<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly period ended June 30, 1996
[ ] Transition report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________
Commission File Number 0-25252
CinemaStar Luxury Theaters, Inc.
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 33-0451054
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
431 COLLEGE BLVD., OCEANSIDE, CA 92057-5435
(Address of principal executive offices) (Zip Code)
(619) 630-2011
(Registrant's telephone number, including area code)
(Former name, former address and formal fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Common stock, no par value: 6,445,367 shares outstanding as of August 12, 1996.
Transitional Small Business Disclosure Format.
(check one):
YES
-------
NO X
-------
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CINEMASTAR LUXURY THEATERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1996 3-4
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-17
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<PAGE> 3
PART I. Financial Information
ITEM 1. Financial Statements
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996
- -------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,142,297
Commission and other receivables 110,799
Prepaid expenses 298,935
Other current assets 82,638
- --------------------------------------------------------------------------------
Total current assets 1,634,669
Property and equipment, net 8,000,663
Preopening costs 175,850
Deposits and other assets 669,860
- --------------------------------------------------------------------------------
TOTAL ASSETS $10,481,042
================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
--------
1996
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and capital lease obligations $ 674,985
Accounts payable 1,330,914
Accrued expenses 108,806
Deferred revenue 155,086
Advances from stockholder 60,000
- -------------------------------------------------------------------------------------------------
Total current liabilities 2,329,791
Long-term debt and capital lease obligations,
net of current portion 3,973,774
Convertible debenture 500,000
Deferred rent liability 1,738,607
- -------------------------------------------------------------------------------------------------
Total liabilities 8,542,172
- -------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Subsequent Event
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 100,000 shares authorized; Series A redeemable
preferred stock, no par value; 25,000 shares designated; no shares issued or
outstanding --
Common stock, no par value; 15,000,000 shares authorized;
6,327,152 shares issued and outstanding 6,871,860
Additional paid-in capital 510,030
Accumulated deficit (5,443,020)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 1,938,870
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Total Liabilities and Stockholders' Equity $10,481,042
=================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1996 1995
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<S> <C> <C>
REVENUES:
Admissions $ 2,963,529 $ 1,882,523
Concessions 1,202,922 765,883
Other operating revenues 93,952 31,095
- ---------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 4,260,403 2,679,501
- ---------------------------------------------------------------------------------------------------------------
Cost and expenses:
Film rental and booking costs 1,603,729 1,057,668
Cost of concession supplies 358,984 306,353
Theater operating expenses 1,275,509 845,581
General and administrative expenses 664,640 523,061
Depreciation and amortization 225,641 117,231
- ---------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 4,128,503 2,849,894
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 131,900 (170,393)
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 2,644 55,429
Interest expense (150,661) (103,521)
- ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (148,017) (48,092)
- ---------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (16,117) (218,485)
PROVISION FOR INCOME TAXES --
- ---------------------------------------------------------------------------------------------------------------
NET LOSS $ (16,117) $ (218,485)
===============================================================================================================
NET LOSS PER COMMON SHARE $ - $ (.04)
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND SHARE EQUIVALENTS OUTSTANDING 6,254,000 6,200,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,117) $ (218,485)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 259,749 117,231
Deferred rent liability 236,834 73,287
Increase (decrease) from changes in:
Commission and other receivables (23,194) (23,736)
Prepaid expenses and other current assets (122,065) 48,000
Deposits and other assets (138,406) 274,500
Accounts payable 492,774 236,628
Accrued expenses and other liabilities (178,912) (57,338)
- -------------------------------------------------------------------------------------
Cash provided by operating activities 510,663 450,087
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,336,802) (172,470)
Refundable construction deposit 600,000 --
- -------------------------------------------------------------------------------------
Cash used in investing activities (736,802) (172,470)
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 500,000 --
Principal payments on long-term debt and
capital lease obligations (157,342) (101,257)
Proceeds from issuance of convertible debentures 1,000,000 --
Advances from stockholder 60,000 20,000
Repayment of advances from stockholder (320,000)
Payment of debt issuance costs (172,772) --
- -------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 909,886 (81,257)
- -------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 683,747 196,360
Cash and cash equivalents, beginning of period 458,550 4,091,885
- -------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,142,297 $ 4,288,245
=====================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1
The interim accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the audited financial statements for the year
ended March 31, 1996, and footnotes thereto, included in the Company's Annual
Report on Form 10-KSB which was filed with the Securities and Exchange
Commission. Operating results for the three month period ended June 30, 1996 are
not necessarily indicative of the results of operations that may be expected for
the year ending March 31, 1997.
NOTE 2
On each of April 11, 1996 and May 21, 1996, the Company issued a convertible
debenture in the principal amount of $500,000. The debentures bear interest at
4% per annum and are due three years after issuance. The debentures are
convertible after 40 days into shares of common stock at a conversion price of
$3.95 and $4.25 per share, respectively. On May 22, 1996, the April 1996
debenture and accrued interest was converted into 127,152 shares of common
stock. On July 3, 1996, the May 1996 debenture and accrued interest was
converted into 118,215 shares of common stock.
NOTE 3
On August 6, 1996, the Company issued a Convertible Debenture in the principal
amount of $1,000,000 to Wales Securities Limited, a Guernsey corporation
("Wales"), and a Second Convertible Debenture in the principal amount of
$1,000,000 to Villandry Investments Ltd., a Guernsey corporation ("Villandry"),
in separate transactions pursuant to Regulation S as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended. Each Convertible Debenture is convertible into shares of Common Stock
of the Company at a conversion price per share equal to the lesser of
(x) $3.50, or (y) 85% of the average closing bid price of the Common Stock for
the three consecutive trading days immediately preceding the date of
conversion.
The purchasers have agreed that from the date of issuance until after the
forty-fifth day after such date (the "Restricted Period"), any offer, sale or
transfer of the Convertible Debentures or the shares of Common Stock issuable
upon conversion of the Convertible Debentures (including any interests
therein), shall be subject to various restrictions in accordance with
Regulation S.
The Convertible Debentures bear interest at the rate of four percent (4%) per
annum, payable quarterly. If not sooner converted, the principal amount of the
Convertible Debentures is due and payable on the second anniversary of
issuance.
In connection with the issuance of the Convertible Debentures, the Company
issued to Wales a five year warrant to purchase 17,142 shares of common stock
of the Company at an exercise price of $7.00 per share. A warrant containing
identical terms also was issued to Villandry.
<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Condensed Consolidated Financial Statements and notes thereto
included elsewhere in this Form 10-QSB. Except for the historical information
contained herein, the discussion in this Form 10-QSB contains certain forward
looking statements that involve risks and uncertainties, such as statements of
the Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Form 10-QSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-QSB.
The Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.
Three months ended June 30, 1996 compared to three months ended
June 30, 1995.
Chula Vista 6 was purchased August 17, 1995. The Ultraplex 14 at
Mission Grove is leased by the Company and began operating March 28, 1996.
Results from these two operations were not part of the quarter ended June 30,
1995, and are referred to as new theaters in the analysis that follows.
Total revenues for the three months ended June 30, 1996 increased 59.0%
to $4,260,403 from $2,679,501 for the three months ended June 30, 1995. The
increase consisted of a $1,081,006 or 57.4 %, increase in admission revenues, a
$437,039, or 57.1%, increase in concession revenues, and a $62,857, or 202.1%,
increase in other operating revenues. New theaters had admission revenues of
$1,102,922, concession sales of $487,698, and other operating revenues of
$37,962 making total revenues from new theaters $1,628,582. There was a decrease
in total revenues from continuing theaters of $47,680, or 1.8%. Management
believes the decrease in revenues at continuing theaters reflects lower movie
attendance based on less successful film releases.
Film rental and booking costs for the three months ended June 30, 1996
increased 51.6% to $1,603,729 from $1,057,668 for the three months ended June
30, 1995. The increase was due to additional film rental and booking costs paid
on increased admission revenues. New theaters had film rental and booking costs
of $594,404. As a percentage of admission revenues, film rental and booking
costs for the three months ended June 30, 1996 decreased to 54.1% from 56.2% for
the three months ended June 30, 1995.
Cost of concession supplies for the three months ended June 30, 1996
increased 17.2% to $358,984 from $306,353 for the three months ended June 30,
1995. The dollar increase is primarily due to additional concession costs
associated with increased concession sales. New theaters had concession costs of
$68,547. As a percentage of concession revenues, concession costs for the three
months ended June 30, 1996 decreased to 29.8% from 40.0% for the three months
ended June 30, 1995. Excluding the new theaters, the excess concession cost is
40% by contract with Pacific Concessions, Inc. ("PCI"). The new theaters operate
concessions internally and experience a lower cost than the fixed concession
costs at theaters utilizing PCI. The contract with PCI is tied to loans PCI has
made to the Company and there is a substantial penalty to ending the contract
earlier than its negotiated terms.
Theater operating expenses for the three months ended June 30, 1996
increased 50.8% to $1,275,509 from $845,581 for the three months ended June 30,
1995. As a percentage of total revenues, theater operating expenses decreased to
29.9% from 31.6% during the applicable periods. New theaters had operating
expenses of $486,118 which accounted for the increase, offset by a small
reduction in operating expenses at the other theaters.
General and administrative expenses for the three months ended June 30,
1996 increased 27.1% to $664,640 from $523,061 for the three months ended June
30, 1995. As a percentage of total revenues, general and administrative costs
decreased to 15.6% from 19.5% during the applicable periods.
Depreciation and amortization for the three months ended June 30, 1996
increased 92.5% to $225,641 from $117,231 for the three months ended June 30,
1995. The increase is a result of additional purchases of equipment and the
costs associated with the new theaters aggregating $89,178.
Interest expense for the three months ended June 30, 1996 increased to
$150,661 from $103,521 for the three months ended June 30, 1995. This is
attributable to new debt used to finance new theater development.
Interest income for the three months ended June 30, 1996 decreased to
$2,644 from $55,429 for the three months ended June 30, 1995. Lower bank cash
balances account for the lower interest income.
<PAGE> 9
As a result of the factors discussed above, the net loss for the three
months ended June 30, 1996 decreased 92.6% to $16,117, or $.00 per common share,
from $218,485, or $.04 per common share, for the three months ended June 30,
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box office
admissions and concession sales. Because its revenues are received in cash prior
to the payment of related expenses, the Company has an operating "float" which
partially finances its operations.
The Company's capital requirements arise principally in connection with new
theater openings and acquisitions of existing theaters. New theater openings
typically are financed with internally generated cash flow and long-term debt
financing arrangements for facilities and equipment. The Company has entered
into lease agreements requiring it to develop 80 screens. The Company plans to
construct additional theater complexes; however, no assurances can be given that
any additional theaters will be constructed, or, if constructed, that they will
be operated profitably.
The Company leases four theater properties and various equipment under
noncancelable operating lease agreements which expire through 2021 and require
various minimum annual rentals. At March 31, 1996, the aggregate future minimum
lease payments due under noncancelable operating leases was approximately
$41,838,000. As of August 1, 1996 the Company had also signed lease agreements
for eight additional theater locations. The new leases will require expected
minimum rental payments aggregating approximately $115,531,000 over the life
of the leases. Accordingly, existing minimum lease commitments as of March 31,
1996 plus those expected minimum commitments for the proposed theater
locations would aggregate minimum lease commitments of approximately
$157,369,000.
During the three months ended June 30, 1996, the Company generated cash of
$510,663 from operating activities, as compared to generating $450,087 in cash
from operating activities for the three months ended June 30, 1995.
During the three months ended June 30, 1996, the Company used cash in investing
activities of $736,802, as compared to $172,470 for the three months ended June
30, 1995. Purchase of equipment for new theaters accounts for the increase in
use of cash in investing activities.
During the three months ended June 30, 1996, the Company provided net cash of
$909,886 from financing activities, as compared to using $81,257 for the three
months ended June 30, 1995. The cash generated for the three months ended June
30, 1996 came from two debentures totaling $1,000,000 and a bank loan for
$500,000, partially offset by debt repayments. As of June 30, 1996, the Company
was in compliance with or had obtained waivers for, all bank loan covenants.
The Company, at June 30, 1996, had a working capital deficit of $695,122.
On April 11, 1996, the Company issued a $500,000 convertible debenture. On May
21, 1996, the Company issued a second $500,000 convertible debenture. On May 22,
1996, the April 1996 debenture and accrued interest was converted into 127,152
shares of common stock. On July 3, 1996, the May 1996 debenture and accrued
interest was converted into 118,215 shares of common stock.
<PAGE> 10
On August 6, 1996, the Company issued a Convertible Debenture in the principal
amount of $1,000,000 to Wales Securities Limited, a Guernsey corporation
("Wales"), and a second Convertible Debenture in the principal amount of
$1,000,000 to Villandry Investments Ltd., a Guernsey corporation ("Villandry"),
in separate transactions pursuant to Regulation S as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
Each Convertible Debenture is convertible into shares of Common Stock of the
Company at a conversion price per share equal to the lesser of (x) $3.50, or (y)
85% of the average closing bid price of the Common Stock for the three
consecutive trading days immediately proceeding the date of conversion.
The purchasers have agreed that from the date of issuance until after the
forty-fifth day after such date (the "Restricted Period"), any offer, sale or
transfer of the Convertible Debentures or the shares of common stock issuable
upon conversion of the Convertible Debentures (including any interests
therein), shall be subject to various restrictions in accordance with
Regulation S.
The Convertible Debentures bear interest at the rate of four percent (4%) per
annum, payable quarterly. If not sooner converted, the principal amount of the
Convertible Debentures is due and payable on the second anniversary of issuance.
In connection with the issuance of the Convertible Debentures, the Company
issued to Wales a five year warrant to purchase 17,142 shares of common stock of
the Company at an exercise price of $7.00 per share. A warrant containing
identical terms also was issued to Villandry.
Future events, including the problems, delays, expenses and difficulties
frequently encountered by similarly situated companies, as well as changes in
economic, regulatory or competitive conditions, may lead to cost increases that
could make the funds anticipated to be generated from the Company's operations
insufficient to fund the Company's expansion for the next 12 months. Management
may also determine that it is in the best interest of the Company to expand more
rapidly than currently intended, in which case additional financing will be
required. If any additional financing is required, there can be no assurances
that the Company will be able to obtain such additional financing on terms
acceptable to the Company and at the times required by the Company, or at all.
The Company has plans for significant expansion. In this regard, the Company has
entered into lease with respect to the development of 80 additional screens at
eight locations. The capital requirements necessary for the Company to complete
its development plans is estimated to be at least $10,000,000 in fiscal 1997.
Such developments will require the Company to raise substantial amounts of new
financing, in the form of additional equity or loan financing, during fiscal
1997. The Company believes it has, or can obtain, adequate capital and/or
financing resources to sustain operations through the year ending March 31,
1997.
There can be no assurance that the Company will be able to obtain additional
financing on terms that are acceptable to the Company and at the time
required by the Company, or at all. If the Company is unable to obtain such
additional equity or loan financing, the Company's financial condition and
results of operations will be materially adversely affected. Moreover, the
Company's estimates of its cash requirements to develop and operate such
theaters and service any debts incurred in connection with the development of
such theaters are based upon certain assumptions, including certain assumptions
as to the Company's revenues, earnings and other factors, and there can be no
assurance that such assumptions will prove to be accurate or that unbudgeted
costs will not be incurred. Future events, including the problems, delays,
expenses and difficulties frequently encountered by similarly situated
companies, as well as changes in economic, regulatory or competitive conditions,
may lead to cost increases that could have a material adverse effect on the
Company and its expansion and development plans. The Company used a substantial
portion of its available cash to purchase the Chula Vista 6 in August 1995 but
obtained mortgage financing in January 1996 for part of the purchase price of
such complex. If the Company is not successful in obtaining loans or equity
financing for future developments, it is unlikely that the Company will have
sufficient cash to open additional theaters.
The Company recently has financed certain expansion activities through the
private placement of debt instruments convertible into shares of its common
stock. In order to induce parties to purchase such securities, the instruments
are convertible into common stock of the Company at a conversion price that is
significantly lower than the price at which the Company's common stock is
trading. Because the Company believes that its history of operating losses,
limited equity, and rapid growth plans, it has limited options in acquiring the
additional debt and/or equity, the Company may issue debt and/or equity
securities, or securities convertible into its equity securities, on terms that
could result in substantial dilution to its existing shareholders. The Company
believes that in order to raise needed capital, it may be required to issue debt
or equity securities convertible into common stock at conversion prices that are
significantly lower than the current market price of the Company's common stock.
In addition, certain potential investors have indicated that they will require
that the conversion price adjust based on the current market price of the
Company's common stock. In the event of a significant decline in the market
price for the Company's common stock, such a conversion feature could result in
significant dilution to the Company's existing shareholders. In addition, the
Company has issued securities in offshore transactions pursuant to Regulation S,
promulgated by the Securities and Exchange Commission, and may do so in the
future. Because the purchasers of such securities are free to sell the
securities after holding them for a minimum of 40 days pursuant to Regulation S,
sales of securities by such holders may adversely impact the market price of the
Company's common stock.
The Company has had significant net losses in each fiscal year of its
operations. There can be no assurance as to when the Company will be profitable,
if at all. Continuing losses would have a material detrimental effect on the
liquidity and operations of the Company.
The Company has net operating loss ("NOL") carryforwards of approximately
$3,500,000 and $1,700,000 for Federal and California income tax purposes,
respectively. The Federal NOLs are available to offset future years taxable
income and expire in 2006 through 2011, while the California NOLs are available
to offset future years taxable income and expire in 1998 through 2001. The
utilization of these NOLs could be limited due to restrictions imposed under the
Federal and state laws upon a change in ownership.
At June 30, 1996, the Company's total net deferred income tax assets, a
significant portion of which relates to NOLs discussed above, have been
subjected to a 100% valuation allowance since realization of such assets is
not more likely than not in light of the Company's recurring losses from
operations.
<PAGE> 11
RISK FACTORS
History of Losses. The Company was founded in April 1989. Operations
began with the completion of construction of the Company's first theater in
November 1991. The Company has had significant net losses in each fiscal year of
its operations, including net losses of $2,086,418 and $638,585 in the fiscal
years ended March 31, 1995 and 1996, respectively.
Need for Additional Financing; Use of Cash. The Company has aggressive
expansion plans. In this regard, the Company has entered into lease and other
binding commitments with respect to the development of 80 additional screens at
eight locations during fiscal 1997. The capital requirements necessary for the
Company to complete its development plans is estimated to be at least
$10,000,000. Such developments will require the Company to raise substantial
amounts of new financing, in the form of additional equity investments or loan
financing, during fiscal 1997. There can be no assurance that the Company will
be able to obtain such additional financing on terms that are acceptable to the
Company and at the time required by the Company, or at all. If the Company is
unable to obtain such additional equity or loan financing, the Company's
financial condition and results of operations will be materially adversely
affected.
Potential Dilution. The Company recently has financed certain expansion
activities through the private placement of debt instruments convertible into
shares of its common stock. In order to induce parties to purchase such
securities, the instruments are convertible into common stock of the Company at
a conversion price that is significantly lower than the price at which the
Company's common stock is trading. The Company believes that because of its
history of operating losses, limited equity, and rapid growth plans, it has
limited options in acquiring the additional debt and/or equity the Company may
issue debt and/or equity securities, or securities convertible into its equity
securities, on terms that could result in substantial dilution to its existing
shareholders. The Company believes that in order to raise needed capital, it may
be required to issue debt or equity securities convertible into common stock at
conversion prices that are significantly lower than the current market price of
the Company's common stock. In addition, certain potential investors have
indicated that they will require that the conversion price adjust based on the
current market price of the Company's common stock. In the event of a
significant decline in the market price for the Company's common stock, such a
conversion feature could result in significant dilution to the Company's
existing shareholders. In addition, the Company has issued securities in
offshore transactions pursuant to Regulation S, promulgated by the Securities
and Exchange Commission, and may do so in the future. Because the purchasers of
such securities are free to sell the securities after holding them for a minimum
of 40 days pursuant to Regulation S, sales of securities by such holders may
adversely impact the market price of the Company's common stock.
Dependence on Films. The ability of the Company to operate successfully
depends upon a number of factors, the most important of which is the
availability of marketable motion pictures. Poor relationships with film
distributors, a disruption in the production of motion pictures or poor
commercial success of motion pictures would have a material adverse effect upon
the Company's business and results of operations.
Long-Term Lease Obligations; Periodic Rent Increases. The Company
operates most of its current theaters pursuant to long-term leases which provide
for large monthly minimum rental payments which increase periodically over the
terms of the leases. The Chula Vista 6 is owned by the Company and not subject
to such lease payments. The Company will be dependent upon increases in box
office and other revenues to meet these long-term lease obligations. In the
event that box office and other revenues decrease or do not significantly
increase, the Company will likely not have sufficient revenues to meet its lease
obligations, which would have a material adverse effect on the Company and its
results of operations.
Possible Delay in Theater Development and Other Construction Risks. In
connection with the development of its theaters, the Company typically receives
a construction budget from the property owner and oversees the design,
construction and completion of the theater site. The Company is generally
responsible for construction costs in excess of the negotiated construction
budget. As a result, the Company is subject to many of the risks inherent in the
development of real estate, many of which are beyond its control. Such risks
include governmental restrictions or changes in Federal, state or local laws or
regulations, strikes, adverse weather, material shortages and increases in the
costs of labor and materials. There can be no assurance that the Company will be
able to successfully complete any theater development in a timely manner or
within its proposed budget. The Company has experienced cost overruns and delays
in connection with the development of one of its existing theaters and
<PAGE> 12
no assurance can be given that such overruns and delays will not occur with
respect to any future theater developments. Failure of the Company to develop
its theaters within the construction budget allocated to it will likely have a
material adverse effect on the Company.
In addition, the Company will be dependent upon unaffiliated contractors
and project managers to complete the construction of its theaters. Although the
Company believes that it will be able to secure commitments from contractors,
project managers and other personnel needed to design and construct its
theaters, the inability to consummate a contract for the development of a
theater or any subsequent failure of any contractor or supplier to comply with
the terms of its agreement with the Company might have a material adverse effect
on the Company.
Dependence on Ability to Secure Favorable Locations and Lease Terms. The
success of the Company's operations is dependent on its ability to secure
favorable locations and lease terms for each of its theaters. There can be no
assurance that the Company will be able to locate suitable locations for its
theaters or lease such locations on terms favorable to it. The failure of the
Company to secure favorable locations for its theaters or to lease such
locations on favorable terms would have a material adverse effect on the
Company.
Competition. The motion picture exhibition industry is highly
competitive, particularly with respect to licensing films, attracting patrons
and finding new theater sites. There are a number of well-established
competitors with substantially greater financial and other resources than the
Company that operate in Southern California. Many of the Company's competitors,
including United Artists Theaters, Pacific Theaters, and Mann Theaters, each of
which operates one or more theaters in the same geographic vicinity as the
Company's current theaters, have been in existence significantly longer than the
Company and are both better established in the markets where the Company's
theaters are or may be located and better capitalized than the Company.
Competition can also come from other sources such as television, cable
television, pay television, direct satellite television and video tapes.
Many of the Company's competitors have established, long-term
relationships with the major motion picture distributors (Paramount,
Disney/Touchstone, Warner Brothers, Columbia/Tri-Star, Universal and 20th
Century Fox), who distribute a large percentage of successful films. Although
the Company attempts to identify film licensing zones in which there is no
substantial current competition, there can be no assurance that the Company's
competitors will not develop theaters in the same film zone as the Company's
theaters. To the extent that the Company directly competes with other theater
operators for patrons or for the licensing of first-run films, the Company may
be at a competitive disadvantage.
Although the Company attempts to develop theaters in geographic areas
that it believes have the potential to generate sufficient current and future
box office attendance and revenues, adverse economic or demographic
developments, over which the Company has no control, could have a material
adverse effect on box office revenues and attendance at the Company's theaters.
In addition, there can be no assurance that new theaters will not be developed
near the Company's theaters, which development might alter existing film zones
and might have a material adverse effect on the Company's revenues and earnings.
In addition, future advancements in motion picture exhibition technology and
equipment may result in the development of costly state-of-the-art theaters by
the Company's competitors which may make the Company's current theaters
obsolete. There can be no assurance that the Company will be financially able to
pay for or able to incorporate such new technology or equipment, if any, into
its existing or future theaters.
In recent years, alternative motion picture exhibition delivery systems
have been developed for the exhibition of filmed entertainment, including cable
television, direct satellite delivery, video cassettes and pay-per-view. An
expansion of such delivery systems could have a material adverse effect on
motion picture attendance in general and upon the Company's business and results
of operations.
Geographic Concentration. Each of the Company's current theaters are
located in San Diego or Riverside Counties, California and the proposed theaters
are all in Southern California or Mexico. As a result, negative economic or
demographic changes in Southern California will have a disproportionately large
and adverse effect on the success of the Company's operations as compared to
those of its competitors having a wider geographic distribution of theaters.
<PAGE> 13
Dependence on Concession Sales. Concession sales accounted for 29.4% and
27.9% of the Company's total revenues in the fiscal years ended March 31, 1995
and 1996, respectively. Therefore, the financial success of the Company depends,
to a significant extent, on its ability to successfully generate concession
sales in the future. The Company currently depends upon Pacific Concessions,
Inc. ("Pacific Concessions"), a creditor of the Company, to operate and supply
the concession stands located in certain of the Company's theaters. The
Company's concession agreements with Pacific Concessions may be terminated by
the Company prior to the expiration of their respective terms upon payment of a
substantial early termination fee.
Relationship with Pacific Concessions. The Company utilizes loans from
Pacific Concessions to fund a portion of its operations. In the Company's loan
agreements with Pacific Concessions, an event of default is defined to include,
among other things, any failure by the Company to make timely payments on its
loans from Pacific Concessions. In the event that an event of default occurs
under such loan agreements, Pacific Concessions has certain remedies against the
Company in addition to those afforded to it under applicable law, including, but
not limited to, requiring the Company to immediately pay all loan amounts due to
Pacific Concessions and requiring the Company to sell, liquidate or transfer any
of its theaters and related property to third parties in order to make timely
payments on its loans. If the Company were to default under any of its
agreements with Pacific Concessions, and if Pacific Concessions enforced its
rights thereunder, the Company would be materially adversely affected.
Control of the Company. As of June 30, 1996, the current officers and
directors of the Company own approximately 50.4% of the Common Stock (27.5%
assuming exercise in full of the Redeemable Warrants and conversion of
debentures). As a result, these individuals are in a position to materially
influence, if not control, the outcome of all matters requiring shareholder
approval, including the election of directors.
Dependence on Management. The Company is significantly dependent upon
the continued availability of John Ellison, Jr., Alan Grossberg and Jerry
Willits, its President and Chief Executive Officer, Executive Vice President and
Chief Financial Officer, and Vice President, respectively. The loss or
unavailability of any one of these officers to the Company for an extended
period of time could have a material adverse effect on the Company's business
operations and prospects. To the extent that the services of these officers are
unavailable to the Company for any reason, the Company will be required to
procure other personnel to manage and operate the Company and develop its
theaters. There can be no assurance that the Company will be able to locate or
employ such qualified personnel on acceptable terms. The Company has entered
into five-year employment agreements with each of Messrs. Ellison, Grossberg and
Willits. The Company maintains "key man" life insurance in the amount of
$1,250,000 on the lives of each of John Ellison, Jr., Alan Grossberg and Russell
Seheult (the Chairman of the Company's Board of Directors), with respect to
which the Company is the sole beneficiary.
Expansion; Management of Growth. The Company's plan of operation calls
for the rapid addition of new theaters and screens. The Company's ability to
expand will depend on a number of factors, including the selection and
availability of suitable locations, the hiring and training of sufficiently
skilled management and personnel and other factors, such as general economic and
demographic conditions, which are beyond the control of the Company. Such
growth, if it occurs, could place a significant strain on the Company's
management and operations. To manage such growth effectively, the Company will
be required to increase the depth of its financial, administrative and theater
management staffs. The Company has not conducted any efforts to determine the
feasibility of expanding its staff, but in the past has been able to identify
and hire qualified personnel available to satisfy its growth requirements. There
can be no assurance, however, that the Company will be able to identify and hire
additional qualified personnel or take such other steps as are necessary to
manage its growth, if any, effectively. In addition, there is no assurance that
the Company will be able to open any new theaters or that, if opened, those
theaters can be operated profitably.
Risks of International Expansion. The Company has signed agreements to
lease a 12 screen theater in Guadalajara, Mexico and a 10 screen theater in
Tijuana, Mexico through CinemaStar Luxury Theaters, S.A. de C.V., a Mexican
corporation in which the Company has a 75% ownership interest. To the extent
that the Company elects to develop theaters in Mexico or any other country, the
Company will be subject to the attendant risks of doing business abroad,
including adverse fluctuations in currency exchange rates, increases in foreign
taxes, changes in foreign regulations, political turmoil, deterioration in
international economic conditions and deterioration in diplomatic relations
between the United States and such foreign country. Recently the value of the
Mexican Peso has fallen in relation to the U.S. Dollar and Mexico is
experiencing substantial inflation.
<PAGE> 14
Fluctuations in Quarterly Results of Operations. The Company's revenues
have been seasonal, coinciding with the timing of major releases of motion
pictures by the major distributors. Generally, the most marketable motion
pictures have been released during the summer and the Thanksgiving through
year-end holiday season. The unexpected emergence of a hit film during other
periods can alter the traditional trend. The timing of such releases can have a
significant effect on the Company's results of operations, and the results of
one quarter are not necessarily indicative of results for subsequent quarters.
Potential Business Interruption Due to Earthquake. All of the Company's
current and proposed theaters are or will be located in seismically active areas
of Southern California and Mexico. In the event of an earthquake of significant
magnitude, damage to any of the Company's theaters or to surrounding areas could
cause a significant interruption or even a cessation of the Company's business,
which interruption or cessation would have a material adverse effect on the
Company, its operations and any proposed theater development. Although the
Company maintains business interruption insurance, such insurance does not
protect against business interruptions due to earthquakes.
Officer's Other Business Activities. Alan Grossberg, the Company's
Executive Vice President and Chief Financial Officer, devotes a portion of his
time and activities to the operation of a motion picture booking business.
Pursuant to the terms of his employment agreement, Mr. Grossberg will not be
required to devote a specific amount of time to his duties to the Company, but
will be required to devote only such time and attention as may be reasonably
necessary to perform and carry out such duties. It is anticipated that Mr.
Grossberg will devote approximately eight to 12 hours per week to his motion
picture booking business and 28 to 32 or more hours per week to the Company's
affairs. It is expected that a substantial portion of the booking services to be
rendered by Mr. Grossberg will be provided to the Company. To the extent that
Mr. Grossberg's film booking activities prevent him from devoting his complete
time and attention to the business of the Company, its operations and future
potential expansion could be materially adversely affected.
Conflicts of Interest. Several possible conflicts of interest may exist
between the Company and its officers and directors. In particular, certain
officers and directors have directly or indirectly advanced funds or guaranteed
loans or other obligations of the Company. As a result, a conflict of interest
may exist between these officers and directors and the Company with respect to
the determination of which obligations will be paid out of the Company's
operating cash flow and when such payments will be made. Another potential
conflict of interest may exist between Alan Grossberg and the Company with
respect to the amount of time devoted by Mr. Grossberg to the Company's affairs.
Pursuant to the terms of his employment agreement with the Company, Mr.
Grossberg is permitted to conduct film booking services for entities other than
the Company (so long as such services are not rendered to theaters owned or
operated in a film licensing zone in which the Company owns, operates or has a
commitment to lease or develop a theater). As a result, a conflict may result
between the demands placed on Mr. Grossberg by the Company and by his film
booking business. In addition, a conflict of interest between the Company and
Mr. Grossberg existed in connection with the negotiation of the terms of Mr.
Grossberg's film booking agreement with the Company. In order to reduce the
potential conflicts of interest between the Company and its officers and
directors, prior to entering into any transaction in which a potential material
conflict exists, the Company's policy has been and will continue to be to obtain
the approval of a majority of the disinterested members of the Company's Board
of Directors or the approval of holders of a majority of the shares of the
Company's Common Stock (excluding the shares owned by the interested party).
However, there can be no assurance that conflicts will be resolved in a manner
favorable to the Company.
Compensation of Executive Officers. Effective August 1994, the Company
entered into five-year employment agreements with each of John Ellison, Jr.,
Alan Grossberg and Jerry Willits, pursuant to which their annual salaries are
$197,106, $145,860 and $94,380, respectively, subject to annual increases of
between 10% and 12%. Mr. Grossberg (or an entity controlled by him) receives an
additional $52,000 per year in exchange for film booking services. In addition,
Messrs. Ellison, Grossberg and Willits will be entitled to receive substantial
bonuses based on a percentage of net income in the event that the Company's net
income for a given year exceeds $2 million and additional bonuses in the event
that the Company has net income in excess of $7 million in a given year. Each of
Messrs. Ellison, Grossberg and Willits will also receive an automobile allowance
of up to $650 per month and certain insurance and other benefits. Moreover, in
the event that Mr. Ellison or Mr. Grossberg
<PAGE> 15
is terminated or is not reelected or appointed as a director or executive
officer of the Company for any reason other than for an uncured breach of his
obligations under his employment agreement or his conviction of a felony
involving moral turpitude, he shall have the right to receive his annual salary
and bonuses for the remainder of the original five-year term of the contract.
The employment agreements described above require that the Company pay
substantial salaries during each year of the five year terms thereof to each of
Messrs. Ellison, Grossberg and Willits, regardless of the Company's financial
condition or performance. As a result, the agreements could have a material
adverse effect on the Company's financial performance and condition.
No Assurance of Continued NASDAQ Inclusion; Risk of Low-Priced
Securities. In order to qualify for continued listing on NASDAQ, a company,
among other things, must have $2,000,000 in total assets, $1,000,000 in capital
and surplus and a minimum bid price of $1.00 per share. If the Company is unable
to satisfy the maintenance requirements for quotation on NASDAQ, of which there
can be no assurance, it is anticipated that the Securities would be quoted in
the over-the-counter market National Quotation Bureau ("NQB") "pink sheets" or
on the NASD OTC Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or obtain accurate quotations as to the market
price of, the Securities, which may materially adversely affect the liquidity of
the market for the Securities. In addition, if the Securities are delisted from
NASDAQ, they might be subject to the low-priced security or so-called "penny
stock" rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For any transaction involving a penny
stock the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the Securities and Exchange
Commission (the "Commission") relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in the customer's account.
Although the Company believes that the Securities are not defined as a
penny stock due to their continued listing on NASDAQ, in the event the
Securities subsequently become characterized as a penny stock, the market
liquidity for the Securities could be severely affected. In such an event, the
regulations relating to penny stocks could limit the ability of broker-dealers
to sell the Securities.
Risk of Limitation of Use of Net Operating Loss Carryforwards. The
Company has net operating loss carryforwards of approximately $3,500,000 for
federal income tax purposes, which may be utilized through 2006 to 2011, and
approximately $1,700,000 for state income tax purposes, which may be utilized
through 1998 to 2001 (subject to certain limitations). The initial public
offering and certain other equity transactions resulted or may have resulted in
an "ownership change" as defined in Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the Company's use of its net
operating loss carryforwards to offset taxable income in any post-change period
may be subject to certain specified annual limitations. If there has been an
ownership change for purposes of the Code, there can be no assurance as to the
specific amount of net operating loss carryforwards, if any, available in any
post-change year since the calculation is based upon fact-dependent formula.
Possible Volatility of Common Stock and Redeemable Warrant Prices. The
trading prices of the Securities may respond to quarterly variations in
operating results and other events or factors, including, but not limited to,
the sale or attempted sale of a large amount of the Securities into the market.
In addition, the stock market has experienced extreme price and volume
fluctuations in recent years, particularly in the securities of smaller
companies. These fluctuations have had a substantial effect on the market prices
of many companies, often unrelated to the operating performance of the specific
companies, and similar events in the future may adversely affect the market
prices of the Securities.
Issuance of Preferred Stock. The Board of Directors of the Company has
the authority to issue up to 100,000 shares of preferred stock, without par
value, in one or more series and to fix the number of shares constituting any
such series, the voting powers, designation, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the shareholders.
The issuance of preferred stock by the Board of Directors could adversely affect
the rights of the holders of Common Stock. For example, such issuance could
result in a class of securities outstanding that would
<PAGE> 16
have preferences with respect to voting rights and dividends and in liquidation
over the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to the Common Stock.
The authority possessed by the Board of Directors to issue preferred
stock could potentially be used to discourage attempts by others to obtain
control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult to achieve or more costly. The
Board has designated 25,000 shares of preferred stock as Series A Preferred
Stock. There are no issued and outstanding shares of preferred stock and, there
are no agreements or understandings regarding the issuance of preferred stock.
Current Prospectus and State Registration Required To Exercise
Redeemable Warrants. The Redeemable Warrants are not exercisable unless, at the
time of the exercise, the Company has a current prospectus covering the shares
of Common Stock issuable upon exercise of the Redeemable Warrants and such
shares have been registered, qualified or deemed to be exempt under the
securities or "blue sky" laws of the state of residence of the exercising holder
of the Redeemable Warrants. Although the Company has undertaken to use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Redeemable Warrants registered or qualified on or before the exercise date and
to maintain a current prospectus relating thereto until the expiration of the
Redeemable Warrants, there is no assurance that it will be able to do so. The
value of the Redeemable Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Redeemable Warrants
is not kept effective or if such Common Stock is not qualified or exempt from
qualification in the states in which the holders of the Redeemable Warrants then
reside.
Investors may purchase the Redeemable Warrants in the secondary market
or may move to jurisdictions in which the shares underlying the Redeemable
Warrants are not registered or qualified during the period that the Redeemable
Warrants are exercisable. In such event, the Company will be unable to issue
shares to those persons desiring to exercise their Redeemable Warrants unless
and until the shares are qualified for sale in jurisdictions in which such
purchasers reside, or an exemption from such qualification exists in such
jurisdictions, and holders of the Redeemable Warrants would have no choice but
to attempt to sell the Redeemable Warrants in a jurisdiction where such sale is
permissible or allow them to expire unexercised.
Speculative Nature of Redeemable Warrants; Adverse Effect of Possible
Redemption of Redeemable Warrants. The Redeemable Warrants do not confer any
rights of Common Stock ownership on the holders thereof, such as voting rights
or the right to receive dividends, but rather merely represent the right to
acquire shares of Common Stock at a fixed price for a limited period of time.
Specifically, holders of the Redeemable Warrants may exercise their right to
acquire Common Stock and pay an exercise price of $6.00 per share, subject to
adjustment in the event of certain dilutive events, on or prior to February 6,
2000, after which date any unexercised Redeemable Warrants will expire and have
no further value. There can be no assurance that the market price of the Common
Stock will ever equal or exceed the exercise price of the Redeemable Warrants,
and consequently, whether it will ever be profitable for holders of the
Redeemable Warrants to exercise the Redeemable Warrants.
The Redeemable Warrants are subject to redemption by the Company, at any
time on 30 days prior written notice, at a price of $0.25 per Redeemable Warrant
if the average closing bid price for the Common Stock equals or exceeds $7.00
per share for any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
Redemption of the Redeemable Warrants could force the holders thereof to
exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for such holders to do so, to sell the Redeemable
Warrants at the current market price when they might otherwise wish to hold the
Redeemable Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Redeemable Warrants at the time
of redemption. The holders of the Redeemable Warrants will automatically forfeit
their rights to purchase shares of Common Stock issuable upon exercise of the
Redeemable Warrants unless the Redeemable Warrants are exercised before they are
redeemed.
On May 3, 1996, the Company filed a registration statement and other
related documents with the Securities and Exchange Commission in connection with
a potential temporary reduction in the exercise price of its Redeemable Warrants
and the issuance of certain new warrants to holders of Redeemable Warrants who
choose to exercise the Redeemable Warrants. The registration statement is
pending and no final decision has been made by the Company to proceed with the
proposed transaction. In the event the Company elects to proceed with the
transaction, the market value of the Company's Common Stock and Redeemable
Warrants could be materially and adversely affected.
<PAGE> 17
No Dividends. The Company has not paid any dividends on its Common Stock
and does not intend to pay any dividends in the foreseeable future. Earnings, if
any, are expected to be retained for use in expanding the Company's business.
Shares Eligible for Future Sale. Sales of substantial amounts of
Securities in the public market or the perception that such sales could occur
may adversely affect prevailing market prices of the Securities. The Redeemable
Warrants being offered by the Company and the Redeemable Warrants being
registered for the account of the Selling Security Holders entitle the holders
of such Redeemable Warrants to purchase up to an aggregate of 4,500,000 shares
of Common Stock at any time through February 7, 2000. In connection with the
initial public offering, the Company issued to A.S. Goldmen & Co., Inc.
Underwriter's Warrants to purchase up to 150,000 shares of Common Stock and/or
Redeemable Warrants to purchase up to an additional 150,000 shares of Common
Stock. Sales of either the Redeemable Warrants or the underlying shares of
Common Stock, or even the existence of the Redeemable Warrants, may depress the
price of the Common Stock or the Redeemable Warrants in the market for such
Securities. In addition, in the event that any holder of Redeemable Warrants
exercises his warrants, the percentage ownership of the Common Stock by current
shareholders would be diluted. Finally, the Company has reserved 587,500 shares
of Common Stock for issuance to key employees and officers pursuant to the
Company's Stock Option Plan. Fully-vested options to purchase 385,302 shares of
Common Stock have been granted pursuant to such Stock Option Plan. In the event
that these or any other stock options granted pursuant to such Stock Option Plan
are exercised, dilution of the percentage ownership of Common Stock owned by the
public investors will occur. Moreover, the mere existence of such options may
depress the price of the Common Stock.
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Offshore Securities Subscription Agreement between the
Company and Wales Securities Limited, dated August 6,
1996
4.2 Offshore Securities Subscription Agreement between the
Company and Villandry Investments Ltd., dated August 6,
1996
4.3 Offshore Warrant Agreement between the Company and Swan
Alley (Nominees) Limited, nominee of Wales Securities
Limited
4.4 Offshore Warrant Agreement between the Company and Swan
Alley (Nominees) Limited, nominee of Villandry
Investments Ltd.
10.1 Ground Lease with the City of San Marcos dated June 25,
1996
10.2 Coconut Grove Marketplace Sublease Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two Reports on Form 8-K during the quarter
1996. One was filed on April 11, 1996 and the other was filed
on June 6, 1996. The Reports on Form 8-K reported a debenture
issued on April 11, 1996 and a second debenture issued on
May 21, 1996.
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized
Dated: August 14, 1996
CinemaStar Luxury Theaters, Inc.
by: /s/ John Ellison, Jr.
----------------------------------
John Ellison, Jr.
President and Chief Executive Officer
(principal executive officer)
by: /s/ Alan Grossberg
-----------------------------------
Executive Vice President and Chief
Financial Officer (principal
financial officer and principal
accounting officer)
<PAGE> 20
Exhibit Index
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY NUMBERED PAGE
- -------------------------- --------------------------
4.1 Offshore Securities Subscription Agreement between the Company
and Wales Securities Limited, Dated August 6, 1996
4.2 Offshore Securities Subscription Agreement between the Company
and Villandry Investment Ltd., dated August 6, 1996
4.3 Offshore Warrant Agreement between the Company and Swan Alley
(Nominees) Limited, nominee of Wales Securities Limited
4.4 Offshore Warrant Agreement between the Company and Swan Alley
(Nominees) Limited, nominee of Villandry Investments Ltd.
