printed: Eri Kroch Name Printed: Sheldon Golumbia
---------------------- -------------------------
Title: President of General Partner Title: President
----------------------------- ---------------------------------
Address: Address:
--------------------------- ------------------------------
- ----------------------------------- ------------------------------
Telephone: ( ) Telephone: ( )
-------------------- -----------------------
Facsimile: ( ) Facsimile: ( )
-------------------- -----------------------
In the presence of In the presence of
Sig: /s/ Stacey Weiss Sig: /s/ Amy M. Griffin
------------------------------- ----------------------------------
on: 12/30/97 on:
------------------------------- ----------------------------------
By: Stacey Weiss By: Amy M. Griffin
------------------------------- ----------------------------------
Sig: /s/ Patricia J. Wakeling Sig: /s/ Aimee Mac Cormac
------------------------------- ----------------------------------
on: 12/30/97 on:
------------------------------- ----------------------------------
By: Patricia J. Wakeling By: Aimee Mac Cormac
------------------------------- ----------------------------------
Note: These forms are often modified to meet changing requirements of law
and needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA
90017. (213) 687-8777.
11
<PAGE>
[Graphic Omitted]
Courtyard Level Two
Scale 3/4"=13.0'
[LOGO]
GROVE HARBOUR
PLAZA
Premises
- --------
Units 20, 21, 22, 23, 24, 25
Existing Bar
Left half of courtyard
[Picture of Courtyard Diagram]
The shaded areas include the demised premises
including 1/2 courtyard as marked.
EXHIBIT A
<PAGE>
ADDENDUM to that certain Standard Industrial/Commercial Multi-Tenant
Lease - Modified Net (the "Lease") by and between 3138 Commodore Plaza, Ltd., a
Florida corporation (the "Lessor:), and Yoystra Enterprises, Inc., a Florida
corporation (the "Lessee"), dated December 11, 1997, pertaining to the premises
described therein and located at 3138 Commodore Plaza, Miami, Florida 33133:
1. Paragraph 1.10(b) shall provide that the commission shall be payable
by the Lessor immediately after the Lease is Signed by the parties and the
$10,000 security deposit clears.
2. Paragraphs 1.4, 3.2 and 3.3 are hereby modified to provide that
Lessee shall be given immediate occupancy following the signing of the Lease by
both Parties and the payment of the full Security Deposit by Lessee. Lessee's
obligation to pay Lessor rent shall commence when Lessee begins to conduct
business and shall be prorated for the first month if the business opens on any
other day besides the first.
3. Paragraph 6 is modified so Lessor acknowledges that Lessee is a
restaurant and, so long as it is operated in a professional manner in
conformity with all applicable codes, and Lessee uses all reasonable and
customary equipment, any odors emitted will not be deemed a nuisance.
4. Lessor assumes that there is a hookup into this space for both
electric and water, and, in the event such hookups are not present, Lessor
shall be responsible for the cost and installation of same.
5. Lessor grants to Lessee the non-exclusive right to pass through the
common area with service personnel and food products so that Lessee can set up
tables and serve food on the sidewalk bordered by the building on the side and
bordered by the street on the other.
SAMUEL SPENCER BLUM
[Letterhead]
<PAGE>
2
Lessor is to provide whatever assistance is needed to secure the
proper permits from all governmental agencies, so long as Lessor bears no
expense.
6. Paragraph 16.2 is hereby deleted.
7. A facsimile copy of this document and any signature hereon shall
be considered for all purposes as original and shall be binding on all Parties
hereto.
The Parties hereto have executed this Addendum at the places and on
the dates specified above their respective signatures.