10.1 Ground Lease with the City of San Marcos dated June 25, 1996
10.2 Coconut Grove Marketplace Sublease Agreement
27 Financial Data Schedule
<PAGE> 1
Exhibit 4.1
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT is executed in
reliance upon the transactional "safe harbor" afforded by Regulation S
("Regulation S") as promulgated by the Securities and Exchange Commission
("SEC"), under the Securities Act of 1933, as amended ("1933 Act").
THIS AGREEMENT has been executed by the undersigned in
connection with the placement of a Convertible Debenture in the principal amount
of One Million Dollars in substantially the form set forth in Exhibit "A"
(hereinafter referred to as the "Convertible Debenture") of CINEMASTAR LUXURY
THEATERS, INC. (the "Issuer") by the Issuer located at 431 College Boulevard,
Oceanside, California 92057, a corporation organized under the laws of
California, United States of America (hereinafter referred to as "Issuer"). The
undersigned (hereinafter referred to as "Buyer") is located at and is a
corporation organized under the laws of or is a citizen and resident of the
country set forth below the Buyer's signature, hereby represents and warrants
to, and agrees with the Issuer as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
a. PURCHASE PRICE. The undersigned hereby subscribes for the
Convertible Debenture and Warrants of the Issuer for a purchase price of
$1,000,000 (the "Convertible Debenture"), such Convertible Debenture convertible
into shares of common stock of the Issuer (the "Common Stock") at a conversion
price and on such terms as set forth in Exhibit "A" hereto, such Purchase Price
of One Million Dollars ($1,000,000) payable in United States Dollars. The
undersigned further subscribes for 17,142 Warrants (the "Warrants") of the
Issuer to be issued without additional consideration, each such Warrant
exercisable to purchase one (1) share of Common Stock of the Issuer from the
date of the closing to the fifth anniversary of the closing at an exercise price
equal to $7.00 per share.
b. FORM OF PAYMENT. The Buyer shall pay the Purchase Price by
delivering good funds in United States Dollars to the Escrow Agent for closing
by delivery of the Convertible Debenture and Warrants versus payment of the
Purchase Price.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
a. OFFSHORE TRANSACTION. The Buyer represents and warrants to
the Issuer as follows:
(i) The Buyer is not organized under the laws of or is
not a citizen or resident of the United States and, if not an individual, was
not formed for the purpose of investing in Regulation S securities, does not
have any of its securities registered under the Securities Exchange Act of 1934,
as amended
<PAGE> 2
(the "Exchange Act") and is not owned by U.S. Persons as defined in Regulation S
and herein;
(ii) At the time the buy order to purchase the
Convertible Debenture and the Warrants was originated, the Buyer was outside the
United States;
(iii) No offer to purchase the Convertible Debenture or
the Warrants was made in the United States nor were any "directed selling
efforts" as defined in Rule 902 of Regulation S made in the United States;
(iv) The Buyer is purchasing the Convertible Debenture
and the Warrants for the Buyer's own account and for investment purposes and not
with the view toward distribution of the Convertible Debenture, the Warrants,
the shares of Common Stock issuable upon conversion of the Convertible
Debenture, or the shares of Common Stock issuable upon exercise of the Warrants.
The Buyer does not have any contract, understanding or arrangement with any
person to sell, transfer or grant participation to such person or any third
person with respect to the Convertible Debenture, the Warrants, the shares of
Common Stock issuable upon conversion of the Convertible Debenture, or the
shares of Common Stock issuable upon exercise of the Warrants;
(v) All subsequent offers and sales of the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture and the shares of Common Stock issuable upon exercise
of the Warrants shall be made in compliance with Regulation S, pursuant to
registration of the securities under the 1933 Act or pursuant to an exemption
from such registration;
(vi) The Buyer understands that the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture and the shares of Common Stock issuable upon exercise
of the Warrants are being offered and sold to the Buyer in reliance on specific
safe harbor from the registration requirements of the 1933 Act and that the
Issuer is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of such safe harbor and the
suitability of the Buyer to acquire the Convertible Debenture, the Warrants, the
shares of common stock issuable upon conversion of the Convertible Debenture,
and the shares of Common Stock issuable upon exercise of the Warrants. The Buyer
understands the conditions of the exemption from registration afforded by
Section 4(1) of the 1933 Act and acknowledges that there can be no assurance
that it will be able to rely on such exemption;
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<PAGE> 3
(vii) The Buyer acknowledges that the Buyer has received
and reviewed the information supplied by the Issuer pursuant to Section 3h
hereof;
(viii) The Buyer agrees that from the date hereof until
after the forty-fifth (45th) day after the closing of the purchase of the
Convertible Debenture and Warrants hereunder (the "Restricted Period") upon any
offer, sale or transfer of the Convertible Debenture, the Warrants, the shares
of Common Stock issuable upon conversion of the Convertible Debenture or the
shares of Common Stock issuable upon exercise of the Warrants (including any
accrued but unpaid dividends thereon), that the Buyer, or any successor, or any
Professional (as defined in Section 3a(xvi) hereof) (except for sales of any
Convertible Debenture, Warrants, or shares of Common Stock registered under the
1933 Act or otherwise exempt from such registration) (a) will not sell to a U.S.
Person or to an account of or for the benefit of a U.S. Person or anyone
believed to be a U.S. Person; (b) will not engage in any efforts to sell the
Convertible Debenture, the Warrants, any shares of Common Stock issuable upon
conversion of the Convertible Debenture, or any shares of Common Stock issuable
upon exercise of the Warrants in the United States; (c) will, at the time the
buy order or transfer is originated, believe the buyer or transferee is outside
the United States; (d) will send to a Professional acting as agent or principal,
a confirmation or other notice stating that the Professional is subject to the
same restrictions on transfer to U.S. Persons or for the account of or benefit
of U.S. Persons during the Restricted Period as provided herein; and (e) will
not in connection with the Common Stock of the Issuer engage in the United
States in any short selling, option writing, equity swaps or other types of
hedging transactions or derivative transactions. The Issuer will not honor or
register and will not be obligated to honor or register any transfer in
violation of these provisions;
(ix) The Buyer understands that the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, and the shares of Common Stock issuable upon exercise
of the Warrants are being offered and sold to it in reliance on specific
provisions of federal and state securities laws and that the Issuer is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the applicability of such provisions. Accordingly, the Buyer agrees to
notify the Issuer of any events which would cause the representations and
warranties of the Buyer to be untrue or breached at any time after the execution
of this Agreement by the Buyer and prior to the expiration of the Restricted
Period;
(x) This Offshore Securities Subscription Agreement has
been duly authorized, validly executed, and delivered on behalf of the Buyer and
is a valid and binding agreement enforceable against the Buyer in accordance
with its
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<PAGE> 4
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally;
(xi) Any offering documents received by the Buyer
include statements to the effect that the Convertible Debenture, the Warrants,
the shares of Common Stock issuable upon conversion of the Convertible Debenture
and the shares of Common Stock issuable upon exercise of the Warrants have not
been registered under the 1933 Act and may not be offered or sold in the United
States or to U.S. persons during the Restricted Period, unless the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, and the shares of Common Stock issuable upon exercise
of the Warrants are registered or unless such resale is exempt from or not
subject to the registration requirements of the 1933 Act;
(xii) The Buyer, in making the decision to purchase the
Convertible Debenture, the Warrants, the shares of Common Stock issuable upon
conversion of the Convertible Debenture, and the shares of Common Stock issuable
upon exercise of the Warrants subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties and the Buyer believes that the Purchase
Price is reasonably related to the Restricted Period, the historical volatility
of the market price of the Common Stock of the Issuer, the current financial
condition of the Issuer, the dilution represented by the sale of the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, the shares of Common Stock issuable upon exercise of
the Warrants, and any other sales of the Common Stock of the Issuer occurring
simultaneously or concurrently herewith, current stock market conditions and
other relevant information concerning the Issuer; the Buyer acknowledges that it
is a sophisticated investor, that it has invested in other Regulation S
transactions by other issuers, and that an investment in the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture, and shares of Common Stock issuable upon exercise of the
Warrants involves a high degree of risk;
(xiii) The Buyer has not taken any action that would
cause the Issuer to be subject to any claim for commission or other fee or
remuneration by any broker, finder, or other person, except for the payments
otherwise expressly described in this Agreement to be paid through the Escrow
Agent, and the Buyer hereby indemnifies the Issuer against any such claim caused
by the actions of the Buyer or any of its employees or agents;
(xiv) In connection with the issuance of the Warrants
and the shares of Common Stock issuable upon exercise of the Warrants, the Buyer
agrees to satisfy the following requirements as set forth in Rule 902(m):
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<PAGE> 5
a. Each Warrant shall bear a legend stating that
the Warrant and the securities to be issued
upon its exercise have not been registered
under the 1933 Act and that the Warrant may not
be exercised by or on behalf of any U.S. Person
unless registered under the 1933 Act or an
exemption from such registration is available;
b. Each person exercising a Warrant will be
required to give: (i) written certification
that it is not a U.S. Person and the Warrant is
not being exercised on behalf of a U.S. Person;
or (ii) a written opinion of counsel acceptable
to the Issuer to the effect that the Warrant
and securities delivered upon exercise thereof
have been registered under the 1933 Act or are
exempt from registration thereunder; and
c. The Buyer shall agree to be bound by procedures
to ensure that the Warrant may not be exercised
within the United States and that the
securities may not be delivered within the
United States upon exercise, other than in
offerings deemed by counsel to the Issuer to
meet the definition of "offshore transaction"
pursuant to paragraph (i)(3) of Rule 902,
unless registered under the 1933 Act or an
exemption from such registration is available.
(xv) For purposes hereof, in general, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States or any
state or territory thereof; any estate of which any executor or administrator is
a U.S. Person; any trust of which any trustee is a U.S. Person; any agency or
branch of a foreign entity located in the United States; any nondiscretionary
account or similar account, other than estate or trust, held by a dealer or
other fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or other
fiduciary organized, incorporated or (if an individual) resident of the United
States; and any partnership or corporation if organized or incorporated under
the laws of any foreign jurisdiction and formed by a U.S. Person principally for
the purpose of investing in securities and not registered under the 1933 Act
unless it is organized and incorporated and owned by "accredited investors," as
defined under Rule 501(a) under the
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<PAGE> 6
1933 Act, who are not natural persons, estates or trusts. "U.S. Person" is
further defined in Rule 902(o) under the 1933 Act;
(xvi) A "Professional" is a "distributor" as defined in
Rule 902(c) under the 1933 Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of the
Convertible Debenture and shares of Common Stock issuable upon conversion of the
Convertible Debenture); a dealer as defined in Section 2(12) of the Exchange Act
(encompassing those who engage in the business of trading or dealing in
securities as agent, broker, or principal); or a person receiving a selling
concession, fee or other remuneration in respect of the Convertible Debenture,
the Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture, and shares of Common Stock issuable upon exercise of the Warrants
sold.
b. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Buyer
understands that no Federal, State or foreign governmental agency has passed on
or made any recommendation or endorsement of the Convertible Debenture, the
Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture or shares of Common Stock issuable upon exercise of the Warrants.
3. ISSUER REPRESENTATIONS. The Issuer hereby represents and warrants to
the Buyer as follows:
a. DUE ORGANIZATION. The Issuer has been duly organized, is
validly existing and is in good standing under the laws of the State of
California.
b. AUTHORIZATION. The Issuer has full legal right, power and
authority to enter into this Agreement, perform its obligations hereunder and to
sell to the Buyer the Convertible Debenture, the Warrants, the shares of Common
Stock issuable upon conversion of the Convertible Debenture and the shares of
Common Stock issuable upon exercise of the Warrants.
c. NO ADVERSE FACTS. Except as disclosed in the Issuer's
filings with the SEC, the Issuer knows of no fact or circumstances with
respect to the Issuer, its officers or directors which might materially
adversely affect the operations, properties, assets or condition, financial or
otherwise, of the Issuer and its subsidiaries, taken as a whole.
d. REGISTRATION OF COMMON STOCK. The Issuer's Common Stock is
registered, pursuant to Section 12(g) of the Exchange Act.
e. COMPLIANCE WITH LAWS. The Issuer is, to the best of its
knowledge and belief, in compliance in all material respects with all applicable
laws and regulations of federal, state and local government agencies having
jurisdiction over it, other than any non-compliance that would not have a
material
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<PAGE> 7
adverse effect on the Issuer and its subsidiaries, taken as a whole.
f. COMPLIANCE WITH REPORTING OBLIGATIONS. The Issuer is in
compliance in all material respects, to the extent applicable, with all
reporting obligations under Sections 12(b), 12(g) or 15(d) of the Exchange Act.
g. REPORTING ISSUER STATUS. The Issuer is a "reporting issuer"
as defined by Rule 902 of Regulation S. The Issuer is in full compliance, to the
extent applicable, with all reporting obligations under Sections 12(g) and 13 of
the Exchange Act. The Issuer has registered its Common Stock pursuant to Section
12(g) of the Exchange Act and the Common Stock trades on the NASDAQ Small
Capital Market.
h. CURRENT PUBLIC INFORMATION. The Issuer has furnished the
Buyer with copies of the Issuer's Post-Effective Amendment No. 1 to Form SB-2
Registration Statement, as filed with the SEC on July 24, 1996, and its Form
10-K/SB for the fiscal year ended March 31, 1996 (collectively the "SEC
Filings"), and other publicly available documents.
i. OFFSHORE TRANSACTION.
(i) The Issuer has not offered the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture and shares of Common Stock issuable upon exercise of the
Warrants which are the subject of this Agreement to any person in the United
States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person
as that term is defined in Regulation S.
(ii) At the time the buy order was originated, the
Issuer and/or its agents reasonably believed the Buyer was outside of the United
States and was not a U.S. Person.
(iii) The Issuer and/or its agents reasonably believe
that the transaction has not been pre-arranged with a buyer in the United
States.
(iv) The Issuer has no current intention to issue any
other Convertible Debenture, other than a Convertible Debenture of like tenor
that may be issued to a Guernsey corporation.
j. NO DIRECTED SELLING EFFORTS. In regard to the transactions
contemplated by this Agreement, the Issuer has not conducted any "directed
selling efforts" as that term is defined in Rule 902 of Regulation S nor has the
Issuer conducted any general solicitation relating to the offer and sale of the
securities which are the subject of this transaction to persons resident within
the United States or elsewhere.
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<PAGE> 8
k. CONCERNING THE CONVERTIBLE DEBENTURE, THE WARRANTS, SHARES
OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURE AND SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS. The Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture and shares of Common Stock issuable upon exercise of the
Warrants when issued and delivered will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holders thereof
to personal liability by reason of being such holders. There are no preemptive
rights of any shareholder of the Issuer. Upon issuance of such Convertible
Debenture, Warrants and shares in accordance with the terms of this Agreement,
the Convertible Debenture and the Warrant Agreement, and assuming that the Buyer
is without notice of any adverse claim, the Buyer will acquire valid title to
such instruments, free and clear of any liens, encumbrances, restrictions,
claims and commitments of every kind, other than such restrictions as are
expressly set forth in this Agreement, the Convertible Debenture and the Warrant
Agreement. The Issuer represents and warrants to the Buyer that the Issuer is
not aware of any such adverse claim.
l. SUBSCRIPTION AGREEMENT. This Offshore Securities
Subscription Agreement has been duly authorized, validly executed and delivered
on behalf of the Issuer and is a valid and binding agreement of the Issuer
enforceable against it in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
m. NON-CONTRAVENTION. The execution and delivery of this
Offshore Securities Subscription Agreement and the consummation of the issuance
of the Convertible Debenture, the Warrants, shares of Common Stock issuable upon
conversion of the Convertible Debenture, shares of Common Stock issuable upon
exercise of the Warrants, and the transactions contemplated by this Offshore
Securities Subscription Agreement do not and will not conflict with or result in
a breach by the Issuer of any of the terms or provisions of, or constitute a
default under, the articles of incorporation or bylaws of the Issuer or any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Issuer is a party or by which it or any of its respective properties
or assets are bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, Federal or State regulatory
body, administrative agency or other governmental body having jurisdiction over
the Issuer or any of its properties or assets.
n. APPROVALS. The Issuer is not aware of any authorization,
approval or consent of any governmental body which is legally required for the
issuance and sale of the Convertible Debenture, the Warrants, shares of Common
Stock issuable upon conversion of the Convertible Debenture, and shares of
Common
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<PAGE> 9
Stock issuable upon exercise of the Warrants, as contemplated by the Offshore
Securities Subscription Agreement.
o. MISCELLANEOUS. The sale of the Convertible Debenture, the
Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture, shares of Common Stock issuable upon exercise of the Warrants, and
any other shares of the Common Stock of the Issuer occurring simultaneously or
concurrently herewith, are not part of a plan or scheme to evade the
registration requirements of the 1933 Act. The Issuer believes that the Purchase
Price is reasonably related to the Restricted Period, the historical volatility
of the market price of the Common Stock of the Issuer, the current financial
condition of the Issuer, the dilution represented by the sale of the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture, shares of Common Stock issuable upon exercise of the
Warrants, and any other sales of the Common Stock of the Issuer occurring
simultaneously or concurrently herewith, current stock market conditions and
other relevant information concerning the Issuer.
4. SAFE HARBOR RELIANCE ON REPRESENTATIONS. The Buyer understands that
the offer and sale of the Convertible Debenture, the Warrants, shares of Common
Stock issuable upon conversion of the Convertible Debenture, and shares of
Common Stock issuable upon exercise of the Warrants are not being registered
under the 1933 Act. The Issuer is relying on the rules governing offers and
sales made outside the United States pursuant to Regulation S.
5. SHARE DELIVERY INSTRUCTIONS. The Convertible Debenture and the
Warrant certificates shall be delivered to the Buyer on a delivery versus
payment basis at such times and places to be mutually agreed. In connection
therewith, the Buyer shall deliver the Purchase Price for the Convertible
Debenture and the Warrants by electronic transfer of funds to Loselle Greenawalt
Kaplan Blair & Adler, 140 East 45th Street, New York, New York 10017 (the
"Escrow Agent") as follows:
<TABLE>
<CAPTION>
<S> <C>
Name of account: Loselle Greenawalt Kaplan Blair & Adler
IOLA Account,
Bank: Chemical Bank
ABA No. 021-000128
Account No. 128074204665
</TABLE>
The Buyer and the Issuer hereby acknowledge that they have been advised
by Escrow Agent that it is not representing the Buyer or the Issuer in the
transaction contemplated by this Agreement and is acting herein solely as an
Escrow Agent.
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<PAGE> 10
At the Closing, the Escrow Agent shall deliver the Convertible
Debenture and the Warrants to the Buyer against payment therefor. Upon delivery
of the Convertible Debenture and the Warrants, cash representing the Purchase
Price (less the placement fee payments to be made as described in Section 12
below) shall be wire transferred by the Escrow Agent to a bank account or bank
accounts specified by the Issuer.
6. APPOINTMENT OF ESCROW AGENT.
6.1. The Issuer and the Buyer hereby appoint the Escrow Agent
and the Escrow Agent hereby accepts its appointment as Escrow Agent pursuant to
the terms and conditions hereinafter set forth.
6.2. The Issuer shall cause to be delivered to the Escrow
Agent the Convertible Debenture and the Warrants, with the appropriate
Regulation S legend thereon, in the name of the Buyer. Escrow Agent shall hold
the Convertible Debenture and the Warrants until it receives, by wire transfer
as hereinbefore set forth, the Purchase Price. Upon receipt of the Purchase
Price, Escrow Agent shall disburse the Purchase Price in accordance with
instructions it receives from the Issuer. Escrow agent shall simultaneously
therewith deliver the Convertible Debenture and the Warrants to the Buyer,
pursuant to its instructions.
6.3 It is understood and agreed by the parties to this
Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to
be a trustee for any party for any purpose and is merely acting as a depository
and in a ministerial capacity hereunder with the limited duties herein
prescribed.
(b) The Escrow Agent does not have and shall not be
deemed to have any responsibility in respect of any instruction, certificate or
notice delivered to it other than faithfully to carry out the obligations
undertaken in this Agreement and to follow the directions in such instruction or
notice provided in accordance with the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to
be liable for any action taken or omitted by it in good faith and may rely upon,
and act in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In any
event, its liability hereunder shall be limited to liability for gross
negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act
in accordance with any certificate, instruction notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and signed by
both the Issuer and the Buyer.
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<PAGE> 11
(e) The Issuer and the Buyer agree to save harmless,
indemnify and defend the Escrow Agent for, from and against any loss, damage,
liability, judgment, cost and expense whatsoever, including attorney's fees,
suffered or incurred by it by reason of, or on account of, any misrepresentation
made to it in connection with its status or activities as Escrow Agent or as to
its status or activities as Escrow Agent under this Agreement except for any
loss, damage, liability, judgment, cost or expense resulting from gross
negligence, willful misconduct or bad faith on the part of the Escrow Agent.
(f) The Escrow Agent shall not be required to defend any
legal proceeding which may be instituted against it in respect of its status or
activities as Escrow Agent under this Agreement. If any such legal proceeding is
instituted against it, the Escrow Agent agrees promptly to give notice of such
proceeding to the Issuer and the Buyer. The Escrow Agent shall not be required
to institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission
or otherwise, be deemed to have waived any right or remedy it may have either
under this Agreement or generally, unless such waiver be in writing, and no
waiver shall be valid unless it is in writing, signed by the Escrow Agent, and
only to the extent expressly therein set forth. A waiver by the Escrow Agent
under the terms of this Agreement shall not be construed as a bar to, or waiver
of, the same or any other such right or remedy which it would otherwise have on
any other occasion.
(h) The Escrow Agent may refrain from taking any action
other than keeping all property held by it in escrow if it is uncertain
concerning its duties or rights under this Escrow Agreement or receives claims
or demands from any person or entity or receives a final judgment by a court of
competent jurisdiction if it deems that necessary or advisable.
7. CLOSING DATE. The date of the issuance and the sale of the
Convertible Debenture and the Warrants (the "closing") shall be August 1, 1996,
or such other mutually agreed to time.
8. CONDITIONS TO THE ISSUER'S OBLIGATION TO SELL. The Buyer understands
that the Issuer's obligation to sell the Convertible Debenture, the Warrants,
shares of Common Stock issuable upon conversion of the Convertible Debenture,
and shares of Common Stock issuable upon exercise of the Warrants is conditioned
upon:
a. The receipt and acceptance by the Issuer of this Offshore
Securities Subscription Agreement for the Convertible Debenture and Warrants as
evidenced by execution of this Subscription Agreement by the President or any
Vice President of the Issuer; and
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<PAGE> 12
b. Delivery to the Issuer by the Buyer of good funds as
payment in full for the purchase of the Convertible Debenture and Warrants.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Issuer
understands that the Buyer's obligation to purchase the Convertible Debenture
and Warrants is conditioned upon:
a. Acceptance by the Buyer of a satisfactory Offshore
Securities Subscription Agreement for the sale of the Convertible Debenture and
Warrants as evidenced by execution of this Offshore Securities Subscription
Agreement by a duly authorized officer of the Buyer; and
b. Delivery of the Convertible Debenture and Warrants
with restrictive legend as described herein.
10. RIGHT OF FIRST REFUSAL. The Issuer grants to the Buyer a right of
first refusal for any equity financing by the Issuer for a period of six (6)
months from the date of this Agreement; provided, however, that such right of
first refusal shall not apply to issuance by the Issuer to any purchaser(s) of
equity securities for a purchase price of $2 million or less during such period.
In the event the Issuer seeks to obtain additional equity financing during such
period, the Issuer agrees to deliver to the Buyer a written summary of the
proposed terms of such financing. The Buyer shall within five (5) days after
receipt of such summary advise the Issuer in writing of its willingness to make
an equity investment in the Issuer on the same or better terms than those set
forth in the summary. The Buyer's failure to deliver such notice to the Issuer
shall be deemed to constitute its waiver of its right of first refusal with
respect to such financing.
11. PLACEMENT FEE. The Issuer agrees to pay cash fees in an amount
equal to 13% of the Purchase Price to Dusseldorf Securities Limited, such fees
to be paid out of the escrow at the closing.
12. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, United States of
America. A facsimile transmission of this signed agreement shall be legal and
binding on all parties hereto.
13. INTERPRETATION. All terms used herein that are defined in
Regulation S under the 1933 Act shall have the meaning set forth therein.
14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument, and shall become effective when
one or more counterparts have been signed by all parties and delivered,
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<PAGE> 13
including delivery by facsimile transmission, to the other parties.
15. ISSUANCE TO NOMINEE. The Convertible Debenture certificate and the
Warrant certificate shall be issued to SWAN ALLEY (NOMINEES) LIMITED, the
Nominee of the Buyer's broker, Astaire & Partners Limited in London (the
"Nominee"). The Buyer shall take all actions necessary to assure the Nominee's
compliance with all of the terms and conditions contained in this Agreement and
in the Warrant Agreements. During the Restricted Period, the Buyer will retain
beneficial ownership the Convertible Denture and the Warrants.
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<PAGE> 14
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was
duly executed on the date first written below.
Dated this 6th day of the month of August, 1996.
Official Signatory of the CINEMASTAR LUXURY THEATERS,
Issuer: INC.
By: /s/ ALAN GROSSBERG
-----------------------------------------
Alan Grossberg,
Executive Vice President
Accepted this 6th day of the month of August, 1996.
Official Signatory of the
Buyer: WALES SECURITIES LIMITED,
a Guernsey corporation
By: /s/ WILLIAM RUSSELL MORRIS
-----------------------------------------
(Authorized Signature)
William Russell Morris, Director
---------------------------------------------
(Print Name and Title)
Le Menage
---------------------------------------------
(Address)
Rue Des Clercs
---------------------------------------------
St. Peter, Guernsey
---------------------------------------------
(Jurisdiction of
Incorporation
or Formation or Jurisdiction
of Citizenship and Residency)
LOSELLE GREENAWALT KAPLAN
BLAIR & ADLER, as Escrow Agent
By: Arlen G. Loselle, a partner
-----------------------------------------
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<PAGE> 15
Exhibit "A"
THIS CONVERTIBLE DEBENTURE AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF THIS
CONVERTIBLE DEBENTURE PURSUANT TO REGULATION S IS COMPLETED, NO CONVERTIBLE
DEBENTURE OR UNDERLYING SHARES MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING
ANY INTERESTS THEREIN) IN THE UNITED STATES OR TO A "U.S. PERSON" (AS DEFINED
IN REGULATION S PROMULGATED UNDER THE ACT) OR FOR THE ACCOUNT AND BENEFIT OF
ANY U.S. PERSON, EXCEPT AS PROVIDED IN SAID REGULATION S. ANY RESALE
THEREAFTER MUST BE PURSUANT TO REGISTRATION UNDER THE ACT OR AN AVAILABLE
EXEMPTION.
CINEMASTAR LUXURY THEATERS,INC.
a California corporation
Dated: August 2, 1996
NO. 4
CinemaStar Luxury Theaters, Inc., a California corporation (the
"Corporation"), is indebted and, for value received, promises to pay (subject
to the automatic conversion provisions set forth herein) to the order of SWAN
ALLEY (NOMINEES) LIMITED, on August 2, 1998 (the "Due Date"), upon
presentation of this Debenture, one million dollars ($1,000,000) (the
"Principal Amount") and to pay interest on the Principal Amount at the rate of
4% per annum as provided herein.
The Corporation covenants, promises and agrees as follows:
1. Interest. Interest which shall accrue on the Principal Amount shall
be payable in four quarterly installments on the first day of each fiscal
quarter beginning on the first day of the fiscal quarter following the fiscal
quarter in which payment of the Principal Amount is made to the Corporation.
Interest for the first quarter shall be pro rata for the number of days of the
first fiscal quarter after payment of the Principal Amount is made to the
Corporation. Interest shall be payable in cash or in shares of Common Stock,
at the election of the Corporation. Shares issued in payment of interest
obligations shall be valued based on the closing bid price of such shares on
the last trading day of the fiscal quarter for which such payment is made. All
accrued and unpaid interest shall be automatically converted into shares of
Common Stock on the Due Date. All payments of principal and interest or
principal or interest shall be made at c/o 14 New Street, St. Peter Port,
Guernsey, Channel Islands, or at such other place as may be designated in
writing by the holder hereof.
2. Conversion.
<PAGE> 16
2.1 Subject to the automatic conversion of any principal
and interest outstanding on the Due Date as set forth in paragraph 2.5 below,
the holder of this Debenture shall have the right, at such holder's option, at
any time, to convert all or part of the principal and accrued interest of this
Debenture into such number of fully paid and nonassessable shares of Common
Stock of the Corporation (the "Common Stock") as shall be provided herein.
2.2 The holder of this Debenture may exercise the
conversion right provided in this Section 3 by giving written notice (the
"Conversion Notice") to Continental Stock Transfer Company (the "Transfer
Agent") of the exercise of such right, in whole or in part, and stating the
name or names in which the stock certificate or stock certificates for the
shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied by
the Debenture. The number of shares of Common Stock that shall be issuable upon
conversion of the Debenture shall equal the amount of the outstanding principal
and accrued interest for which a Conversion Notice is given, divided by a
conversion price (the "Conversion Price") equal to the lesser of (x) $3.50, or
(y) 85% of the average closing bid price of the Common Stock as reported by the
National Association of Securities Dealers for the three (3) consecutive
trading days immediately preceding the Date of Conversion.
2.3 Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of this Debenture. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up to the nearest whole share. In the case of a
dispute as to the calculation of the Conversion Rate, the Corporation's
calculation shall be deemed conclusive absent manifest error. In order to
convert this Debenture into full shares of Common Stock, the holder shall
surrender this Debenture, duly endorsed, by overnight courier to the office of
the Transfer Agent, together with the Conversion Notice, (with a copy to the
Corporation at its principal executive office) that it elects to convert the
same, the amount of principal and interest to be so converted, and a
calculation of the Conversion Rate (with an advance copy of the certificate(s)
and the notice by facsimile); provided, however, that the Transfer Agent shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless either the Debenture is delivered to the
Transfer Agent as provided above, or the holder notifies the Transfer Agent
that such Debenture has been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such debenture.
The Transfer Agent shall use commercially reasonable efforts to issue
and deliver within two (2) business days after delivery to the Transfer Agent
of such Debenture, to such holder at the address of the holder on the debenture
records of the Corporation, a certificate or certificates for the number of
<PAGE> 17
shares of Common Stock to which it shall be entitled as aforesaid. The date on
which notice of conversion is given (the "Date of Conversion") shall be deemed
to be the date set forth in such notice of conversion provided that the
original Debenture to be converted is received by the Transfer Agent within
five business days thereafter and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. If the original Debenture to be converted is not received by the
Transfer Agent within five business days after the Date of Conversion, the
notice of conversion shall become null and void.
2.4 Reservation of Shares. The Corporation shall at all
times reserve and keep available, free from preemptive rights, unissued or
treasury shares of Common Stock sufficient to effect the conversion of this
Debenture; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding principal and interest of this Debenture, the Corporation will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
2.5 Automatic Conversion. On the second anniversary of
the issuance of this Debenture, all outstanding principal and interest of the
Debenture shall automatically convert into fully-paid and non-assessable shares
of Common Stock at a Conversion Rate for each share of Common Stock calculated
in accordance with the formula in Paragraph 2.2 above.
3. Default.
3.1 The entire unpaid and unredeemed balance of the
Principal Amount and all Interest accrued and unpaid on this Debenture shall,
at the election of the holder, be and become immediately due and payable upon
the occurrence of any of the following events (a "Default Event"):
(a) The non-payment by the Corporation when due of principal and
interest or of any other payment as provided in this Debenture.
(b) If the Corporation (i) applies for or consents in writing to
the appointment of, or if there shall be a taking of possession by, a receiver,
trustee or liquidator for the Corporation of all or substantially all of its
property; (ii) admits in writing its inability to pay its debts as they become
due; (iii) makes a general assignment for the benefit of creditors; (iv) files
any petition for relief under the Bankruptcy Code or any similar federal or
state statute; (v) defaults with respect to any evidence of indebtedness or
liability for borrowed money, or any such indebtedness shall not be paid as and
when due and payable; or (vi) has assessed or imposed against it, or if there
shall exist, any general or specific lien for any federal, state or local taxes
or charges
<PAGE> 18
against any of its property or assets other than liens for taxes not yet due or
being contested in good faith.
(c) Any failure by the Corporation to issue and deliver shares
of Common Stock as provided herein upon conversion of this Debenture.
Notwithstanding the foregoing, the Corporation shall have thirty days (30) days
from the receipt of a written Notice of Default to cure said Default Event, and
no acceleration of payments hereunder shall be deemed to have occurred until
the thirtieth day after the Corporation's receipt of a written Notice of
Default from the holder of this Debenture. Upon such cure, the terms of this
Debenture shall continue in effect.
3.2 Each right, power or remedy of the holder hereof upon
the occurrence of any Default Event as provided for in this Debenture or now or
hereafter existing at law or in equity or by statute shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for in this Debenture or now or hereafter existing at law or in equity
or by statute, and the exercise or beginning of the exercise by the holder or
transferee hereof of any one or more of such rights, powers or remedies shall
not preclude the simultaneous or later exercise by the holder hereof of any or
all such other rights, powers or remedies.
4. Anti-Dilution Adjustments. The conversion price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock issuable upon conversion of the Debenture,
the conversion price in effect immediately prior to such subdivision shall be
proportionately decreased, and in case the Company shall at any time combine
the outstanding shares of Common Stock issuable upon conversion of the
Debenture, the conversion price in effect immediately prior to such combination
shall be proportionately increased. Any such adjustment shall be effective at
the close of business on the date such subdivision or combination shall become
effective.
(b) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from
no par value to par value), or in case of a consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
a reclassification or change of outstanding shares of Common Stock of the class
issuable upon the conversion of this Debenture except where the security
holders of the Company are entitled to receive securities of another issuer),
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute an
instrument providing that the holder of
<PAGE> 19
this Debenture shall have the right thereafter to convert this Debenture into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale, or
conveyance by the holder of the number of shares of Common Stock of the Company
into which this Debenture might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale, or conveyance. Such
interest shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The foregoing
provisions of this Debenture shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
5. Failure to Act and Waiver. No failure or delay by the holder
hereof to insist upon the strict performance of any term of this Debenture or
to exercise any right, power or remedy consequent upon a Default Event
hereunder shall constitute a waiver of any such term or of any such breach, or
preclude the holder hereof from exercising any such right, power or remedy at
any later time or times. By accepting payment after the due date of any amount
payable under this Debenture, the holder hereof shall not be deemed to waive
the right either to require payment when due of all other amounts payable under
this Debenture, or to declare a Default Event for failure to effect such
payment of any such other amount.
The failure of the holder of this Debenture to give notice of any failure
or breach of the Corporation under this Debenture shall not constitute a waiver
of any right or remedy in respect of such continuing failure or breach or any
subsequent failure or breach.
6. Consent to Jurisdiction. The Corporation hereby agrees and
consents that any action, suit or proceeding arising out of this Debenture may
be brought in any appropriate court in the State of California, including the
United States District Court for the Central District of California or in any
other court having jurisdiction over the subject matter, all at the sole
election of the holder hereof, and by the issuance and execution of this
Debenture the Corporation irrevocably consents to the jurisdiction of each such
court.
7. Transfer/Negotiability This Debenture shall be transferred
on the books of the Corporation only by the registered holder hereof or by
his/her attorney duly authorized in writing or by delivery to the Corporation
of a duly executed Assignment substantially in the form attached hereto as
Exhibit A. The foregoing notwithstanding, the Corporation shall not transfer
this Debenture nor any of the shares of common stock issuable upon conversion
in the United States or to a "U.S. Person" (as defined in Regulation S
promulgated under the Act) or for the account and benefit of any U.S. Person,
except as provided in said Regulation S, until forty-five (45) days from the
date of issuance of this Debenture. The Corporation shall be entitled to treat
any holder of record of the Debenture as the
<PAGE> 20
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in this Debenture in the name of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the Laws of California. Subject to receipt of a duly executed
Assignment, the Debenture shall be assigned by the holder thereof for value, to
a Holder in Due Course as defined by the Uniform Commercial Code. The
Corporation hereby makes an unconditional promise to repay the principal and
accrued interest of this Debenture on or before the date due to any such Holder
in Due Course and acknowledges that repayment to a Holder in Due Course is not
subject to any claims or defenses the Corporation may have against the Lender.
8. Notices. All notices and communications under this Debenture
shall be in writing and shall be either delivered in person or accompanied by a
signed receipt therefor or mailed first-class United States certified mail,
return receipt requested, postage prepaid, and addressed as follows:
if to the Corporation, to:
CinemaStar Luxury Theaters, Inc.
431 College Blvd.
Oceanside, CA 92057-5435
with a copy to:
Joel I. Bennett, Esq.
Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067-5010
and, if to the holder of this Debenture, to the address of such holder as it
appears in the books of the Corporation. Any notice of communication shall be
deemed given and received as of the date of such delivery or three days after
deposit with an overnight courier service or five (5) days after deposit with
the U.S. Postal Service as first class air mail.
9. Governing Law. This Debenture shall be governed by and
construed and enforced in accordance with the laws of the State of California,
or, where applicable, the laws of the United States, without regard to
conflicts of law.
10. Incorporation by Reference. The terms and conditions set
forth in that certain Offshore Securities Subscription Agreement between the
corporation and Wales Securities Limited are incorporated herein by this
reference, and any transferee or subsequent holder of this Debenture (or the
shares of common stock issued upon conversion thereof, during the Restricted
Period as defined by Regulation S) shall be subject to and bound by the
provisions of such agreement.
IN WITNESS WHEREOF, the Corporation has caused this Debenture to be duly
executed.
<PAGE> 21
CINEMASTAR LUXURY THEATERS, INC.
By: ______________________________
Alan Grossberg
Executive Vice President
Attest:
_____________________________
Jon Meloan
Secretary
<PAGE> 22
Exhibit A
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns to:
________________________ the three year 4% Convertible Debenture of CINEMASTAR
LUXURY THEATERS, INC., No. and hereby irrevocably appoints ,
Attorney, to transfer said debenture on the books of the within named
corporation, with full power of substitution in the premises.
WITNESS my hand and seal this day of , 199_.
(SEAL)
(SEAL)
WITNESS:
<PAGE> 1
Exhibit 4.2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT is executed in
reliance upon the transactional "safe harbor" afforded by Regulation S
("Regulation S") as promulgated by the Securities and Exchange Commission
("SEC"), under the Securities Act of 1933, as amended ("1933 Act").
THIS AGREEMENT has been executed by the undersigned in
connection with the placement of a Convertible Debenture in the principal amount
of One Million Dollars in substantially the form set forth in Exhibit "A"
(hereinafter referred to as the "Convertible Debenture") of CINEMASTAR LUXURY
THEATERS, INC. (the "Issuer") by the Issuer located at 431 College Boulevard,
Oceanside, California 92057, a corporation organized under the laws of
California, United States of America (hereinafter referred to as "Issuer"). The
undersigned (hereinafter referred to as "Buyer") is located at and is a
corporation organized under the laws of or is a citizen and resident of the
country set forth below the Buyer's signature, hereby represents and warrants
to, and agrees with the Issuer as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
a. PURCHASE PRICE. The undersigned hereby subscribes for the
Convertible Debenture and Warrants of the Issuer for a purchase price of
$1,000,000 (the "Convertible Debenture"), such Convertible Debenture convertible
into shares of common stock of the Issuer (the "Common Stock") at a conversion
price and on such terms as set forth in Exhibit "A" hereto, such Purchase Price
of One Million Dollars ($1,000,000) payable in United States Dollars. The
undersigned further subscribes for 17,142 Warrants (the "Warrants") of the
Issuer to be issued without additional consideration, each such Warrant
exercisable to purchase one (1) share of Common Stock of the Issuer from the
date of the closing to the fifth anniversary of the closing at an exercise price
equal to $7.00 per share.
b. FORM OF PAYMENT. The Buyer shall pay the Purchase Price by
delivering good funds in United States Dollars to the Escrow Agent for closing
by delivery of the Convertible Debenture and Warrants versus payment of the
Purchase Price.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
a. OFFSHORE TRANSACTION. The Buyer represents and warrants to
the Issuer as follows:
(i) The Buyer is not organized under the laws of or is
not a citizen or resident of the United States and, if not an individual, was
not formed for the purpose of investing in Regulation S securities, does not
have any of its securities registered under the Securities Exchange Act of 1934,
as amended
<PAGE> 2
(the "Exchange Act") and is not owned by U.S. Persons as defined in Regulation S
and herein;
(ii) At the time the buy order to purchase the
Convertible Debenture and the Warrants was originated, the Buyer was outside the
United States;
(iii) No offer to purchase the Convertible Debenture or
the Warrants was made in the United States nor were any "directed selling
efforts" as defined in Rule 902 of Regulation S made in the United States;
(iv) The Buyer is purchasing the Convertible Debenture
and the Warrants for the Buyer's own account and for investment purposes and not
with the view toward distribution of the Convertible Debenture, the Warrants,
the shares of Common Stock issuable upon conversion of the Convertible
Debenture, or the shares of Common Stock issuable upon exercise of the Warrants.
The Buyer does not have any contract, understanding or arrangement with any
person to sell, transfer or grant participation to such person or any third
person with respect to the Convertible Debenture, the Warrants, the shares of
Common Stock issuable upon conversion of the Convertible Debenture, or the
shares of Common Stock issuable upon exercise of the Warrants;
(v) All subsequent offers and sales of the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture and the shares of Common Stock issuable upon exercise
of the Warrants shall be made in compliance with Regulation S, pursuant to
registration of the securities under the 1933 Act or pursuant to an exemption
from such registration;
(vi) The Buyer understands that the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture and the shares of Common Stock issuable upon exercise
of the Warrants are being offered and sold to the Buyer in reliance on specific
safe harbor from the registration requirements of the 1933 Act and that the
Issuer is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of such safe harbor and the
suitability of the Buyer to acquire the Convertible Debenture, the Warrants, the
shares of common stock issuable upon conversion of the Convertible Debenture,
and the shares of Common Stock issuable upon exercise of the Warrants. The Buyer
understands the conditions of the exemption from registration afforded by
Section 4(1) of the 1933 Act and acknowledges that there can be no assurance
that it will be able to rely on such exemption;
-2-
<PAGE> 3
(vii) The Buyer acknowledges that the Buyer has received
and reviewed the information supplied by the Issuer pursuant to Section 3h
hereof;
(viii) The Buyer agrees that from the date hereof until
after the forty-fifth (45th) day after the closing of the purchase of the
Convertible Debenture and Warrants hereunder (the "Restricted Period") upon any
offer, sale or transfer of the Convertible Debenture, the Warrants, the shares
of Common Stock issuable upon conversion of the Convertible Debenture or the
shares of Common Stock issuable upon exercise of the Warrants (including any
accrued but unpaid dividends thereon), that the Buyer, or any successor, or any
Professional (as defined in Section 3a(xvi) hereof) (except for sales of any
Convertible Debenture, Warrants, or shares of Common Stock registered under the
1933 Act or otherwise exempt from such registration) (a) will not sell to a U.S.
Person or to an account of or for the benefit of a U.S. Person or anyone
believed to be a U.S. Person; (b) will not engage in any efforts to sell the
Convertible Debenture, the Warrants, any shares of Common Stock issuable upon
conversion of the Convertible Debenture, or any shares of Common Stock issuable
upon exercise of the Warrants in the United States; (c) will, at the time the
buy order or transfer is originated, believe the buyer or transferee is outside
the United States; (d) will send to a Professional acting as agent or principal,
a confirmation or other notice stating that the Professional is subject to the
same restrictions on transfer to U.S. Persons or for the account of or benefit
of U.S. Persons during the Restricted Period as provided herein; and (e) will
not in connection with the Common Stock of the Issuer engage in the United
States in any short selling, option writing, equity swaps or other types of
hedging transactions or derivative transactions. The Issuer will not honor or
register and will not be obligated to honor or register any transfer in
violation of these provisions;
(ix) The Buyer understands that the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, and the shares of Common Stock issuable upon exercise
of the Warrants are being offered and sold to it in reliance on specific
provisions of federal and state securities laws and that the Issuer is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the applicability of such provisions. Accordingly, the Buyer agrees to
notify the Issuer of any events which would cause the representations and
warranties of the Buyer to be untrue or breached at any time after the execution
of this Agreement by the Buyer and prior to the expiration of the Restricted
Period;
(x) This Offshore Securities Subscription Agreement has
been duly authorized, validly executed, and delivered on behalf of the Buyer and
is a valid and binding agreement enforceable against the Buyer in accordance
with its
-3-
<PAGE> 4
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally;
(xi) Any offering documents received by the Buyer
include statements to the effect that the Convertible Debenture, the Warrants,
the shares of Common Stock issuable upon conversion of the Convertible Debenture
and the shares of Common Stock issuable upon exercise of the Warrants have not
been registered under the 1933 Act and may not be offered or sold in the United
States or to U.S. persons during the Restricted Period, unless the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, and the shares of Common Stock issuable upon exercise
of the Warrants are registered or unless such resale is exempt from or not
subject to the registration requirements of the 1933 Act;
(xii) The Buyer, in making the decision to purchase the
Convertible Debenture, the Warrants, the shares of Common Stock issuable upon
conversion of the Convertible Debenture, and the shares of Common Stock issuable
upon exercise of the Warrants subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties and the Buyer believes that the Purchase
Price is reasonably related to the Restricted Period, the historical volatility
of the market price of the Common Stock of the Issuer, the current financial
condition of the Issuer, the dilution represented by the sale of the Convertible
Debenture, the Warrants, the shares of Common Stock issuable upon conversion of
the Convertible Debenture, the shares of Common Stock issuable upon exercise of
the Warrants, and any other sales of the Common Stock of the Issuer occurring
simultaneously or concurrently herewith, current stock market conditions and
other relevant information concerning the Issuer; the Buyer acknowledges that it
is a sophisticated investor, that it has invested in other Regulation S
transactions by other issuers, and that an investment in the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture, and shares of Common Stock issuable upon exercise of the
Warrants involves a high degree of risk;
(xiii) The Buyer has not taken any action that would
cause the Issuer to be subject to any claim for commission or other fee or
remuneration by any broker, finder, or other person, except for the payments
otherwise expressly described in this Agreement to be paid through the Escrow
Agent, and the Buyer hereby indemnifies the Issuer against any such claim caused
by the actions of the Buyer or any of its employees or agents;
(xiv) In connection with the issuance of the Warrants
and the shares of Common Stock issuable upon exercise of the Warrants, the Buyer
agrees to satisfy the following requirements as set forth in Rule 902(m):
-4-
<PAGE> 5
a. Each Warrant shall bear a legend stating that
the Warrant and the securities to be issued
upon its exercise have not been registered
under the 1933 Act and that the Warrant may not
be exercised by or on behalf of any U.S. Person
unless registered under the 1933 Act or an
exemption from such registration is available;
b. Each person exercising a Warrant will be
required to give: (i) written certification
that it is not a U.S. Person and the Warrant is
not being exercised on behalf of a U.S. Person;
or (ii) a written opinion of counsel acceptable
to the Issuer to the effect that the Warrant
and securities delivered upon exercise thereof
have been registered under the 1933 Act or are
exempt from registration thereunder; and
c. The Buyer shall agree to be bound by procedures
to ensure that the Warrant may not be exercised
within the United States and that the
securities may not be delivered within the
United States upon exercise, other than in
offerings deemed by counsel to the Issuer to
meet the definition of "offshore transaction"
pursuant to paragraph (i)(3) of Rule 902,
unless registered under the 1933 Act or an
exemption from such registration is available.
(xv) For purposes hereof, in general, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States or any
state or territory thereof; any estate of which any executor or administrator is
a U.S. Person; any trust of which any trustee is a U.S. Person; any agency or
branch of a foreign entity located in the United States; any nondiscretionary
account or similar account, other than estate or trust, held by a dealer or
other fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or other
fiduciary organized, incorporated or (if an individual) resident of the United
States; and any partnership or corporation if organized or incorporated under
the laws of any foreign jurisdiction and formed by a U.S. Person principally for
the purpose of investing in securities and not registered under the 1933 Act
unless it is organized and incorporated and owned by "accredited investors," as
defined under Rule 501(a) under the
-5-
<PAGE> 6
1933 Act, who are not natural persons, estates or trusts. "U.S. Person" is
further defined in Rule 902(o) under the 1933 Act;
(xvi) A "Professional" is a "distributor" as defined in
Rule 902(c) under the 1933 Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of the
Convertible Debenture and shares of Common Stock issuable upon conversion of the
Convertible Debenture); a dealer as defined in Section 2(12) of the Exchange Act
(encompassing those who engage in the business of trading or dealing in
securities as agent, broker, or principal); or a person receiving a selling
concession, fee or other remuneration in respect of the Convertible Debenture,
the Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture, and shares of Common Stock issuable upon exercise of the Warrants
sold.
b. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Buyer
understands that no Federal, State or foreign governmental agency has passed on
or made any recommendation or endorsement of the Convertible Debenture, the
Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture or shares of Common Stock issuable upon exercise of the Warrants.
3. ISSUER REPRESENTATIONS. The Issuer hereby represents and warrants to
the Buyer as follows:
a. DUE ORGANIZATION. The Issuer has been duly organized, is
validly existing and is in good standing under the laws of the State of
California.
b. AUTHORIZATION. The Issuer has full legal right, power and
authority to enter into this Agreement, perform its obligations hereunder and to
sell to the Buyer the Convertible Debenture, the Warrants, the shares of Common
Stock issuable upon conversion of the Convertible Debenture and the shares of
Common Stock issuable upon exercise of the Warrants.
c. NO ADVERSE FACTS. Except as disclosed in the Issuer's
filings with the SEC, the Issuer knows of no fact or circumstances with respect
to the Issuer, its officers or directors which might materially adversely affect
the operations, properties, assets or condition, financial or otherwise, of the
Issuer and its subsidiaries, taken as a whole.
d. REGISTRATION OF COMMON STOCK. The Issuer's Common Stock is
registered, pursuant to Section 12(g) of the Exchange Act.
e. COMPLIANCE WITH LAWS. The Issuer is, to the best of its
knowledge and belief, in compliance in all material respects with all applicable
laws and regulations of federal, state and local government agencies having
jurisdiction over it, other than any non-compliance that would not have a
material
-6-
<PAGE> 7
adverse effect on the Issuer and its subsidiaries, taken as a whole.
f. COMPLIANCE WITH REPORTING OBLIGATIONS. The Issuer is in
compliance in all material respects, to the extent applicable, with all
reporting obligations under Sections 12(b), 12(g) or 15(d) of the Exchange Act.
g. REPORTING ISSUER STATUS. The Issuer is a "reporting issuer"
as defined by Rule 902 of Regulation S. The Issuer is in full compliance, to the
extent applicable, with all reporting obligations under Sections 12(g) and 13 of
the Exchange Act. The Issuer has registered its Common Stock pursuant to Section
12(g) of the Exchange Act and the Common Stock trades on the NASDAQ Small
Capital Market.
h. CURRENT PUBLIC INFORMATION. The Issuer has furnished the
Buyer with copies of the Issuer's Post-Effective Amendment No. 1 to Form SB-2
Registration Statement, as filed with the SEC on July 24, 1996, and its Form
10-K/SB for the fiscal year ended March 31, 1996 (collectively the "SEC
Filings"), and other publicly available documents.
i. OFFSHORE TRANSACTION.
(i) The Issuer has not offered the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture and shares of Common Stock issuable upon exercise of the
Warrants which are the subject of this Agreement to any person in the United
States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person
as that term is defined in Regulation S.
(ii) At the time the buy order was originated, the
Issuer and/or its agents reasonably believed the Buyer was outside of the United
States and was not a U.S. Person.
(iii) The Issuer and/or its agents reasonably believe
that the transaction has not been pre-arranged with a buyer in the United
States.
(iv) The Issuer has no current intention to issue any
other Convertible Debenture, other than a Convertible Debenture of like tenor
that may be issued to a Guernsey corporation.
j. NO DIRECTED SELLING EFFORTS. In regard to the transactions
contemplated by this Agreement, the Issuer has not conducted any "directed
selling efforts" as that term is defined in Rule 902 of Regulation S nor has the
Issuer conducted any general solicitation relating to the offer and sale of the
securities which are the subject of this transaction to persons resident within
the United States or elsewhere.
-7-
<PAGE> 8
k. CONCERNING THE CONVERTIBLE DEBENTURE, THE WARRANTS, SHARES
OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE DEBENTURE AND SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS. The Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture and shares of Common Stock issuable upon exercise of the
Warrants when issued and delivered will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holders thereof
to personal liability by reason of being such holders. There are no preemptive
rights of any shareholder of the Issuer. Upon issuance of such Convertible
Debenture, Warrants and shares in accordance with the terms of this Agreement,
the Convertible Debenture and the Warrant Agreement, and assuming that the Buyer
is without notice of any adverse claim, the Buyer will acquire valid title to
such instruments, free and clear of any liens, encumbrances, restrictions,
claims and commitments of every kind, other than such restrictions as are
expressly set forth in this Agreement, the Convertible Debenture and the Warrant
Agreement. The Issuer represents and warrants to the Buyer that the Issuer is
not aware of any such adverse claim.
l. SUBSCRIPTION AGREEMENT. This Offshore Securities
Subscription Agreement has been duly authorized, validly executed and delivered
on behalf of the Issuer and is a valid and binding agreement of the Issuer
enforceable against it in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
m. NON-CONTRAVENTION. The execution and delivery of this
Offshore Securities Subscription Agreement and the consummation of the issuance
of the Convertible Debenture, the Warrants, shares of Common Stock issuable upon
conversion of the Convertible Debenture, shares of Common Stock issuable upon
exercise of the Warrants, and the transactions contemplated by this Offshore
Securities Subscription Agreement do not and will not conflict with or result in
a breach by the Issuer of any of the terms or provisions of, or constitute a
default under, the articles of incorporation or bylaws of the Issuer or any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Issuer is a party or by which it or any of its respective properties
or assets are bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, Federal or State regulatory
body, administrative agency or other governmental body having jurisdiction over
the Issuer or any of its properties or assets.
n. APPROVALS. The Issuer is not aware of any authorization,
approval or consent of any governmental body which is legally required for the
issuance and sale of the Convertible Debenture, the Warrants, shares of Common
Stock issuable upon conversion of the Convertible Debenture, and shares of
Common
-8-
<PAGE> 9
Stock issuable upon exercise of the Warrants, as contemplated by the Offshore
Securities Subscription Agreement.
o. MISCELLANEOUS. The sale of the Convertible Debenture, the
Warrants, shares of Common Stock issuable upon conversion of the Convertible
Debenture, shares of Common Stock issuable upon exercise of the Warrants, and
any other shares of the Common Stock of the Issuer occurring simultaneously or
concurrently herewith, are not part of a plan or scheme to evade the
registration requirements of the 1933 Act. The Issuer believes that the Purchase
Price is reasonably related to the Restricted Period, the historical volatility
of the market price of the Common Stock of the Issuer, the current financial
condition of the Issuer, the dilution represented by the sale of the Convertible
Debenture, the Warrants, shares of Common Stock issuable upon conversion of the
Convertible Debenture, shares of Common Stock issuable upon exercise of the
Warrants, and any other sales of the Common Stock of the Issuer occurring
simultaneously or concurrently herewith, current stock market conditions and
other relevant information concerning the Issuer.
4. SAFE HARBOR RELIANCE ON REPRESENTATIONS. The Buyer understands that
the offer and sale of the Convertible Debenture, the Warrants, shares of Common
Stock issuable upon conversion of the Convertible Debenture, and shares of
Common Stock issuable upon exercise of the Warrants are not being registered
under the 1933 Act. The Issuer is relying on the rules governing offers and
sales made outside the United States pursuant to Regulation S.
5. SHARE DELIVERY INSTRUCTIONS. The Convertible Debenture and the
Warrant certificates shall be delivered to the Buyer on a delivery versus
payment basis at such times and places to be mutually agreed. In connection
therewith, the Buyer shall deliver the Purchase Price for the Convertible
Debenture and the Warrants by electronic transfer of funds to Loselle Greenawalt
Kaplan Blair & Adler, 140 East 45th Street, New York, New York 10017 (the
"Escrow Agent") as follows:
<TABLE>
<S> <C>
Name of account: Loselle Greenawalt Kaplan Blair & Adler
IOLA Account,
Bank: Chemical Bank
ABA No. 021-000128
Account No. 128074204665
</TABLE>
The Buyer and the Issuer hereby acknowledge that they have been advised
by Escrow Agent that it is not representing the Buyer or the Issuer in the
transaction contemplated by this Agreement and is acting herein solely as an
Escrow Agent.
-9-
<PAGE> 10
At the Closing, the Escrow Agent shall deliver the Convertible
Debenture and the Warrants to the Buyer against payment therefor. Upon delivery
of the Convertible Debenture and the Warrants, cash representing the Purchase
Price (less the placement fee payments to be made as described in Section 12
below) shall be wire transferred by the Escrow Agent to a bank account or bank
accounts specified by the Issuer.
6. APPOINTMENT OF ESCROW AGENT.
6.1. The Issuer and the Buyer hereby appoint the Escrow Agent
and the Escrow Agent hereby accepts its appointment as Escrow Agent pursuant to
the terms and conditions hereinafter set forth.
6.2. The Issuer shall cause to be delivered to the Escrow
Agent the Convertible Debenture and the Warrants, with the appropriate
Regulation S legend thereon, in the name of the Buyer. Escrow Agent shall hold
the Convertible Debenture and the Warrants until it receives, by wire transfer
as hereinbefore set forth, the Purchase Price. Upon receipt of the Purchase
Price, Escrow Agent shall disburse the Purchase Price in accordance with
instructions it receives from the Issuer. Escrow agent shall simultaneously
therewith deliver the Convertible Debenture and the Warrants to the Buyer,
pursuant to its instructions.
6.3 It is understood and agreed by the parties to this
Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to
be a trustee for any party for any purpose and is merely acting as a depository
and in a ministerial capacity hereunder with the limited duties herein
prescribed.
(b) The Escrow Agent does not have and shall not be
deemed to have any responsibility in respect of any instruction, certificate or
notice delivered to it other than faithfully to carry out the obligations
undertaken in this Agreement and to follow the directions in such instruction or
notice provided in accordance with the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to
be liable for any action taken or omitted by it in good faith and may rely upon,
and act in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In any
event, its liability hereunder shall be limited to liability for gross
negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act
in accordance with any certificate, instruction notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and signed by
both the Issuer and the Buyer.
-10-
<PAGE> 11
(e) The Issuer and the Buyer agree to save harmless,
indemnify and defend the Escrow Agent for, from and against any loss, damage,
liability, judgment, cost and expense whatsoever, including attorney's fees,
suffered or incurred by it by reason of, or on account of, any misrepresentation
made to it in connection with its status or activities as Escrow Agent or as to
its status or activities as Escrow Agent under this Agreement except for any
loss, damage, liability, judgment, cost or expense resulting from gross
negligence, willful misconduct or bad faith on the part of the Escrow Agent.
(f) The Escrow Agent shall not be required to defend any
legal proceeding which may be instituted against it in respect of its status or
activities as Escrow Agent under this Agreement. If any such legal proceeding is
instituted against it, the Escrow Agent agrees promptly to give notice of such
proceeding to the Issuer and the Buyer. The Escrow Agent shall not be required
to institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission
or otherwise, be deemed to have waived any right or remedy it may have either
under this Agreement or generally, unless such waiver be in writing, and no
waiver shall be valid unless it is in writing, signed by the Escrow Agent, and
only to the extent expressly therein set forth. A waiver by the Escrow Agent
under the terms of this Agreement shall not be construed as a bar to, or waiver
of, the same or any other such right or remedy which it would otherwise have on
any other occasion.
(h) The Escrow Agent may refrain from taking any action
other than keeping all property held by it in escrow if it is uncertain
concerning its duties or rights under this Escrow Agreement or receives claims
or demands from any person or entity or receives a final judgment by a court of
competent jurisdiction if it deems that necessary or advisable.
7. CLOSING DATE. The date of the issuance and the sale of the
Convertible Debenture and the Warrants (the "closing") shall be August 1, 1996,
or such other mutually agreed to time.
8. CONDITIONS TO THE ISSUER'S OBLIGATION TO SELL. The Buyer understands
that the Issuer's obligation to sell the Convertible Debenture, the Warrants,
shares of Common Stock issuable upon conversion of the Convertible Debenture,
and shares of Common Stock issuable upon exercise of the Warrants is conditioned
upon:
a. The receipt and acceptance by the Issuer of this Offshore
Securities Subscription Agreement for the Convertible Debenture and Warrants as
evidenced by execution of this Subscription Agreement by the President or any
Vice President of the Issuer; and
-11-
<PAGE> 12
b. Delivery to the Issuer by the Buyer of good funds as
payment in full for the purchase of the Convertible Debenture and Warrants.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Issuer
understands that the Buyer's obligation to purchase the Convertible Debenture
and Warrants is conditioned upon:
a. Acceptance by the Buyer of a satisfactory Offshore
Securities Subscription Agreement for the sale of the Convertible Debenture and
Warrants as evidenced by execution of this Offshore Securities Subscription
Agreement by a duly authorized officer of the Buyer; and
b. Delivery of the Convertible Debenture and Warrants
with restrictive legend as described herein.
10. RIGHT OF FIRST REFUSAL. The Issuer grants to the Buyer a right of
first refusal for any equity financing by the Issuer for a period of six (6)
months from the date of this Agreement; provided, however, that such right of
first refusal shall not apply to issuance by the Issuer to any purchaser(s) of
equity securities for a purchase price of $2 million or less during such period.
In the event the Issuer seeks to obtain additional equity financing during such
period, the Issuer agrees to deliver to the Buyer a written summary of the
proposed terms of such financing. The Buyer shall within five (5) days after
receipt of such summary advise the Issuer in writing of its willingness to make
an equity investment in the Issuer on the same or better terms than those set
forth in the summary. The Buyer's failure to deliver such notice to the Issuer
shall be deemed to constitute its waiver of its right of first refusal with
respect to such financing.
11. PLACEMENT FEE. The Issuer agrees to pay cash fees in an amount
equal to 13% of the Purchase Price to Dusseldorf Securities Limited, such fees
to be paid out of the escrow at the closing.
12. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, United States of
America. A facsimile transmission of this signed agreement shall be legal and
binding on all parties hereto.
13. INTERPRETATION. All terms used herein that are defined in
Regulation S under the 1933 Act shall have the meaning set forth therein.
14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument, and shall become effective when
one or more counterparts have been signed by all parties and delivered,
-12-
<PAGE> 13
including delivery by facsimile transmission, to the other parties.
15. ISSUANCE TO NOMINEE. The Convertible Debenture certificate and the
Warrant certificate shall be issued to SWAN ALLEY (NOMINEES) LIMITED, the
Nominee of the Buyer's broker, Astaire & Partners Limited in London (the
"Nominee"). The Buyer shall take all actions necessary to assure the Nominee's
compliance with all of the terms and conditions contained in this Agreement and
in the Warrant Agreements. During the Restricted Period, the Buyer will retain
beneficial ownership of the Convertible Debenture and the Warrants.
-13-
<PAGE> 14
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was
duly executed on the date first written below.
Dated this 6th day of the month of August, 1996.
Official Signatory of the CINEMASTAR LUXURY THEATERS,
Issuer: INC.
By: /s/ ALAN GROSSBERG
------------------------------------------
Alan Grossberg,
Executive Vice President
Accepted this 6th day of the month of August, 1996.
Official Signatory of the
Buyer: VILLANDRY INVESTMENTS LTD.,
a Guernsey corporation
By: /s/ Anton McGovern
----------------------------------------
(Authorized Signature)
Anton McGovern, Director
-------------------------------------------
(Print Name and Title)
P.O. Box 610, St. Peter Port
-------------------------------------------
(Address)
Guernsey, Channel Islands
-------------------------------------------
-------------------------------------------
(Jurisdiction of
Incorporation
or Formation or Jurisdiction
of Citizenship and Residency)
LOSELLE GREENAWALT KAPLAN
BLAIR & ADLER, as Escrow Agent
By: /s/ Arlen G. Loselle, a partner
----------------------------------------
-14-
<PAGE> 15
Exhibit "A"
THIS CONVERTIBLE DEBENTURE AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF THIS
CONVERTIBLE DEBENTURE PURSUANT TO REGULATION S IS COMPLETED, NO CONVERTIBLE
DEBENTURE OR UNDERLYING SHARES MAY BE OFFERED, SOLD OR TRANSFERRED (INCLUDING
ANY INTERESTS THEREIN) IN THE UNITED STATES OR TO A "U.S. PERSON" (AS DEFINED
IN REGULATION S PROMULGATED UNDER THE ACT) OR FOR THE ACCOUNT AND BENEFIT OF
ANY U.S. PERSON, EXCEPT AS PROVIDED IN SAID REGULATION S. ANY RESALE
THEREAFTER MUST BE PURSUANT TO REGISTRATION UNDER THE ACT OR AN AVAILABLE
EXEMPTION.
CINEMASTAR LUXURY THEATERS,INC.
a California corporation
Dated: August 2, 1996
NO. 5
CinemaStar Luxury Theaters, Inc., a California corporation (the
"Corporation"), is indebted and, for value received, promises to pay (subject
to the automatic conversion provisions set forth herein) to the order of SWAN
ALLEY (NOMINEES) LIMITED, on August 2, 1998 (the "Due Date"), upon
presentation of this Debenture, one million dollars ($1,000,000) (the
"Principal Amount") and to pay interest on the Principal Amount at the rate of
4% per annum as provided herein.
The Corporation covenants, promises and agrees as follows:
1. Interest. Interest which shall accrue on the Principal Amount shall
be payable in four quarterly installments on the first day of each fiscal
quarter beginning on the first day of the fiscal quarter following the fiscal
quarter in which payment of the Principal Amount is made to the Corporation.
Interest for the first quarter shall be pro rata for the number of days of the
first fiscal quarter after payment of the Principal Amount is made to the
Corporation. Interest shall be payable in cash or in shares of Common Stock,
at the election of the Corporation. Shares issued in payment of interest
obligations shall be valued based on the closing bid price of such shares on
the last trading day of the fiscal quarter for which such payment is made. All
accrued and unpaid interest shall be automatically converted into shares of
Common Stock on the Due Date. All payments of principal and interest or
principal or interest shall be made at c/o 14 New Street, St. Peter Port,
Guernsey, Channel Islands, or at such other place as may be designated in
writing by the holder hereof.
2. Conversion.
<PAGE> 16
2.1 Subject to the automatic conversion of any principal
and interest outstanding on the Due Date as set forth in paragraph 2.5 below,
the holder of this Debenture shall have the right, at such holder's option, at
any time, to convert all or part of the principal and accrued interest of this
Debenture into such number of fully paid and nonassessable shares of Common
Stock of the Corporation (the "Common Stock") as shall be provided herein.
2.2 The holder of this Debenture may exercise the
conversion right provided in this Section 3 by giving written notice (the
"Conversion Notice") to Continental Stock Transfer Company (the "Transfer
Agent") of the exercise of such right, in whole or in part, and stating the
name or names in which the stock certificate or stock certificates for the
shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied by
the Debenture. The number of shares of Common Stock that shall be issuable upon
conversion of the Debenture shall equal the amount of the outstanding principal
and accrued interest for which a Conversion Notice is given, divided by a
conversion price (the "Conversion Price") equal to the lesser of (x) $3.50, or
(y) 85% of the average closing bid price of the Common Stock as reported by the
National Association of Securities Dealers for the three (3) consecutive
trading days immediately preceding the Date of Conversion.
2.3 Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of this Debenture. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up to the nearest whole share. In the case of a
dispute as to the calculation of the Conversion Rate, the Corporation's
calculation shall be deemed conclusive absent manifest error. In order to
convert this Debenture into full shares of Common Stock, the holder shall
surrender this Debenture, duly endorsed, by overnight courier to the office of
the Transfer Agent, together with the Conversion Notice, (with a copy to the
Corporation at its principal executive office) that it elects to convert the
same, the amount of principal and interest to be so converted, and a
calculation of the Conversion Rate (with an advance copy of the certificate(s)
and the notice by facsimile); provided, however, that the Transfer Agent shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless either the Debenture is delivered to the
Transfer Agent as provided above, or the holder notifies the Transfer Agent
that such Debenture has been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such debenture.
The Transfer Agent shall use commercially reasonable efforts to issue
and deliver within two (2) business days after delivery to the Transfer Agent
of such Debenture, to such holder at the address of the holder on the debenture
records of the Corporation, a certificate or certificates for the number of
<PAGE> 17
shares of Common Stock to which it shall be entitled as aforesaid. The date on
which notice of conversion is given (the "Date of Conversion") shall be deemed
to be the date set forth in such notice of conversion provided that the
original Debenture to be converted is received by the Transfer Agent within
five business days thereafter and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date. If the original Debenture to be converted is not received by the
Transfer Agent within five business days after the Date of Conversion, the
notice of conversion shall become null and void.
2.4 Reservation of Shares. The Corporation shall at all
times reserve and keep available, free from preemptive rights, unissued or
treasury shares of Common Stock sufficient to effect the conversion of this
Debenture; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding principal and interest of this Debenture, the Corporation will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
2.5 Automatic Conversion. On the second anniversary of
the issuance of this Debenture, all outstanding principal and interest of the
Debenture shall automatically convert into fully-paid and non-assessable shares
of Common Stock at a Conversion Rate for each share of Common Stock calculated
in accordance with the formula in Paragraph 2.2 above.
3. Default.
3.1 The entire unpaid and unredeemed balance of the
Principal Amount and all Interest accrued and unpaid on this Debenture shall,
at the election of the holder, be and become immediately due and payable upon
the occurrence of any of the following events (a "Default Event"):
(a) The non-payment by the Corporation when due of principal and
interest or of any other payment as provided in this Debenture.
(b) If the Corporation (i) applies for or consents in writing to
the appointment of, or if there shall be a taking of possession by, a receiver,
trustee or liquidator for the Corporation of all or substantially all of its
property; (ii) admits in writing its inability to pay its debts as they become
due; (iii) makes a general assignment for the benefit of creditors; (iv) files
any petition for relief under the Bankruptcy Code or any similar federal or
state statute; (v) defaults with respect to any evidence of indebtedness or
liability for borrowed money, or any such indebtedness shall not be paid as and
when due and payable; or (vi) has assessed or imposed against it, or if there
shall exist, any general or specific lien for any federal, state or local taxes
or charges
<PAGE> 18
against any of its property or assets other than liens for taxes not yet due or
being contested in good faith.
(c) Any failure by the Corporation to issue and deliver shares
of Common Stock as provided herein upon conversion of this Debenture.
Notwithstanding the foregoing, the Corporation shall have thirty days (30) days
from the receipt of a written Notice of Default to cure said Default Event, and
no acceleration of payments hereunder shall be deemed to have occurred until
the thirtieth day after the Corporation's receipt of a written Notice of
Default from the holder of this Debenture. Upon such cure, the terms of this
Debenture shall continue in effect.
3.2 Each right, power or remedy of the holder hereof upon
the occurrence of any Default Event as provided for in this Debenture or now or
hereafter existing at law or in equity or by statute shall be cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for in this Debenture or now or hereafter existing at law or in equity
or by statute, and the exercise or beginning of the exercise by the holder or
transferee hereof of any one or more of such rights, powers or remedies shall
not preclude the simultaneous or later exercise by the holder hereof of any or
all such other rights, powers or remedies.
4. Anti-Dilution Adjustments. The conversion price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time subdivide the
outstanding shares of Common Stock issuable upon conversion of the Debenture,
the conversion price in effect immediately prior to such subdivision shall be
proportionately decreased, and in case the Company shall at any time combine
the outstanding shares of Common Stock issuable upon conversion of the
Debenture, the conversion price in effect immediately prior to such combination
shall be proportionately increased. Any such adjustment shall be effective at
the close of business on the date such subdivision or combination shall become
effective.
(b) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from
no par value to par value), or in case of a consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
a reclassification or change of outstanding shares of Common Stock of the class
issuable upon the conversion of this Debenture except where the security
holders of the Company are entitled to receive securities of another issuer),
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute an
instrument providing that the holder of
<PAGE> 19
this Debenture shall have the right thereafter to convert this Debenture into
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale, or
conveyance by the holder of the number of shares of Common Stock of the Company
into which this Debenture might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale, or conveyance. Such
interest shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The foregoing
provisions of this Debenture shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
5. Failure to Act and Waiver. No failure or delay by the holder
hereof to insist upon the strict performance of any term of this Debenture or
to exercise any right, power or remedy consequent upon a Default Event
hereunder shall constitute a waiver of any such term or of any such breach, or
preclude the holder hereof from exercising any such right, power or remedy at
any later time or times. By accepting payment after the due date of any amount
payable under this Debenture, the holder hereof shall not be deemed to waive
the right either to require payment when due of all other amounts payable under
this Debenture, or to declare a Default Event for failure to effect such
payment of any such other amount.
The failure of the holder of this Debenture to give notice of any failure
or breach of the Corporation under this Debenture shall not constitute a waiver
of any right or remedy in respect of such continuing failure or breach or any
subsequent failure or breach.
6. Consent to Jurisdiction. The Corporation hereby agrees and
consents that any action, suit or proceeding arising out of this Debenture may
be brought in any appropriate court in the State of California, including the
United States District Court for the Central District of California or in any
other court having jurisdiction over the subject matter, all at the sole
election of the holder hereof, and by the issuance and execution of this
Debenture the Corporation irrevocably consents to the jurisdiction of each such
court.
7. Transfer/Negotiability. This Debenture shall be transferred
on the books of the Corporation only by the registered holder hereof or by
his/her attorney duly authorized in writing or by delivery to the Corporation
of a duly executed Assignment substantially in the form attached hereto as
Exhibit A. The foregoing notwithstanding, the Corporation shall not transfer
this Debenture nor any of the shares of common stock issuable upon conversion
in the United States or to a "U.S. Person" (as defined in Regulation S
promulgated under the Act) or for the account and benefit of any U.S. Person,
except as provided in said Regulation S, until forty-five (45) days from the
date of issuance of this Debenture. The Corporation shall be entitled to treat
any holder of record of the Debenture as the
<PAGE> 20
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in this Debenture in the name of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the Laws of California. Subject to receipt of a duly executed
Assignment, the Debenture shall be assigned by the holder thereof for value, to
a Holder in Due Course as defined by the Uniform Commercial Code. The
Corporation hereby makes an unconditional promise to repay the principal and
accrued interest of this Debenture on or before the date due to any such Holder
in Due Course and acknowledges that repayment to a Holder in Due Course is not
subject to any claims or defenses the Corporation may have against the Lender.
8. Notices. All notices and communications under this Debenture
shall be in writing and shall be either delivered in person or accompanied by a
signed receipt therefor or mailed first-class United States certified mail,
return receipt requested, postage prepaid, and addressed as follows:
if to the Corporation, to:
CinemaStar Luxury Theaters, Inc.
431 College Blvd.
Oceanside, CA 92057-5435
with a copy to:
Joel I. Bennett, Esq.
Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067-5010
and, if to the holder of this Debenture, to the address of such holder as it
appears in the books of the Corporation. Any notice of communication shall be
deemed given and received as of the date of such delivery or three days after
deposit with an overnight courier service or five (5) days after deposit with
the U.S. Postal Service as first class air mail.
9. Governing Law. This Debenture shall be governed by and
construed and enforced in accordance with the laws of the State of California,
or, where applicable, the laws of the United States, without regard to
conflicts of law.
10. Incorporation by Reference. The terms and conditions set
forth in that certain Offshore Securities Subscription Agreement between the
corporation and Wales Securities Limited are incorporated herein by this
reference, and any transferee or subsequent holder of this Debenture (or the
shares of common stock issued upon conversion thereof, during the Restricted
Period as defined by Regulation S) shall be subject to and bound by the
provisions of such agreement.
IN WITNESS WHEREOF, the Corporation has caused this Debenture to be duly
executed.
<PAGE> 21
CINEMASTAR LUXURY THEATERS, INC.
By: __________________________________
Alan Grossberg
Executive Vice President
Attest:
______________________________
Jon Meloan
Secretary
<PAGE> 22
Exhibit A
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns to:
________________________ the three year 4% Convertible Debenture of CINEMASTAR
LUXURY THEATERS, INC., No. and hereby irrevocably appoints ,
Attorney, to transfer said debenture on the books of the within named
corporation, with full power of substitution in the premises.
WITNESS my hand and seal this day of , 199_.
(SEAL)
(SEAL)
WITNESS:
<PAGE> 1
Exhibit 4.3
OFFSHORE
WARRANT AGREEMENT
BETWEEN
CINEMASTAR LUXURY THEATERS, INC.
AND
WARRANT HOLDER
Dated as of August 6, 1996
THESE WARRANTS AND THE SHARES OF COMMON STOCK OFFERED UNDERLYING THESE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF SUCH
WARRANTS IS COMPLETED, NONE OF SUCH WARRANTS OR UNDERLYING SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED (INCLUDING ANY INTERESTS THEREIN) IN THE UNITED
STATES OR TO A "U.S. PERSON" (AS DEFINED IN REGISTRATION S PROMULGATED UNDER THE
ACT) OR FOR THE ACCOUNT AND BENEFIT OF U.S. PERSON, EXCEPT AS PROVIDED IN
REGULATION S PROMULGATED UNDER THE ACT. ANY RESALE THEREAFTER MUST BE PURSUANT
TO REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION. FURTHER, THE WARRANTS
MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSONS, UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of August 6, 1996, between
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Company"), and
the Warrantholder set forth on Annex I hereto (the "Warrantholder").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue a maximum aggregate of
17,142 warrants, each warrant to purchase one share (collectively, the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), pursuant to an
Offshore Securities Subscription Agreement between the Company and the
Warrantholder (the "Purchase Agreements"); and
WHEREAS, the Company and the Warrantholder desire to set forth
in this Warrant Agreement, among other things, the form and provisions of the
Warrants as set forth in certificates representing the Warrants (the "Warrant
Certificates") and the terms and conditions under which they may be issued,
transferred, exchanged, replaced, redeemed and surrendered in connection with
the exercise and redemption of the Warrants;
NOW, THEREFORE, in consideration of the promises and of the
mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
WARRANT CERTIFICATES
1.1 Form of Warrant Certificates. The Warrant Certificates
shall be substantially in the form of Exhibit A attached hereto and, in
addition, may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements stamped or printed,
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement or as, in any particular case, may be required, in
the opinion of counsel for the Company, to comply with any law or with any rule
or regulation of any regulatory authority or agency or to conform to customary
usage.
1.2 Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, Chief Executive Officer or President or any Vice President, and by its
Chief Financial Officer, Secretary or any Assistant Secretary, either manually
or by facsimile signature printed thereon.
ARTICLE 2
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
2.1 Exercise Price. Each Warrant Certificate shall, when
signed by the Chairman, Chief Executive Officer or President or any Vice
President, and by the Chief Financial Officer or Treasurer or any Assistant
Treasurer, or Secretary or any Assistant Secretary, of the Company, entitle the
registered holder thereof to purchase from the Company one share of Common Stock
for each Warrant evidenced thereby, at the purchase price of $7.00 per share
(the "Initial Exercise Price"), or such adjusted number of shares at such
adjusted purchase price as may be established from time to time
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<PAGE> 3
pursuant to the provisions of Article 3 hereof, payable in full at the time of
exercise of the Warrant. Except as the context otherwise requires, the term
"Exercise Price" as used in this Agreement shall mean the purchase price of one
share of Common Stock upon the exercise of a Warrant as the context requires,
reflecting all appropriate adjustments made in accordance with the provisions of
Article 3 hereof.
2.2 Exercisability of Warrants. Each Warrant may be exercised
at any time until August 6, 2001. The term "Exercise Deadline" as used in this
Agreement shall mean the latest time and date at which the Warrants may be
exercised.
This Warrant may not be exercised (i) by or on behalf of a
person who is a U.S. person (as defined in Regulation S promulgated under the
Securities Act of 1933, as amended (the "Securities Act")), (ii) if a U.S.
person has any interest in the Warrants being exercised or the underlying
securities to be issued upon exercise, or (iii) by any person if exercised
within the United States or if the Warrant Shares are to be delivered within the
United States. If the above cannot be complied with, then the Warrant can be
exercised only if a written opinion of counsel, the form and substance of which
is acceptable to the Company, is delivered to the Company prior to exercise to
the Warrants being exercised, and the underlying securities delivered upon
exercise have been registered under the Securities Act, or the securities are
exempt from registration thereunder.
2.3 Procedure for Exercise of Warrants. During the period
specified in Section 2.2 hereof, the Warrants may be exercised by surrendering
the Warrant Certificates representing such Warrants to the Company, with the
election to purchase form set forth on the Warrant Certificate duly completed
and executed, accompanied by payment in full of the Exercise Price as provided
in Section 2.1 in effect at the time of such exercise, together with such taxes
as are specified in Section 7.1 hereof, for each share of Common Stock with
respect to which such Warrants are being exercised. Such Exercise Price and
taxes shall be paid in full by certified check or money order, payable in United
States currency, to the Company. The date on which Warrants are exercised in
accordance with this Section 2.3 is sometimes referred to herein as the Date of
Exercise of such Warrants.
2.4 Issuance of Warrant Shares. As soon as practicable after
the Date of Exercise of any Warrants, the Company shall issue, or cause its
transfer agent for the Common Stock, if any, to issue a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled, registered in accordance with the instructions set forth in the
election to purchase. All Warrant Shares shall be validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges created
by the Company in respect of the issue thereof, and shall be previously unissued
shares. Each person in whose name any such certificate for Warrant Shares is
issued shall for all purposes be deemed to have become the holder of record of
the Warrant Shares represented thereby on the Date of Exercise of the Warrants
resulting in the issuance of such shares, irrespective of the date of issuance
or delivery of such certificate for the Warrant Shares.
2.5 Certificates for Unexercised Warrants. In the event that
less than all of the Warrants represented by a Warrant Certificate are
exercised, the Company shall execute and mail, by first-class mail, within 30
days of the Date of Exercise, to the registered holder of such Warrant
Certificate, or such other person as shall be designated in the election to
purchase, a new Warrant Certificate representing the number of full Warrants not
exercised. In no event shall a fraction of a Warrant be exercised, and the
Company shall distribute no Warrant Certificates representing fractions of
Warrants under this or any other section of this Agreement. Final fractions of
shares shall be treated as provided in Section 3.12.
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<PAGE> 4
2.6 Reservation of Shares. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants a number
of its authorized but unissued shares of Common Stock that will be sufficient to
permit the exercise in full of all outstanding Warrants.
ARTICLE 3
ADJUSTMENTS AND NOTICE PROVISIONS
3.1 Adjustment of Exercise Price. Subject to the provisions of
this Article 3, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
(a) In case the Company shall at any time after the date
hereof (i) declare a dividend on the outstanding Common Stock payable in shares
of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price in effect, and the number of shares of Common Stock issuable upon exercise
of the Warrants outstanding, at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification,
shall be proportionately adjusted so that the holders of the Warrants after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Warrants had been exercised immediately prior to such time, such holders
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the shareholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash or assets (other
than distributions and dividends payable in shares of its capital stock), or
rights, options or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock, then, in
each case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date for the determination of
shareholders entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Price (as determined pursuant to Section
3.1(c) hereof) per share for the thirty (30) trading days before the record date
of said distribution of Common Stock on such record date, less the fair market
value (as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of the portion of
the evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Current Market Price per share of Common Stock. Such adjustment shall become
effective at the close of business on such record date.
(c) For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Stock is traded on the Nasdaq
National Market ("NNM") or on a national securities exchange, the per share
closing price of the Common Stock on the date in question as reported by the NNM
or on the principal stock exchange on which it is listed, or (ii) if the Common
Stock is traded in the over-the-counter market and not in the NNM or on any
national securities exchange, the closing bid price of the Common Stock on the
date in question, as reported by The Nasdaq Small Cap Market (or an equivalent
generally accepted reporting service if quotations are not reported on The
Nasdaq Small Cap Market). The closing price referred to in clause (i) above
shall be the last reported
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<PAGE> 5
sale price or, in the case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case in the NNM
or on the principal stock exchange on which the Common Stock is then listed. For
purposes of clause (ii) above, if trading in the Common Stock is not reported by
The Nasdaq Small Cap Market, the bid price referred to in said clause shall be
the highest bid price as reported in the Nasdaq Electronic Bulletin Board or, if
not reported thereon, as reported in the "pink sheets" published by National
Quotation Bureau, Incorporated, and, if such Preferred Stock is not so reported,
shall be the price of a share of Common Stock determined by the Company's Board
of Directors in good faith.
3.2 No Adjustments to Exercise Price. No adjustment in the
Exercise Price shall be required if such adjustment is less than $.05; provided,
however, that any adjustments which by reason of this Article 3 are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article 3 shall be made to the nearest
cent or to the nearest one hundredth of a share, as the case may be.
3.3 Deferral of Adjustments to Exercise Price. In any case in
which this Article 3 shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect
to defer, until the occurrence of such event, issuing to the holders of the
Warrants, if any holder has exercised a Warrant after such record date, the
shares of Common Stock, if any, issuable upon such exercise over and above the
shares of Common Stock, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver to such exercising holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
3.4 Adjustment to Number of Shares. Upon each adjustment of
the Exercise Price as a result of the calculations made in Section 3.1(b)
hereof, the Warrants shall thereafter evidence the right to purchase, at the
adjusted Exercise Price, that number of shares (calculated to the nearest
hundredth) obtained by dividing (A) the product obtained by multiplying the
number of shares purchasable upon exercise of the Warrants prior to adjustment
of the number of shares by the Exercise Price in effect prior to adjustment of
the Exercise Price by (B) the Exercise Price in effect after such adjustment of
the Exercise Price.