Executed at: Santa Monica, CA Executed at:
----------------------- ------------------------
on: 12/30/97 on:
-------------------------------- ---------------------------------
3138 Commodore Plaza Ltd., Yoystra Enterprises, Inc., Lessee
Lessor
By: /s/ Eri Kroch By: /s/ Sheldon Golumbia
-------------------------------- --------------------------------
Eri Kroch Sheldon Golumbia, as President
--------------------------------
as President of General Partner
------------------------------
{Print name and Title}
In the presence of: In the presence of:
/s/ Stacey Weiss /s/ Amy M. Griffin
- ----------------------------------- ------------------------------------
Witness Witness
Print Name: Stacey Weiss Print Name: Amy M. Griffin
-------------------------
/s/ Patricia J. Wakeling /s/ Aimee Mac Cormac
- ----------------------------------- ------------------------------------
Witness Witness
Print Name: Patricia J. Wakeling Print Name: Aimee Mac Cormac
----------------------- -------------------------
SAMUEL SPENCER BLUM
[Letterhead]
<PAGE>
Exhibit 10.19
PROMISSORY NOTE
$100,000.00 Dated: February 7, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") hereby
promises to pay to the order of Century Funding, Inc. ("Lender"),
at 524 Longacre Avenue, Woodmere, NY 11598, upon the occurrence of
the event set forth below, the principal sum of ONE HUNDRED
THOUSAND ($100,000.00) DOLLARS AND 00/100. Interest shall accrue
from the date hereof at the rate of twelve percent per annum (or at
the highest rate permitted by law, if lower) on the unpaid
principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note
shall be made at such time and only at such time that Maker
completes a public offering of its common stock, and only out of
the net proceeds of such public offering. In the event that no
such public offering occurs, there is no obligation to pay the
principal and interest under this Note. Payment shall be payable
at the aforesaid address in the lawful money of the United States
of America, or at such other place as the holder of this Note shall
have designated to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of
nonpayment of this Note and expressly agree that this Note, or any
payment hereunder, may be extended from time to time by Lender
without in any way affecting the liability of Maker and endorsers
hereof.
This Note will in all respects be governed by and
construed in accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit
of and be binding upon, the respective heirs, successors and
assigns of the Maker and the Lender.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.20
PROMISSORY NOTE
$25,000.00 Dated: March 1, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Century Funding, Inc. ("Lender"), at 524 Longacre Avenue,
Woodmere, NY 11598, upon the occurrence of the event set forth below, the
principal sum of TWENTY FIVE THOUSAND ($25,000.00) DOLLARS AND 00/100. Interest
shall accrue from the date hereof at the rate of twelve percent per annum (or at
the highest rate permitted by law, if lower) on the unpaid principal balance
from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be made at such time and only at such time that Maker completes a public
offering of its common stock, and only out of the net proceeds of such public
offering. In the event that no such public offering occurs, there is no
obligation to pay the principal and interest under this Note. Payment shall be
payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of nonpayment of
this Note and expressly agree that this Note, or any payment hereunder, may be
extended from time to time by Lender without in any way affecting the liability
of Maker and endorsers hereof.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit of and
be binding upon, the respective heirs, successors and assigns of the Maker and
the Lender.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.21
AMENDMENT TO LOAN AGREEMENT
Agreement dated as of October 11, 1996 by and between Royal
Canadian Foods Corp., a Delaware corporation, with offices at 1004 Second
Avenue, New York, NY 10022 ("Borrower") and Century Funding, Inc., with offices
at 524 Longacre Avenue, Woodmere, NY 11598 ("Lender").
RECITALS
WHEREAS, Borrower owns and operates three restaurants
operating under the name "Royal Canadian Pancake House Restaurant".
WHEREAS, pursuant to a Loan Agreement dated August 11, 1995,
as amended August 30, 1996 (collectively referred to herein as the "Loan
Agreement") by and between Borrower and Lender, Lender agreed to loan Borrower
$300,000 to finance the opening of two new restaurants.
WHEREAS, Lender and Borrower now wish to amend certain terms
of the Loan Agreement in the manner set forth below.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Loan. Paragraph 1 of the Loan Agreement shall be amended to read in its
entirety as follows:
Lender shall lend $300,000.00 to Borrower, which funds shall be used by
Borrower in its operations.
2. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ROYAL CANADIAN FOODS CORP.
By:_____________________________
Sheldon Golumbia, President
CENTURY FUNDING, INC.
By:_____________________________
Judah Wernick, President
1
<PAGE>
Exhibit 10.22
Sheldon Golumbia
815 Park Avenue
New York, NY 10021
Board of Directors
Royal Canadian Foods, Corp.
1004 Second Avenue
New York, NY 10022
To the Board of Directors:
I have made various loans to Royal Canadian Foods Corp. (the
"Company") and its subsidiaries, which as of the date of this letter total
$316,380, including accrued interest thereon. I have made several extensions of
the due date of a portion of these loans. I now agree to extend the due date for
$250,000 of such loans to June 30, 1998, subject to mandatory prepayment in the
event the Company completes a second public offering of its securities prior
thereto.