3.5 Reorganizations. In case of any capital reorganization,
other than in the cases referred to in Section 3.1 hereof, or the consolidation
or merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the continuing corporation and which
does not result in any reclassification of the outstanding shares of Common
Stock or the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), or in the case of any sale,
lease or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety (such
actions being hereinafter collectively referred to as "Reorganizations"), there
shall thereafter be deliverable upon exercise of any Warrant (in lieu of the
number of shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock which would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of Warrant holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of Warrants. Any such
adjustment shall be made by and set forth in
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<PAGE> 6
a notice to the holders of the Warrant Certificates and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or prior to the consummation
thereof the successor corporation, or if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of shares of
the Common Stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the registered
holder of any Warrant Certificate such shares of stock, securities, cash or
other property as such holder shall be entitled to purchase in accordance with
the foregoing provisions. In the event of sale, lease or conveyance or other
transfer of all or substantially all of the assets of the Company as part of a
plan for liquidation of the Company, all rights to exercise any Warrant shall
terminate 30 days after the Company gives written notice to each registered
holder of a Warrant Certificate that such sale or conveyance or other transfer
has been consummated.
3.6 Reclassifications. In case of any reclassification or
change of the shares of Common Stock issuable upon exercise of the Warrants
(other than a change in par value or from no par value to a specified par value,
or as a result of a subdivision or combination, but including any change in the
shares into two or more classes or series of shares), or in case of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change (including a change to the right to receive cash or other property) of
the shares of Common Stock (other than a change in par value, or from no par
value to a specified par value, or as a result of a subdivision or combination,
but including any change in the shares into two or more classes or series of
shares), the holders of the Warrants shall have the right thereafter to receive
upon exercise of the Warrants solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation or merger by a holder of the number
of shares of Common Stock for which the Warrants might have been exercised
immediately prior to such reclassification, change, consolidation or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Article 3. The above
provisions of this Section 3.6 shall similarly apply to successive
reclassifications and changes of shares of Common Stock.
3.7 Verification of Computations. Whenever the exercise price
is adjusted as provided in this Article 3, the Company will promptly obtain a
certificate of its Chief Financial Officer setting forth the exercise price as
so adjusted and a brief statement of the facts accounting for such adjustment,
and will make available a brief summary thereof to the holders of the Warrant
Certificates, at their addresses listed on the register maintained for that
purpose by the Company (which summary may be included in any notice of
adjustment required by Section 3.1 hereof).
3.8 Notice of Certain Actions. In case at any time the Company
shall propose:
(a) to pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or make any
other distribution (other than regularly scheduled cash
dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common
Stock; or
(b) to issue any rights, warrants or other securities
to all holders of Common Stock entitling them to purchase any
additional shares of Common Stock or any other rights,
warrants or other securities; or
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<PAGE> 7
(c) to effect any consolidation, merger, sale, lease,
or conveyance of property, described in Section 3.5, or any
reclassification or change of outstanding shares of Common
Stock described in Section 3.6; or
(d) to effect any liquidation, dissolution or
winding-up of the Company; or
(e) to take any other action which would cause an
adjustment to the Exercise Price;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the holders of the Warrant Certificates. Such notice shall
specify the date on which the books of the Company shall close, or a record
shall be taken, for determining holders of Common Stock entitled to receive such
stock dividend or other distribution or such rights or warrants, or the date on
which such reclassification, change, consolidation, merger, sale, lease, other
disposition, liquidation, dissolution, winding up or exchange or other action
shall take place or commence, as the case may be, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to receive
securities or other property deliverable upon such action, if any such date has
been fixed. Such notice shall be mailed, in the case of any action covered by
Subsection 3.8(a) or 3.8(b) above, at least 15 days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer; in the case of any action covered by Subsection 3.8(c) or 3.8(d)
above, at least 15 days prior to the earlier of the date upon which such action
is to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property; and in the case of any
action covered by Subsection 3.8(e) above, no more than 15 days after such
action. Notwithstanding anything to the contrary contained in this Warrant
Agreement, the failure of the Company to provide the notice(s) required by this
Section 3.8 shall not serve to invalidate the action taken.
3.9 Notice of Adjustments. Whenever any adjustment is made
pursuant to this Article 3, the Company shall cause written notice of such
adjustment to be sent by registered mail, postage prepaid to the holders of
Warrant Certificates within 15 days thereafter, such notice to include in
reasonable detail (i) the events precipitating the adjustment, (ii) the
computation of any adjustments, and (iii) the Exercise Price, and the number of
shares or the securities or other property purchasable upon exercise of each
Warrant after giving effect to such adjustment.
3.10 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article 3, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
3.11 Fractional Shares. The Company shall not be required upon
the exercise of any Warrant to issue fractional shares of Common Stock which may
result from adjustments in accordance with this Article 3 to the Exercise Price
or number of shares of Common Stock purchasable under each Warrant. If more than
one Warrant is exercised at one time by the same registered holder, the number
of full shares of Common Stock which shall be deliverable shall be computed
based on the number of shares deliverable in exchange for the aggregate number
of Warrants exercised. With respect to any final fraction of a share called for
upon the exercise of any Warrant or Warrants, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price of a share of Common Stock on the day
before the receipt of the exercise of the Warrants.
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<PAGE> 8
ARTICLE 4
OTHER PROVISIONS RELATING TO RIGHTS OF
HOLDERS OF WARRANT CERTIFICATES
4.1 Rights of Warrant Holders. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a shareholder of
the Company, including, without limitation, the right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of shareholders or any other proceedings of the Company.
4.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Warrant Certificate, and of the ownership
thereof, and indemnity, if requested, all satisfactory to the Company.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges incidental
thereto as the Company may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at
any time enforceable by anyone.
ARTICLE 5
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
AND CANCELLATION OF WARRANT CERTIFICATES
5.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 5.2, may be split up, combined or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Company arid shall surrender the Warrant Certificate
or Warrant Certificates so to be split up, combined or exchanged at said office.
Subject to any applicable laws, rules or regulations restricting
transferability, any restriction on transferability that may appear on a Warrant
Certificate in accordance with the terms hereof, or any "stop-transfer"
instructions the Company may give to implement any such restrictions (which
instructions the Company is expressly authorized to give), transfer of
outstanding Warrant Certificates may be effected from time to time upon the
books of the Company, upon a surrender of the Warrant Certificate to the
Company, with the assignment form set forth in the Warrant Certificate duly
executed. Upon any such surrender for split up, combination, exchange or
transfer, the Company shall execute and deliver to the person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. The Company may require the holder to pay a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any split
up, combination, exchange or transfer of Warrant Certificates prior to the
issuance of any new Warrant Certificate.
5.2 Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and, except
as provided (i) in Section 2.5, in case of the exercise of less than all of the
Warrants evidenced by a Warrant Certificate, or (ii) in Section 5.1, in case of
a split up, combination, exchange or transfer of the
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<PAGE> 9
Warrants evidenced by a Warrant Certificate, or (iii) as provided for in Section
4.2, no Warrant Certificate shall be issued hereunder in lieu of such canceled
Warrant Certificate.
5.3 Agreement of Warrant Certificate Holders. Every holder of
a Warrant Certificate by accepting the same consents and agrees with the Company
and with every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be
registered on the books of the Company maintained for that purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(b) prior to due presentment for registration of
transfer, the Company may deem and treat the person in whose name the Warrant
Certificate is registered as the absolute owner thereof and of the Warrants
evidenced thereby (notwithstanding any notations of ownership or writing on the
Warrant Certificates made by anyone other than the Company) for all purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
ARTICLE 6
REGISTRATION RIGHTS
6.1 Piggy-Back Registration Rights. If at any time prior to
the Exercise Deadline (i) the Company proposes to register any of its securities
under the Securities Act (other than in connection with a merger, acquisition or
exchange offer or pursuant to Form S-8 or successor form), it will give written
notice by registered mail, at least thirty (30) days prior to the filing of the
registration statement to each holder of record of the Warrants (the "Registered
Holders") of its intention to do so. Upon the written request of any Registered
Holder, given within fifteen (15) days after receipt of any such notice of his,
her, its or their desire to include any Warrants and underlying Warrant Shares
in such proposed registration statement, the Company shall afford such
Registered Holder(s) the opportunity to have such Registered Holder's
unexercised Warrants and underlying Warrant Shares registered under such
registration. The "piggyback" registration rights described in this Article 6
shall terminate on the earlier of the Exercise Deadline or at such time as all
Warrants have been exercised in full; provided, however, that a Registered
Holder shall only be entitled to register this Warrant and Warrant Shares.
Notwithstanding anything to the contrary contained in
the provisions of this Section 6.1, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.1
(irrespective of whether a written request for inclusion of any securities shall
have been made) to elect not to file any such proposed registration statement,
or to withdraw the same after the filing but prior to the effective date
thereof.
6.2 Indemnification. The Company shall indemnify and hold
harmless each Registered Holder who registers Warrants and Warrant Shares
pursuant to this Article 6, from and against any and all losses, claims, damages
and liabilities caused by any untrue statement of a material fact contained in
any registration statement filed by the Company under the Securities Act in
accordance with this Article 6, any post-effective amendment to such
registration statement, or any prospectus included therein, or caused by any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission based upon information furnished or required to be furnished in
writing to the Company by a Registered Holder (or the authorized representatives
or agents of the Registered Holder) expressly for use therein, which
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<PAGE> 10
indemnification shall include each person, if any, who controls the Registered
Holder within the meaning of the Securities Act and each officer, director,
employee and agent of the Registered Holder; provided, however, that the
indemnification in this Section 6.2 with respect to any prospectus shall not
inure to the benefit of the Registered Holder (or to the benefit of any person
controlling the Registered Holder) on account of any such loss, claim, damage or
liability arising from the sale of Warrants or Warrant Shares by such Registered
Holder, if a copy of a subsequent prospectus correcting the untrue statement or
omission in such earlier prospectus was provided to such Registered Holder by
the Company prior to the subject sale and the subsequent prospectus was not
delivered or sent by the Registered Holder to the purchaser of such securities
prior to such sale; and provided further, that the Company shall not be
obligated to so indemnify the Registered Holder or any other person referred to
above unless the Registered Holder or other person, as the case may be, shall at
the same time indemnify the Company, its directors, each officer signing the
registration statement and each person, if any, who controls the Company within
the meaning of the Securities Act, from and against any and all losses, claims,
damages and liabilities caused by any untrue statement of a material fact
contained in any registration statement or any prospectus required to be filed
or furnished in connection with such public offering or caused any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or omission based upon
information furnished in writing to the Company by the Registered Holder
expressly for use therein.
If for any reason the indemnification provided for in
the preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
6.3 Offering Expenses. All expenses, filing fees and other
costs incurred by the Company in connection with any registration of securities
pursuant to this Article 6 (exclusive of underwriting discounts and selling
commissions applicable to any sale of registered securities and any fees and
costs of legal counsel engaged by the Registered Holder(s) shall be borne by the
Company.
6.4 Delivery of Prospectus. In the case of each registration
effected by the Company pursuant to the provisions of this Article 6, the
Company will (i) furnish to the Registered Holders of the Warrants and Warrant
Shares registered such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Registered Holders may reasonably request
in order to facilitate the disposition of the Warrants and Warrant Shares so
registered, and (ii) notify each Registered Holder of securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
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<PAGE> 11
ARTICLE 7
OTHER MATTERS
7.1 Payment of Taxes and Charges Any transfer taxes due in
connection with the issuance of Warrant Certificates or certificates for shares
of Common Stock in any name other than that of the registered holder of the
Warrant Certificate surrendered shall be paid by such registered holder; and, in
such case, the Company shall not be required to issue or deliver any Warrant
Certificate or certificate for shares of Common Stock until such taxes shall
have been paid or it has been established to the Company's satisfaction that no
tax is due.
7.2 Assignment. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrantholder shall bind
and inure to the benefit of their respective successors and assigns.
7.3 Successor to Company. Except as provided in the last
sentence 4.5, the Company will not merge or consolidate with or into any other
corporation or sell or otherwise transfer its property, assets and business
substantially as an entirety to a successor corporation, unless the corporation
resulting from such merger, consolidation, sale or transfer (if not the Company)
shall expressly assume, by supplemental agreement, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
7.4 Notices. Any notice or demand required by this Agreement
to be given or made by the registered holder of any Warrant Certificate to or on
the Company shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is given in
writing by the Company to each registered holder of a Warrant Certificate) as
follows:
CinemaStar Luxury Theaters, Inc.
431 College Boulevard
Oceanside, California 92057
Attention: President
Any notice or demand required by this Agreement to be given or made by the
Company to or on the registered holder of any Warrant Certificate shall be
sufficiently given or made, whether or not such holder receives the notice, if
sent by first-class or registered mail, postage prepaid, addressed to such
registered holder at his last address as shown on the books of the Company.
Otherwise such notice or demand shall be deemed given when received by the party
entitled thereto.
7.5 Defects in Notice. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement, shall not affect in any way the rights of any
registered holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Article 3 hereof, or any transaction giving rise to
any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
7.6 Governing Law. The laws of the State of California shall
govern this Warrant Agreement and the Warrant Certificates.
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<PAGE> 12
7.7 Standing. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, and the registered holders of the Warrant Certificates any right,
remedy or claim under or by reason of this Agreement or of any covenant,
condition, stipulation, promise or agreement contained herein; and all
covenants, conditions, stipulations, promises and agreements contained in this
Agreement shall be for the sole and exclusive benefit of the Company and its
successors and assigns, and the registered holders of the Warrant Certificates.
7.8 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
7.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
bat such counterparts shall together constitute but one and the same instrument.
7.10 Amendment Waiver. Any provision of this Agreement may be
waived or amended by a written instrument signed by the Company and the
registered holders of Warrant Certificates representing a majority of the
Warrant Shares then unissued.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
CINEMASTAR LUXURY THEATERS, INC.
By: /s/ ALAN GROSSBERG
------------------------------------------
Alan Grossberg
Executive Vice President
WARRANTHOLDER
SWAN ALLEY (NOMINEES) LIMITED
By: /s/ ANTON McGOVERN
-----------------------------------------
Name:
Title:
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<PAGE> 13
THESE WARRANTS AND THE SHARES OF COMMON STOCK OFFERED UNDERLYING THESE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF SUCH
WARRANTS IS COMPLETED, NONE OF SUCH WARRANTS OR UNDERLYING SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED (INCLUDING ANY INTERESTS THEREIN) IN THE UNITED
STATES OR TO A "U.S. PERSON" (AS DEFINED IN REGISTRATION S PROMULGATED UNDER THE
ACT) OR FOR THE ACCOUNT AND BENEFIT OF U.S. PERSON, EXCEPT AS PROVIDED IN
REGULATION S PROMULGATED UNDER THE ACT. ANY RESALE THEREAFTER MUST BE PURSUANT
TO REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION. FURTHER, THE WARRANTS
MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSONS, UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
No. 1
Certificate for 17,142 Warrants
NOT EXERCISABLE AFTER 5:00 P.M., LOS ANGELES TIME, ON AUGUST 6, 2001
CINEMASTAR LUXURY THEATERS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that: SWAN ALLEY (NOMINEES) LIMITED
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of Common Stock (the "Common
Stock"), of CinemaStar Luxury Theaters, Inc., a California corporation (the
"Company"), at the initial exercise price (the "Exercise Price") of $7.00, at
any time, but not after the Expiration Date hereinafter referred to, by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon duly executed at the principal off ice of the Company, and by
paying in full the Exercise Price, plus transfer taxes, if any. Payment of the
Exercise Price shall be made in United States currency, by certified check or
money order payable to the Company. No Warrant may be exercised after 5:00 P.M.,
Los Angeles time, on the expiration date (the "Expiration Date") which will be
August 6, 2001. All warrants evidenced hereby shall thereafter become void.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant
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<PAGE> 14
Certificates of the same aggregate number of Warrants, upon surrender of this
Warrant Certificate to the Company.
Upon certain events provided for in the Warrant Agreement, the
Exercise Price, the number of shares of Common Stock issuable upon the exercise
of each Warrant are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Registered Holder
consents by acceptance hereof.
The Registered Holder of this Warrant shall be entitled to piggy-back
registration rights in certain circumstances described in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of shareholders or any other
proceedings of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed.
CINEMASTAR LUXURY THEATERS, INC.
By:__________________________________________
Alan Grossberg
Executive Vice President
By:__________________________________________
Jon Meloan
Secretary
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<PAGE> 15
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise ___________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
This Warrant may not be exercised (i) by or on behalf of a person who
is a U.S. person (as defined in Regulation S promulgated under the Securities
Act of 1933, as amended (the "Securities Act")), (ii) if a U.S. person has any
interest in the Warrants being exercised or the underlying securities to be
issued upon exercise, or (iii) by any person if exercised within the United
States or if the Warrant Shares are to be delivered within the United States. If
the above cannot be complied with, then the Warrant can be exercised only if a
written opinion of counsel, the form and substance of which is acceptable to the
Company, is delivered to the Company prior to exercise to the Warrants being
exercised, and the underlying securities delivered upon exercise have been
registered under the Securities Act, or the securities are exempt from
registration thereunder.
ISSUE AND DELIVER TO:__________________________________________________________
(NAME)
_______________________________________________________________________________
(PLEASE PRINT ADDRESS, WHICH MUST BE OUTSIDE THE UNITED STATES)
_______________________________________________________________________________
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$________ by certified check or money order payable to the order of the Company
in United States currency.
Dated:____________________
__________________________ _____________________________________________
(Insert Social Security or (Signature of registered holder)
other identifying number(s)
of holder(s)) _____________________________________________
(Signature of registered holder, if co-owned)
NOTE: Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.
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<PAGE> 16
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
warrants set forth below:
Name of Assignee Address No. of Warrants
and does hereby irrevocably constitute and appoint ___________________ to make
such transfer on the books of CinemaStar Luxury Theaters, Inc. maintained for
that purpose, with full power of substitution in the premises.
Dated: ______________, 19____
_____________________________ _____________________________________________
(Insert Social Security or (Signature of Assignee)
other identifying number(s)
of holder(s)) _____________________________________________
(Signature of Assignee if co-owned)
NOTE: Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.
Signature(s) Guaranteed:
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<PAGE> 1
Exhibit 4.4
OFFSHORE
WARRANT AGREEMENT
BETWEEN
CINEMASTAR LUXURY THEATERS, INC.
AND
WARRANT HOLDER
Dated as of August 6, 1996
THESE WARRANTS AND THE SHARES OF COMMON STOCK OFFERED UNDERLYING THESE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF SUCH
WARRANTS IS COMPLETED, NONE OF SUCH WARRANTS OR UNDERLYING SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED (INCLUDING ANY INTERESTS THEREIN) IN THE UNITED
STATES OR TO A "U.S. PERSON" (AS DEFINED IN REGISTRATION S PROMULGATED UNDER THE
ACT) OR FOR THE ACCOUNT AND BENEFIT OF U.S. PERSON, EXCEPT AS PROVIDED IN
REGULATION S PROMULGATED UNDER THE ACT. ANY RESALE THEREAFTER MUST BE PURSUANT
TO REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION. FURTHER, THE WARRANTS
MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSONS, UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of August 6, 1996, between
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Company"), and
the Warrantholder set forth on Annex I hereto (the "Warrantholder").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue a maximum aggregate of
17,142 warrants, each warrant to purchase one share (collectively, the "Warrant
Shares") of the Company's Common Stock (the "Common Stock"), pursuant to an
Offshore Securities Subscription Agreement between the Company and the
Warrantholder (the "Purchase Agreements"); and
WHEREAS, the Company and the Warrantholder desire to set forth
in this Warrant Agreement, among other things, the form and provisions of the
Warrants as set forth in certificates representing the Warrants (the "Warrant
Certificates") and the terms and conditions under which they may be issued,
transferred, exchanged, replaced, redeemed and surrendered in connection with
the exercise and redemption of the Warrants;
NOW, THEREFORE, in consideration of the promises and of the
mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
WARRANT CERTIFICATES
1.1 Form of Warrant Certificates. The Warrant Certificates
shall be substantially in the form of Exhibit A attached hereto and, in
addition, may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements stamped or printed,
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement or as, in any particular case, may be required, in
the opinion of counsel for the Company, to comply with any law or with any rule
or regulation of any regulatory authority or agency or to conform to customary
usage.
1.2 Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, Chief Executive Officer or President or any Vice President, and by its
Chief Financial Officer, Secretary or any Assistant Secretary, either manually
or by facsimile signature printed thereon.
ARTICLE 2
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
2.1 Exercise Price. Each Warrant Certificate shall, when
signed by the Chairman, Chief Executive Officer or President or any Vice
President, and by the Chief Financial Officer or Treasurer or any Assistant
Treasurer, or Secretary or any Assistant Secretary, of the Company, entitle the
registered holder thereof to purchase from the Company one share of Common Stock
for each Warrant evidenced thereby, at the purchase price of $7.00 per share
(the "Initial Exercise Price"), or such adjusted number of shares at such
adjusted purchase price as may be established from time to time
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<PAGE> 3
pursuant to the provisions of Article 3 hereof, payable in full at the time of
exercise of the Warrant. Except as the context otherwise requires, the term
"Exercise Price" as used in this Agreement shall mean the purchase price of one
share of Common Stock upon the exercise of a Warrant as the context requires,
reflecting all appropriate adjustments made in accordance with the provisions of
Article 3 hereof.
2.2 Exercisability of Warrants. Each Warrant may be exercised
at any time until August 6, 2001. The term "Exercise Deadline" as used in this
Agreement shall mean the latest time and date at which the Warrants may be
exercised.
This Warrant may not be exercised (i) by or on behalf of a
person who is a U.S. person (as defined in Regulation S promulgated under the
Securities Act of 1933, as amended (the "Securities Act")), (ii) if a U.S.
person has any interest in the Warrants being exercised or the underlying
securities to be issued upon exercise, or (iii) by any person if exercised
within the United States or if the Warrant Shares are to be delivered within the
United States. If the above cannot be complied with, then the Warrant can be
exercised only if a written opinion of counsel, the form and substance of which
is acceptable to the Company, is delivered to the Company prior to exercise to
the Warrants being exercised, and the underlying securities delivered upon
exercise have been registered under the Securities Act, or the securities are
exempt from registration thereunder.
2.3 Procedure for Exercise of Warrants. During the period
specified in Section 2.2 hereof, the Warrants may be exercised by surrendering
the Warrant Certificates representing such Warrants to the Company, with the
election to purchase form set forth on the Warrant Certificate duly completed
and executed, accompanied by payment in full of the Exercise Price as provided
in Section 2.1 in effect at the time of such exercise, together with such taxes
as are specified in Section 7.1 hereof, for each share of Common Stock with
respect to which such Warrants are being exercised. Such Exercise Price and
taxes shall be paid in full by certified check or money order, payable in United
States currency, to the Company. The date on which Warrants are exercised in
accordance with this Section 2.3 is sometimes referred to herein as the Date of
Exercise of such Warrants.
2.4 Issuance of Warrant Shares. As soon as practicable after
the Date of Exercise of any Warrants, the Company shall issue, or cause its
transfer agent for the Common Stock, if any, to issue a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled, registered in accordance with the instructions set forth in the
election to purchase. All Warrant Shares shall be validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges created
by the Company in respect of the issue thereof, and shall be previously unissued
shares. Each person in whose name any such certificate for Warrant Shares is
issued shall for all purposes be deemed to have become the holder of record of
the Warrant Shares represented thereby on the Date of Exercise of the Warrants
resulting in the issuance of such shares, irrespective of the date of issuance
or delivery of such certificate for the Warrant Shares.
2.5 Certificates for Unexercised Warrants. In the event that
less than all of the Warrants represented by a Warrant Certificate are
exercised, the Company shall execute and mail, by first-class mail, within 30
days of the Date of Exercise, to the registered holder of such Warrant
Certificate, or such other person as shall be designated in the election to
purchase, a new Warrant Certificate representing the number of full Warrants not
exercised. In no event shall a fraction of a Warrant be exercised, and the
Company shall distribute no Warrant Certificates representing fractions of
Warrants under this or any other section of this Agreement. Final fractions of
shares shall be treated as provided in Section 3.12.
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<PAGE> 4
2.6 Reservation of Shares. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants a number
of its authorized but unissued shares of Common Stock that will be sufficient to
permit the exercise in full of all outstanding Warrants.
ARTICLE 3
ADJUSTMENTS AND NOTICE PROVISIONS
3.1 Adjustment of Exercise Price. Subject to the provisions of
this Article 3, the Exercise Price in effect from time to time shall be subject
to adjustment, as follows:
(a) In case the Company shall at any time after the date
hereof (i) declare a dividend on the outstanding Common Stock payable in shares
of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price in effect, and the number of shares of Common Stock issuable upon exercise
of the Warrants outstanding, at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification,
shall be proportionately adjusted so that the holders of the Warrants after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Warrants had been exercised immediately prior to such time, such holders
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the shareholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash or assets (other
than distributions and dividends payable in shares of its capital stock), or
rights, options or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock, then, in
each case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date for the determination of
shareholders entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Price (as determined pursuant to Section
3.1(c) hereof) per share for the thirty (30) trading days before the record date
of said distribution of Common Stock on such record date, less the fair market
value (as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of the portion of
the evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Current Market Price per share of Common Stock. Such adjustment shall become
effective at the close of business on such record date.
(c) For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Stock is traded on the Nasdaq
National Market ("NNM") or on a national securities exchange, the per share
closing price of the Common Stock on the date in question as reported by the NNM
or on the principal stock exchange on which it is listed, or (ii) if the Common
Stock is traded in the over-the-counter market and not in the NNM or on any
national securities exchange, the closing bid price of the Common Stock on the
date in question, as reported by The Nasdaq Small Cap Market (or an equivalent
generally accepted reporting service if quotations are not reported on The
Nasdaq Small Cap Market). The closing price referred to in clause (i) above
shall be the last reported
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<PAGE> 5
sale price or, in the case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case in the NNM
or on the principal stock exchange on which the Common Stock is then listed. For
purposes of clause (ii) above, if trading in the Common Stock is not reported by
The Nasdaq Small Cap Market, the bid price referred to in said clause shall be
the highest bid price as reported in the Nasdaq Electronic Bulletin Board or, if
not reported thereon, as reported in the "pink sheets" published by National
Quotation Bureau, Incorporated, and, if such Preferred Stock is not so reported,
shall be the price of a share of Common Stock determined by the Company's Board
of Directors in good faith.
3.2 No Adjustments to Exercise Price. No adjustment in the
Exercise Price shall be required if such adjustment is less than $.05; provided,
however, that any adjustments which by reason of this Article 3 are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article 3 shall be made to the nearest
cent or to the nearest one hundredth of a share, as the case may be.
3.3 Deferral of Adjustments to Exercise Price. In any case in
which this Article 3 shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect
to defer, until the occurrence of such event, issuing to the holders of the
Warrants, if any holder has exercised a Warrant after such record date, the
shares of Common Stock, if any, issuable upon such exercise over and above the
shares of Common Stock, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver to such exercising holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
3.4 Adjustment to Number of Shares. Upon each adjustment of
the Exercise Price as a result of the calculations made in Section 3.1(b)
hereof, the Warrants shall thereafter evidence the right to purchase, at the
adjusted Exercise Price, that number of shares (calculated to the nearest
hundredth) obtained by dividing (A) the product obtained by multiplying the
number of shares purchasable upon exercise of the Warrants prior to adjustment
of the number of shares by the Exercise Price in effect prior to adjustment of
the Exercise Price by (B) the Exercise Price in effect after such adjustment of
the Exercise Price.
3.5 Reorganizations. In case of any capital reorganization,
other than in the cases referred to in Section 3.1 hereof, or the consolidation
or merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the continuing corporation and which
does not result in any reclassification of the outstanding shares of Common
Stock or the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), or in the case of any sale,
lease or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety (such
actions being hereinafter collectively referred to as "Reorganizations"), there
shall thereafter be deliverable upon exercise of any Warrant (in lieu of the
number of shares of Common Stock theretofore deliverable) the number of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock which would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of Warrant holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of Warrants. Any such
adjustment shall be made by and set forth in
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<PAGE> 6
a notice to the holders of the Warrant Certificates and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or prior to the consummation
thereof the successor corporation, or if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of shares of
the Common Stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the registered
holder of any Warrant Certificate such shares of stock, securities, cash or
other property as such holder shall be entitled to purchase in accordance with
the foregoing provisions. In the event of sale, lease or conveyance or other
transfer of all or substantially all of the assets of the Company as part of a
plan for liquidation of the Company, all rights to exercise any Warrant shall
terminate 30 days after the Company gives written notice to each registered
holder of a Warrant Certificate that such sale or conveyance or other transfer
has been consummated.
3.6 Reclassifications. In case of any reclassification or
change of the shares of Common Stock issuable upon exercise of the Warrants
(other than a change in par value or from no par value to a specified par value,
or as a result of a subdivision or combination, but including any change in the
shares into two or more classes or series of shares), or in case of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change (including a change to the right to receive cash or other property) of
the shares of Common Stock (other than a change in par value, or from no par
value to a specified par value, or as a result of a subdivision or combination,
but including any change in the shares into two or more classes or series of
shares), the holders of the Warrants shall have the right thereafter to receive
upon exercise of the Warrants solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation or merger by a holder of the number
of shares of Common Stock for which the Warrants might have been exercised
immediately prior to such reclassification, change, consolidation or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Article 3. The above
provisions of this Section 3.6 shall similarly apply to successive
reclassifications and changes of shares of Common Stock.
3.7 Verification of Computations. Whenever the exercise price
is adjusted as provided in this Article 3, the Company will promptly obtain a
certificate of its Chief Financial Officer setting forth the exercise price as
so adjusted and a brief statement of the facts accounting for such adjustment,
and will make available a brief summary thereof to the holders of the Warrant
Certificates, at their addresses listed on the register maintained for that
purpose by the Company (which summary may be included in any notice of
adjustment required by Section 3.1 hereof).
3.8 Notice of Certain Actions. In case at any time the
Company shall propose:
(a) to pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or make any
other distribution (other than regularly scheduled cash
dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common
Stock; or
(b) to issue any rights, warrants or other securities
to all holders of Common Stock entitling them to purchase any
additional shares of Common Stock or any other rights,
warrants or other securities; or
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<PAGE> 7
(c) to effect any consolidation, merger, sale, lease,
or conveyance of property, described in Section 3.5, or any
reclassification or change of outstanding shares of Common
Stock described in Section 3.6; or
(d) to effect any liquidation, dissolution or
winding-up of the Company; or
(e) to take any other action which would cause an
adjustment to the Exercise Price;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the holders of the Warrant Certificates. Such notice shall
specify the date on which the books of the Company shall close, or a record
shall be taken, for determining holders of Common Stock entitled to receive such
stock dividend or other distribution or such rights or warrants, or the date on
which such reclassification, change, consolidation, merger, sale, lease, other
disposition, liquidation, dissolution, winding up or exchange or other action
shall take place or commence, as the case may be, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to receive
securities or other property deliverable upon such action, if any such date has
been fixed. Such notice shall be mailed, in the case of any action covered by
Subsection 3.8(a) or 3.8(b) above, at least 15 days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer; in the case of any action covered by Subsection 3.8(c) or 3.8(d)
above, at least 15 days prior to the earlier of the date upon which such action
is to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property; and in the case of any
action covered by Subsection 3.8(e) above, no more than 15 days after such
action. Notwithstanding anything to the contrary contained in this Warrant
Agreement, the failure of the Company to provide the notice(s) required by this
Section 3.8 shall not serve to invalidate the action taken.
3.9 Notice of Adjustments. Whenever any adjustment is made
pursuant to this Article 3, the Company shall cause written notice of such
adjustment to be sent by registered mail, postage prepaid to the holders of
Warrant Certificates within 15 days thereafter, such notice to include in
reasonable detail (i) the events precipitating the adjustment, (ii) the
computation of any adjustments, and (iii) the Exercise Price, and the number of
shares or the securities or other property purchasable upon exercise of each
Warrant after giving effect to such adjustment.
3.10 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article 3, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
3.11 Fractional Shares. The Company shall not be required upon
the exercise of any Warrant to issue fractional shares of Common Stock which may
result from adjustments in accordance with this Article 3 to the Exercise Price
or number of shares of Common Stock purchasable under each Warrant. If more than
one Warrant is exercised at one time by the same registered holder, the number
of full shares of Common Stock which shall be deliverable shall be computed
based on the number of shares deliverable in exchange for the aggregate number
of Warrants exercised. With respect to any final fraction of a share called for
upon the exercise of any Warrant or Warrants, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price of a share of Common Stock on the day
before the receipt of the exercise of the Warrants.
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<PAGE> 8
ARTICLE 4
OTHER PROVISIONS RELATING TO RIGHTS OF
HOLDERS OF WARRANT CERTIFICATES
4.1 Rights of Warrant Holders. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a shareholder of
the Company, including, without limitation, the right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of shareholders or any other proceedings of the Company.
4.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Warrant Certificate, and of the ownership
thereof, and indemnity, if requested, all satisfactory to the Company.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges incidental
thereto as the Company may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at
any time enforceable by anyone.
ARTICLE 5
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
AND CANCELLATION OF WARRANT CERTIFICATES
5.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 5.2, may be split up, combined or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Company arid shall surrender the Warrant Certificate
or Warrant Certificates so to be split up, combined or exchanged at said office.
Subject to any applicable laws, rules or regulations restricting
transferability, any restriction on transferability that may appear on a Warrant
Certificate in accordance with the terms hereof, or any "stop-transfer"
instructions the Company may give to implement any such restrictions (which
instructions the Company is expressly authorized to give), transfer of
outstanding Warrant Certificates may be effected from time to time upon the
books of the Company, upon a surrender of the Warrant Certificate to the
Company, with the assignment form set forth in the Warrant Certificate duly
executed. Upon any such surrender for split up, combination, exchange or
transfer, the Company shall execute and deliver to the person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. The Company may require the holder to pay a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any split
up, combination, exchange or transfer of Warrant Certificates prior to the
issuance of any new Warrant Certificate.
5.2 Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and, except
as provided (i) in Section 2.5, in case of the exercise of less than all of the
Warrants evidenced by a Warrant Certificate, or (ii) in Section 5.1, in case of
a split up, combination, exchange or transfer of the
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<PAGE> 9
Warrants evidenced by a Warrant Certificate, or (iii) as provided for in Section
4.2, no Warrant Certificate shall be issued hereunder in lieu of such canceled
Warrant Certificate.
5.3 Agreement of Warrant Certificate Holders. Every holder of
a Warrant Certificate by accepting the same consents and agrees with the Company
and with every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be
registered on the books of the Company maintained for that purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(b) prior to due presentment for registration of
transfer, the Company may deem and treat the person in whose name the Warrant
Certificate is registered as the absolute owner thereof and of the Warrants
evidenced thereby (notwithstanding any notations of ownership or writing on the
Warrant Certificates made by anyone other than the Company) for all purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
ARTICLE 6
REGISTRATION RIGHTS
6.1 Piggy-Back Registration Rights. If at any time prior to
the Exercise Deadline (i) the Company proposes to register any of its securities
under the Securities Act (other than in connection with a merger, acquisition or
exchange offer or pursuant to Form S-8 or successor form), it will give written
notice by registered mail, at least thirty (30) days prior to the filing of the
registration statement to each holder of record of the Warrants (the "Registered
Holders") of its intention to do so. Upon the written request of any Registered
Holder, given within fifteen (15) days after receipt of any such notice of his,
her, its or their desire to include any Warrants and underlying Warrant Shares
in such proposed registration statement, the Company shall afford such
Registered Holder(s) the opportunity to have such Registered Holder's
unexercised Warrants and underlying Warrant Shares registered under such
registration. The "piggyback" registration rights described in this Article 6
shall terminate on the earlier of the Exercise Deadline or at such time as all
Warrants have been exercised in full; provided, however, that a Registered
Holder shall only be entitled to register this Warrant and Warrant Shares.
Notwithstanding anything to the contrary contained in
the provisions of this Section 6.1, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.1
(irrespective of whether a written request for inclusion of any securities shall
have been made) to elect not to file any such proposed registration statement,
or to withdraw the same after the filing but prior to the effective date
thereof.
6.2 Indemnification. The Company shall indemnify and hold
harmless each Registered Holder who registers Warrants and Warrant Shares
pursuant to this Article 6, from and against any and all losses, claims, damages
and liabilities caused by any untrue statement of a material fact contained in
any registration statement filed by the Company under the Securities Act in
accordance with this Article 6, any post-effective amendment to such
registration statement, or any prospectus included therein, or caused by any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission based upon information furnished or required to be furnished in
writing to the Company by a Registered Holder (or the authorized representatives
or agents of the Registered Holder) expressly for use therein, which
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<PAGE> 10
indemnification shall include each person, if any, who controls the Registered
Holder within the meaning of the Securities Act and each officer, director,
employee and agent of the Registered Holder; provided, however, that the
indemnification in this Section 6.2 with respect to any prospectus shall not
inure to the benefit of the Registered Holder (or to the benefit of any person
controlling the Registered Holder) on account of any such loss, claim, damage or
liability arising from the sale of Warrants or Warrant Shares by such Registered
Holder, if a copy of a subsequent prospectus correcting the untrue statement or
omission in such earlier prospectus was provided to such Registered Holder by
the Company prior to the subject sale and the subsequent prospectus was not
delivered or sent by the Registered Holder to the purchaser of such securities
prior to such sale; and provided further, that the Company shall not be
obligated to so indemnify the Registered Holder or any other person referred to
above unless the Registered Holder or other person, as the case may be, shall at
the same time indemnify the Company, its directors, each officer signing the
registration statement and each person, if any, who controls the Company within
the meaning of the Securities Act, from and against any and all losses, claims,
damages and liabilities caused by any untrue statement of a material fact
contained in any registration statement or any prospectus required to be filed
or furnished in connection with such public offering or caused any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or omission based upon
information furnished in writing to the Company by the Registered Holder
expressly for use therein.
If for any reason the indemnification provided for in
the preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
6.3 Offering Expenses. All expenses, filing fees and other
costs incurred by the Company in connection with any registration of securities
pursuant to this Article 6 (exclusive of underwriting discounts and selling
commissions applicable to any sale of registered securities and any fees and
costs of legal counsel engaged by the Registered Holder(s) shall be borne by the
Company.
6.4 Delivery of Prospectus. In the case of each registration
effected by the Company pursuant to the provisions of this Article 6, the
Company will (i) furnish to the Registered Holders of the Warrants and Warrant
Shares registered such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Registered Holders may reasonably request
in order to facilitate the disposition of the Warrants and Warrant Shares so
registered, and (ii) notify each Registered Holder of securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
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<PAGE> 11
ARTICLE 7
OTHER MATTERS
7.1 Payment of Taxes and Charges Any transfer taxes due in
connection with the issuance of Warrant Certificates or certificates for shares
of Common Stock in any name other than that of the registered holder of the
Warrant Certificate surrendered shall be paid by such registered holder; and, in
such case, the Company shall not be required to issue or deliver any Warrant
Certificate or certificate for shares of Common Stock until such taxes shall
have been paid or it has been established to the Company's satisfaction that no
tax is due.
7.2 Assignment. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrantholder shall bind
and inure to the benefit of their respective successors and assigns.
7.3 Successor to Company. Except as provided in the last
sentence 4.5, the Company will not merge or consolidate with or into any other
corporation or sell or otherwise transfer its property, assets and business
substantially as an entirety to a successor corporation, unless the corporation
resulting from such merger, consolidation, sale or transfer (if not the Company)
shall expressly assume, by supplemental agreement, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
7.4 Notices. Any notice or demand required by this Agreement
to be given or made by the registered holder of any Warrant Certificate to or on
the Company shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is given in
writing by the Company to each registered holder of a Warrant Certificate) as
follows:
CinemaStar Luxury Theaters, Inc.
431 College Boulevard
Oceanside, California 92057
Attention: President
Any notice or demand required by this Agreement to be given or made by the
Company to or on the registered holder of any Warrant Certificate shall be
sufficiently given or made, whether or not such holder receives the notice, if
sent by first-class or registered mail, postage prepaid, addressed to such
registered holder at his last address as shown on the books of the Company.
Otherwise such notice or demand shall be deemed given when received by the party
entitled thereto.
7.5 Defects in Notice. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement, shall not affect in any way the rights of any
registered holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Article 3 hereof, or any transaction giving rise to
any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
7.6 Governing Law. The laws of the State of California shall
govern this Warrant Agreement and the Warrant Certificates.
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<PAGE> 12
7.7 Standing. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, and the registered holders of the Warrant Certificates any right,
remedy or claim under or by reason of this Agreement or of any covenant,
condition, stipulation, promise or agreement contained herein; and all
covenants, conditions, stipulations, promises and agreements contained in this
Agreement shall be for the sole and exclusive benefit of the Company and its
successors and assigns, and the registered holders of the Warrant Certificates.
7.8 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
7.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
bat such counterparts shall together constitute but one and the same instrument.
7.10 Amendment Waiver. Any provision of this Agreement may be
waived or amended by a written instrument signed by the Company and the
registered holders of Warrant Certificates representing a majority of the
Warrant Shares then unissued.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
CINEMASTAR LUXURY THEATERS, INC.
By:__________________________________________
Alan Grossberg
Executive Vice President
WARRANTHOLDER
SWAN ALLEY (NOMINEES) LIMITED
By: _________________________________________
Name:
Title:
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<PAGE> 13
THESE WARRANTS AND THE SHARES OF COMMON STOCK OFFERED UNDERLYING THESE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). UNTIL THE FORTY-FIFTH (45TH) DAY AFTER THE SALE OF SUCH
WARRANTS IS COMPLETED, NONE OF SUCH WARRANTS OR UNDERLYING SHARES MAY BE
OFFERED, SOLD OR TRANSFERRED (INCLUDING ANY INTERESTS THEREIN) IN THE UNITED
STATES OR TO A "U.S. PERSON" (AS DEFINED IN REGISTRATION S PROMULGATED UNDER THE
ACT) OR FOR THE ACCOUNT AND BENEFIT OF U.S. PERSON, EXCEPT AS PROVIDED IN
REGULATION S PROMULGATED UNDER THE ACT. ANY RESALE THEREAFTER MUST BE PURSUANT
TO REGISTRATION UNDER THE ACT OR AN AVAILABLE EXEMPTION. FURTHER, THE WARRANTS
MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSONS, UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
No. 2
Certificate for 17,142 Warrants
NOT EXERCISABLE AFTER 5:00 P.M., LOS ANGELES TIME, ON AUGUST 6, 2001
CINEMASTAR LUXURY THEATERS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that: SWAN ALLEY (NOMINEES) LIMITED
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of Common Stock (the "Common
Stock"), of CinemaStar Luxury Theaters, Inc., a California corporation (the
"Company"), at the initial exercise price (the "Exercise Price") of $7.00, at
any time, but not after the Expiration Date hereinafter referred to, by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon duly executed at the principal off ice of the Company, and by
paying in full the Exercise Price, plus transfer taxes, if any. Payment of the
Exercise Price shall be made in United States currency, by certified check or
money order payable to the Company.
No Warrant may be exercised after 5:00 P.M., Los Angeles time, on the
expiration date (the "Expiration Date") which will be August 6, 2001. All
warrants evidenced hereby shall thereafter become void.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
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<PAGE> 14
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates of the
same aggregate number of Warrants, upon surrender of this Warrant Certificate to
the Company.