Dated as of May 31, 1997
Very truly yours,
Sheldon Golumbia
<PAGE>
Exhibit 10.23
NON-NEGOTIABLE PROMISSORY NOTE
$50,000.00 Dated: June 5, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1997 or the completion of a public
offering of its common stock, the principal sum of FIFTY THOUSAND ($50,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This Note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.24
NON-NEGOTIABLE PROMISSORY NOTE
$50,000.00 Dated: June 26, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1997 or the completion of a public
offering of its common stock, the principal sum of FIFTY THOUSAND ($50,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
------------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.25
NON-NEGOTIABLE PROMISSORY NOTE
$100,000.00 Dated: September 16, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1997 or the completion of a public
offering of its common stock, the principal sum of ONE HUNDRED THOUSAND
($100,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.26
NON-NEGOTIABLE PROMISSORY NOTE
$70,000.00 Dated: March 13, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1997 or the completion of a public
offering of its common stock, the principal sum of SEVENTY THOUSAND ($70,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.27
LOAN EXTENSION AGREEMENT
Agreement dated as of December 15, 1997 by and between Royal
Canadian Foods Corp., a Delaware corporation, with offices at 1004 Second
Avenue, New York, NY 10022 ("Borrower") and Jan Wernick, who resides at 524
Longacre Avenue, Woodmere, NY 11598 ("Lender").
RECITALS
WHEREAS, Borrower signed four Promissory Notes (collectively
referred to herein as the "Promissory Notes") to evidence four loans made by
Lender to Borrower.
WHEREAS, Lender and Borrower now wish to extend the due date
of each of the Promissory Notes from December 31, 1997 to December 31, 1998.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Promissory Notes. The Promissory Notes, each of which accrues interest at 12%
per annum, evidence loans made on the following dates for the following amounts:
Loan Date Principal Amount
June 5, 1996 $50,000.00
June 26, 1996 $50,000.00
September 16, 1996 $100,000.00
March 13, 1997 $70,000.00
2. Extension. The due date of each of the Promissory Notes is hereby extended
from December 31, 1997 to December 31, 1998.
3. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ROYAL CANADIAN FOODS CORP.
By:_____________________________
Sheldon Golumbia, President
- -----------------------------
Jan Wernick
1
<PAGE>
Exhibit 10.28
NON-NEGOTIABLE PROMISSORY NOTE
$30,000.00 Dated: June 19, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of THIRTY THOUSAND ($30,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.29
NON-NEGOTIABLE PROMISSORY NOTE
$25,000.00 Dated: July 14, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of TWENTY FIVE THOUSAND
($25,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.30
NON-NEGOTIABLE PROMISSORY NOTE
$50,000.00 Dated: September 4, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of FIFTY THOUSAND ($50,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.31
NON-NEGOTIABLE PROMISSORY NOTE
$20,000.00 Dated: September 8, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of TWENTY THOUSAND ($20,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.32
NON-NEGOTIABLE PROMISSORY NOTE
$20,000.00 Dated: September 12, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of TWENTY THOUSAND ($20,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
------------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.33
NON-NEGOTIABLE PROMISSORY NOTE
$20,000.00 Dated: September 17, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of TWENTY THOUSAND ($20,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.34
NON-NEGOTIABLE PROMISSORY NOTE
$50,000.00 Dated: September 22, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of a public
offering of its common stock, the principal sum of FIFTY THOUSAND ($50,000.00)
DOLLARS AND 00/100. Interest shall accrue from the date hereof at the rate of
twelve percent per annum (or at the highest rate permitted by law, if lower) on
the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This Note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.35
NON-NEGOTIABLE PROMISSORY NOTE
$30,000.00 Dated: October 14, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby
promises to pay to the order of Jan Wernick ("Lender"), at 524
Longacre Avenue, Woodmere, NY 11598, upon the earlier of December
31, 1998 or the completion of the public offering of its common
stock, the principal sum of THIRTY THOUSAND ($30,000.00) DOLLARS
AND 00/100. Interest shall accrue from the date hereof at the rate
of twelve percent per annum (or at the highest rate permitted by
law, if lower) on the unpaid principal balance from time to time
outstanding.
Payment of the principal of, and interest on, this Note
shall be payable at the aforesaid address in the lawful money of
the United States of America, or at such other place as the holder
of this Note shall have designated to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note
and expressly agrees that this Note, or any payment hereunder, may
be extended from time to time by Lender without in any way
affecting the liability of Maker hereof.