Upon certain events provided for in the Warrant Agreement, the
Exercise Price, the number of shares of Common Stock issuable upon the exercise
of each Warrant are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Registered Holder
consents by acceptance hereof.
The Registered Holder of this Warrant shall be entitled to piggy-back
registration rights in certain circumstances described in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a shareholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of shareholders or any other
proceedings of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed.
CINEMASTAR LUXURY THEATERS, INC.
By:__________________________________________
Alan Grossberg
Executive Vice President
By:__________________________________________
Jon Meloan
Secretary
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<PAGE> 15
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise ___________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
This Warrant may not be exercised (i) by or on behalf of a person who
is a U.S. person (as defined in Regulation S promulgated under the Securities
Act of 1933, as amended (the "Securities Act")), (ii) if a U.S. person has any
interest in the Warrants being exercised or the underlying securities to be
issued upon exercise, or (iii) by any person if exercised within the United
States or if the Warrant Shares are to be delivered within the United States. If
the above cannot be complied with, then the Warrant can be exercised only if a
written opinion of counsel, the form and substance of which is acceptable to the
Company, is delivered to the Company prior to exercise to the Warrants being
exercised, and the underlying securities delivered upon exercise have been
registered under the Securities Act, or the securities are exempt from
registration thereunder.
ISSUE AND DELIVER TO:__________________________________________________________
(NAME)
_______________________________________________________________________________
(PLEASE PRINT ADDRESS, WHICH MUST BE OUTSIDE THE UNITED STATES)
_______________________________________________________________________________
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$________ by certified check or money order payable to the order of the Company
in United States currency.
Dated:____________________
__________________________ _____________________________________________
(Insert Social Security or (Signature of registered holder)
other identifying number(s)
of holder(s)) _____________________________________________
(Signature of registered holder, if co-owned)
NOTE: Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.
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<PAGE> 16
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
warrants set forth below:
Name of Assignee Address No. of Warrants
and does hereby irrevocably constitute and appoint ___________________ to make
such transfer on the books of CinemaStar Luxury Theaters, Inc. maintained for
that purpose, with full power of substitution in the premises.
Dated: ______________, 19____
___________________________ _____________________________________________
(Insert Social Security or (Signature of Assignee)
other identifying number(s)
of holder(s)) _____________________________________________
(Signature of Assignee if co-owned)
NOTE: Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.
Signature(s) Guaranteed:
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<PAGE> 1
EXHIBIT 10.1
GROUND LEASE
BETWEEN
THE CITY OF SAN MARCOS,
a municipal corporation
AND
CINEMA STAR LUXURY THEATERS, INC.,
a California corporation
JUNE 25, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. LEASED PREMISES ........................................... 1
1.1 Premises ........................................... 1
1.2 Operating Documents ................................ 1
2. LEASE TERM ................................................ 2
2.1 Term ............................................... 2
2.2 Pre-Term Possession ................................ 2
2.3 Deposit ............................................ 4
2.4 Forfeiture of Deposit .............................. 4
2.5 Landlord's Covenant of Quiet Enjoyment ............. 5
3. RENTAL .................................................... 6
3.1 Base Rent .......................................... 6
3.2 Percentage Rent .................................... 7
3.3 Past Due Amounts ................................... 9
4. TAXES AND ASSESSMENTS; PRORATIONS ......................... 9
4.1 Taxes and Assessments .............................. 9
4.2 Payment of Taxes ................................... 10
4.3 Right to Contest ................................... 11
4.4 Separate Assessment ................................ 11
4.5 Personal Property Taxes ............................ 11
4.6 Other Taxes ........................................ 11
4.7 Exclusion From Taxes ............................... 12
4.8 Net Lease Recital .................................. 12
4.9 Prorations ......................................... 12
5. CONSTRUCTION AND MAINTENANCE .............................. 12
5.1 Construction and Ownership of Improvements ......... 12
5.2 Mechanic's Liens ................................... 13
5.3 Alteration of Improvements ......................... 14
5.4 Tenants Property ................................... 15
5.5 Landlord's Lien Waiver ............................. 15
5.6 Maintenance and Repair ............................. 15
5.7 Right of Entry ..................................... 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
6. USE ............................................................ 16
6.1 Use ..................................................... 16
6.2 Signage ................................................. 18
6.3 Continuous Operation .................................... 19
6.4 Radius Restriction ...................................... 19
6.5 Food Service Restrictions ............................... 19
6.6 Compliance with Laws .................................... 20
7. REPRESENTATIONS AND WARRANTIES ................................. 20
7.1 No Violation ............................................ 20
7.2 Landlord's Representations and Warranties................ 20
7.3 Tenant's Representations and Warranties.................. 20
8. INDEMNIFICATION ................................................ 21
9. INSURANCE ...................................................... 21
9.1 General Liability ....................................... 21
9.2 Fire and Extended Coverage .............................. 21
9.3 Tenant's Personal Property .............................. 22
9.4 Other Coverage .......................................... 22
9.5 Policies and Certificate of Insurance ................... 22
10. DAMAGE OR DESTRUCTION .......................................... 22
10.1 Obligation to Restore ................................... 23
10.2 Reconstruction and Repair Requirements .................. 23
10.3 Tenant Improvements and Waiver of Termination ........... 24
10.4 Mutual Release .......................................... 24
10.5 No Rent Abatement During Reconstruction ................. 24
11. CONDEMNATION ................................................... 24
12. OCCUPANCY TRANSACTIONS ......................................... 25
12.1 Definitions ............................................. 25
12.2 Restrictions ............................................ 26
12.3 Condition Precedent ..................................... 26
12.4 Procedures .............................................. 26
12.5 Documentation and Expenses .............................. 27
12.6 Nullity ................................................. 27
12.7 Non-Transfers ........................................... 28
12.8 Leasehold Mortgages ..................................... 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
13. TENANT'S DEFAULT ........................................ 29
13.1 Tenant's Default ................................. 29
13.2 Cumulative Remedies .............................. 30
13.3 Tenant's Right to Possession Not Terminated ...... 30
13.4 Termination of Tenant's Right to Possession ...... 31
14. LANDLORD'S DEFAULT ...................................... 32
15. HOLDING OVER ............................................ 32
16. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT ........... 32
17. UTILITIES AND SERVICES .................................. 33
18. ESTOPPEL CERTIFICATES ................................... 33
19. COMMON AREA ............................................. 34
20. MISCELLANEOUS PROVISIONS ................................ 35
20.1 Notices .......................................... 35
20.2 Headings ......................................... 36
20.3 Mortgagee Protection ............................. 36
20.4 Force Majeure .................................... 36
20.5 Binding Effect ................................... 36
20.6 Modifications .................................... 36
20.7 Applicable Law ................................... 36
20.8 Partial Invalidity ............................... 37
20.9 Brokerage Commission ............................. 37
20.10 Covenants Running with the Land .................. 37
20.11 Memorandum of Lease .............................. 37
20.12 Relationship of the Parties ...................... 37
20.13 Entire Agreement ................................. 38
20.14 Sale of Premises ................................. 38
20.15 Attorneys' Fees .................................. 38
20.16 Time ............................................. 38
20.17 Copies ........................................... 38
20.18 Waiver ........................................... 38
20.19 Accord and Satisfaction .......................... 39
20.20 Execution of Lease ............................... 39
20.21 Corporate Good Standing .......................... 39
20.22 Diligent Construction ............................ 39
20.23 Limitation on Liability .......................... 39
20.24 Identification of Tenant ......................... 40
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <S> <C>
20.25 Landlord's Title ............................................ 40
20.26 Financial Statements ........................................ 40
20.27 Right to Lease .............................................. 40
20.28 Project Name and Signage .................................... 40
20.29 Land Use Decisions .......................................... 40
20.30 Easements Over Premises ..................................... 41
21. HAZARDOUS MATERIALS ............................................... 41
21.1 Use, Storage, Handling and Disposal of Hazardous Materials .. 41
21.2 Compliance with Laws ........................................ 41
21.3 Exculpation of Landlord ..................................... 42
21.4 Disclosure and Notification ................................. 42
21.5 Inspection of Premises ...................................... 42
21.6 Indemnification of Landlord ................................. 43
21.7 Remediation ................................................. 43
21.8 Surrender of Premises ....................................... 44
21.9 Definition of Hazardous Materials ........................... 44
21.10 Assignment and Subletting ................................... 44
</TABLE>
EXHIBITS
"A" Legal Description
"B" Site Plan of Project
"C" Work Letter
"D" Provision Governing the Purchase and Delivery of Well Water for Irrigation
of Leased Premises
"E" Time Schedule
"F" Directory Sign Design
"G" Commencement Date Letter
"H" Parking Agreement
iv
<PAGE> 6
GROUND LEASE
THIS GROUND LEASE ("Lease") is made as of the 25th day of June, 1996
between THE CITY OF SAN MARCOS, a municipal corporation (hereafter called
"Landlord"), and CINEMA STAR LUXURY THEATERS, INC., a California corporation
(hereinafter called "Tenant").
THE PARTIES HERETO HEREBY MUTUALLY COVENANT AND AGREE AS FOLLOWS:
1. LEASED PREMISES
1.1 PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
that certain land located in the City of San Marcos, County of San Diego, State
of California, and legally described in Exhibit "A" attached hereto, as more
particularly outlined on the Site Plan attached hereto as Exhibit "B", together
with those easements appurtenant thereto (the "Premises"). Tenant agrees to
accept possession of the Premises from Landlord on the terms and conditions of
this Lease upon the full execution hereof by Landlord and Tenant, subject to the
Operating Documents (as defined in Section 1.2 below), to all matters of record
and to all applicable zoning, municipal, county, state and federal laws,
ordinances and regulations governing and regulating the use of the Premises.
Tenant acknowledges that neither Landlord nor Landlord's agents have made any
representation or warranty as to such matters of record, or as to such laws,
ordinances, zoning or regulations, or as to the condition of the Premises or the
suitability of the Premises for the conduct of Tenant's business. Subject to the
terms and conditions of this Lease, Tenant agrees to accept the Premises "as-is"
and "where-is."
1.2 OPERATING DOCUMENTS
Tenant hereby acknowledges that the Premises are a portion of that certain
mixed-use project commonly known as San Marcos Town Center ("Project"). The
Project and this Lease are subject to the Heart of the City Specific Plan, all
covenants, conditions and restrictions previously or hereafter recorded against
the Project or any portion thereof which includes the Premises, and all
amendments, modifications or supplements thereto (collectively, the "Operating
Documents"). The Operating Documents shall include a reciprocal parking
agreement ("Parking Agreement") between Landlord and Tenant regarding use of
parking spaces on the adjoining retail portion of the Project as described in
the Parking Agreement. The Parking Agreement will be agreed to between the
parties after the Execution Date and attached as Exhibit "H" to the Lease. The
Parking Agreement will provide for non-exclusive use of not more than one
hundred seventy-five (175) parking spaces in the City's parking structure on the
third and fourth levels. The Operating Documents (except for the Parking
Agreement) may be amended without the consent of Tenant, provided, however, that
this Lease shall not be subject to, nor shall Tenant be bound by, the provisions
of any Operating Document entered into or recorded against the Project or any
portion thereof which includes the Premises after the date of this Lease, or any
amendment, modification or supplement to any Operating Document, which: (i)
would materially interfere with Tenant's use of the Premises for purposes
permitted under
<PAGE> 7
Section 6. 1, below, or Tenant's occupancy of the Premises, or (ii) would
otherwise materially and adversely increase Tenant's obligations, or decrease
Tenants rights, under this Lease.
2. LEASE TERM
2.1 TERM
(a) This Lease shall be effective upon the date first above written (the
"Effective Date"). Subject to force majeure, as defined in Section 20.4 below,
the term of this Lease (the "Term") shall commence one hundred eighty (180) days
after Tenant has received its building permit ("Commencement Date"). There shall
be no extension of the Commencement Date for any reason whatsoever, subject to
force majeure, as defined in Section 20.4 below. Subject to force majeure, as
defined in Section 20.4 below, the Term shall expire on December 31, 2052
("Expiration Date"), unless this Lease shall sooner terminate or be extended
pursuant to the terms and conditions herein. For purposes of this Lease, the
term "Lease Year" shill mean each twelve (12) consecutive month period during
the Lease Term commencing on January 1 and ending December 31 of each calendar
year; provided, however, that the first Lease Year shall commence on the
Commencement Date and shall end on December 31 of the calendar year in which the
Term commenced; and further provided that the last Lease Year shall end on the
Expiration Date (unless the Lease is earlier terminated pursuant to the
provisions hereof). In the event of an initial partial Lease Year, Percentage
Rent (as defined below) will be determined within sixty (60) days after the end
of the partial Lease Year utilizing a prorated Base Rent.
2.2 PRE-TERM POSSESSION
(a) Tenant shall be entitled to enter and occupy the Premises at any time
following the Effective Date for purposes of construction of the Improvements
(defined in Section 5.1 below) in accordance with the Work Letter attached
hereto as Exhibit "C" ("Work Letter"). Such occupation of the Premises shall be
subject to all terms and conditions of this Lease. Notwithstanding anything to
the contrary contained in this Lease (including, but not limited to, the Work
Letter attached hereto), Tenant shall not perform or cause to be performed any
tests or studies affecting or relating to the soils or subsurface areas below
the Premises or any other portion of the Project without prior written notice to
and approval of Landlord, which approval shall not be unreasonably withheld.
Tenant hereby indemnifies and holds Landlord harmless from any and all costs,
losses, damages or expenses of any kind or nature arising out of or resulting
from such activities upon the Premises or Project by Tenant, or its agents,
employees or contractors.
(b) With respect to the delivery of the Premises to Tenant, Tenant will
(prior to the commencement of Tenants Work under the Work Letter) satisfy the
following requirements:
(i) Title, Survey, Soils. Promptly after execution of this Lease,
Landlord will provide to Tenant the following (except as otherwise waived
in writing by Tenant): (a) a current tide insurance report acceptable to
Tenant from First American Tide Insurance Company, or other tide insurance
company reasonably acceptable to Tenant ("Tide
2
<PAGE> 8
Company"), showing a good and merchantable leasehold estate in the Premises
vested in Tenant and showing Landlord as the fee owner of the Premises,
together with copies of all easements, covenants, restrictions, agreements
or other documents which affect the Premises; (b) a copy of the subdivision
map of the Project and a metes and bounds boundary survey that shows the
boundaries and location of the Premises as a portion of a legal lot by a
licensed surveyor or civil engineer licensed in the state in which the
Premises is located, in form reasonably acceptable to Tenant which shall
show the legal description of the Premises and (c) such soil tests and/or
environmental audits as are in Landlord's possession.
(ii) Approval by Tenant. Tenant shall have twenty (20) days after
receipt of the preliminary report and copies of all tide exceptions within
which to notify Landlord in writing of Tenant's disapproval of any
exceptions shown in the title report, other than an exception for current
property taxes. Tenant shall have twenty (20) days after receipt of the
survey, soils tests and environmental audit within which to notify Landlord
in writing of Tenant's disapproval of any aspect of the survey, tests or
audit or their results. Tenant shall have the same twenty (20) day period
to determine that sewer, water, storm drainage, gas, telephone and TV cable
connections (collectively, "utilities") are readily available and that the
costs to complete these connections are acceptable to Tenant. In the event
of such disapproval, Landlord shall have thirty (30) days after receipt of
Tenant's notice to eliminate any disapproved tide exception or to correct
any disapproved aspect of the tests, audit or utilities (or to satisfy
Tenant that the disapproved tide exception or the soil or environmental or
utility condition to which Tenant objected will be corrected by Landlord
within a time period approved by Tenant in writing, but not in any event
later than the date Landlord delivers possession of the leased Premises to
Tenant). If Landlord is unable or unwilling to eliminate a disapproved tide
exception or disapproved aspect of the soil tests or environmental audit or
cost of utilities to the Premises, either party may elect to rescind this
Least by notice to the other party. In such event, all obligations of the
parties under this Lease shall thereafter cease, unless Tenant notifies
Landlord (within ten (10) days after Tenant's receipt of any such
rescission notice from Landlord) that Tenant elects to waive its prior
disapproval.
(iii) Reports, Environmental Investigation. Prior to execution of
this Lease, Landlord shall provide a copy to Tenant of any environmental
assessments or investigatory reports in Landlord's possession concerning
hazardous materials in the Premises or Project or other reports or studies
(if any) in Landlord's possession concerning any violations of law with
respect to the Project (but without warranty or liability by Landlord as to
the accuracy, fitness or reliability of such assessments or reports and
without obligation by Landlord to perform any additional investigations).
Tenant will have thirty (30) days after the Effective Date to perform
such investigations concerning hazardous substances within the Demised
Premises or such "Level One" environmental assessments as Tenant may desire
(which shall not involve subsurface testing unless Landlord's prior
written. consent is given). Tenant may terminate this Lease by written
notice to Landlord within thirty (30) days after the Effective Date if
Tenant is not reasonably satisfied with the results thereof. If not so
terminated within such time period, this contingency shall conclusively be
deemed waived.
3
<PAGE> 9
(iv) Permit Contingency. This Lease is subject to Tenant's ability
to obtain the permit(s) required by the City of San Marcos for the
construction and operation of a forty thousand (40,000) square foot cinema
with no more than two thousand (2,000) seats. Tenant will diligently pursue
obtaining required permit(s) in accordance with the terms of this Lease,
will keep Landlord informed of the status of such matters and will notify
Landlord at such times as Tenant obtains (or is denied) such permit(s).
Tenant will promptly apply for such permits as soon as Tenant obtains
Landlord's written approval of Tenant's plans and specifications in
accordance with the project schedule attached hereto as Exhibit "E" and
incorporated herein. Notwithstanding the nature of the delaying cause
(including "force majeure" delays), in the event that such permits have not
been obtained on or before sixty (60) days from the date shown in Exhibit
"E" as the last date when permits will be obtained, ("Permit Period"), then
either Landlord or Tenant may elect to cancel this Lease upon written
notice to the other, in which event both parties will be released from any
further obligation to the other pursuant to this Lease. If at any time
prior to such date Tenant determines that the conditions relating to such
permit(s) cannot be satisfied, Tenant shall give Landlord not less than ten
(10) days' notice of termination of this Lease, specifying in reasonable
detail the condition(s) that cannot be satisfied. Tenant will turn over to
Landlord the written work product in its possession concerning the Premises
as Landlord may reasonably require, including any applications for
governmental approvals and related data.
(v) Financing. This Lease is also subject to Tenants ability to
obtain financing suitable to Tenant for its planned construction. Tenant
shall diligently pursue obtaining said financing, will keep Landlord
informed of the status of the financing and will notify Landlord at the
time it obtains or is denied said financing. Tenant will promptly apply for
such financing as soon as both patties have executed this Lease.
Notwithstanding the nature of the delaying cause, in the event that a
written commitment for financing has not been obtained by Tenant on or
before thirty (30) days after the Effective Date of this Lease, then either
Landlord or Tenant may elect to cancel this Lease upon written notice to
the other, in which event both parties will be released from any further
obligation to the other pursuant to this Lease. If at any time prior to
said date Tenant determines that the conditions relating to such financing
cannot be satisfied, Tenant shall give Landlord not less than ten (10) days
notice of termination of this Lease, specifying in reasonable detail the
condition(s) that cannot be satisfied. Tenant will turn over to Landlord
the written work product in its possession concerning the Premises as
Landlord may reasonably require.
2.3 DEPOSIT
Landlord and Tenant acknowledge that Tenant has deposited Ten Thousand
Dollars ($10,000.00) with Landlord as an earnest money deposit prior to
execution of this Lease. If the Lease commences in accordance with its terms on
the Commencement Date, the Deposit shall be applied as a credit against Rent due
under the Lease for the first month of the Term.
2.4 FORFEITURE OF DEPOSIT
IF TENANT DEFAULTS UNDER ThE TERMS OF THIS LEASE OR IF TENANT FAILS TO
OBTAIN ThE WRITTEN COMMITMENT FOR FINANCING DESCRIBED IN SECTION 2.2 ABOVE
WITHIN THE THIRTY (30) DAY TIME PERIOD
4
<PAGE> 10
DESCRIBED THEREIN, LANDLORD SHALL BE ENTITLED TO RETAIN THE DEPOSIT IN THE
AMOUNT OF TEN THOUSAND DOLLARS ($10,000.00) AS LIQUIDATED DAMAGES, WHICH THE
PARTIES AGREE IS A REASONABLE SUM CONSIDERING ALL OF THE CIRCUMSTANCES EXISTING
ON THE DATE OF THIS AGREEMENT, INCLUDING THE RELATIONSHIP OF THE SUM TO THE
RANGE OF HARM TO LANDLORD THAT REASONABLY COULD BE ANTICIPATED AND THE
ANTICIPATION THAT PROOF OF ACTUAL DAMAGES WOULD BE COSTLY OR INCONVENIENT. IN
PLACING THEIR INITIALS BELOW, EACH PARTY SPECIALLY CONFIRMS THE ACCURACY OF THE
STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL
WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME
THAT THIS AGREEMENT WAS MADE.
-------------------- ------------------
INITIALS OF LANDLORD INITIALS OF TENANT
2.5 LANDLORD'S COVENANT OF QUIET ENJOYMENT
Landlord covenants and warrants that, so long as Tenant shall perform the
obligations of Tenant contained herein and shall not be in default in the
performance of any of such terms, conditions, obligations, liabilities, or
covenants, Landlord shall not interfere with Tenant's, (and its permitted
subtenant's, successor's and assign's) free, peaceable, exclusive and quiet use
and enjoyment of the Premises, subject to the terms and conditions herein, and
subject to: (a) the rights of the parties as set forth in this Lease; (b)any
mortgage(s) or deed of trust(s) to which this Lease is subordinate; (c) any
agreements and encumbrances to which this Lease is subordinate, (d) all matters
of record; (e) the Operating Documents and the fights of all other owners,
occupants, tenants, licensees, and invitees of or in the Project pursuant to the
Operating Documents; and/or disturbances, odors and similar inconveniences which
are commonly associated with projects of the type and size of the Project and/or
with Tenant's location in such Project.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
5
<PAGE> 11
3. RENTAL
3.1 BASE RENT
Commencing on the Commencement Date and thereafter throughout the Term,
Tenant shall pay to Landlord annual base rent ("Base Rent") for the Premises in
the amounts stated below.
<TABLE>
<CAPTION>
Period Base Rent
------ ---------
<S> <C>
Year 1 $180,000.00
Year 2 $190,000.00
Year 3 $200,000.00
Year 4 $210,000.00
Year 5 $220,000.00
Years 6 - 10 $246,400.00
Years 11 - 15 $280,968.00
Years 16 - 20 $314,084.00
Years 21 - 25 $346,174.00
Years 26 - 30 $387,715.00
Years 31 - 35 $434,241.00
Years 36 - 39 $486,350.00
Years 40 - 45 $544,712.00
Years 46 - 50 $610,077.00
Years 51 - 55 $683,286.00
</TABLE>
Base Rent shall be due and payable by Tenant to Landlord at the address set
forth herein in twelve (12) equal installments on the first (1st) day of each
month in then lawful currency of the United States of America, in advance,
without set off, demand or deduction whatsoever. Any and all charges and sums
(other than the payment of the Base Rent pursuant to this Section 3.1 and
Percentage Rent payable pursuant to Section 3.2 below) payable by Tenant under
this Lease (including, but not limited to, insurance premiums, utility expenses,
Taxes pursuant to Section 4.1 below and Tenant's share of Common Area expenses
pursuant to Article 19 below and Signage Rent payable pursuant to Section 6.2
below), shall constitute additional rent hereunder ("Additional Rent"). Base
Rent, Percentage Rent and Additional Rent are sometimes hereinafter collectively
referred to as "Rent." All Rent shall be absolutely net to Landlord so that this
Lease shall, except as expressly provided herein, yield net to Landlord, the
Rent to be paid each month during the Term of this Lease. Accordingly, except as
otherwise expressly provided herein, all costs, expenses, and obligations of
every kind or nature whatsoever relating to the Premises, or any improvements
thereon which may arise or become due during the Term of this Lease, shall be
paid by Tenant as set forth herein. Nothing herein contained shall be deemed to
require Tenant to pay or discharge any liens or mortgages of any character
whatsoever which may exist or hereafter be placed upon the Premises by an
affirmative act or omission of Landlord. Should a rental period commence and/or
end on a day other than the first (1st) or last day of a month, then the
installment of monthly rental for such
6
<PAGE> 12
partial month shall be computed on a daily basis at a rate per day equal to
1/30th of the applicable monthly Rent.
3.2 PERCENTAGE RENT
(a) Payment of Percentage Rent. rn addition to the Base Rent and other
sums specified herein, Tenant shall pay annually as percentage rent ("Percentage
Rent") the amount by which four percent (4%) of all Lease Year Gross Sales (as
that term is defined below) exceeds the Base Rent payable for such Lease Year.
(b) Quarterly Payments and Annual Adjustments. Payments of Percentage
Rent shall be made by the twentieth (20th) day following each quarter with an
adjustment to an annual basis at the end of each Lease Year as provided in this
Lease. Each quarterly payment shall be determined by applying the percentage to
the aggregate Gross Sales for the portion of the Lease Year to the preceding
quarter in excess of Base Rent payable for the same period, and deducting the
Percentage Rent previously paid for said Lease Year. Within ninety (90) days
after the close of each Lease Year, and within forty-five (45) days following
the expiration of the Term, Tenant shall deliver to Landlord the annual
statement described in subsection (c) showing the Gross Sales of Tenant during
said Lease Year and the amounts paid to Landlord as Percentage Rent for said
Lease Year, and thereupon an adjustment shall be made with respect to the
Percentage Rent as follows: If Tenant shall have paid to Landlord an amount
greater than Tenant is required to pay as Percentage Rent for such Lease Year,
Landlord shall credit such amount against the monthly installment(s) of Base
Rent next coming due. If Tenant shall have paid an amount less than the
Percentage Rent required to be paid hereunder, then Tenant shall pay such
difference to Landlord at the time of Tenant's delivery to Landlord of such
statement.
(c) Statement of Gross Sales. Tenant agrees to furnish, or cause to be
furnished, to Landlord a statement of Gross Sales (I) within fifteen (15) days
after the close of each calendar quarter falling within each Lease Year, (2) an
annual statement, including a monthly breakdown of Gross Sales, within ninety
(90) days after the close of each succeeding Lease Year, and (3) a final
statement within forty-five (45) days following the expiration of the Term. Such
statements shall be prepared in accordance with generally accepted accounting
principles and shall show the breakdown of Gross Sales. Such statements shall be
signed by Tenant. Gross Sales will include any income or revenue received by
Tenant from any subtenant, licensee or concessionaire; provided, that if any
such party occupies more than ten percent (10%) of the gross building area of
the Premises, then the Gross Sales of the subtenant, licensee or concessionaire
(and not the income or revenue received by Tenant from it) will be included in
Tenant's Gross Sales. Tenant shall maintain books, receipts and records showing
all Gross Sales from the Premises, including detailed original records of any
exclusions or deductions from Gross Sales (including any exclusions or
deductions from Gross Sales of any subtenant, licensee or concessionaire). Such
books, receipts and records shall be kept for a period of two (2) years after
the close of each calendar year and shall be available for inspection and audit
by Landlord or its representative after reasonable notice during regular
business hours either at the Premises or (at Tenant's option) at Tenant's main
corporate or accounting headquarters office, if said office is in San Diego
County. The receipt by Landlord of any statement or any payment of Percentage
Rent for any period shall not bind it as to the correctness of the statement or
the
7
<PAGE> 13
payment. Landlord shall, upon reasonable notice delivered within two (2) years
after the receipt of any such statement, be entitled to an audit or examination
of such Gross Sales (including the Gross Sales of any subtenant, licensee or
concessionaire). Such audit or examination shall be conducted by an independent
certified public accountant, to be reasonably designated by -Landlord, during
normal business hours after reasonable advance notice, either at the Premises or
(at Tenant's option) at Tenant's main corporate or accounting headquarters
office as long as said office is in San Diego County. On any examination or
audit, Tenant will receive a copy of the report showing in reasonable detail any
discrepancies discovered between Tenant's calculation and the examiner's or
auditor's calculation of Gross Sales and Percentage Rent, at the same time as
such report is given to Landlord. If it shall be determined as a result of such
audit that there has been a deficiency in the payment of Percentage Rent, then
such deficiency shall become immediately due and payable within twenty (20) days
after Tenant's receipt of a copy of the audit or examination report, and if not
so paid within such twenty (20) day time period, the amounts not paid shall bear
interest at the Interest Rate. In addition, if Tenant understates Gross Sales by
more than three percent (3%), and if Landlord is entitled to any additional
Percentage Rent as a result of said understatement, or if such audit shows that
Tenant has failed to maintain the books of account and records required by this
Section 3.3 so that Landlord is unable to verify the accuracy of Tenant's
statement, then Tenant shall pay to Landlord all reasonable costs and expenses
(including reasonable auditor and attorney fees) which may be incurred by
Landlord in conducting such audit and collecting such underpayment if any.
(d) Gross Sales. "Gross Sales" shall mean the entire amount of the sale
price, whether for cash or otherwise, of all sales of admission tickets, food,
beverages, merchandise and services and of all other receipts whatsoever, with
respect to all business conducted at, in, upon or from the Premises, and
including all sales by any sublessee, concessionaire, or licensee (subject to
the provisions of this Section and Section 3.2(c) above. No deduction shall be
allowed for uncollected or uncollectable credit accounts. Gross Sales shall not
include, however: (i) sums received by any user other than Tenant for use of
Tenant's facility for non-film use (such as lectures), provided however, any sum
received by Tenant (as a fee or rent) for use of Tenant's facility shall be
included; (ii) any sums (other than any commission or service fee to Tenant)
shown separately from the price, collected and paid out for any sales tax, use,
or excise tax or similar tax, imposition or assessment levied, imposed or
assessed by any governmental authority which Tenant is required to remit to such
authority, (iii) the amount of returns to shippers or suppliers; (iv) the amount
of merchandise sold which is thereafter returned by the purchaser and accepted
by Tenant; (v) sales of fixtures or other capital items owned and sold by Tenant
after use thereof in the conduct of Tenant's business in the Premises; (vi)
receipts from the furnishing of uniforms to Tenant's employees as an incident to
their employment. The transfer of merchandise by Tenant, or a subsidiary or
affiliate of Tenant, from the Premises to another place of business owned or
operated by Tenant or a subsidiary or affiliate of Tenant shall not constitute a
sale where such transfers are made solely for the convenient operation of the
business of Tenant and not for the purpose of consummation a sale which has
theretofore been made in or from the Premises. Each sale upon an installment or
credit basis shall be included and treated as a sale for the full price in the
month in which such sale is made regardless of whether (or the time when) Tenant
shall receive payment.
8
<PAGE> 14
(e) Violation of Radius Restriction. In addition to Landlord's remedies
set forth in Section 6.4 and elsewhere in the Lease, in the event Tenant should
violate the covenant set forth in said Section 6.4, Landlord may, without
limiting Landlord's remedies, at its option and for so long as Tenant is
operating said other business, include "Gross Sales" of such other business in
the "Gross Sales" transacted from the Premises for the purpose of computing the
Percentage Rent due hereunder.
3.3 PAST DUE AMOUNTS
Except as provided below, if Tenant shall neglect or fail to pay, within
ten (10) days after the date the same is due arid payable, any monthly
installment of Rent or other amount required to be paid under this Lease by
Tenant, Tenant promises to pay to Landlord, in addition to such unpaid amounts,
interest upon such unpaid amounts from the date due until the date Landlord
receives payment at the lesser of (i) the maximum lawful rate, or (ii) the prime
rate announced by Bank of America (or its successor) from time to time plus four
(4) percentage points (the "Interest Rate"). In addition to such interest,
Tenant acknowledges that the late payment by Tenant of any monthly installment
of Rent or other amount due hereunder will cause Landlord to incur certain costs
and expenses not contemplated under this Lease. The exact amount of such costs
and expenses is hereby acknowledged to be difficult and impractical to set. Such
costs and expenses include, without limitation, administrative and collection
costs, and processing and accounting expenses and other costs and expenses
necessary and incidental thereto. Therefore, if any such instalment or payment
is not received by Landlord from Tenant within ten (10) days after the date that
such installment or payment is due, Tenant shall immediately pay to Landlord a
late charge equal to ten percent (10%) of such amount. Landlord and Tenant agree
that this late charge represents a reasonable estimate of such costs and
expenses to be incurred by Landlord in the event of Tenant's failure to timely
pay Rent or other amounts due hereunder, and is fair compensation to Landlord
for its loss suffered by such nonpayment by Tenant. The interest and late
charges contained in this Section 3.4 are in addition to, and in no way
represent a diminution or substitution for any or all of Landlord's other rights
or remedies contained in this Lease or at law or in equity.
4. TAXES AND ASSESSMENTS: PRORATIONS
4.1 TAXES AND ASSESSMENTS
Tenant agrees to pay or cause to be paid, as Additional Rent, from the
Effective Date and thereafter during the Term, before delinquency, any and all
Taxes applicable to the Premises. Tenant acknowledges that Tenant's leasehold
interest is subject to taxation notwithstanding the ownership of the Premises by
a public entity. As used herein, "Taxes" shall mean any form of tax, assessment,
lien, bond obligation, license fee, license tax, tax or excise on rent, or any
other levy, charge or expense, together with any statutory interest thereon,
imposed or required at any time by any federal, state, county or city authority
having jurisdiction, or any political subdivision thereof, or any school,
agricultural, lighting, drainage or other improvement or special assessment
district thereof (hereinafter individually and collectively referred to as
"Governmental Agencies"), on any interest of Landlord or Tenant or both
(including any legal or equitable interest of Landlord or its mortgagee, if any)
in the Premises, including, without limitation: (a) any impositions by
Governmental Agencies (whether or not such impositions
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constitute tax receipts) or any other payments to Governmental Agencies (whether
involuntarily imposed by any such Governmental Agencies or voluntarily agreed to
by Landlord) in substitution, partially or totally, of any impositions now or
previously included within the definition of real property taxes, it being
acknowledged by Landlord and Tenant that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
Governmental Agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants, and in further
recognition of the decrease of quality of governmental services and amenities as
a result of Proposition 13, Taxes shall also include any governmental or private
assessments or the Project's contribution towards a governmental private
cost/sharing agreement for the purpose of augmenting or improving the quality of
services and amenities normally provided by governmental agencies, and it is the
intention of Landlord and Tenant that all such increased assessments, taxes,
fees, levies and charges and all similar assessments, taxes, fees, levies and
charges be included within the definition of Taxes; including without
limitation, those calculated to increase tax increments to Governmental Agencies
or to pay for such services as fire protection, street, sidewalk and road
maintenance, refuse removal or other governmental services which may have been
formerly provided without charge to property owners or occupants; (b) any
impositions allocable to or measured by the area of the Premises, or the realty
underlying the Premises, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof; (c) any impositions upon this
Lease or any document to which Tenant is a party, creating or transferring an
interest or an estate in the Premises; and (d) any and all costs (including,
without limitation, the fees of experts, tax consultants and attorneys)
reasonably incurred by Landlord should Landlord reasonably elect to negotiate or
contest the amount of said Taxes in formal or informal proceedings before the
taxing Governmental Agency.
Tenant's liability to pay such Taxes shall be prorated on the basis of a
365-day year to account for any fractional portion of the Premises and
improvements constructed or placed thereon.
Landlord agrees to use Landlord's reasonable efforts to cause the Premises
(including the improvements thereon and the realty underlying such improvements)
to be separately assessed.
4.2 PAYMENT OF TAXES
To facilitate the timely payment of all Taxes and to protect Landlord's and
Tenant's property interests in and upon the Premises, Tenant agrees to pay to
the appropriate governmental entity entitled thereto the total Taxes due. Any of
said payments to be made directly to the appropriate governmental authority
shall be made prior to the delinquency date established by the applicable taxing
authority, and Tenant shall, upon written request of Landlord, deliver evidence
of such payment to Landlord. Failure of Tenant to pay said Taxes as and when
herein specified shall, in addition to all other rights and remedies of Landlord
hereunder, subject Tenant to any fine, penalty, interest, or cost which Landlord
may incur as a result thereof. Tenant shall, within thirty (30) days after
demand, reimburse Landlord for any such fine, penalty, interest, or cost.
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4.3 RIGHT TO CONTEST
Tenant shall have the right to contest the amount or validity of any Taxes
payable with respect to the Premises, in whole or in part, by appropriate
administrative and legal proceedings, either in its own name, Landlord's name or
jointly with Landlord (but Landlord shall have no obligation under this Section
4.3), without any cost or expense to Landlord (and Tenant hereby agrees to
indemnify and hold Landlord harmless from any and all cost, liabilities, claims
or expenses in connection with any such contest), and Tenant may postpone
payment of any such contested Taxes pending the prosecution of such proceedings
and any appeals so long as Landlord's property interest is not jeopardized, and
Tenant, upon the reasonable request of Landlord, shall furnish a bond to the
Landlord sufficient to secure the payment of all contested Taxes, costs and
expenses in connection therewith as a pre-condition to undertaking any such
contest. In lieu of such bond, Tenant may elect to pay such Taxes under protest.
Landlord shall execute and deliver to the Tenant whatever documents may be
reasonably necessary or proper to permit Tenant to so contest any such Taxes or
which may be necessary to secure payment of any refund (with respect to a tax
year or portion thereof during the Term of this Lease) which may result from any
such proceedings.
4.4 SEPARATE ASSESSMENT
During any period in which the Premises and the underlying realty are not
separately assessed, Tenant shall pay, as its share of Taxes, an amount equal to
all Taxes payable with respect to all improvements on the Premises, plus
Tenant's share of Taxes on the realty underlying the Premises (determined as
provided below). For purposes of this Section 4.4, Tenant's share of Taxes on
the realty underlying the Premises shall equal the land square footage of the
Premises divided by the total land square footage of the parcel of which the
Premises comprises a part. Landlord shall deliver to Tenant, contemporaneously
with the delivery of the bill therefor, the calculations and assumptions made by
Landlord in determining Tenant's share of such Taxes and assessments. With
respect to any assessments which may be levied against or upon the Premises and
the underlying realty, or which under the laws then in force may be evidenced by
improvement or other bonds, or may be paid in semi-annual installments, only the
amount of such semi-annual installment (with appropriate proration for any
partial year) and statutory interest shall be included within the computation of
the annual Taxes and assessments levied against the Premises. Landlord shall
furnish Tenant with copies of any appropriate tax bills and statements promptly
following Landlord's receipt thereof and Tenant shall pay to Landlord, as
Additional Rent, such Taxes within thirty (30) days following Tenant's receipt
thereof.
4.5 PERSONAL PROPERTY TAXES
Tenant shall also pay before delinquency all taxes (including sales and use
taxes), assessments, license fees and public charges levied, assessed or imposed
upon its business operation as well as upon its merchandise, furniture,
fixtures, equipment and other personal property. In the event any such items of
property are assessed with property of Landlord, such assessment shall be
equitably divided between Landlord and Tenant by Landlord.
4.6 OTHER TAXES
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If at any time during the Term of this Lease the methods of taxation
prevailing at the execution hereof shall be altered so that in lieu of or as a
supplement to, or a substitution for, the whole or any part of the Taxes now
levied, assessed or imposed on the Premises, there shall be levied, assessed or
imposed a tax, assessment, levy, imposition or charge, wholly or partially as a
capital levy or otherwise, on the rents received therefrom, or a tax,
assessment, levy (including but not limited to any municipal, state or federal
levy), imposition or charges measured by or based in whole or in part upon the
Premises and imposed upon Landlord, or a license fee measured by the Rent
payable under this Lease, then all such taxes, assessments, levies, impositions,
charges or the part thereof so measured or based, shall be deemed to be included
within the term "Taxes" as defined in Section 4.1, and Tenant shall pay and
discharge the same as herein provided in respect of the payment of Taxes, to the
extent that any of the foregoing taxes or excises are in lieu of or in
substitution (in whole or in part) for ordinary property Taxes, and the amount
of such tax or excise on rents that Tenant is required to pay as "Taxes" under
this Section 4.6 will be computed as if the Premises and the buildings and
improvements thereon were the only property subject to such taxes and excises.
4.7 EXCLUSION FROM TAXES
Nothing contained in this Lease shall require Tenant to pay any franchise,
estate, gift, corporate, inheritance, or succession tax of Landlord or any
income, value added, or excess profits tax of Landlord.
4.8 NET LEASE RECITAL
Except as otherwise expressly set forth in this Lease, all Rent shall be
paid to Landlord absolutely net, without deduction of any nature whatsoever,
foreseeable or unforeseeable.
4.9 PRORATIONS
In the event of commencement or termination of this Lease at a time other
than the beginning or end of one of the specified rental periods, Base Rent,
Percentage Rent, Additional Rent, Signage Rent (as defined in Section 6.2) and
the CAM Contribution shall be prorated as of the date of commencement or
termination, and in the event of termination for reasons other than default, all
prepaid rent shall be refunded to Tenant.
5. CONSTRUCTION AND MAINTENANCE
5.1 CONSTRUCTION AND OWNERSHIP OF IMPROVEMENTS
Tenant shall, at Tenant's sole cost and expense, cause to be constructed
upon the Premises a one story cinema building consisting of no more than two
thousand (2,000) seats and related improvements (including, but not limited to,
Tenant's loading dock and ramp, perimeter sidewalks, parking areas, landscaping,
trash enclosure and signage) containing approximately forty thousand (40,000)
square feet of floor area (the "Improvements"), in the time and manner, and in
accordance with the terms and conditions set forth in the Work Letter attached
hereto as Exhibit "C". The Improvements shall be maintained at the sole cost and
expense of Tenant in
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accordance with Section 5.6 below. All such Improvements shall be owned by
Tenant during the Term and shall be surrendered at the expiration or earlier
termination of this Lease, at which time the same shall become the property of
Landlord, subject to Tenant's right to remove Tenant's Property as provided in
Section 5.4 below.
5.2 MECHANIC'S LIENS
Tenant agrees that it will pay or cause to be paid all costs for work done
by it or caused to be done by it on the Premises, and will keep the Premises,
the Improvements, and Tenant's leasehold interest free and clear of all
mechanic's liens, and other liens on account of work done for Tenant or persons
claiming under it. Tenant agrees to and shall indemnify, defend and save
Landlord free and harmless against all liability, loss, damage, costs and
attorneys' fees, and all other expenses on account of claims of lien of laborers
or materialmen or others for work performed or materials or supplies furnished
for Tenant or persons validly claiming under it.
(a) In the event a lien shall be recorded against the Premises on
account of work done or caused to be done by Tenant, Tenant shall have the
right to contest the same by appropriate action so long as Landlord's
property interest is not jeopardized. If the lien claimant commences
foreclosure of the lien, Tenant will have twenty (20) days after
commencement of such action in which to (i) cause said lien to be removed
or (ii) post a bond or cash deposit equal to one hundred fifty percent
(150%) of the amount of the disputed claim with a company or companies
reasonably satisfactory to Landlord and thereafter diligently contest the
validity of the lien. If Tenant shall fail to cause said lien to be removed
or post the bond within said 25-day period, Landlord may (but shall not be
so required to), upon an additional five (5) day notice to Tenant, pay the
claim giving rise to such lien and any costs associated therewith, and the
amounts so paid by Landlord, together with reasonable attorneys' fees
incurred in connection therewith, shall be immediately due and owing from
Tenant to Landlord, as Additional Rent, and Tenant shall pay the same to
Landlord within twenty (20) days after receipt of an invoice showing the
costs incurred, and if not paid within such time period, such costs will
bear interest from the dates of Landlord's payments at the Interest Rate.