This Note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and
construed in accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.36
NON-NEGOTIABLE PROMISSORY NOTE
$110,000.00 Dated: March 11, 1998
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Jan Wernick ("Lender"), at 524 Longacre Avenue, Woodmere,
NY 11598, upon the earlier of December 31, 1998 or the completion of the public
offering of its common stock, the principal sum of ONE HUNDRED TEN THOUSAND
($110,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This Note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.37
PROMISSORY NOTE
$70,000.00 Dated: March 25, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Fernando Schechter ("Lender"), at an address in Israel
provided by the Lender, upon June 25, 1997, the principal sum of SEVENTY
THOUSAND ($70,000.00) DOLLARS AND 00/100. Interest shall accrue from the date
hereof at the rate of twelve percent per annum (or at the highest rate permitted
by law, if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of nonpayment of
this Note and expressly agree that this Note, or any payment hereunder, may be
extended from time to time by Lender without in any way affecting the liability
of Maker and endorsers hereof.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit of and
be binding upon, the respective heirs, successors and assigns of the Maker and
the Lender.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.38
PROMISSORY NOTE
$48,220.00 Dated: April 18, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Fernando Schechter ("Lender"), at an address in Israel
provided by the Lender, upon June 18, 1997, the principal sum of FORTY EIGHT
THOUSAND TWO HUNDRED TWENTY ($48,220.00) DOLLARS AND 00/100. Interest shall
accrue from the date hereof at the rate of twelve percent per annum (or at the
highest rate permitted by law, if lower) on the unpaid principal balance from
time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of nonpayment of
this Note and expressly agree that this Note, or any payment hereunder, may be
extended from time to time by Lender without in any way affecting the liability
of Maker and endorsers hereof.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit of and
be binding upon, the respective heirs, successors and assigns of the Maker and
the Lender.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
<PAGE>
Exhibit 10.39
PROMISSORY NOTE
$59,780.00 Dated: May 13, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Fernando Schechter ("Lender"), at an address in Israel
provided by the Lender, upon June 13, 1997, the principal sum of FIFTY NINE
THOUSAND SEVEN HUNDRED EIGHTY ($59,780.00) DOLLARS AND 00/100. Interest shall
accrue from the date hereof at the rate of twelve percent per annum (or at the
highest rate permitted by law, if lower) on the unpaid principal balance from
time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of nonpayment of
this Note and expressly agree that this Note, or any payment hereunder, may be
extended from time to time by Lender without in any way affecting the liability
of Maker and endorsers hereof.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit of and
be binding upon, the respective heirs, successors and assigns of the Maker and
the Lender.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.40
PAYMENT OF PROMISSORY NOTES
Agreement dated as of June 9, 1997 by and between Royal
Canadian Foods Corp., a Delaware corporation, with offices at 1004 Second
Avenue, New York, NY 10022 ("Borrower") and Fernando Schechter, a resident of
Israel ("Lender").
RECITALS
WHEREAS, Lender loaned Borrower a total of $178,000 (the "Loans");
WHEREAS, Lender and Borrower now agree that the principal due
on the Loans shall be paid by the issuance of Common Stock of the Company (the
"Common Stock") to Lender.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. The Loans. Lender loaned Borrower a total of $178,000, and Borrower executed
promissory notes to evidence such loans on the following dates and in the
following amounts:
Date Amount
March 25, 1997 $70,000.00
April 18, 1997 $48,220.00
May 13, 1997 $59,780.00
Total $178,000.00
2. Payment of Loan Principal. Payment of the Loan shall be made by the issuance
of one share of Common Stock for every $2.00 of the principal balance due on the
Loans. A total of 89,000 shares of Common Stock shall be issued to Lender in
payment of the entire principal balance due on the Loans.
2. Offshore Securities Agreement. The parties hereto intend for the issuance of
the Common Stock to Lender to be in compliance with Regulation S of the
Securities Act of 1933. In view of this, Lender shall sign an Offshore
Securities Agreement for this transaction.
3. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ROYAL CANADIAN FOODS CORP.
By:_____________________________
Sheldon Golumbia, President
By:_____________________________
Fernando Schechter
1
<PAGE>
Exhibit 10.41
PROMISSORY NOTE
$21,760.00 Dated: April 18, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Mark Schmerling ("Lender"), at an address in Israel
provided by the Lender, upon June 18, 1997, the principal sum of TWENTY-ONE
THOUSAND SEVEN HUNDRED SIXTY ($21,760.00) DOLLARS AND 00/100. Interest shall
accrue from the date hereof at the rate of twelve percent per annum (or at the
highest rate permitted by law, if lower) on the unpaid principal balance from
time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker and endorsers severally waive presentment, protest,
demand, and notice of protest, of demand and of dishonor and of nonpayment of
this Note and expressly agree that this Note, or any payment hereunder, may be
extended from time to time by Lender without in any way affecting the liability
of Maker and endorsers hereof.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
This Note and its provisions shall inure to the benefit of and
be binding upon, the respective heirs, successors and assigns of the Maker and
the Lender.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.42
PAYMENT OF PROMISSORY NOTE
Agreement dated as of June 9, 1997 by and between Royal
Canadian Foods Corp., a Delaware corporation, with offices at 1004 Second
Avenue, New York, NY 10022 ("Borrower") and Mark Schmerling, a resident of
Israel ("Lender").