(b) Should Tenant receive notice of any claims of lien filed against
the Premises or of any action affecting the title to the Premises, Tenant
shall immediately give Landlord written notice thereof.
(c) Tenant shall, before the commencement of any work which might
result in any such lien, give Landlord written notice of its intention to
do so in sufficient time to enable the posting of notices of
non-responsibility, but in any event not less than ten (10) business days.
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5.3 ALTERATION OF IMPROVEMENTS
Landlord agrees that Tenant may, in accordance with the procedure
hereinafter set forth, at its own expense and upon prior written notice to
Landlord of its intention to do so, from time to time during the term hereof,
make alterations, additions and changes in and to the interior of the Premises
(except those of a structural nature) as it may find necessary or convenient for
its purposes provided that the value of the Premises are not thereby diminished,
and provided further that no alterations, additions or change costing, in the
aggregate, in excess of Twenty-Five Thousand Dollars ($25,000) may be made
without first procuring the approval in writing of Landlord, such approval not
to be unreasonably withheld or delayed. Landlord's approval of such alterations,
additions or changes shall create no responsibility or liability on the part of
Landlord for the sufficiency of the design of the same or their compliance with
applicable law. Tenant acknowledges that any approvals by Landlord hereunder
shall be done in Landlord's capacity as landlord and not in its capacity as
public entity. In addition, no alterations, additions or changes (including
print color) shall be made to die exterior walls, roof or structural components
of the Premises, nor shall Tenant erect any mezzanine, unless and until the
prior written consent and approval of Landlord shall first have been obtained,
which approval shall not be unreasonably withheld or delayed. Tenant shall be
responsible for any and all damages resulting from any violations of the
provisions of this Section 5.3. All alterations, additions, or changes to be
made to the Premises which require the approval of Landlord (except
non-structural interior alterations), shall be under the supervision of a
licensed architect or licensed structural engineer and made in accordance with
detailed plans and specifications with respect thereto, and the Operating
Documents, approved in writing by Landlord before the commencement of work,
which approval shall not be unreasonably withheld or delayed. No work of any
kind shall be commenced and no building or other materials shall be delivered
for said building project until at least ten (10) business days after written
notice has been given by Tenant to Landlord of the commencement of such work or
the delivery of such materials. Landlord shall, at any and all times during tile
term of this Lease, have the right to post and maintain on the Premises and to
record as required by law, any notice or notices of non- responsibility provided
for by the mechanic's lien law of the State of California. All work performed by
Tenant, including any site preparation work, landscape work, utility
installation work, as well as actual construction work on the building project,
shall be performed only by competent contractors duly licensed as such under the
laws of the State of California. Tenant hereby agrees to defend and hold
Landlord harmless from and against any and all claims, demands, actions or
obligations arising under the construction contract. Tenant shall deliver
evidence of insurance reasonably required by Landlord to Landlord prior to the
commencement of any construction. All work with respect to any alterations,
additions and changes must be done in a good and workmanlike manner and
diligently prosecuted to completion to the end that the Premises shall at all
times be a complete unit except during the period of work. Upon completion of
such work, Tenant shall file for record in the office of the local County
Recorder, a Notice of Completion as permitted by law, and Tenant shall deliver
to Landlord, upon Landlord's reasonable request, "as built" plans with respect
to such work. Such alterations, additions or changes shall be considered as
Improvements, shall not be removed by Tenant and shall become a part of the
Premises subject to Tenant's right to remove Tenant's Property as provided
below. Any such changes, alterations and improvements shall be performed and
done strictly in accordance with the laws and ordinances relating thereto. In
performing the work of
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any such alterations, additions or changes, Tenant shall have the work performed
in such a manner as not to impede access to the premises of any other tenant or
occupant at the Project.
5.4 TENANT'S PROPERTY
Notwithstanding the provisions of Section 5.1 above, all trade fixtures,
furnishings, furniture, fixtures and equipment ("FF&E"), inventory, signs and
other personal property installed by Tenant or any Transferee (collectively,
"Tenant's Property") shall be and remain the property of the person, firm, or
corporation installing the same and shall be removable at any time during the
Tenn of this Lease. The removal of any suck Tenant's Property shall be at the
sole risk, cost and expense of the person, firm, or corporation removing the
same and Tenant shall repair any damage or injury to the Premises and all
Improvements occasioned by the removal thereof.
5.5 LANDLORD'S LIEN WAIVES
Landlord, within thirty (30) days after written request from Tenant, shall
execute and deliver any document reasonably required by any supplier, lessor, or
lender in connection with the granting, creating, or perfecting by Tenant of a
security interest in and to Tenant's Property and any proceeds therefrom,
pursuant to which Landlord shall waive, or subordinate, as the case may be, any
rights It may have or acquire with respect to Tenant's Property, and any
proceeds therefrom, if the supplier, lessor, or leader agrees in writing that:
(i) it will remove such Tenant's Property from ale Premises before the
expiration of the Term or within ten (10) days after termination of this Lease
and (ii) it will, at its sole cost and expense, make whatever restoration to the
Premises or the Improvements that is necessitated by such removal.
5.6 MAINTENANCE AND REPAIR
Tenant agrees at all times from and after the Effective Date, and at
Tenant's sole cost and expense, to repair, replace and maintain the Improvements
located on the Premises (aria any utility lines located on or under or
exclusively serving the Premises), in good, first-class condition arid repair,
and in accordance with the requirements of the Operating Documents and any
governmental authority or agency having jurisdiction thereof. Repair and
maintenance shall include, but not be limited to, painting the exterior of the
building no less often than every five (5) years, keeping the landscape watered
and trimmed in a neat and attractive fashion and in keeping with the rest of the
Town Center Project, keeping the Premises free of debris and clean and
attractive. All glass, both exterior and interior is to be installed and
maintained at the sole risk of Tenant, and any glass broken shall be promptly
replaced by Tenant with glass of the same kind, size and quality, or as required
by then applicable law.
Upon any surrender of the Premises, Tenant shall redeliver the Premises to
Landlord broom clean, ordinary wear and tear and casualty excepted. If Tenant
refuses or neglects to make repairs and/or maintain the Premises, or any part
thereof, as required by this Section 5.6, Landlord shall have the right but not
the obligation), upon giving Tenant thirty (30) days written notice of its
election to do so (or without notice in aft emergency), to make such repairs or
perform such maintenance on behalf of and for the account of Tenant unless
Tenant commences such repairs within said 30-day period and diligently completes
the same. In such
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event, the cost of such work shall be paid by Tenant to Landlord, as Additional
Rent, within thirty (30) days after Tenant's receipt of a bill therefor.
5.7 RIGHT OF ENTRY
Landlord reserves the fight at all reasonable times and upon not less than
48 hours prior written notice to Tenant (except in the case of an emergency) to
enter the Premises to (i) inspect them; (ii) show the Premises to prospective
purchasers, mortgagees or to the ground or underlying lessors; (ill) show the
Premises to prospective tenants during the last eighteen (18) months of the
Term; (iv) post notices of non-responsibility, (v) perform services required of
Landlord; and (vi) perform any covenants of Tenant which Tenant fails to perform
(subject to any notice and/or grace periods contained in this Lease). Landlord
may make any such entries without the abatement of Rent and may take such
reasonable steps as required to accomplish the stated purposes: provided,
however, each such entry shall be made in reasonable manner which, to the
maximum extent reasonably possible, does not interfere with Tenant's business
operations or security systems. Further, Tenant shall have the right to
accompany Landlord during any such entry (except in the case of an emergency).
Nothing herein contained shall imply any duty on the part of Landlord to do any
such work which under any pro vision of this Lease Tenant may be required to do,
nor shall it constitute a waiver of Tenant's default in failing to do the same.
6. USE
6.1 USE
Tenant shall have the right to use the Premises solely for the construction
and operation thereon of a cinema move theater consisting or no more than two
thousand (2,000) seats (with ancillary on premises sales of non-alcoholic
beverages and snack-type or fast food customarily sold at theaters in the
community for consumption within the Premises, under the trade name "Cinema Star
Luxury Theaters" ("Permitted Use"), and no other purpose whatsoever without
Landlord's prior written consent. The Permitted Use shall exclude the showing of
X-rated, nonrated or pornographic films, if the rate system is modified so that
the x-rating is changed, this prohibition shall include those films which are
included in the x-rating category on films as of the date of this Lease.
Tenant acknowledges that Landlord has agreed or may agree in the future to
certain exclusive use requirements for tenants of the Project. Tenant agrees
that Tenant shall not use the Premises for the operation of a restaurant with a
pasta based menu, nor will Tenant use the Premises for the operation of a buffet
style restaurant or cafeteria or cafeteria style restaurant (which shall include
the concept of a so-called "home meal replacement" business such as, by way of
example and not in limitation, the type of food operation presently operated by
Boston Chicken, Hearth Express and/or Kenny Rogers Roaster) or a family style
restaurant (a restaurant in which food is served in the middle of the table and
shared by patrons). Notwithstanding the foregoing, Landlord shall not
unreasonably withhold its consent to a change in Tenant's Permitted Use,
provided, however, the parties agree that it shall be reasonable under this
Lease and under any applicable law for Landlord to withhold its consent to any
such proposed change in Permitted Use wherein one or more or the following
apply: (i) in Landlord's reasonable judgment the proposed change in Permitted
Use is not a use consistent with the character of the Project as a high quality,
mixed-use project, or (ii) the proposed use would cause
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a violation of another lease within the Project or would give an occupant of the
Project a right to cancel its lease or bring an action against Landlord, or
(iii) in Landlord's reasonable judgment the proposed change in Permitted Use
will not generate at least the same amount of Percentage Rent as the current
use, or (iv) in Landlord's reasonable judgment the proposed use would create an
unreasonable burden on parking or create operational difficulties for other
tenants of the Project or the City. Further, Tenant's use and occupancy of the
Premises shall comply with the Operating Documents and all present and future
laws and local ordinances. rules and regulations of governmental authorities
having jurisdiction over the Premises. In addition, Tenant shall not change
Tenants trade name without Landlord's consent, which consent shall not be
unreasonably withheld, provided. however, Tenant shall have the right, without
the consent of Landlord, but upon written notice to Landlord, to change Tenant's
trade name to any trade name under which Tenant or any of its affiliates or
subsidiaries operates the Permitted Use.
Tenant shall not permit any display or sale of merchandise, or any storage
or placement of merchandise, signs (except such signs that are approved by
Landlord in accordance with this Lease and the Work Letter) or other objects
outside the defined exterior walls, roof and permanent doorways of Tenants
building.
In order to provide for the orderly development and operation of the
Project:
(a) Tenant shall not carry any merchandise or substance or perform
any activity in relation to the use of the Premises which would (i) cause
or threaten the cancellation of any insurance covering any portion of the
Premises, or (ii) increase the insurance rates applicable to the Project
over the rates which would otherwise apply to the Project unless Tenant
shall pay the increased insurance cost on demand; and
(b) Tenant agrees to abide by all reasonable rules and regulations
of the Project as may be reasonably adopted from time to time by Landlord
or under the Operating Documents (the "Rules and Regulations"), provided,
however, in no event shall such Rules and Regulations be modified or
enforced in any way by Landlord so as to materially interfere with Tenant's
Permitted Use or discriminately enforced against Tenant,
(c) Tenant shall either provide security or pay for security which
the Landlord shall provide if the city manager so requests. The city
manager's request will be made only after consultation with the Sheriffs
Department and/or Police Chief or if the incident history at the Project
warrants due to incidents involving theater patrons.
(d) Tenant shall perform reasonable activities to discourage its
patrons from loitering in the Premises or in areas surrounding the
Premises. If, in the reasonable opinion of the city manager, security
personnel are necessary to assist Landlord in discouraging loitering,
Tenant shall either hire said security personnel, or pay Landlord's cost of
hiring same.
(e) Tenant shall monitor and clean up the Premises and the areas
surrounding the Premises and the pedestrian sidewalks and parking garage to
remove trash discarded by its patrons.
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(f) In order to reasonably manage parking requirements of the
Project, the Tenant shall not hold special events or promotions which have
the effect of attracting large numbers of patrons to the Premises on the
evenings when the City Council or Planning Commission meets (currently
Monday and Tuesday evenings). Landlord shall provide Tenant with at least
thirty (30) days notice of any change in the days of the week the Council
or Commission meet so that Tenant may schedule its events appropriately.
6.2 SIGNAGE
(a) Subject to Landlord's prior approval and Tenant's compliance with
applicable codes, zoning ordinances and any other governmental requirements,
Tenant may affix and maintain upon the glass panes and supports of the windows
and upon the exterior walls of the Premises and in the parking areas on the
Premises such signs, advertising placards, names, insignia, trademarks and
descriptive materials as shall be used in the ordinary course of Tenant's
business and consistent with the operation of the Premises as a first-class
facility.
(b) Tenant acknowledges that the entire cost of installation, maintenance
and removal of all Tenant's signage permitted hereunder shall be borne solely by
Tenant and Tenant shall maintain all such signage in good and proper condition
in accordance with the Rules and Regulations and the Operating Documents, All
Tenant signs shall at all times be and remain the property of Tenant and may he
removed at Tenant's election, cost and expense at any time on or prior to the
expiration or earlier termination of ute Term of this Lease.
(c) Landlord shall place, construct and maintain Project directory(ies)
in such location(s), as Landlord, in its sole discretion may determine, which
directory(ies) shall be for the display of the business names of tenants in the
Project. Tenant shall have the right to place a listing on the directory(ies) at
a location and size and at such rates as Landlord may designate. Tenant shall
pay the cost of fabricating and installing the listing(s) identifying Tenant and
its pro rata share of the cost of constructing and operating and maintaining
tile sign. Landlord shall have the sole right to determine and change from time
to time the Type and number of such directory(ies) and the contents thereof
including, but not limited to, size of letters, style, color and placement.
(d) Landlord agrees to construct a twenty-five foot (25) high, multi-
panel tenant directory sign (the "Directory") located as shown on the site plan
attached as Exhibit "B". This directory sign shall be designated as shown on
Exhibit "F" attached hereto.
(e) Subject to the provisions of Subparagraph (f) below, Landlord agrees
to make available, and Tenant agrees to rent, one pair of internally illuminated
sign cabinets located at the top of the Directory, one on each side, for the
Term of this Lease, Rent for the sign ("Signage Rent") shall be Seven Hundred
Fifty Dollars ($750.00) per year, due and payable on the first day of each Lease
Year, commencing on the Commencement Date.
(f) Landlord shall have the right to determine the useful life of the
Director and to remove it or deactivate it at Landlord's sole cost and
discretion when the physical condition of the Director (Including damage) or the
cost of its maintenance and repair
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warrants. Landlord shall provide Tenant ninety (90) days' written notice of its
intent to remove or deactivate the Directory. In the event of removal or
deactivation, Tenant shall be relieved of its obligation to pay Signage Rent,
commencing with the first day that tile Directory is permanently taken out of
service and shall be entitled to receive a prorated reimbursement of any Signage
Rent paid for the unexpired balance of the Lease Year in which the Directory is
removed from service.
(g) Landlord agrees to maintain insurance coverage on the Directory' as
long as it remains in service. In the event of damage due to a non-covered
event, if Landlord agrees to reconstruct the Directory, Tenant shall bear the
cost of repairing and/or replacing its individual sign face plates and copy
only.
(h) Tenant agrees that the nature of the materials used in the
construction of its individual cabinet face plates and copy is such that they
will periodically require refinishing, refurbishment or replacement to maintain
the high quality appearance of the Directory. Accordingly, Tenant agrees to bear
the cost of refinishing, refurbishing or replacing (at Landlord's option)
Tenant's cabinet face places and copy at intervals no greater than eight (8)
years, if in the opinion of Landlord, the condition of them warrant.
6.3 CONTINUOUS OPERATION
Commencing on the Commencement Date, Tenant agrees to be open to the public
for business for the Permitted Use at least seven (7) days a week during the
hours of operation generally utilized for theaters in Southern California,
except while the Premises are untenantable by reason of casualty or condemnation
and Tenant is performing its restoration obligations in accordance with this
Lease.
6.4 RADIUS RESTRICTION
Tenant covenants and warrants that it will not, nor will any entity that
controls, is controlled by or under common control with Tenant, during the Term,
directly or indirectly, operate or own any type of theater business similar to
the type of business then being operated by Tenant from the Premises within a
one mile radius of the boundaries of the Project. The covenant shall not apply
to any theaters existing at the Effective Date purchased by Tenant as part of
Tenants business plan. This covenant shall be specifically enforceable by
mandatory or prohibitory injunction by Landlord and Landlord shall be entitled
to any of its other rights and remedies under this Lease (including, but not
limited to, the remedy set forth in Section 3.2(e)) and all other remedies
available to Landlord at law or in equity.
6.5 FOOD SERVICE RESTRICTIONS
Subject to compliance with all applicable laws and Tenant's Permitted Use
of the Premises, Tenant shall be entitled to prepare food items within the
Premises, utilizing equipment and ventilation systems or such other equipment
and systems to be constructed and installed pursuant to the provisions of the
Work Letter and this Lease. In any event, Tenant shall use all reasonable
efforts to minimize the emission of obnoxious or objectionable odors and noises
from the Premises. In addition, Tenant shall, at its sole cost and expense,
cause all trash contained
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within the Premises to be emptied on a regular basis, and disposed of in trash
container(s) approved by Landlord.
6.6 COMPLIANCE WITH LAWS
Tenant shall comply with all governmental laws, ordinances and regulations
now in force, or which may hereafter be in force, applicable to the Premises and
with any order, directive, or certificate of occupancy properly issued, all at
Tenant's sole expense. In the event of any changes in laws, ordinances or
regulations, Tenant shall be obligated to comply with such changes when and if
such compliance is required under the applicable laws, ordinances and
regulations. Without limiting the foregoing, Tenant shall be responsible for
compliance with all requirements of the Americans With Disabilities Act of 1990
as it may be amended and as supplemented by further laws from time to time.
7. REPRESENTATIONS AND WARRANTIES
7.1 NO VIOLATION
Landlord and Tenant hereby each represent and warrant to the other that
their respective performance and compliance with the terms, provisions and
conditions of this Lease do not and will not conflict with or result in any
violation of any of the terms, conditions, or revisions of an agreement,
obligation, judgment, decree, order, statute, rule or regulation applicable to
Landlord or to Tenant.
7.2 LANDLORD'S REPRESENTATIONS AND WARRANTIES
Landlord hereby represents and warrants to Tenant that:
(a) Landlord is the owner in fee of the Premises,
(b) Landlord has the full power) right and authority to enter into
and execute this Lease, and
(c) Those persons whose signatures are hereinafter evidenced on this
Lease on behalf of Landlord are duly authorized signatories of Landlord,
fully empowered to commit and bind Landlord to those certain terms,
covenants and conditions set forth herein for die Term of this Lease.
7.3 TENANT'S REPRESENTATIONS AND WARRANTIES
Tenant hereby represents and warrants to Landlord that:
(a) Tenant has the full power, right and authority to enter into and
execute this Lease; and
(b) Those persons whose signatures are hereinafter evidenced on this
Lease on behalf of Tenant are duly authorized signatories of Tenant, fully
empowered to commit
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and bind Tenant to those certain terms, covenants and conditions set forth
herein for the Term of this Lease.
8. INDEMNIFICATION
Tenant agrees to protect, defend, indemnify and save harmless Landlord and
Landlord's interest in the Project from and against any and all loss, damage and
liability arising from (i) Tenant's failure to perform and observe its covenants
hereunder, (ii) any act or omission of Tenant or its officers, agents, servants,
employees, independent contractors, patrons, customers, licensees, subtenants,
concessionaires or assignees (collectively, "Tenant Parties") respecting the
Premises or the Project, (iii) the occupation, use, possession, conduct or
management of the Premises by Tenant or the Tenant Parties, or (iv) any work or
thing whatsoever done in or on the Premises by Tenant or the Tenant Parties;
provided that the terms of the foregoing indemnity shall not apply to the
negligence or willful misconduct of Landlord or its officers, agents, servants,
employees, independent contractors or assignees (collectively; "Landlord
Parties"). The provisions of this Article 8 shall survive the expiration or
sooner termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
9. INSURANCE
9.1 GENERAL LIABILITY
Commencing upon Tenant's entry upon the Premises and thereafter during the
Term of this Lease, Tenant shall carry and maintain commercial general
public-liability insurance against claims for personal injury, death or property
damage upon of about the Premises and the Improvements thereon. The amount of
coverage shall be not less than Three Million Dollars ($3,000,000.00) combined
single limit. During any construction, Tenant shall obtain a "course of
construction" endorsement to such policies. The policies shall also insure
Tenant's contractual liability under the indemnity provisions of this Lease and
contain a cross- liability endorsement Tenant shall carry and maintain during
the entire Term, at Tenant's sole cost and expense, increased amounts of the
insurance required to be carried by Tenant pursuant to this Article 9, and such
other reasonable types of insurance coverage and in such reasonable amounts
covering the Premises and Tenant's operations therein, as may be reasonably
requested by Landlord, but in no event shall such increased amounts of insurance
or such other types of insurance t)e in excess of that reasonably required by
prudent landlords of comparable operations.
9.2 FIRE AND EXTENDED COVERAGE
Upon the commencement of construction of the Improvements and continuing
thereafter during the Term of this Lease, Tenant shall carry and maintain fire
and extended coverage ("All-Risk") insurance on the Premises and Improvements
located thereon, in an amount not less than the full replacement costs of the
Improvements. Any policy proceeds shall be used for the repair or replacement of
the property damaged or destroyed unless this Lease shall cease and terminate
under the provisions of Article 11.
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9.3 TENANT'S PERSONAL PROPERTY
During the Term of this Lease, Tenant shall maintain in full force and
effect on all Tenant's Property from time to time in, on or upon the Premises,
fire and extended coverage ("All-Risks") insurance in the amount of the full
replacement value thereof. Any policy proceeds shall be used for the repair or
replacement of Tenant's Property damaged or destroyed unless this Lease shall
cease and terminate under the provisions of Article 11.
9.4 OTHER COVERAGE
Tenant shall also carry (i) workers' compensation insurance in compliance
with all applicable laws and employer's liability insurance in the amount of at
least One Hundred Thousand Dollars ($100,000) or such greater amount as may be
required by law, (ii) insurance covering the full replacement cost of all plate
glass located on the Premises (provided, however, that Tenant may self-insure
this risk.
9.5 POLICIES AND CERTIFICATE OF INSURANCE
Evidence of all such insurance shall be promptly provided and all such
policies shall provide that no cancellation shall be effective until at least
thirty (30) days after receipt by Landlord and by Tenant of written notice
thereof. The policies of insurance required under this Article 9 shall be issued
by good, responsible companies, qualified to do business in the State of
California, with a general policy holders' rating of at lease A and a financial
rating of at least Class VIII as rated in the most currently available "Best's
Key Rating. Guide". All policies shall name, as additional insureds, Landlord
and such persons arid affiliated entities and lenders of Landlord as Landlord
may reasonably request. Executed copies of certificates of such insurance shall
be delivered to Landlord within ten (10) days after such policies are required
to be obtained hereunder, and thereafter executed copies of renewal certificates
of such Insurance shall be delivered to Landlord within twenty (20) days prior
to the expiration of the term of each such policy. As often as any such policy
shall expire or terminate, renewal of additional policies shall be procured and
maintained by Tenant in like manner and to like extent. All policies required
under this Lease shall be written as primary coverage nor contributing with or
being in excess of any other coverage carried by Landlord. Tenant's coverage
hereunder may be part of a blanket or umbrella policy if the same meets the
requirements set forth, above. All policies of casualty insurance required
hereunder shall include a clause or endorsement denying the insurer any rights
of subrogation against the other party to the extent rights have been waived by
the insured before the occurrence of injury or loss. Each party waives any
rights of recovery against the other for injury or loss to property arising from
any peril to the extent insured against under any casualty insurance policy
carried by it, or required to be carried hereunder. Tenant shall cause the
insurance companies issuing properly damage insurance waive any rights of
subrogation that such companies may have against Landlord. Landlord will not
unreasonably withhold approval, in Landlord's reasonable judgment (based on
whether Tenant has the reasonable financial capability of meeting its financial
obligations), of reasonable deductibles, which are reasonable in light of
Tenant's net worth. Landlord may, in connection its approval, impose reasonable
conditions and reporting requirements in connection with same.
10. DAMAGE OR DESTRUCTION
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10.1 OBLIGATION TO RESTORE
In case of damage to or destruction of the Improvements constructed by
Tenant on the Premises, whether or not by a risk required to be covered by
insurance as set forth in Article 9 of this Lease, this Lease shall not
terminate and Tenant shall promptly restore, rebuild, replace or repair
Improvements of comparable value as existed immediately prior to such damage or
destruction. Such restoration, repair or rebuilding shall be commenced promptly
butt in no event later than ninety (90) days after the casualty and shall
thereafter be prosecuted with due diligence. Notwithstanding the foregoing,
however, in the case 0L. damage to or destruction of the Improvements
constructed by Tenant on the Premises during the last two (2) years of the Lease
Term or during any renewal term that renders the Premises inaccessible or
unusable for purposes of conducting Tenant's business, Tenant may elect to
terminate this Lease by giving Landlord written notice of such election within
sixty (60) days following the casualty, in which event Tenant shall have no
obligation to restore, rebuild, replace or repair the Improvements, provided,
however, Tenant shall, at its cost, (or with the proceeds of casualty insurance)
clear the Premises of debris and return the same to a safe and dean condition,
and deliver any insurance proceeds to Landlord in accordance with Section 10.5
below.
Notwithstanding the foregoing, the proceeds of insurance payable on account
of the casualty required to be carried under this Lease, whether actually
carried or not (plus the amount of any deductible or self-insured retention
level, which will be paid by Tenant) will be the "Restoration Fund." The
Restoration Fund will be made available to pay the costs of such work, in the
same manner as proceeds of a construction loan are subject to disbursement. Upon
completion of ate work, any balance remaining shall belong Landlord.
Tenant will not be required to incur costs for the restoration in excess of
the Restoration Fund proceeds, but will cause the Improvements, to the extent
feasible, to be restored: (i) to a complete architectural unit, (ii) in
condition appropriate to permit continuation of Tenant's business operation, and
(iii) substantially the same value and utility as immediately before the
casualty, to the extent feasible (taking into consideration. among other
matters, the amount of the Restoration Fund).
10.2 RECONSTRUCTION AND REPAIR REQUIREMENTS
Tenant shall obtain Landlord's prior approval of all plans for
reconstruction or repair work performed by Tenant which approval sh all not be
unreasonably withheld or delayed, provided, however, such plans must comply with
the requirements of the Operating Documents and otherwise satisfy the
requirements set forth in the Work Letter.
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10.3 TENANT IMPROVEMENTS AND WAIVER OF TERMINATION
The agreements contained in this Article 10 provide a material part of the
consideration for this Lease and in bargaining for and obtaining its rights
under this Article 10, Tenant waives any right to terminate this Lease under
Section 1932 and/or 1933(4) of We Civil Code of California.
10.4 MUTUAL RELEASE
Upon any termination of this Lease under any of the provisions of this
Article 107 the parties shall be released thereby without further obligations to
the other party coincident with the surrender of possession of the Premises by
Tenant to Landlord, except for items which have accrued prior to the surrender
and remain unpaid, and except as expressly provided herein. Furthermore, in the
event of termination, all proceeds from insurance policies maintained under
Sections 9.2 shall be disbursed and paid to Landlord, less such amounts that are
used by Tenant in clearing any debris from the Premises and returning the
Premises to a safe and dean condition as required by Section 10.1 above.
10.5 NO RENT ABATEMENT DURING RECONSTRUCTION
There shall be no Rent abatement during repair or reconstruction of the
Improvements or during that period after any casualty and prior to commencement
of repair or reconstruction (unless the casualty was caused solely by the
negligent or intentional act of Landlord); provided, that to the extent covered
by airy loss of rents coverage that Tenant may elect to maintain for Landlord's
benefit, Rent will be abated to the extent and during the period the Premises is
not reasonably usable for the conduct of Tenant's business (but such abatement
will be applicable only to the extent of loss of rents proceeds received by
Landlord).
11. CONDEMNATION
(a) In case all of the Premises, or such part thereof as shall materially
and substantially interfere with Tenant's ability to conduct its business upon
the Premises, shall be taken for any public or quasi-public purpose by any
lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, Tenant shall
have the right to terminate this Lease effective as of the date possession is
required to be surrendered to said authority. Tenant shrill not assert any claim
against Landlord or the taking authority for any compensation because of such
taking, and Landlord shall be entitled to receive the entire amount of any award
without deductions for any estate or interest of Tenant (except the Improvements
as described above); provided, however, in the event of such a taking, Tenant
shall be entitled to such portion of the award as shall be attributable to the
loss of the Improvements, and for damage to, or the costs of removal of,
Tenant's Property. In the event he amount of property or the type of estate
taken shall not materially and substantially interfere with the ability of
Tenant to conduct its business upon the Premises, Landlord shall be entitled to
the entire amount of the award without deduction for any estate or interest of
Tenant, Landlord shall restore the Premises to substantially their same
condition prior to such partial taking to the extent of any award proceeds
received by Landlord, and a fair and equitable abatement shall be
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made to Tenant for the Base Rent corresponding to the time during which, and to
the part of the Premises of which, Tenant shall be so deprived on account of
such taking and restoration.
(b) In the event of taking of the Premises or any part thereof for
temporary use, (i) this lease shall be and remain unaffected thereby and Rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period of
the taking which is within the Term. For purposes of this Section 11(b), a
temporary taking shall be defined as a taking for a period of one (1) year or
less.
12. OCCUPANCY TRANSACTIONS
12.1 DEFINITIONS
As used in this Article 12, the following definitions shall apply:
"TRANSFER" means any voluntary, unconditional and present (i)
assignment of some or all of Tenant's interest, rights and duties in the
Lease and/ox the Premises. including Tenant's right to use, occupy and
possess the Premises, or (ii) sublease of Ten ant's right to use, occupy
and possess the Premises, in whole or in part, including a sub-sublease
thereof or any assignment of a sublease or sub-sublease:
"ENCUMBRANCE" means any conditional, contingent or deferred
assignment, or conveyance voluntarily made by Tenant of some or all of
Tenant's interest rights or duties in the Lease or the Premises, including
Tenant's right to use, occupy or possess the Premises, in whole or in pan,
including, without limitation, any mortgage, deed of trust, pledge,
hypothecation, lien, or other security arrangement;
"CHANGE OF CONTROL" means the transfer by sale, assignment, death,
incompetency, trust, operation of law, or otherwise of any shares, voting
rights or ownership interest which will result in a change in persons
exercising, or who may exercise, effective control of Tenant, unless such
change results from the trading of shares listed on a recognized public
stock exchange. If Tenant is a private corporation whose stock becomes
publicly held, the transfers of such stock from private to public ownership
shall not be deemed a Change of Control;
"OCCUPANCY TRANSACTION" means any Transfer, Encumbrance or Change of
Control, or other arrangement whereby the identity of the person or persons
using, occupying or possessing the Premises changes or may change, whether
such change be of an immediate, deferred, conditional, exclusive,
non-exclusive, permanent or temporary nature; and
"TRANSFEREE" means the proposed assignee, sublessee, mortgagee,
beneficiary, pledgee or other recipient of Tenant's interests, rights or
duties in this Lease or the Premises in the Occupancy Transaction.
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12.2 RESTRICTIONS
(a) Encumbrances. Except as provided in this Section 12.8 below. Tenant
shall not make or consent to any Encumbrance.
(b) Occupancy Transactions Other Than Encumbrances. Tenant shall not
enter into, or consent to, an Occupancy Transaction, other than an Encumbrance,
without first procuring Landlord's written consent, which Landlord shall not
withhold unreasonably. The parties agree, however, that the manner of operation
of the Premises and conduct of business thereon by Tenant will have an impact on
the quality and reputation of the Project. Accordingly, the parties agree that
in approving or disapproving of any proposed Occupancy Transaction, Landlord
shall be entitled to take into consideration, by way of example and not
limitation, any or all of the criteria set forth below and that it shall not be
unreasonable for Landlord to withhold its consent if any of the following
situations exist or may exist:
(i) Use. The Transferee's contemplated use of the Premises
following the proposed Occupancy Transaction is not the Permitted Use or
change in use approved by Landlord pursuant to Article 6 above or Article
21.10 below;
(ii) Business Experience. In Landlord's reasonable business
judgment, the transferee lacks sufficient business reputation or experience
to operate a successful business of the type and quality permitted under
this Lease;
(iii) Amendment to Lease. The Transferee requests an amendment of
the Lease other than the identity of Tenant's, or
(iv) Breach of Agreements. The proposed Occupancy Transaction would
involve a change from the Permitted Use that would breach any covenant of
Landlord respecting radius, location, use or exclusivity in any other
lease, financing agreement or other agreement relating to the Project,
including the Operating Documents; or
(v) Financial Strength. The proposed Transferee does not have the
financial strength, in the reasonable judgment of Landlord, to be able to
operate the proposed business and pay the Rent required hereunder.
12.3 CONDITION PRECEDENT
Tenant shall not have the right or power to request Landlord's consent to,
or to enter into, an Occupancy Transaction if there exists an uncured Event of
Default (after expiration of any applicable notice and/or grace period) at the
time of such request.
12.4 PROCEDURES
(a) Request for Consent. Should Tenant desire to enter into an Occupancy
Transaction, Tenant shall give notice thereof to Landlord by requesting in
writing Landlord's consent to such Occupancy Transaction at least forty-five
(45) working days before the proposed effective date of any such Occupancy
transaction and shall provide Landlord with the following:
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(i) Description of Transaction. The full particulars of the
proposed Occupancy Transaction including its nature, effective date, terms
and conditions;
(ii) Description of Transferee. A description of the identity, net
worth and previous business experience of the Transferee, including,
without limitation, copies of Transferee's latest income statement, balance
sheet and change-of-financial-position statements (with accompanying notes
and disclosures of all material changes thereto) in audited form, if
available, and certified as accurate by the Transferee;
(iii) Hazardous Materials. A description of the types and
quantities of hazardous materials, if any, which the Transferee intends to
bring onto the Premises;
(iv) Additional Information. Any further information relevant to
the transaction which Landlord shall have requested within fifteen (15)
days after receipt of Tenant's request for consent; and
(v) Tenant's Statement. A statement that Tenant intends to
consummate the proposed Occupancy Transaction if Landlord consents thereto.
(b) Period for Review. Within thirty (30) days after receipt of Tenant's
request for consent, Landlord shall respond as follows:
(i) Consent 10 the Occupancy Transaction; or
(ii) Refuse to consent to the Occupancy Transaction.
Landlord's failure to respond to Tenant within such thirty (30) day period
shall be deemed Landlord's consent to the Occupancy Transaction.
12.5 DOCUMENTATION AND EXPENSES
Each Occupancy Transaction to which Landlord has consented shall be
evidenced by an instrument made in such written form as is reasonably
satisfactory to Landlord and executed by Tenant and Transferee. By such
instrument, Transferee shall assume and promise to perform all the terms,
covenants and conditions of this Lease which are obligations of Tenant. Tenant
shall remain fully liable to perform its duties under the Lease following the
Occupancy Transaction.
12.6 NULLITY
Any purported Occupancy Transaction consummated in violation of the
provisions of the Article 12 shall be null and void and of no force or effect.
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12.7 NON-TRANSFERS
Notwithstanding anything to the contrary contained in this Lease, neither
(i) an assignment to a single transferee of all or substantially all of the
theaters of Tenant located within California, (ii) an assignment of the Premises
to a transferee which is the resulting entity of a merger or consolidation of
Tenant with another entity, nor (iii) an assignment or subletting of all or a
portion of the Premises to an affiliate of Tenant (i.e., an entity which is
controlled by, controls, or is under common control with, Tenant), shall be
deemed a Transfer under this Article 12, provided that Tenant notifies Landlord
of any such assignment or sublease and promptly supplies Landlord with any
documents or information reasonably requested by Landlord regarding such
transfer or transferee as set forth in items (i) through (iii) above, that such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease. "Control," as used in this Section 12,7, shall mean the
ownership, directly or indirectly, of at least fifty-one percent (53%) of the
voting securities of, or possession of the right to vote, in the ordinary
direction of its affairs, of at least fifty-one pet cent (51%) of the voting
interest in, any person or entity.
12.8 LEASEHOLD MORTGAGES
(a) Notwithstanding anything to the contrary contained in the Lease,
Tenant may at any time and from time to time without Landlord's consent,
encumber. hypothecate, mortgage, pledge or alienate Tenant's leasehold estate
and Tights hereunder as security for payment of any indebtedness of Tenant to an
institutional lender, provided, however, such encumbrance, hypothecation,
mortgage, pledge or alienation shall not encumber Landlord's fee title or
reversionary inter test in or to the Premises and Landlord's right to receive
Rent hereunder shall have priority over the rights of any Leasehold Mortgagee
(as defined below). Any such encumbrance, hypothecation, mortgage, pledge or
alienation shall be referred to herein as a "Leasehold Mortgage," and the holder
of it Leasehold Mortgage shall be referred to herein as "Leasehold Mortgagees."
A Leasehold Mortgagee may enforce its Leasehold Mortgage and acquire title to
the leasehold estate in any lawful way and, pending foreclosure of such
Leasehold Mortgage, such Leasehold Mortgagee may take possession of and operate
the Premises, performing all obligations of Tenant under this Lease capable of
being performed by such Leasehold Mortgagee, and upon foreclosure of such
Leasehold Mortgage by power of sale, judicial foreclosure, or upon acquisition
of the leasehold estate by deed in lieu of foreclosure, the Leasehold Mortgagee
may, upon notice to Landlord, sell and assign the leasehold estate hereby
created subject to the requirements of this Lease (including subsection (d)
below). Notwithstanding any such Leasehold Mortgage, in no event shall Tenant he
released from any of its obligations under this Lease (even in the event any
Leasehold Mortgagee or any successor acquires title to such leasehold estate).
(b) Landlord, concurrently with the delivery to Tenant of any notice of a
default or breach under this Lease, shall provide a copy of such notice to any
Leasehold Mortgagee, so long as Landlord has. previously been informed of the
name and address of such Leasehold Mortgagee in the manner and by the means
provided for in Section 20.14 of this Lease and Tenant has previously delivered
a copy of such Leasehold Mortgage to Landlord. There shall be only one such
Leasehold Mortgage at a given time. No such notice by Landlord to Tenant shall
be deemed to have been duly given unless and until a copy thereof has been so
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provided to any Leasehold Mortgagee of which Landlord has notice, Landlord may
not terminate this Lease because of Tenant's default or breach if, within the
Cure Period (as provided below), any such Leasehold Mortgagee shall have (i)
cured all defaults or breaches described in said notice which can be cured by
die payment of money; or (ii) if any such defaults or breaches are not curable
by the payment of money and require possession of the Premises, commenced to
cure such defaults or breaches and continue diligently to prosecute the same
towards completion (including foreclosure if necessary to gain possession of
Premises). If the Leasehold Mortgagee ceases its effort to cure any such
default, fails to keep all Rent current, or discontinues the foreclosure
proceedings without effecting the cure of such default, then Landlord shall have
no further obligation hereunder to forebear the termination of this Lease. The
"Cure Period" under this Section 12.8(b) will commence on receipt of written
notice by the Leasehold Mortgagee as to the default or breach by Tenant and end
twenty (20) days after the running of any notice or grace period permitted to
Tenant in this Lease.
(c) Upon a Leasehold Mortgagee's request to Landlord within thirty (30)
days after such Leasehold Mortgagee's acquisition of such leasehold, Landlord
shall enter into a new lease with such Leasehold Mortgagee covering the Premises
covered by the foreclosed Lease if suck Leasehold Mortgagee (i) gives notice of
request prior to or concurrently with such termination or foreclosure, (ii) pays
all costs resulting from default and termination and associated with such new
lease (including Landlord's attorneys' fees and costs), and (iii) remedies all
defaults construed as though the Lease had not been terminated (including, but
not limited to, the payment of all Rent and other charges that, but for such
termination, would have become due under this Lease up to and including the
commencement of the term of such new lease). The new lease shall be for the
remainder of the Term of lids Lease, effective at the date of termination or
foreclosure, and in the form of this Lease, including, but not limited to, at
the Rent and on all of the covenants, agreements, conditions, provisions,
restrictions and limitations contained in this Lease (including the restrictions
on use contained in Article 6).
(d) No Leasehold Mortgagee or purchaser at foreclosure shall be entitled
to become the owner of Tenant's interest in this Lease unless such Leasehold
Mortgagee or purchaser shall first have delivered to Landlord and agreement
reasonably acceptable to Landlord, executed in recordable form, wherein and
whereby such Leasehold Mortgagee or purchaser (i) assumes the performance or all
of the terms, covenants and conditions of this Lease, and expressly confirms
that the same are in full force and effect, (ii) agrees to use the Premises 35 a
theater (or such other use as may be reasonably approved by Landlord in
accordance with Article 6 hereof) in accordance with all of the requirements of
this Lease (including Article 6) and (iii) otherwise satisfies the requirements
of this Article 12 concerning an assignment of this Lease.
13. TENANT'S DEFAULT
13.1 TENANT'S DEFAULT
Each of the following shall constitute an "Event of Default" by Tenant
hereunder:
(a) If Tenant shall fall to make payment of Rent or any other
amount due and owing hereunder when and as the same shall become due
and payable, and such failure
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shall continue for a period of ten (10) days following written notice of
such default by Landlord to Tenant. Such written notice shall be in lieu of
and not in addition to any notice required under Section 1161 of the Civil
Code of Procedure of California or any similar or superseding statute; or
(b) If Tenant shall fail in the performance of or compliance with
ally of the covenants, agreements, terms, or conditions contained in this
Lease other than that referred to in the foregoing subsection 13.1(a), and
such failure shall continue for a period of thirty (30) days following
written notice of such failure by Landlord to Tenant, provided that if the
nature of such default is such that the same cannot reasonably be cured
within a 30-day period, Tenant shall not be deemed to be in default if it
diligently commences such cure within such 30-day period and thereafter
diligently proceeds to rectify and cure said default as soon as possible.
Such written notice shall be in lieu of and not in addition to any notice
required under Section 1161 of the Civil Code of Procedure of California or
an similar or superseding statute; or
(c) To the extent permitted by law, if a general assignment has been
made by Tenant or any guarantor of the Lease for the benefit of creditors,
or if there is a filing by or against Tenant or any guarantor of any
proceeding under an insolvency or bankruptcy law, unless in the case of a
proceeding filed against Tenant or any guarantor the same is dismissed
within sixty (60) days, or the appointment of a trustee a: receiver to take
possession of all or substantially all of the assets of Tenant or any
guarantor, unless possession is restored to Tenant or such guarantor within
sixty (60) days, or in the event of arty execution or other judicially
authorized seizure of all or substantially all of Tenant's assets located
upon the Premises or of Tenant's interest in this Lease, unless such
seizure is discharged within sixty (60) days.