RECITALS
WHEREAS, pursuant to a Promissory Note dated April 18, 1997
(the "Note") by and between Borrower and Lender, Lender loaned Borrower
$21,760.00 (the "Loan").
WHEREAS, Lender and Borrower now agree that the principal due
on the Note shall be paid by the issuance of Common Stock of the Company (the
"Common Stock") to Lender.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Payment of Loan Principal. Payment of the Loan shall be made by the issuance
of one share of Common Stock for every $2.00 of the principal balance due on the
Loan. A total of 10,880 shares of Common Stock shall be issued to Lender in
payment of the entire principal balance due on the Loan.
2. Offshore Securities Agreement. The parties hereto intend for the issuance of
the Common Stock to Lender to be in compliance with Regulation S of the
Securities Act of 1933. In view of this, Lender shall sign an Offshore
Securities Agreement for this transaction.
3. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ROYAL CANADIAN FOODS CORP.
By:_____________________________
Sheldon Golumbia, President
By:_____________________________
Mark Schmerling
1
<PAGE>
Exhibit 10.43
NON-NEGOTIABLE PROMISSORY NOTE
$38,000.00 Dated: November 13, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Yeshiva Tomchai Tmimim ("Lender"), at 35 Balfour Street,
Brooklyn, NY 11225, upon the earlier of December 31, 1998 or the completion of a
public offering of its common stock, the principal sum of THIRTY EIGHT THOUSAND
($38,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.44
NON-NEGOTIABLE PROMISSORY NOTE
$50,000.00 Dated: December 19, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Yeshiva Tomchai Tmimim ("Lender"), at 35 Balfour Street,
Brooklyn, NY 11225, upon the earlier of December 31, 1998 or the completion of a
public offering of its common stock, the principal sum of FIFTY THOUSAND
($50,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
---------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.45
NON-NEGOTIABLE PROMISSORY NOTE
$20,000.00 Dated: January 26, 1998
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Yeshiva Tomchai Tmimim ("Lender"), at 35 Balfour Street,
Brooklyn, NY 11225, upon the earlier of December 31, 1998 or the completion of a
public offering of its common stock, the principal sum of TWENTY THOUSAND
($20,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 10.46
NON-NEGOTIABLE PROMISSORY NOTE
$100,000.00 Dated: February 23, 1998
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises
to pay to the order of Yeshiva Tomchai Tmimim ("Lender"), at 35 Balfour Street,
Brooklyn, NY 11225, upon the earlier of December 31, 1998 or the completion of a
public offering of its common stock, the principal sum of ONE HUNDRED THOUSAND
($100,000.00) DOLLARS AND 00/100. Interest shall accrue from the date hereof at
the rate of twelve percent per annum (or at the highest rate permitted by law,
if lower) on the unpaid principal balance from time to time outstanding.
Payment of the principal of, and interest on, this Note shall
be payable at the aforesaid address in the lawful money of the United States of
America, or at such other place as the holder of this Note shall have designated
to the Maker in writing.
Maker waives presentment, protest, demand, and notice of
protest, of demand and of dishonor and of nonpayment of this Note and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time by Lender without in any way affecting the liability of Maker hereof.
This Note is not negotiable or assignable by the Lender.
This Note will in all respects be governed by and construed in
accordance with the New York Uniform Commercial Code.
ROYAL CANADIAN FOODS CORP.
By:
-----------------------------
Sheldon Golumbia, President
<PAGE>
Exhibit 21
List of Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary State of Inc Name Doing Business Under
<S> <C> <C>
Royal CF Corp. NY Royal Canadian Pancake House Restaurant
Royal Canadian 2286 Broadway, Inc. NY Royal Canadian Pancake House Restaurant
RCF 180 Third Avenue Corp. NY Royal Canadian Pancake House Restaurant
Hudson Street RCF Corp. DE None - Inactive
RCF South Beach Corp. DE Prairie Foods, LLC
RCF Lincoln Corp. DE None - Inactive
Begare Enterprises, Inc. FL Royal Canadian Womlett House Restaurant
Yoystra Enterprises, Inc. FL Royal Canadian Pancake House Restaurant
</TABLE>