13.2 CUMULATIVE REMEDIES
Upon the occurrence of an Event of Default, Landlord shall have all the
remedies set forth in this Article 13 and as provided under California law,
including, without limitation, California Civil Code Sections 1951.2, 1951.4
(lessor may continue lease in effect after lessee's breach and abandonment and
recover Rent as it becomes due, if lessee has the fight to sublet or assign,
subject only to reasonable limitations) and 1951.5, These remedies are not
exclusive; they are cumulative and in addition to any and all remedies now or
later allowed by law or in equity.
13.3 TENANT'S RIGHT TO POSSESSION NOT TERMINATED
Upon the occurrence of an Event of Default, Landlord shall have the remedy
described in California Civil Code Section 1951.4 (lessor may continue lease in
effect after lessee's breach and abandonment and recover Rent as it becomes due,
if lessee has right to sublet or assign. subject only to reasonable
limitations). Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect as long as Landlord does not terminate Tenant's
right to possession by written notice thereof to Tenant, and Landlord shall have
the right to enforce Tenant's obligations hereunder amid to collect Rent and all
other amounts hereunder when due. During the existence of an Event of Default,
Landlord can enter the Premises and relet them, or any part of them, to third
parties for Tenant's account. In such event, Tenant shall be liable immediately
to Landlord for all costs Landlord incurs in reletting the Premises, including,
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without limitation, broker's commissions and like costs. Reletting can be for a
period shorter or longer than the remaining Term of this Lease, but Tenant shall
only be responsible for broker's commissions attributable to the remaining Term
of this Lease. No act by Landlord allowed by this Section 13.3 shall terminate
this Lease unless Landlord notifies Tenant in writing that Landlord elects to
terminate this Lease, If Landlord elects to relet the Premises as provided in
this Section 13.3, the Rent that Landlord receives from reletting shall be
applied to the payment of first, any indebtedness or other costs and expenses
hereunder owing from Tenant to Landlord other then Rent due from Tenant; second,
all costs, including for maintenance, incurred by Landlord in resetting, and
third, Rent due and unpaid under this Lease. After deducting the payments
referred to in this Section 13.3, any sum remaining from the rent Landlord
receives from reletting shall be held by Landlord (without interest thereon or
liability therefor) and applied in payment of future Rent as Rent becomes due
under this Lease. In no event shall Tenant be entitled to any excess rent
received by Landlord. If, on the date Rent is due under the Lease, the rent
received from the reletting is less than the Rent due on that date, Tenant shall
pay. to Landlord, in addition to the remaining Rent due, all costs, including
for maintenance, incurred by Landlord in reletting that remain after applying
the Rent received from the reletting as provided in this Section 13.3.
13.4 TERMINATION OR TENANT'S RIGHT TO POSSESSION
Upon the occurrence of an Event of a Default, Landlord can terminate this
Lease and Tenant's right to possession of the Premises at any time. No act by
Landlord tither than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises, or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of this Lease or of Tenant's right to
possession. On termination, Landlord has the right, in addition to any and all
other rights of Landlord hereunder, in equity, or at law, to recover from
Tenant the following:
(a) The worth at the time of the award, of the unpaid Rent that had
been earned at the time of termination of this Lease;
(b) The worth, at the time of the award, of the amount by which the
unpaid Rent that would have been earned after the date of termination of
this Lease until tile time of award exceeds the amount of the loss of Rent
that Tenant proves could have been reasonably avoided;
(c) The worth, at tile time of the award, of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of the loss of Rent that Tenant proves could have been reasonably
avoided, and
(d) Any other amount, and court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth, at the time of the award," as used in (a) and (b) of this
Section 13.4, is to be computed by allowing interest at the Interest Rate. "The
worth at the time of the award," as referred to in (c) of this Section 13.4, is
to be computed by discounting the amount at the
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discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1%).
14. LANDLORD'S DEFAULT
Should Landlord default in the payment of any obligation under any
mortgage, trust deed, judgment, assessment, tax or other encumbrance affecting
die Premises, or fail to perform any obligation specified under this Lease, and
if such default is not cured by Landlord within thirty (30) days after Tenant
has specifically notified Landlord in writing of such default (excepting there
from the event when Landlord may be in default but has undertaken to cure the
default and thereafter diligently pursues the cure to completion), Tenant shall
have the right, but not be obligated, to pay or discharge any such obligation
following delivery to Landlord of an additional written notice of Tenant's
election to do so. Should Tenant elect to pay or discharge any such obligation,
Landlord shall, within thirty (30) calendar days from the date of Tenant's
written demand, reimburse Tenant for the reasonable costs incurred by Tenant in
connection therewith, including, but not limited to, reasonable attorneys' fees.
Tenant's written demand shall specify and breakdown in reasonable derail the
nature of all sums expended. Nothing herein contained shall be interpreted to
mean that Tenant is excused from paying Rent due hereunder as a result of any
default by Landlord. Tenant will not have the right to terminate this Lease for
such default. in the event of such default, Tenant shall have all remedies
available under law for breach of contract, including (without limitation) the
right. of specific performance; provided, however, that in no event shall
Landlord be liable under any circumstances to Tenant for any loss of profits
arising in connection with such default by Landlord. In addition, Landlord will
be liable for a late charge and interest at the Interest Rate, on the same basis
as provided above for nonpayment or Rent.
Any mortgagee of Landlord which has notified Tenant of its address in the
manner provided for notices in this Lease will have the sight to cure Landlord's
defaults under this Section. The cure period will commence on notice of such
mortgagee of the default and extend for a period ending twenty (20) days after
the end of the time period for Landlord to cure a default.
16. HOLDING OVER
Any holding over by Tenant after this Lease has expired shall, at
Landlord's option, be considered an extension of this Lease on a month to month
basis only, on the same terms and conditions set forth herein except for monthly
Rent which shall thereafter be at the rate of one hundred fifty percent (150%)
of the Base Rent due during the last furl month of the Term.
16. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
This Lease shall (subject to Landlord's obligation to deliver to Tenant tie
nondisturbance agreement as provided below) be subject arid subordinate to all
present and future around or underlying leases of the Premises or the Project
and to the lien of any mortgage or trust deed, now or hereafter in force against
the Premises or the Project, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all
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advances made or hereafter to be made upon the security of such mortgages or
trust deeds, unless the holders of such mortgages or trust deeds, or the lessors
under such ground lease or underlying leases, require in writing tat this Lease
be superior thereto. Tenant covenants and agrees in the event any proceedings
are brought for the foreclosure of any such mortgage or deed in lieu thereof, to
attorn, without any deductions or set-offs whatsoever, to the purchaser or an
successors thereto upon any such foreclosure sale or deed in lieu thereof if so
requested to do so by such purchaser, and to recognize such purchaser as the
lessor under this Lease. provided that such purchaser shall not be disturbed so
tong as Tenant faithfully performs all of the duties and obligations of Tenant
hereunder. Tenant shall, within fifteen (15) days of request by Landlord,
execute and deliver to Landlord such further instruments or assurances as
Landlord may reasonably deem necessary to evidence or confirm the subordination
or superiority of this Lease to any such mortgages, trust deeds, ground leases
or underlying leases and Tenant's agreement to attorn, subject to Tenant's
obtaining from such mortgagee or beneficiary a non-disturbance agreement
executed by such mortgagee or beneficiary, providing, anions other things, that,
as long as Tenant is not in default hereunder, this Lease shall remain in effect
for the tall Lease Term.
17. UTILITIES AND SERVICES
Tenant agrees to pay all charges for utilities and services used by it at
the Premises, including, but not limited to, gas, electricity, telephone,
sanitary sewer, storm drainage, domestic water, fire protection, water and trash
collection. Landlord shall not be liable in damages or otherwise for any
failure, interruption or lack of availability of any utility or other service.
No such failure, interruption or lack of availability shall entitle Tenant to
terminate this I ease or withhold or abate Rent or other sums due hereunder.
Tenant agrees to purchase from Landlord irrigation water for the Premises
in accordance with the requirements set forth on Exhibit "D" attached hereto.
The price for suet water shall be at rates established by Landlord from time to
time, but in no event greater than the then-existing rate charged by Vallecitos
Water District for potable water.
18. ESTOPPEL CERTIFICATES
Tenant agrees at any time and from time to time upon not lens than twenty
(20) days' notice by Landlord to execute, acknowledge and deliver to Landlord a
statement in writing certifying (i) that this Lease is unmodified and in full
force and effect (or if there have been modifications that the same is in full
force and effect as modified and stating the modifications), (ii) whether or not
there are then existing any offsets or defenses against the enforcement of any
of the terms, covenants or conditions hereof upon the part of Tenant to be
performed (and if so specifying the same); (iii) the dates to which the Rent
arid other charges have been paid, and (iv) such other matters as may reasonably
be requested, it being intended that any such statement delivered pursuant to
this Section may be relied upon by Landlord, its lenders, and any prospective
purchaser of the fee or proposed lender on the security of the fee of the real
property comprising the Premises. The provisions of this Article 18 are hereby
deemed to be reciprocal to the extent contextually applicable.
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19. COMMON AREA
(a) As used herein, the term "Common Area" shall mean landscape areas,
access routes and areas designed for pedestrian traffic or use and all realty
and improvements in or at the Project (including any Common Area located on the
Premises) now or hereafter designated by Landlord for the general benefit of the
Project. Each tenant, including Tenant, will be responsible for maintaining the
Common Area located on each tenant's portion of the Project. Landlord agrees to
maintain and operate, or cause to he maintained and operated, the portion of the
Common Area shown highlighted in yellow on the Site Plan attached as Exhibit "B"
at all times following completion thereof. Tenant shall pay to Landlord, during
the Term of this Lease as Additional Rent, the sum of Five Thousand Seven
Hundred Sixty-Eight Dollars ($5,768.00), as Tenant's annual share of Common Area
expenses (the "CAM Contribution"). The CAM Contribution sum shall be due and
payable on the first day of each Lease Year, commencing on the Commencement
Date.
Commencing with the second Lease Year and continuing with each succeeding
Lease Year, if the CAM costs have increased over the previous year, the CAM
Contribution will be adjusted by a fraction, the numerator of which is the
Current Index Number and the denominator of which is the Base Index Number;
provided, however, the increase shall not exceed five percent (5%) per year over
the previous year's CAM Contribution. The "Base Index Number" shall be the level
of the Index most recently published prior to the Commencement Date; the
"Current Index Number" shall be the level of the Index most recently published
prior to the date which the adjustment is to take place, and the "Index" shall
be the Consumer Price Index - Urban Wage Earners and Clerical Workers (San
Diego, California, All Items Base 1982- 84=100) or any successor index thereto
as hereinafter provided. If publication of the Index is discontinued, or if the
basis of calculating the Index is materially changed, then Landlord shall
substitute for the Index comparable statistics as computed by an agency of the
United States Government or, if none, by a substantial and responsible
periodical or publication of recognized authority closely approximating the
result which would have been achieved by the Index.
(b) The Common Areas, whether presently existing or subsequently
developed, in the Project will be available for the use in common by tenants of
the Project (subject to Tenant's right of exclusive use of the loading docks,
entry and circulation space and parking within the Premises) (which parking
shall be subject to the Parking Agreement defined in Section 1.2 above).
Landlord may construct additional parking structures or facilities within the
Common Areas in the Project but outside of the Premises, and may make other
additions and enhancements to the Common Areas outside of the Premises.
(c) Landlord may make and enforce reasonable rules and regulations
consistent with this Lease for the purpose of regulating the use of access,
parking and other Common Areas outside of the Premises. Each party will cause
its tenant and their respective customers, employees, independent contractors
and invitees to comply with such reasonable rules and regulations.
(d) In the event Tenant fails to maintain and repair its common access
ways or Common Areas within the Premises, Landlord may, at its option, provide
Tenant with notice of Tenant's failure and an opportunity for Tenant to correct
the maintenance failure within thirty
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(30) days from said notice. If Tenant fails to cure the failure within said
thirty (30) days, (i) notify Tenant in writing that Landlord intends to perform
the maintenance responsibilities itself at Tenant's cost at least sixty (60)
days before the effective date of the transfer of responsibility, and (ii)
thereafter assume the responsibilities of Tenant under this Section as to Common
Areas within the Premises as Landlord's Common Area Maintenance responsibility.
In such event Tenant shall pay Landlord's actual cost of maintenance within
twenty (20) days of receipt of Landlord's invoice for same.
(e) Both Landlord and Tenant recognize that the maintenance of die
quality and utility of the parking, access and improvements in the Common Areas
is essential for the use and enjoyment of Tenant and other tenants of the
Project. Landlord agrees that it will require the tenants of the Project to
provide parking which meets City code requirements subject to reasonable
credit for reciprocal parking arrangements. Landlord or Tenant may temporarily
close the. Common Areas) or portions thereof, as appropriate) on their
respective properties to make repairs or changes, or to prevent the acquisition
of public rights, and may do such other acts in and to the Common Areas as are
(in such parties' reasonable judgment) necessary to improve their utility and
value to tenants of the Project.
20. MISCELLANEOUS PROVISIONS
20.1 NOTICES
All notices, approvals, requests, demands and other communications
permitted or required to be given under this Least shall be writing and shall be
deemed and duly served or given when actually delivered, if personally delivered
(including delivery by Federal Express. Express Mail or other similar overnight
courier which confirms delivery in writing), or if sent by certified mail,
postage prepaid, return receipt requested, then (a) when delivered to the
address of the party by the U.S. Postal Service, or (b) in the case of refusal
to accept delivery or inability to deliver the notice, the date of the
attempted delivery or refusal to accept delivery. Any notice under this Lease
may also be given by facsimile or other telecommunication device capable of
transmitting and creating a written record, effective on receipt. Such notices
shall be addressed to the addresses of the parties set forth below Landlord and
Tenant may, from time to time by notice to the other, designate another place
for receipt for future notices. The foregoing methods of Service shall be
exclusive and Tenant hereby, waives, to the fullest extent permitted by law,
the right to any other method of service required by any statute or law now or
hereinafter in effect.
To Landlord: City of San Marcos
One Civic Center Drive
San Marcos, California 92069
Attn: City Manager
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To Tenant: Cinema Star Luxury Theaters, Inc.
431 College Blvd.
Oceanside, California 92057
Attn: John Ellison, Jr.
Fax: 619-630-8593
20.2 HEADINGS
The headings of the Articles and Sections of this Lease are for convenience
only and do not in any way limit, amplify or otherwise affect the covenants and
agreements contained in this instrument.
20.3 MORTGAGEE PROTECTION
In the event of any default on the part of Landlord hereunder, Tenant will
give notice in compliance with the requirements of Section 20.1 to any
beneficiary of a deed of trust or to any mortgagee under a mortgage covering the
Premises whose address shall have been furnished to Tenant, and shall permit
such beneficiary or mortgagee the period of time to cure tile default as
provided in Section 12.8(1)) for cures by the Leasehold Mortgagee in Section
12.8(b).
20.4 FORCE MAJEURE
Except as expressly provided herein, in the event that Landlord or Tenant
shall be delayed, hindered in or prevented from the performance of any act
required hereunder (excluding Tenant's obligations to pay Rent or any other
amounts due hereunder) by reason of strikes, lockouts, labor troubles, inability
to procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason beyond their control
(financial ability excepted), then performance of such act shall be excused for
the period of the delay and the period for the performance of any such act shall
be extended for a period equivalent to the period of such delay.
20.5 BINDING EFFECT
The provisions of this instrument shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns, subject to Article 12.
20.6 MODIFICATIONS
Any alteration, change or modification of or to this Lease, in order to
become effective, shall be made by written instrument or endorsement thereon and
in each such instance executed on behalf of each party hereto.
20.7 APPLICABLE LAW
This Lease shall be governed by, and construed in accordance with, the laws
of the State of California.
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20.8 PARTIAL INVALIDITY
If any term, provision, condition or covenant of this Lease or the
application thereof to any party or circumstances shall, to any extent, be held
invalid or unenforceable, the remainder of this Lease, or the application of
such term, provision, condition or covenant to persons or circumstances under
those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
20.9 BROKERAGE COMMISSION
Landlord and Tenant each warrants to the other that it has had no dealings
with any person that will be entitled to a broker's or finder's fee in
connection with this Lease, however a facilitation fee shall be due to Koll Real
Estate Group from Landlord in accordance with Landlord's separate agreement.
Each party hereto shall indemnify and hold harmless the other party hereto from
and against any and all losses, damages, liabilities, losses, costs and expenses
(including, but not limited to, reasonable attorneys' fees and related costs)
resulting from any claims that may be asserted against such other party by any
real estate broker, finder or intermediary arising from any act of the
indemnifying party in connection with this Lease.
20.10 COVENANTS RUNNING WITH THE LAND
All of the covenants, agreements, conditions and restrictions set forth in
this Lease are intended to be and shall be construed as covenants running with
The land, binding upon, inuring to the benefit of and enforceable by and against
the parties hereto and their successors-in-interest.
20.11 MEMORANDUM OF LEASE
This Lease shall not be recorded; however, at Tenant's request, Landlord
will execute and acknowledge a memorandum of this Lease ("Memorandum of Lease")
in a form reasonably acceptable to Landlord. Tenant shall pay any recording
charges or other costs incurred in connection with or as a result of the
recordation of the Memorandum of Lease. Tenant shall not record any other
instrument affecting the Premises or the Project without the prior written
consent of Landlord, which consent shall not be reason ably withheld. Tenant
shall, upon the expiration or earlier termination of this Lease, execute,
acknowledge and deliver to Landlord a quit-claim deed to the Premises.
20.12 RELATIONSHIP OF THE PARTIES
The relationship of the parties hereto is that of Landlord and Tenant, and
it is expressly understood and agreed that Landlord does not in any way, nor for
any purpose, become a partner of Tenant or a joint venturer with Tenant in the
conduct of Tenant's business, or otherwise, and that the provisions of any
agreement between Landlord and Tenant relating to Rent, are made solely for the
purpose of providing a method whereby rental payments are to be measured and
ascertained.
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20.13 ENTIRE AGREEMENT
This Lease contains the entire agreement of the parties hereto with respect
to the matters covered hereby. and no other agreement, statement or promise made
by any party hereto, or to any employee, officer, or agent of any party hereto,
which is not contained herein, shall be binding or valid.
20.14 SALE OF PREMISES
In the event Landlord shall sell, convey, transfer or exchange its fee
title to the Premises, Tenant agrees to recognize and attorn to the purchaser or
transferee as the Landlord hereunder (provided that this Lease and all its terms
and conditions are recognized by such purchaser or assignee and provided the
transaction is a bona tide sale, not a transfer to avoid liability by Landlord
to Tenant) and Landlord shall be and is hereby relieved and released from any
liability, under any and all of its covenants and obligations hereunder arising
out of any act, occurrence or event arising after such sale, conveyance,
transfer or exchange.
20.15 ATTORNEYS' FEES
In the event of a bringing of an action or suit by a party hereto against
another party or parties hereunder or an agreed arbitration arising out of or
related to this Lease, the party in whose favor final award or judgment is
entered shall be entitled to have and recover from the other party or parties
all costs and expenses of suit or arbitration, including reason able attorneys'
fees ("Costs"), all of which shall be deemed to have accrued upon the
commencement of such action. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of all Costs incurred in
enforcing, perfecting and executing such judgment. For the purposes of this
Section, Costs shall include, without limitation, attorneys' fees, costs and
expenses incurred in the following: (i) postjudgment motions; (ii) contempt
proceedings; (iii) garnishment, levy and debtor and third party examinations;
(iv) discovery; and (v) bankruptcy litigation.
20.16 TIME
Time is of the essence With respect to the performance of every provision
of this Lease.
20.17 COPIES
At the option of either party, this Lease may be executed in multiple
copies, all of which shall be deemed originals.
20.18 WAIVER
No covenant, term or condition of this Lease shall be deemed to have been
waived by Landlord unless such waiver be in writing and signed by Landlord.
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20.19 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
full amount of Rent shall be deemed to be other than on account due under this
Lease, Nor shall any endorsement or statement on any check or any letter
accompanying any check or payment of Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy in this
Lease provided.
20.20 EXECUTION OF LEASE
The submission of this Lease for execution does not constitute a
reservation of or option for the Premises and this Lease becomes effective as a
lease only upon execution and delivery thereof by Landlord and Tenant.
20.21 CORPORATE GOOD STANDING
Tenant hereby covenants and warrants that (i) Tenant is in good standing as
of the date hereof, (ii) Tenant is a duly qualified corporation and all steps
have been taken prior to the date hereof to qualify Tenant to do business in
California, and (iii) all future forms, reports and/or other documents or fees
necessary to comply with that laws applicable to Tenant's corporate status will
be filed or paid when due, and such corporation shall remain in good standing
with the Secretary of State of California and of the state in which Tenant is
incorporated during the Term here of.
20.22 DILIGENT CONSTRUCTION
Tenant shall use reasonable efforts to perform or cause Tenant's contractor
to perform all work in the making and/or installation of any repairs,
alterations or Improvements in a manner so as to avoid any labor disputes
which causes or is likely to cause stoppage or impairment of work or delivery
services or any other services in the Project. In the event there shall be any
such stoppage or impairment as the result of any such labor dispute or potential
labor dispute, Tenant shall use reasonable efforts to immediately undertake such
action as may be necessary to eliminate such dispute or potential dispute,
including, but not limited to, (i) removing all disputants from the job site
until such time as the labor dispute no longer exists, (ii) seeking an
injunction in the event of a breach of contract between Tenant and Tenant's
contractor, and (iii) filing appropriate unfair labor practice charges in the
event of a union jurisdictional dispute.
20.23 LIMITATION ON LIABILITY
In consideration of the benefits accrued hereunder, Tenant covenants and
agrees that, in the event of any actual or alleged failure, breach or default
hereunder by Landlord, Tenant's sole and exclusive remedy shall be against
Landlord's interest in the Project (excluding the Civic Center), and the
obligations of Landlord under this Lease do not constitute personal obligations
of the individual partners, directors, trustees, officers, staff, council
persons or shareholders of Landlord or the Redevelopment Agency of The City of
San Marcos, and Tenant
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shall not seek recourse against the individual partners, directors, trustees,
officers, staff, council persons or shareholders of Landlord or The
Redevelopment Agency of the City of San Marcos or any of their personal assets
for satisfaction of any liability in respect to this Lease.
20.24 IDENTIFICATION OF TENANT
If there is more than one party constituting Tenant, then each of such
party's obligations hereunder shall be joint and several, and any one of them
shall act for all others in every regard with respect to this Lease (including,
but not limited to, any renewal, extension, expiration, termination or
modification hereof).
20.25 LANDLORD'S TITLE
Landlord's title is and always shall be paramount to the title of Tenant.
Nothing herein contained shall empower Tenant to do any act which can, shall or
may encumber the title of Landlord.
20.26 FINANCIAL STATEMENTS
In order to induce Landlord to enter into this Lease, Tenant agrees that it
shall promptly furnish Landlord from time to time (but not more often than twice
during any twelve (12) month period) with current financial statements
reflecting Tenant's financial condition. Such financial statements shall be
prepared in accordance with generally accepted accounting principles.
20.27 RIGHT TO LEASE
Subject to Section 20.31 below, Landlord reserves die absolute fight to
effect such other tenancies in the Project as Landlord in the exercise of its
sole business judgement shall determine to best promote the interests of the
Project.
20.28 PROJECT NAME AND SIGNAGE
Landlord shall have the right at any time to change the name of the
Project (or portions thereof) and to install, affix and maintain any and all
signs on the exterior arid on the interior of the Project (except the Premises)
as Landlord may, in Landlord's reasonable discretion, desire.
20.29 LAND USE DECISIONS
The commitments of Landlord as set forth herein shall in no way bind or
influence the actions or decisions of the City of San Marcos with respect to any
land use action or decision, or any process of review required by the California
Environmental Quality Act with respect to any land use action or decision. The
commitments of Landlord as set forth herein do not express or imply any
predetermination or predisposition with respect to any action or decision which
may be required by the City of San Marcos by virtue of the performance of its
regulatory duties and responsibilities.
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20.30 EASEMENTS OVER PREMISES
Tenant agrees to execute any such easements or other documents reasonably
necessary to insure the occupant(s) of the Project (and their employees, guests
and invitees) or utility providers access over and across any common access ways
or common utility lines within the Premises, and provided that Tenant has
approved in writing the location of such access ways and utility lines and
reserved the fight to relocate such access ways and lines in connection with its
development and use of the Premises, provided 'hat such easements or other
documents will not materially and adversely affect Tenant's use of the Premises.
21. HAZARDOUS MATERIALS.
21.1 USE, STORAGE, HANDLING AND DISPOSAL OF HAZARDOUS MATERIALS
Except as provided herein, Tenant shall neither cause nor permit any
Hazardous Materials (as such term is defined in Section 21.9) to be used,
generated, stored, transported, handled or disposed of in or about the Premises
at any time following the Effective Date (such activities are hereinafter
referred to as "Environmental Activities"). This prohibition shall extend to the
Tenant Parties and Tenant shall be responsible for assuring compliance by such
persons with the foregoing prohibition. Notwithstanding the foregoing, and
subject to Tenant's covenant to strictly comply with all "Hazardous Materials
Laws" (as such term is defined in Section 21,2 below) and all other terms and
conditions of this Article 21, Tenant and the Tenant Parties may bring upon,
keep and use in or about the Premises (a) general office, and kitchen supplies
typically used in such areas in the ordinary course of business, such as copier
toner, liquid paper. glue, ink and cleaning solvents, for use in the manner for
which they were designed, in such amounts as may be normal for the business
operations conducted by Tenant on the Premises, and (b) only those additional
Hazardous Materials consented to by Landlord in writing, which consent shall be
in Landlord's sole discretion. in connection with seeking any such consent,
Tenant shall deliver to Landlord a description of handling, storage, use and
disposal procedures. Notwithstanding the foregoing, Tenant shall not install,
operate or maintain any above or below grade tank, sump, pit, pond, lagoon or
other storage or treatment vessel or device on the Property except those devices
which are required by health laws.
21.2 COMPLIANCE WITH LAWS
Tenant, at its sole cost and expense, shall comply and shall cause the
Tenant Parties to comply, with all federal, state and local laws, ordinances and
regulations and all rules, licenses, permits, orders, decrees and judgments
relating to Environmental Activities (collectively referred to as "Hazardous
Materials Laws") conducted by Tenant or any of the Tenant Parties on the
Premises. Tenant's breach of any of its covenants or obligations under this
Article 21 shall constitute a material default under this Lease. The obligations
of Tenant under this Article 21 shall (i) survive the expiration or earlier
termination of this Lease without any limitation, (ii) constitute obligations
that are independent and severable from Tenant's covenants and obligations to
pay Rent under this Lease, and (iii) inure to the benefit of, and be enforceable
by, Landlord, its assignees and successors-in-interest to the Premises.
41
<PAGE> 47
21.3 EXCULPATION OF LANDLORD
Other tenants of the Project may be using, handling or storing certain
Hazardous Materials in connection with such tenants' use of their premises. The
failure of another tenant to comply with applicable laws and procedures could
result in a release of Hazardous Materials and contamination to improvements
within the Project or the soil and ground water thereunder. In the event of such
release, the tenant responsible for the release, and not Landlord, shall be
solely responsible for any claim, damage or expense incurred by Tenant by reason
of such contamination.
21.4 DISCLOSURE AND NOTIFICATION
Landlord may, from time to time (but no more often than annually) (each
such date being hereafter referred to as a "Disclosure Date"), reasonably
request that Tenant disclose to Landlord the names and amounts of all Hazardous
Materials other than general supplies referred to in Section 21.1, which were
used, generated, treated, handled, stored or disposed of on the Premises or
which Tenant intends to use, generate, treat, handle, store or dispose of on the
Premises, for the year prior to and after such Disclosure Date. The foregoing in
no way shall limit the necessity for Tenant obtaining Landlord's consent
pursuant to Section 21.1.
Tenant shall immediately advise Landlord in writing of, and provide
Landlord with a copy of (i) any notices of violation or potential or alleged
violation of any Hazardous Materials Laws which are received by Tenant from any
governmental agency concerned with Tenant's Or Tenant's Agent's Environmental
Activities, (ii) any and all inquiry, investigation, enforcement, clean-up,
removal or other governmental or regulatory actions instituted or threatened
relating to Tenant or the Premises; (iii) all claims made or threatened by any
third party against Tenant or the Premises relating to any Hazardous Materials,
and (iv) any release of Hazardous Mate, mats on or about the Premises or the
Project which Tenant knows of or reasonably believes may have occurred.
21.5 INSPECTION OF PREMISES
In the event that Landlord reasonably believes that Tenant is in violation
of any of Tenant's duties or obligations under this Article 21, Landlord may
require that Tenant retain a registered environmental consultant (the
"Consultant") reasonably acceptable to Landlord to conduct an investigation of
the Premises ("Environmental Assessment") (i) for Hazardous Materials
contamination in, about or beneath the Premises and (ii) to assess all
Environmental Activities on the Premises for compliance with all applicable
laws, ordinances and regulations and for the use of procedures intended to
reasonably reduce the risk of a release of Hazardous Materials. The
Environmental Assessment shall be performed in a manner reasonably calculated
to discover the presence of Hazardous Materials contamination and shall be of a
scope and intensity reflective of the general standards of professional
environmental consultants who regularly provide environmental assessment
services in connection with the transfer or leasing of real property.
Additionally, the Environmental Assessment shall take into full consideration
the past and present uses of the Premises by Tenant or any of the Tenant Parties
and other factors unique to the Premises. The cost of the Environmental
Assessment shall be paid by Landlord unless Landlord reasonably determines that
Tenant violated a duty or obligation set forth in this
42
<PAGE> 48
Article 21, in which event the entire cost thereof shall be paid by Tenant as
Additional Rent. Tenant shall comply, at its sole cost and expense, with all
reasonable recommendations contained in the Environmental Assessment, including
any recommendation with respect to the precautions which should be taken with
respect to Environmental Activities on die Premises by Tenant or any of the
Tenant Parties or any recommendations for additional testing and studies to
detect the presence of Hazardous Materials. Tenant covenants to reason any
cooperate with the Consultant and to allow entry and reasonable access to all
portions of the Premises for the purpose of Consultant's investigation.
21.6 INDEMNIFICATION OF LANDLORD
Tenant shall indemnify, defend (with counsel satisfactory to Landlord) and
hold Landlord, its directors, officers, employees, agents. assigns and any
successors to Landlord's interest in the Premises, harmless from and against any
and all loss, cost, damage, expense (including reasonable attorneys' fees),
claim, cause of action, judgment, penalty, fine or liability directly or
indirectly relating to or arising from (i) any Environmental Activity on the
Premises by Tenant or any of the Tenant Parties during the Term of this Lease,
(ii) any remedial or clean-up work undertaken by or for Tenant in connection
with its Environmental Activities or its compliance with Hazardous Materials
Laws or (iii) the breach by Tenant of any of its obligations and covenants set
forth in this Article 21. Notwithstanding the foregoing, Tenant shall not be
required to indemnify Landlord with respect to any Hazardous Materials which
were not used, generated, stored, transported, handled or disposed of in or
about the Premises by Tenant or Tenant's Agents, such as Hazardous Materials
which may migrate onto or under die Premises front another source. Landlord
shall have the right but not the obligation to join and participate in any legal
proceedings or actions initiated in connection with Tenant's Environmental
Activities. Landlord may also negotiate, defend, approve and appeal any action
taken or issued by any applicable governmental authority with regard to
contamination of the Premises by a Hazardous Materials. Any costs or expenses
incurred by Landlord for which Tenant is responsible under this Article 21 or
for which Tenant has indemnified Landlord shall be reimbursed by Tenant on
demand as Additional Rent.
21.7 REMEDIATION
If any Environmental Activities undertaken by Tenant or any of the Tenant
Parties result in contamination of the Premises or any other portion of the
Project or the soil on ground water thereunder, subject to Landlord's prior
written approval and any conditions imposed by Landlord, Tenant shall promptly
take all actions, at its sole expense arid without abatement of Rent, as are
necessary to return the affected portion of the Project, the Premises and the
soil and ground water to the condition existing prior to the introduction of the
contaminating Hazardous Material. Landlord's approval of such remedial work
shall not be unreasonably withheld so long as such actions will not cause a
material adverse effect on the Premises after expiration of the Term or any
material adverse effect on the Project. Landlord shall also have the right to
approve any and all contractors hired by Tenant to perform such remedial work.
All such remedial work shall be performed in compliance with all applicable
laws, ordinances and regulators and in such a manner as to minimize any
interference with the use and enjoyment of the Project Appearance of a Hazardous
Material in or about the Premises shall not be deemed an occurrence of damage or
destruction subject to the terms of this Lease
43
<PAGE> 49
respecting damage or destruction caused by act of God, force of nature, fire,
flood, earthquake or other casualty.
21.8 SURRENDER OF PREMISES
Prior to or after the expiration or earlier termination of the Term,
Landlord may have an Environmental Assessment of the Premises performed in
accordance with Section 21.5. Tenant shall perform, at its sole cost and
expense, any clean-up or remedial work recommended by the Consultant which is
necessary to remove, mitigate or remediate any Hazardous Materials contamination
of the Premises in connection with Tenant's or any of the Tenant Parties'
Environmental Activities. Prior to surrendering possession of the Premises,
Tenant shall also remove any personal property, equipment, fixture and/or
storage device or vessel on or about the Premises which is contaminated by or
which contains Hazardous Materials caused by Tenant or any of the Tenant
Parties.
21.9 DEFINITION OF HAZARDOUS MATERIALS
"Hazardous Materials" shall mean asbestos, any petroleum fuel and any
hazardous or toxic substance, material or waste which is or become regulated by
any local governmental authority, the State of California ore the United States
Government, including, but not limited to, any material or substance defined as
a "hazardous waste," "extremely hazardous waste," "restricted hazardous waste,"
"hazardous substance," "hazardous material" or "toxic pollutant" under the
California Health and Safety Code and/or under the Comprehensive Environmental
Response, Compensation and Liability Act, 42. U.S.C. +SC9601, at seq. The term
"Hazardous Materials" will not include cleaning products, landscape fertilizers
and other products in ordinary quantities that are customarily used in the
ordinary course of business of operating and maintaining commercial properties
(but which will nevertheless be used in compliance with all applicable Hazardous
Materials Laws).
21.10 ASSIGNMENT AND SUBLETTING
If a proposed Transferee's activities in or about the Premises involve the
use, handling, storage or disposal of any Hazardous Materials other than those
used by Tenant and in quantities and processes similar to Tenant's uses in
compliance with this Lease, (i) it shall be reasonable for Landlord to withhold
its consent to such assignment or sublease in light of the risk of contamination
posed by such activities unless Tenant satisfies the condition described in the
following clause and/or (ii) Landlord may impose an additional condition to such
assignment or sublease which requires Tenant to establish beyond a reasonable
doubt that such Transferee's activities pose no significantly greater risk of
contamination to the Premises than do Tenant's permitted activities in view of
the (a) quantities, toxicity and other properties of the Hazardous Materials to
be used by such Transferee, (b) the precautions against a release of Hazardous
Materials such Transferee agrees to implement, (c) such Transferee's financial
condition as it
44
<PAGE> 50
relates to its ability to fund a major clean-up and (d) such Transferee's
policy and historical record respecting its willingness to respond to and clean
up a release of Hazardous Materials.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
<TABLE>
<S> <C>
"LANDLORD" CITY OF SAN MARCOS, a municipal corporation
By:
------------------------------------
Name: R.W. Gittings
-----------------------------
Title: City Manager
-----------------------------
By:
------------------------------------
Name:
-----------------------------
Title:
-----------------------------
"TENANT" CINEMA STAR LUXURY THEATRES, INC., a
California corporation
By:
------------------------------------
Name: John Ellison Jr.
-----------------------------
Title: President
-----------------------------
By:
------------------------------------
Name: John Helcon
-----------------------------
Title: Secretary & General Counsel
-----------------------------
</TABLE>
<PAGE> 51
[FIGURE 1]
<PAGE> 52
EXHIBIT A
THEATRE SITE
LEASE AGREEMENT
DESCRIPTION
THAT PORTION OF LOT 4 OF SAN MARCO TRACT NO. 383, IN THE CITY OF SAN MARCOS,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA. ACCORDING TO MAP THEREOF NO. 13218,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY ON JUNE 30, 1996,
DESCRIBED AS FOLLOWS:
COMMENCING AT A POINT ON THE WESTERLY LINE OF SAID LOT 4, DISTANT THEREON NORTH
08 DEGREES, 29 MINUTES, 01 SECONDS WEST, 358.01 FEET FROM THE MOST NORTHERLY
CORNER OF LOT 5 OF SAID MAP NO. 13218; THENCE LEAVING SAID WESTERLY LINE OF SAID
LOT 4, NORTH 81 DEGREES, 30 MINUTES, 59 SECONDS EAST 116.00 FEET TO THE TRUE
POINT OF BEGINNING; THENCE CONTINUING NORTH 81 DEGREES, 30 MINUTES, 59 SECONDS
EAST 130.78 FEET; THENCE NORTH 43 DEGREES, 06 MINUTES, 35 SECONDS EAST 140.63
FEET TO THE INTERSECTION WITH THE NORTHERLY LINE OF SAID LOT 4, SAID POINT BEING
A POINT ON THE ARC OF A 208.00 FOOT RADIUS CURVE, CONCAVE NORTHERLY AND THROUGH
WHICH A RADIAL LINE BEARS SOUTH 31 DEGREES, 31 MINUTES, 30 SECONDS WEST OF SAID
POINT; THENCE EASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF
49 DEGREES, 04 MINUTES, 29 SECONDS A DISTANCE OF 178.15 FEET; THENCE TANGENT TO
SAID CURVE, NORTH 72 DEGREES, 27 MINUTES, O1 SECONDS EAST 45.11 FEET TO THE
BEGINNING OF A TANGENT 10.00 FOOT RADIUS CURVE, CONCAVE SOUTHERLY; THENCE
EASTERLY AND SOUTHEASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE
OF 94 DEGREES, 32 MINUTES, 31 SECONDS A DISTANCE OF 16.50 FEET TO A POINT OF
COMPOUND CURVATURE WITH THE ARC OF A 553.00 FOOT RADIUS CURVE, CONCAVE
SOUTHWESTERLY AND THROUGH WHICH A RADIAL LINE BEARS NORTH 76 DEGREES, 59
MINUTES, 32 SECONDS EAST TO SAID POINT; THENCE SOUTHEASTERLY ALONG THE ARC OF
SAID CURVE THROUGH A CENTRAL ANGLE OF 02 DEGREES, 29 MINUTES, 59 SECONDS A
DISTANCE OF 24.13 FEET; THENCE TANGENT TO SAID CURVE, SOUTH 10 DEGREE, 30
MINUTES, 29 SECONDS EAST 50.00 FEET TO THE BEGINNING OF A TANGENT 746.00 FOOT
RADIUS CURVE, CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG THE ARC OF SAID
CURVE THROUGH A CENTRAL ANGLE OF 25 DEGREE, 54 MINUTES, 23 SECONDS A DISTANCE OF
292.54 FEET TO THE INTERSECTION WITH THE NORTHERLY LINE OF THAT 12.00 FOOT
RECREATIONAL TRAIL EASEMENT AS SHOWN AND DELINEATED ON SAID MAP NO. 13218 AND
THROUGH WHICH A RADIAL LINE BEARS SOUTH 53 DEGREES, 35 MINUTES, 08 SECONDS WEST
OF SAID POINT; THENCE SOUTHWESTERLY ALONG SAID NORTHERLY LINE OF SAID
RECREATIONAL TRAIL EASEMENT, SOUTH 51 DEGREES, 12 MINUTES, 14 SECONDS WEST
40.63 MINUTES TO THE BEGINNING OF A TANGENT 69.00 FOOT RADIUS CURVE, CONCAVE
NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH A
CENTRAL ANGLE OF 12 DEGREES, 00 MINUTES, 14 SECONDS A DISTANCE OF 14.46 FEET;
THENCE TANGENT TO SAID CURVE, SOUTH 63 DEGREES, 12 MINUTES, 28 SECONDS WEST
38.44 FEET TO THE BEGINNING OF A TANGENT 69.00 FOOT RADIUS CURVE, CONCAVE
NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH CENTRAL
ANGLE OF 09 DEGREES, 49 MINUTES, 11 SECONDS A DISTANCE OF 11.83 FEET; THENCE
TANGENT TO SAID CURVE SOUTH 73 DEGREES, 01 MINUTES, 39 SECONDS WEST 78.13 FEET
TO THE BEGINNING OF A TANGENT 56.00 FOOT
<PAGE> 53
PAGE 2
THEATRE SITE
LEASE AGREEMENT
DESCRIPTION
RADIUS CURVE, CONCAVE SOUTHEASTERLY; THENCE SOUTHWESTERLY ALONG THE ARC OF SAID
CURVE THROUGH A CENTRAL ANGLE OF 33 DEGREES 59 MINUTES 55 SECONDS A DISTANCE OF
33.23 FEET; THENCE TANGENT TO SAID CURVE, SOUTH 39 DEGREES 01 MINUTES 44
SECONDS WEST 53.56 FEET TO THE INTERSECTION WITH THE NORTHEASTERLY LINE OF THE
IRRIGATION WELL EASEMENT AS SHOWN AND DELINEATED ON SAID MAP NO. 13218; THENCE
NORTHWESTERLY ALONG SAID NORTHEASTERLY LINE, NORTH 50 DEGREES 34 MINUTES 18
SECONDS WEST 46.99 FEET; THENCE SOUTH 39 DEGREES 25 MINUTES 42 SECONDS WEST
36.63 FEET; THENCE SOUTH 50 DEGREES 34 MINUTES 18 SECONDS EAST 47.25 FEET TO
THE INTERSECTION WITH THE NORTHERLY LINE OF SAID RECREATIONAL TRAIL EASEMENT;
THENCE SOUTHWESTERLY ALONG SAID NORTHERLY LINE, SOUTH 39 DEGREES 01 MINUTES 44
SECONDS WEST 46.17 FEET TO THE BEGINNING OF A TANGENT 94.00 FOOT RADIUS CURVE,
CONCAVE NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH
A CENTRAL ANGLE OF 22 DEGREES 09 MINUTES 42 SECONDS A DISTANCE OF 36.36 FEET;
THENCE TANGENT TO SAID CURVE, SOUTH 61 DEGREES 11 MINUTES 26 SECONDS WEST 3.68
FEET TO THE BEGINNING OF A TANGENT CURVE, CONCAVE NORTHWESTERLY; THENCE
SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 11 DEGREES
06 MINUTES 06 SECONDS A DISTANCE OF 37.59 FEET TO THE INTERSECTION WITH A LINE
BEARING SOUTH 08 DEGREES 29 MINUTES 01 SECONDS EAST AND THROUGH WHICH A RADIAL
LINE BEARS SOUTH 17 DEGREES 42 MINUTES 28 SECONDS EAST TO SAID POINT; THENCE
LEAVING THE NORTHERLY LINE OF SAID RECREATIONAL TRAIL EASEMENT, NORTH 08
DEGREES 29 MINUTES 01 SECONDS WEST 195.70 FEET TO THE BEGINNING OF A TANGENT
37.00 FOOT RADIUS CURVE, CONCAVE SOUTHWESTERLY; THENCE NORTHWESTERLY ALONG THE
ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 90 DEGREES 00 MINUTES 00 SECONDS A
DISTANCE OF 58.12 FEET; THENCE TANGENT TO SAID CURVE, SOUTH 81 DEGREES 30
MINUTES 59 SECONDS WEST 98.50 FEET; THENCE NORTH 08 DEGREES 29 MINUTES 01
SECONDS WEST 114.41 FEET; THENCE SOUTH 81 DEGREES 30 MINUTES 59 SECONDS WEST
32.00 FEET; THENCE NORTH 08 DEGREES 29 MINUTES 01 SECONDS WEST 156.50 FEET TO
THE TRUE POINT OF BEGINNING.
CONTAINING 4.35 ACRES.
<PAGE> 54
EXHIBIT B
PROJECT SITE PLAN
[FIGURE 2]
<PAGE> 55
EXHIBIT "C"
WORK LETTER
1. Tenant acknowledges that although the City of San Marcos has
established certain requirements for all persons constructing improvements
within the City, including, but not limited to, site development review,
building plan check and the like, for purposes of this Lease any approval by the
Landlord shall mean approval by those persons designated by the City to act as
the City's representatives as Landlord for the Town Center Project. Unless
Landlord shall inform Tenant otherwise, Landlord's representatives are Rick
Gittings, City Manager, and Paul Malone, Deputy City Manager.
2. Tenant shall, at Tenant's sole cost and expense, construct or cause to
be constructed all Improvements to the Premises in accordance with plans and
specifications approved in writing by Landlord (which approval shall not be
unreasonably withheld or delayed) and in accordance with the requirements of the
Operating Documents. On or before the date specified in Exhibit "E". Tenant
shall provide preliminary plans and specifications, including. elevations and
proposed landscape plans, prepared by a licensed architect or engineer, to
Landlord. On or before the date specified in Exhibit"E", Landlord shall notify
Tenant of any required changes to the plans and specifications. Landlord's
failure to so notify Tenant of any such required changes to the plans and
specifications on or before said date shall be deemed to constitute Landlord's
approval thereof. Tenant shall revise the plans and specifications in accordance
with Landlord's comments and deliver the same to Landlord on or before the date
specified in Exhibit"E", or, in the alternative, Tenant may, in the event
Landlord's proposed changes would, in Tenant's reasonable judgment, materially
and adversely alter Tenant's intended use of the Premises or significantly
increase the cost of constructing the Improvements; terminate this Lease upon
written notice delivered to Landlord on or before the date specified in Exhibit
"E", which notice may be rescinded by Landlord electing to not require such
proposed changes by giving Tenant written notice thereof within seven (7) days
following Landlord's receipt of Tenant's termination notice. Following approval
of such plans and specifications, Tenant shall cause its architect to prepare
and deliver to Landlord, for Landlord's approval, final working drawings and
specifications for the Improvements based upon and conforming in all respects to
such preliminary plans. All of Tenant's signage during construction shall be
subject to Landlord's prior approval (which shall not be unreasonably withheld)
and all applicable ordinances of the City of San Marcos and any other relevant
governmental authority and the Operating Documents. Tenant shall not be
permitted to install any pole or free-standing sign on the Premises, except that
if the San Marcos City Ordinances allow a "coming soon" or a grand opening sign,
those signs shall be permitted during the construction period.
3. No structure or other improvement of any kind shall be erected or
maintained on the Premises unless and until the plans, specifications,
elevations and proposed location of such structure or improvement have been
approved in writing by Landlord, which approval shall not be unreasonably
withheld or delayed. Landlord's review and approval of the plans for the
1
<PAGE> 56
Improvements shall create no liability or responsibility on the part of Landlord
for the completeness of such plans or their design sufficiency or compliance
with applicable law.
4. Landlord has constructed or will construct prior to the Commencement
Date certain On-Site Improvements (as defined below). Tenant agrees to reimburse
Landlord for the cost of the On-Site Improvements within thirty (30) days of
receipt of Landlord's invoice. The term "On-Site Improvements" means an access
road from Rancheros Road through the Premises, parking and landscaping
improvements on a portion of the Premises, a deep sewer lateral and the items
listed on the attached Exhibit "C-1. If Tenant fails to reimburse Landlord for
the cost of the on-site Improvements within the thirty (30) day period, Tenant
shall be in default of this Lease and Landlord shall be entitled to all default
remedies provided Landlord under this Lease.
5. Tenant's construction requirements and fees shall include any and all
fees (including assessment districts) required to obtain construction
entitlement, all improvements to the Premises, including grading the pad,
driveways, paved areas, landscaping, signs, utility connections, and the
building itself and the cost of bringing utilities to the Premises. Landlord
shall not be responsible for any costs associated with Tenant's construction of
any improvements except the On-Site Improvements as described in Paragraph 4
above. Tenant acknowledges that Tenant is accepting the Premises in their "as
is" condition, including but not limited to, grading.
6. The exterior finishes of the cinema building shall be Dryvit or Sto or
a comparable acrylic plaster system.
7. No work of any kind shall be commenced on and no building or other
material shall be delivered for said building project, nor shall any other
building or land development work be commenced or building materials be
delivered on the Premises until at least ten (10) business days after written
notice has been given by Tenant to Landlord of the commencement of such work or
the delivery of such materials. Landlord shall, at any and all times during the
term of this Lease, have the right to post and maintain on the Premises and to
record as required by law, any notice or notices of non-responsibility provided
for by the mechanics' lien law of the State of California. The work prohibited
by this Section until prior written notice thereof has been given to Landlord,
includes, in addition to any actual construction work, any site preparation
work, installation of utilities, street construction or improvements work, or
any grading or filling of the Premises. All work required in the construction of
the improvements, including any site preparation work, landscaping work. utility
installation work, as well as actual construction work on the building project,
shall be performed only by competent contractors duly licensed as such under the
laws of the State of California and approved by Landlord, which approval shall
not be unreasonably withheld. The contractors shall obtain performance bonds for
any work costing in the aggregate more than Twenty-Five Thousand Dollars
($25,000.00).
8. The Improvements shall be constructed, and all work performed on the
Premises, shall be in accordance with all valid laws, ordinances, regulations
and orders of all federal, state, county or local governmental agencies or
entities having jurisdiction over the Premises. All work performed on the
Premises shall be done in a good, workmanlike and lien-free manner and only with
new materials of good quality and high standards.
2
<PAGE> 57
9. Tenant will diligently pursue obtaining all required permits. After
permits are obtained, Tenant will commence construction of the Improvements
within one (1) week and shall diligently pursue construction of all Tenant's
work to completion, subject only to "force majeure" delays.
10. Tenant shall cause construction of said building project to be
completed, and shall commence business in the Premises as a Cinema Star Luxury
Theater, within the time period provided in the Lease; provided, however, that
except as expressly stated to the contrary herein or in the Lease. Tenant shall
be excused from its performance for any delays in construction or commencement
of construction, or commencement of business operations at the Premises, caused
by matters referred to in Section 20.4 of the Lease. Tenant shall, however, use
reasonable diligence to avoid any such delay and to resume construction as
promptly as possible after the delay.
11. For the work described herein, Tenant and Tenant's contractor shall
hold Landlord harmless from and against any and all claims, demands, actions or
obligations arising under the construction contract and such contract shall
contain an express provision to that effect. Tenant shall deliver evidence of
such agreement to Landlord prior to the commencement of any construction.
3
<PAGE> 58
EXHIBIT "C-1"
SUBJECT: Existing Improvements to Theater Premises
(costs reimbursable by Cinema Star to City)
DATE: June 24, 1996
<TABLE>
<CAPTION>
ITEM NO. ITEM DESCRIPTION TOTAL
- -------- ---------------- -----
<C> <S> <C>
1. Civil/Grading design $ 5,507.70
2. Water main design 390.04
3. Hydrology & Erosion Control design 100.00
4. Landscape & Irrigation design 1,680.00
5. Surveying calculations/staking 1,694.04
6. Geotechnical site observation 591.58
7. Grading operations (parking lot & access road) 13,262.00
8. Curb & Gutter, Curb, and X-Gutter 10,701.25
9. Water main & fittings, valves, etc 6,050.00
10. 8" sewer lateral 6,859.00
11. Storm drains, curb inlets 7,535.00
12. Street light standards (3) in parking lot 4,438.00
13. Parking lot & access road structural section 29,227.60
14. Irrigation system 9,350.00
15. Tree, Shrub & sod planting 12,186.00
-----------
GRAND TOTAL $109,572.21
===========
</TABLE>
<PAGE> 59
EXHIBIT "D"
PROVISIONS GOVERNING THE PURCHASE AND DELIVERY OF WELL
WATER FOR IRRIGATION OF LEASED PREMISES
SECTION 1.0 RECITAL
As part of the San Marcos Town Center development infrastructure, Landlord
has constructed two groundwater wells yielding sufficient flows to meet the
irrigation needs of the entire 60 acre site, including all leased premises. By
its execution of the Lease, Tenant agrees to purchase and Landlord agrees to
furnish, well Water for the irrigation of ornamental landscaping, under the
terms and conditions set forth below.
Section 2.0 DEFINITIONS
(a) Agreement ("Agreement") shall mean that certain Ground Lease between
the parties dated June 25th, 1996.
(b) Irrigation Design Criteria ("Design Criteria") shall mean those
criteria dated December 12, 1994, which shall apply to the design of all
landscape and irrigation improvements on leased premises within the San Marcos
Town Center. A copy of same has been provided to. Tenant or its representative
under separate cover.
(c) "Premises" shall mean the leasehold which is the subject of the
Lease.
(d) Town Center Irrigation System ("The Irrigation System") shall
collectively mean the groundwater wells, well pumping facilities and equipment,
cabling and controls, distribution piping and points of connection to any leased
premises within the limits of the San Marcos Town Center.
SECTION 3.0 LIMITATIONS ON USE
Tenant shall be entitled to a single use of well water (in an amount
calculated as provided below) for the express purpose of augmenting natural
precipitation to satisfy the irrigation requirements of all trees, shrubs and
groundcover materials within the leasehold limits. Ownership of water delivered
pursuant to this exhibit to the Lease shall remain with the Landlord and
Landlord shall drill no wells within the leasehold limits.
SECTION 4.0 DESIGN REQUIREMENTS
4.1 IN GENERAL
Tenant shall comply with all landscape and irrigation design requirements
set forth in the Design Criteria.
1
<PAGE> 60
All irrigation design and construction documents shall be prepared by an
Irrigation Associate ("IA") registered in the commercial category. All such
documents shall be signed by the IA, in addition to an architect or licensed
landscape architect (as may be required by the City of San Marcos).
4.2 DEMAND CALCULATION & MAXIMUM ALLOTMENT
Tenant's irrigation water demand shall be calculated as follows:
Leased acreage x 45 1 x 1.65" per week 2 = maximum weekly irrigation
water allocation
1 Average percentage of site devoted to landscaping
2 Based on historical reference evapotranspiration data from
the San Marcos, California Irrigation Management Information
System (CIMIS) weather station, for the month of July,
multiplied by equivalent water use for a cold, season
turfgrass (.80) with an AB 325 equivalent irrigation system
distribution uniformity of .65(65%).
In no event shall Tenant's annual irrigation water use exceed
2.25 acre feet per leasehold acre or fraction thereof, measured
after a (first year) plant material establishment period of sixty
(60) days,
5.0 CONNECTION TO SYSTEM
Delivery of water shall commence following Tenant's connection to the
irrigation System and extension of pressure supply lines and communication
cables as required, including the installation of a flow sensor as identified in
the irrigation Design Criteria. The cost of tapping the Irrigation System
distribution piping, and on-site extension of same, shall be the responsibility
of the Tenant, including all costs associated with restoration to original
condition of any existing improvements. Landlord agrees to stub the water piping
to the Premises at a location agreed to by both Landlord and Tenant in
cooperation with each other.
Tenant further agrees to pay for the purchase and installation of the flow
sensors, totalizing flow meter, and master valve. City further agrees to
maintain a central irrigation control system capable of electronic monitoring of
each point of connection. Monthly consumptive use readings shall be accessed
through tenant flow sensor. Physical readings from totalizing flow meter shall
be made at the end of the City's fiscal year, with adjustments made to Tenant's
account. if warranted.
6.0 WATER DELIVERY
Landlord agrees to deliver irrigation well water in an amount calculated
pursuant to Section 4.2, above, in the manner prescribed by the Design Criteria,
and subject to the provisions of Section 7.0 below.
2
<PAGE> 61
Landlord agrees to use every reasonable means to furnish a continuous
supply of water from its system to Tenant. However, the City is not a guarantor
of water supply or water availability. In order to protect the health, safety,
and welfare of the public, Tenant understands and agrees that Landlord may limit
the use of the water in times of water shortage or drought.
Landlord may promulgate reasonable rules and regulations for the use
of water furnished pursuant to this exhibit to the Lease. Such rules and
regulations shall be for the health, safety, and general welfare of the public
and any user or consumer of the water in question.
The City does not warrant or guarantee the quality of water provided to
Tenant under the terms of this agreement, except that the water quality will be
consistent with State of California, Department of Health Services, California
Administrative Code, Title 22, Division 4, Section 60313 (landscape irrigation).
7.0 SERVICES FROM ALTERNATE SOURCES
Should an interruption, reduction or cessation in non-potable water service
to the Premises occur due to well failure, Landlord reserves the right, at its
sole discretion to:
a. Maintain service to the Premises from another well or other
non-potable source; and/or
b. Serve the Premises via potable water meters purchased from the
Vallecitos Water District ("VWD") by Landlord, and to charge Tenant for
same at the VWD unit rates then in effect, as those rates may be amended
from time to time; and/or
c. Refund all non-potable water meter/capacity fees received from
the Tenant, which fees may then be applied by Tenant to the purchase of
potable irrigation meters and the payment of applicable capacity charges to
others. In such event, the Landlord shall have no further responsibility to
Tenant with regard to the provision of water to the Premises.
Should any of the above occur, Landlord reserves the right to temporarily
alter Tenant's irrigation schedule(s), as necessary pending restoration of full
service, while ensuring the delivery of potable and/or non-potable water volumes
sufficient to maintain plant life on the Premises.
8.0 CONNECTION AND USAGE FEES
If Vallecitos Water District (the "District") requires payment of a
potable water meter/capacity fee or if a separate meter for the Premises is
required and the District requires payment of a fee for same, Tenant agrees to
pay such fee. In addition to the payment of the District's fee, if any. Tenant
shall pay Landlord monthly for actual well water usage based on monthly
consumption readings recorded at the flower meter, at a rate equivalent to 95%
that of prevailing District potable water rates, as the same may be amended from
time to time. Irrigation fees shall be due and payable (with the same late
penalties) in the same manner as provided in the Lease.
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<PAGE> 62
9.0 SYSTEM OPERATION & MAINTENANCE
Landlord agrees to operate and maintain the facilities necessary to deliver
water to the point of connection identified by both parties as described in
Section 5.0, including pumping facilities, distribution piping system, metering,
flow sensing, and master valve. Tenant shall be responsible for the operation
and maintenance of all facilities downstream of the master valve.
4
<PAGE> 63
EXHIBIT "E"
[FIGURE 3]
<PAGE> 64
EXHIBIT "G"
COMMENCEMENT DATE LETTER
This letter of Confirmation of Lease is made June 25, 1996, between THE
CITY OF SAN MARCOS, a municipal corporation ("Landlord") and CINEMA STAR LUXURY
THEATERS, INC., a California corporation ("Tenant"), who agrees as follows:
1. Landlord and Tenant entered into a Lease dated June 25, 1996, in
which Landlord leased to Tenant and Tenant leased from Landlord the premises
described in the Lease.
2. Pursuant to Paragraph 2.1 of the Lease, Landlord and Tenant agree to
confirm the commencement and expiration dates of the term as follows:
a. Commencement Date: 180 days following building permit issuance;
building permit issuance to occur no later than 147 days (21 weeks) from the
date of lease execution, per Exhibit "E".
b. Expiration Date: As stated in section 2.1 (term).
3. The provisions of this Letter of Confirmation of Lease shall inure to
the benefit, or bind, as the case may require, the parties and their respective
successors subject to the restrictions on assignment and subleasing contained
in the Lease.
<TABLE>
<S> <C>
LANDLORD: THE CITY OF SAN MARCOS
a municipal corporation
By: R.W. Gittings
-----------------------------------
Its: City Manager
-----------------------------------
TENANT: CINEMA STAR LUXURY THEATRES, INC.
a California corporation
By: John Ellison Jr.
-----------------------------------
Its: President
-----------------------------------
</TABLE>
<PAGE> 65
EXHIBIT "H"
PARKING AGREEMENT
[to be attached]
<PAGE> 1
EXHIBIT 10.2
COCONUT GROVE MARKETPLACE
SUBLEASE AGREEMENT
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
<PAGE> 2
INDEX TO SUBLEASE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
SUMMARY OF LEASE INFORMATION
SPECIAL LEASE PROVISIONS.................................................. i-v
STANDARD TERMS AND PROVISIONS............................................. 1-45
PREMISES; COMMON AREAS.................................................... 1-4
1. Premises............................................................. 1
2. Common Areas......................................................... 2
TERM...................................................................... 4-6
3. Term; Tenant Occupancy............................................... 4
4. Surrender and Holding Over........................................... 5
RENT; PROPERTY EXPENSES................................................... 6-14
5. Monthly Minimum and Percentage Rent.................................. 6
6. Property Maintenance and Operating Expenses.......................... 9
7. Maintenance Reserve Account.......................................... 14
8. General Excise/Conveyance Taxes...................................... 14
SECURITY DEPOSIT.......................................................... 14
9. Security Deposit..................................................... 14
INSURANCE................................................................. 14-17
10. Insurance............................................................ 14
USE....................................................................... 17-21
11. Use of Premises...................................................... 17
12. Use of Property...................................................... 20
13. Rules and Regulations................................................ 21
ADVERTISING............................................................... 21-22
14. Advertising.......................................................... 21
15. Trademarks........................................................... 22
ALTERATIONS; UTILITIES; REPAIR AND MAINTENANCE............................ 22-27
16. Alterations and Improvements......................................... 22
17. Utilities............................................................ 24
18. Repairs and Maintenance.............................................. 25
19. Damage to or Destruction of Premises or Property..................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
HAZARDOUS MATERIALS ................................. 27-30
20. Hazardous Materials ............................ 27
ASSIGNMENT AND SUBLETTING ........................... 30-33
21. Assignment and Subletting ...................... 30
DEFAULT ............................................. 33-37
22. Liens and Insolvency ........................... 33
23. Default ........................................ 33
CONDEMNATION ........................................ 37-38
24. Condemnation ................................... 37
LANDLORD ............................................ 39-42
25. Non-liability of Landlord ...................... 39
26. Indemnity of Landlord .......................... 39
27. Attorney's, Architect's, Etc. Fees ............. 39
28. Access to and Inspection of Premises ........... 40
29. Subordination of Lease ......................... 40
30. Estoppel Certificate; Financial Statements ..... 41
31. Additional Improvements Upon Property .......... 41
32. Submission to Condominium Property Regime ...... 41
33. Landlord's Consent ............................. 42
FORCE MAJEURE ....................................... 42
34. Force Majeure .................................. 42
NOTICES ............................................. 42
35. Notices ........................................ 42
MISCELLANEOUS; ENTIRE AGREEMENT ..................... 44-45
36. Miscellaneous .................................. 43
37. Entire Agreement ............................... 44
</TABLE>
Personal Guaranty Of Lease Addendum
Special Conditions Addendum
Option Addendum
Exhibit "A" -- Site Plan
Exhibit "B" -- Monthly Minimum Rent Provisions
Exhibit "C" -- Construction Specifications
Exhibit "D" -- Landlord's Improvements
Exhibit "E" -- Tenant's Improvements
Exhibit "F" -- Confirmation of Rent Commencement Date
ii
<PAGE> 4
COCONUT GROVE MARKETPLACE SUBLEASE
SUMMARY OF LEASE INFORMATION
(The terms of the Sublease shall control in the case of conflict.)
<TABLE>
<S> <C>
TENANT: CINEMASTAR LUXURY THEATERS, INC.,
PREMISES: THEATER PAD
AREA (APPROX.): 25,000 Sq. Ft.
USE OF PREMISES: MOVIE THEATER
COMMENCEMENT DATE: SEE PARAGRAPH B OF THE SPECIAL LEASE
PROVISIONS
TERMINATION DATE: SEE PARAGRAPH B OF THE SPECIAL LEASE
PROVISIONS
INITIAL MONTHLY
MINIMUM RENT: $1.25 per square foot per month
PERCENTAGE RENT: 10% of monthly Box Office Receipts, plus
5% of monthly non-box office receipts
PERCENTAGE OF PROPERTY
EXPENSES: ________%
SECURITY DEPOSIT: SEE SPECIAL CONDITIONS ADDENDUM
</TABLE>
<PAGE> 5
COCONUT GROVE MARKETPLACE
SUBLEASE AGREEMENT
THIS SUBLEASE ("Lease") is made as of this 18th day of July 1996 by and
between BRIAN ANDERSON and MELVIN SHAPIRO, whose principal place of business is
in Kailua-Kona, Hawaii, and whose post office address is POB 5423, Kailua-Kona,
Hawaii 96745 ("Landlord"), and CINEMASTAR LUXURY THEATERS, INC., a California
corporation, whose mailing address is 431 College Boulevard, Oceanside,
California 92057, Attention: John Ellison, Jr., President ("Tenant"), to be
effective on the 18 day of July 1996 ( the "Effective Date")
SPECIAL LEASE PROVISIONS
A. LEASED PREMISES. Approximately 25,000 square feet, more or less, in
the COCONUT GROVE MARKETPLACE located at Auhaukeae 1st, Tax Map Keys (3)
7-5-009:025, 028 043 (the whole of the COCONUT GROVE MARKETPLACE and the
improvements thereon shall hereafter collectively be called the "Property"),
situate in the District of North Kona, County and State of Hawaii, as shown
outlined in red on Exhibit A attached hereto and more particularly described in
Paragraph 1 of the Standard Terms and Provisions (the "PREMISES"). Tenant
acknowledges that the square footage of the Premises as set forth in these
Special Lease Provisions is merely an approximation of the actual area of the
Premises. Prior to the Tenant's occupancy of the Premises, Landlord and Tenant
shall confirm the actual square footage of the Premises as provided in
Paragraph 1.a(i) of the Standard Terms and Provisions.
B. TERM. Unless sooner terminated as provided herein, or extended as
provided in the Option Addendum attached hereto, the initial term of this Lease
shall commence on the Effective Date and extend for two hundred and forty (240)
months from the earliest to occur of (1) one hundred and eighty (180) days from
the date the Landlord completes its construction obligations as set forth in
Paragraph E.2 of these Special Lease Provisions, or (2) the first day the
Premises are open for business (the "Rent Commencement Date") and end on first
day of the first calender month following the two hundred and fortieth monthly
anniversary date of the Rent Commencement Date (the "Termination Date"). Tenant
shall have access to the Premises on the date the Landlord completes its
construction obligations as set forth in Paragraph E.1 of these Special Lease
Provisions. See Paragraph 1.b of the Standard Terms and Provisions.
i
<PAGE> 6
C. RENT AND OTHER CHARGES.
1. Monthly Minimum Rent:
a. For the first thirty-six (36) months of the term, effective
on the Rent Commencement Date, the Monthly Minimum Rent shall be
ONE AND 25/100 DOLLARS ($1.25) per square foot of the Premises per month.
b. For the remaining two hundred and four (204) months of the term,
effective on the first day of the first calender month following the
thirty-sixth (36th) monthly anniversary date of the Rent Commencement Date,
the Monthly Minimum Rent shall be in the amount as determined according to
the terms of Exhibit B attached hereto.
2. Percentage Rent: During every calendar month or fraction of a
month of the term of this Lease, Tenant shall also pay Landlord (a) ten 10%
of Tenant's "box office receipts" and (b) five percent (5%) of Tenant's
non-box office sales receipts, concession (food and beverage) receipts, and
promotional and special events receipts, as Percentage Rent as provided in
Paragraph 5.b of the Standard Terms and Provisions.
3. Tenant's Percentage of Property Expenses and Utility Charges: ______%
Except as provided in the Special Conditions Addendum, during the entire term of
this Lease, including the extensions, if any, Tenant shall pay monthly, as
additional rent, its percentage of the "Property maintenance and operating
expenses" and utility charges not separately metered presently estimated at
forty-four cents ($ .44) per square foot per month, as provided in Paragraphs 6
and 17 of the Standard Terms and Provisions, subject to adjustment, however, as
provided in Paragraphs 6 and 17.
4. Tax on Payments: Tenant shall pay Landlord on the Monthly Minimum
Rent, Percentage Rent, additional rent and other payments to Landlord under this
Lease, for Landlord's general excise tax, an additional amount (presently
4.167%) as provided in Paragraph 8.a of the Standard Terms and Provisions.
D. TENANT'S PERMITTED USE; NAME. Tenant shall use the Premises for a
first-rate eight-screen motion picture theater and concessions and other uses
incidental thereto (excluding Motion Picture Association of America rated films
which Tenant determines, in its reasonable discretion, to be injurious to the
reputation of Tenant or offensive to patrons; in all cases, however, Motion
Picture Association of America "X" rated films are prohibited), the sale of
video cassettes of movies (excluding those rated "X") and incidental on-
Premises use of vending machines and up to ____ video game machines, and no
other purpose as provided in Paragraph 11.a of the Standard Terms and
Provisions. Tenant's business in the Premises shall be operated under the
name "____________________" or such other name as Landlord and Tenant may
agree in writing.
ii
<PAGE> 7
E. Leasehold Improvements.
1. Tenant's Construction Obligation. The Tenant's construction obligation
with respect to the Premises, if any, shall be as set forth in Paragraph 1.b of
the Standard Terms and Provisions and more particularly described in Exhibits C
and E (if any) attached hereto.
2. Landlord's Construction Obligation. The Landlord's construction
obligation with respect to the Premises, if any, shall be as set forth in
Paragraph 1.c of the Standard Terms and Provisions and more particularly
described in Exhibits C and D (if any) attached hereto.
F. TENANT PARKING. Subject at all times to Paragraphs 2 and 13 of the
Standard Terms and Provisions, Tenant shall have the right to use any of the
parking spaces within the Property for customer parking; Tenant, however, shall
not use more than __ parking spaces for employee or business vehicle parking.
Tenant's employees shall only park in those areas designated for "EMPLOYEE
PARKING" on Exhibit A attached hereto.
G. SECURITY DEPOSIT. SEE SPECIAL CONDITIONS ADDENDUM.
H. ASSIGNMENT AND SUBLETTING. Tenant may not assign, sublet or mortgage
the Premises without Landlord's prior written consent as more particularly
described in Paragraph 21 of the Standard Terms and Provisions, subject in every
case, however, to the Landlord's right to adjust the Monthly Minimum Rent as
provided for in Paragraph 21.b of the Standard Terms and Provisions.
I. PAYMENTS. Tenant shall make all payments of Monthly Minimum Rent,
Percentage Rent, additional rent and other payments required under this Lease
to:
Coconut Grove Marketplace
POB 5423 KAILUA-KONA
Hawaii 96745
or such other address as Landlord may, from time to time, designate to Tenant
in writing.
J. ENTIRE AGREEMENT: AMENDMENT. This Lease, which consists of these
Special Lease Provisions, the attached Standard Terms and Provisions, and the
attached Addendum and Exhibits (check as applicable):
(X) PERSONAL GUARANTY OF LEASE ADDENDUM;
(X) SPECIAL CONDITIONS ADDENDUM;
iii
<PAGE> 8
(XX) OPTION ADDENDUM;
(XX) EXHIBIT A -- Plot Plan of Tenant Premises
(X) EXHIBIT B -- Monthly Minimum Rent Provisions:
(X) EXHIBIT C -- Construction Specifications;
(X) EXHIBIT D -- Landlord's Improvements;
(X) EXHIBIT E -- Tenant's Improvements;
(X) EXHIBIT F -- Confirmation of Rent Commencement Date;
(_) EXHIBIT G -- ________________;
contains the entire understanding among the parties and supersedes any prior
or contemporaneous understandings or agreements between them respecting the
matters set forth herein. Any amendment of this Lease shall be as provided in
Paragraph 37 of the Standard Terms and Provisions.
By their signatures below, Landlord and Tenant acknowledge that they have
read, understand and accept all of the terms, covenants, conditions, agreements
and provisions contained in this Lease, including these Special Lease
Provisions, the attached Standard Terms and Provisions and the above indicated
Addendums and Exhibits.
iv
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date and year first above written.
CINEMASTAR LUXURY THEATERS, INC.
a California corporation
Brian Anderson
- ------------------------------
BRIAN ANDERSON
By --------------------------------
--------------------------------
Melvin Shapiro Its: --------------------------------
- ------------------------------
MELVIN SHAPIRO
LANDLORD TENANT
V
<PAGE> 10
COCONUT GROVE MARKETPLACE
STANDARD TERMS AND PROVISIONS
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
1. PREMISES.
a. Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, upon the terms and provisions set forth herein and in the
attached Special Lease Provisions, Addendums and Exhibits, as applicable,
those certain premises on the Property described in the attached Special
Lease Provisions and shown outlined in red on Exhibit A attached hereto. The
premises so leased are herein called the "Premises".
(i) Tenant acknowledges that the square footage of the Premises set
forth in the attached Special Lease Provisions is merely an approximation
of the actual area of the Premises. On the date the Landlord completes its
construction obligations as set forth in Paragraph E.2 of the Special Lease
Provisions, Landlord and Tenant shall confirm the actual square footage of
the Premises and include such figure in the memorandum confirming the Rent
Commencement Date. In the event Landlord and Tenant are unable to agree as
to the actual square footage of the Premises, Tenant agrees that Landlord
shall select a licensed architect or contractor who shall independently
determine the actual square footage of the Premises and such determination
shall be binding on Landlord and Tenant. Failure of Tenant to execute and
deliver the memorandum described in Paragraph 3.a of these Terms and
Provisions shall constitute an acceptance by Tenant of the figure stated in
the memorandum signed by Landlord. Notwithstanding that the actual square
footage of the Premises may later be determined to be more or less than the
square footage of the Premises as confirmed by Landlord and Tenant in the
memorandum or the square footage set forth in the attached Special Lease
Provisions, Tenant agrees that the figure stated in the memorandum shall
govern in any question relating to the area of the Premises and Tenant
shall have no right to any adjustment in the Monthly Minimum Rent,
Percentage Rent or any other rent or other sum payable under this Lease in
the event it is later determined that the actual square footage of the
Premises is different from the square footage set forth in the memorandum
signed by Landlord and Tenant or in the Special Lease Provisions.
(ii) Notwithstanding any other term or provision of this Lease, the
Premises shall not be deemed to include any area designated as a "Common
Area" by the Landlord at the time of this Lease or hereafter, which areas
shall be subject to the exclusive control and management of Landlord as
herein provided. Notwithstanding the designation of any area as a Common
Area, however, Tenant shall have the right, upon the prior consent and
approval of Landlord, to enter and use such area for the installation,
repair and maintenance of electrical, plumbing, telephone and other utility
services and facilities, subject, however, at all times to the control,
direction and power of Landlord (a) to enter such area, (b) to install
utility lines, sprinkler equipment, air conditioning facilities, conduits,
connections, installations and other facilities therein, (c) to change,
modify, amend, add to or remove any improvements or other facilities
therein, and
<PAGE> 11
(d) to perform installations, connections, repairs, replacements and other
maintenance therein and thereon.
(iii) The term "Premises" wherever it appears herein includes and
shall be deemed to include (except where such meaning would be clearly
repugnant to the context) the premises described in the attached Special
Lease Provisions and the improvements now or at any time hereinafter
comprising or built in the Premises hereby leased.
b. Tenant's Work. All work which is to be performed by Tenant in the
Premises pursuant to this Lease shall be performed only in accordance with plans
and specifications previously approved by Landlord as provided in Exhibit C,
using a contractor licensed in the State of Hawaii. Tenant shall commence
construction of Tenant's work in accordance with such approved working drawings
and specifications within ten (10) days after issuance of permits and completion
of Landlord's work as described in Paragraph 1.c below. If Tenant shall have
access to or enter the Premises prior to the Rent Commencement Date to perform
Tenants work, all terms, covenants and conditions of this Lease to be observed
or performed by Tenant shall apply to Tenant from and after the date of such
early occupancy. Notwithstanding any other provision of this Lease, Tenant shall
pay as additional rent all amounts due to Landlord within ten (10) days of
demand by Landlord for any cost incurred or work or services performed by
Landlord for Tenant at Tenant's request or with Tenant's consent, which Tenant
is required to incur or perform according to Exhibit E.
c. Landlord's Work. Landlord shall complete all work required to be
performed by Landlord with respect to the Premises in accordance with Exhibit D
attached hereto on or prior to the Rent Commencement Date.
d. Acceptance of Premises. Tenant agrees that (i) neither Landlord nor
any employee, representative or agent of Landlord, has made any representations
concerning the suitability of the Premises for the conduct of Tenant's business
nor has there been any other representations covering the physical condition of
the Premises; (ii) Tenant's acceptance of the Premises evidenced by Tenant's
entry and the possession thereof shall constitute unqualified proof that the
Premises are, as of the date of commencement of Tenant's occupancy thereof, in a
tenantable and good condition; (iii) Tenant shall be deemed to have waived any
patent or latent defect in the Premises except those latent defects in the
Premises discovered by Tenant during the period of any contractor's warranty
covering such defective condition; (iv) Tenant will take good care thereof; and
(v) Tenant shall not make any repairs at Landlord's expense except as Landlord
and Tenant have by this Lease made specific provisions for such repairs.
e. Quiet Possession. Upon payment by Tenant of the rent and other
charges provided for herein and upon the observance and performance of the terms
and conditions by Tenant herein contained, Tenant shall peaceably and quietly
hold and enjoy the Premises for the term hereby leased without hindrance or
interruption by Landlord or any other person or persons lawfully or equitably
claiming by, through or under Landlord, except as otherwise provided herein.
2. COMMON AREAS. In addition to the Premises, Tenant shall, as an
appurtenance thereto, have full right of access to said Premises over and across
the common entrances,
2
<PAGE> 12
sidewalks, halls, corridors, driveways, service areas, parking areas and
stairways on the Property (the "COMMON AREAS"). The Common Areas shall also
include those portions of the Property, if any, which Landlord shall, from time
to time hereafter, designate as, or improve for, use by or for the benefit of
Tenant in common with other authorized users, including, without limitation,
parking areas, service areas, driveways, stairways, ramps, sidewalks, landscaped
areas, exterior or interior walks, comfort rooms, drinking fountains and/or
other public facilities, but excluding any portion of the Property designated by
the Landlord for non-common use. It is understood and agreed that the Common
Areas shall not, in any case, be deemed to be a portion of or included in the
Premises leased hereunder.
a. Exclusive Control. All Common Areas shall at all times be subject to
the exclusive control and management of Landlord, and shall be subject to such
reasonable rules and regulations as Landlord may adopt and promulgate from time
to time. Tenant, its employees, agents, customers, invitees and licensees shall
not have the right to use any of the Common Areas except as permitted by
Landlord. Tenant, its employees, agents and sublessees shall not solicit
business, advertise or distribute handbills in any Common Areas without
Landlord's prior consent, and Tenant will not use the Common Areas in such a way
as to impede or interfere with the operation of the Property, or with Landlord
or any Tenant therein or thereon.
b. Interference. If, as a result of labor disputes or activities
involving Tenant arising in any way from the conduct of Tenant's business, a
picket line is established on the Premises or any Common Area of the Property,
or in the vicinity of the Premises or the Property, or there is any other such
activity which, in the judgment of Landlord, interferes with or affects the
operations of the Property, Landlord may, at its option, terminate this Lease
forthwith by written notice to Tenant. Landlord may also, in its discretion, in
the event of any such activities, require Tenant by written notice to Tenant to
cease doing business in the Premises for such period of time as Landlord may
consider advisable, and in such event, the Monthly Minimum Rent payable by
Tenant shall be reduced on a pro rata basis during the period that Tenant's
place of business is closed.
c. Changes to Common Areas. Landlord shall have the right, in its sole
discretion, to increase or reduce the Common Areas, to rearrange the parking
spaces and improvements in the Common Areas and to make any other changes
therein from time to time. Landlord shall also have the right to change the
access to the Premises. Landlord may also, in its sole discretion, designate
certain access drives, corridors and passageways for deliveries. Tenant shall
cause its employees, agents, sublessees, and suppliers to use such drives,
corridors and passageways in the delivery of merchandise to and from the
Premises, during the hours designated by Landlord. Landlord shalt have the
right, from time to time, to change the area, level, location, and arrangement
of all Common Areas; to close temporarily all or any portion of the Common Areas
to such extent as may, in the opinion of Landlord's counsel, be legally
sufficient to prevent a dedication thereof or the accrual of any rights to any
person or the public therein; and to do and perform such other acts in and to
the Common Areas and improvements thereon as, in the use of good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by tenants, their officers,
agents, employees and customers. There shall be no reduction of Tenant's Monthly
Minimum Rent, Percentage Rent or any other charges hereunder for any change to
the Common Areas.
3
<PAGE> 13
d. Parking. Landlord reserves the right to prohibit Tenant's employees
from parking on the Property, and in no event shall Tenant or any of Tenant's
employees park in any parking stalls reserved for use by customers of the
Property or reserved for limited periods of time. Employees of Tenant shall
park only in those areas of the Property designated as "Employee Parking" in
Exhibit A attached hereto and employee parking shall be limited as provided in
the attached Special Lease Provisions. Nothing herein shall be deemed to impose
any liability on Landlord for any damage to motor vehicles of customers or
employees or for loss of property from within such motor vehicles, unless caused
by the willful act or gross negligence of Landlord, its agents, servants or
employees. Landlord shall have the right to promulgate rules and regulations to
regulate and control tenant parking on the Property as provided in Paragraph 13
of these Standard Terms and Provisions.
3. TERM: TENANT OCCUPANCY.
a. Lease Term/Confirmation of Rent Commencement Date. The term of this
Lease shall commence and terminate on the dates stated in the attached Special
Lease Provisions. When the Rent Commencement Date has been determined as
provided in Paragraph B of the Special Lease Provisions, Landlord and Tenant
shall execute a written memorandum expressly confirming said Rent Commencement
Date in the form attached hereto as Exhibit F, and such memorandum shall
thereupon be deemed attached hereto, incorporated herein, and by this reference
made a part of this Lease. Failure of Tenant to execute and deliver such
memorandum shall constitute an acceptance of the Premises by Tenant as of the
date set forth in said memorandum signed by the Landlord and such date shall,
for all purposes of this Lease, be the Rent Commencement Date. Unless otherwise
agreed by Landlord and Tenant in writing, notwithstanding that the Rent
Commencement Date set forth in the memorandum may be earlier or later than the
Rent Commencement Date stated in the attached Special Lease Provisions, the
Termination Date stated in the attached Special Lease Provisions will remain the
same.
b. Tenant Occupancy. The Premises shall be deemed ready for occupancy by
Tenant when (i) Landlord's work with respect to the Premises has been
substantially completed in accordance with Exhibit D attached hereto and
(ii) Landlord has notified Tenant that Tenant is free to enter the Premises
to make its own improvements to the extent the improvements have been
approved by Landlord. If the work required to be performed by Landlord with
respect to the Premises depends wholly or partly on work to be performed by
Tenant, then the Premises shall be deemed ready for occupancy on the date
they would have been ready for occupancy if Tenant had performed its work
in a diligent and timely manner and in accordance with the schedule for the
performance of that work proposed by Tenant and approved by Landlord.
c. Non-Delivery. If Landlord for any reason cannot deliver occupancy of
the Premises to Tenant on or before two hundred and forty (240) days following
the Effective Date of this Lease, this Lease shall be voidable by Landlord or
Tenant and Landlord shall not be liable to Tenant for any loss or damage
resulting from Landlord's failure to deliver occupancy to Tenant. Upon written
notice to Tenant, Landlord shall have the right to extend the 240 day period
described above for two forty-five (45) day periods and upon such notice,
neither Tenant nor Landlord shall have the right to terminate this Lease as
provided in this Paragraph 3.c. In all cases, however, the Rent Commencement and
Termination Dates shalt remain the same even though the Tenant's
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construction obligations under this Lease shall not commence until the date the
Landlord offers to deliver occupancy of the Premises to the Tenant.
d. Payment of Rent. Except as provided in Paragraph 3.c above, Monthly
Minimum Rent, Percentage Rent, additional rent and other charges under this
Lease shall be due and payable as of the Rent Commencement Date. Tenant shall
make the first Monthly Minimum Rent and additional rent payments on or before
such date, which shall be accompanied by any other payments due from Tenant to
Landlord under this Lease. If the Rent Commencement Date is a date other than
the first day of the month, the payments due under this Paragraph 3.d shall be
prorated accordingly.
e. Failure of Tenant to Open. If Tenant fails to open the Premises for
business fully fixtured, stocked and staffed on the Rent Commencement Date, then
Landlord shall have, in addition to any and all remedies otherwise provided in
this Lease, the right at its option to collect not only the Monthly Minimum Rent
herein provided, but additional rent at the rate of $0.__ per square foot of the
Premises per day for each and every day that Tenant fails to commence to do
business as herein described; said additional rent shall be deemed to be in lieu
of any Percentage Rent that Landlord might have been earned during such period
of Tenant's failure to open.
f. Tenant Opening Ceremony. Within forty-five (45) days after the Rent
Commencement Date, Tenant shall have a ceremony at its cost to celebrate the
opening of its business. Such ceremony shall be either advertised to the
general public or by invitation only.
g. Extension. Except as may otherwise be provided herein, Landlord shall
have no obligation to extend or renew this Lease upon its termination or upon
such termination to give another lease to Tenant covering the Premises, and
upon such termination Landlord may lease the Premises to others to operate
therein a business the same as or different from that operated by Tenant.
4. SURRENDER AND HOLDING OVER.
a. Surrender Upon Termination. Upon the termination of this Lease, Tenant
shall surrender the Premises and all improvements thereon in the same condition
of cleanliness, repair and sightliness as the Premises were in upon Tenant's
commencement of business under this Lease, reasonable wear and tear during the
last two years of the term excepted. Tenant shall surrender all keys for the
Premises to Landlord at the place then fixed for the payment of rent and shall
inform Landlord about all combinations on locks, safes and vaults, if any, in
the Premises. On such day, unless Landlord shall, in its sole discretion,
require the removal thereof, all alterations, additions, improvements, all hard
surface bonded or adhesively affixed flooring, and all fixtures (other than
trade fixtures) in the Premises and installed in the Common Areas by Tenant
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises as a part thereof, without disturbance, molestation or injury,
and without credit to Tenant, its sublessees, concessionaires or licensees. On
or before the last day of the term or the sooner termination hereof, Tenant, if
not then in default, shall remove all trade fixtures, operating equipment and
other personal property of Tenant and, if required by Landlord, remove all
alterations, additions, improvements, flooring and other fixtures, from the
Premises and Common
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Areas and repair any damage occasioned by any such removal. If Landlord is
required to repair any damage caused to the Premises or Common Areas by such
removal, Tenant shall repay Landlord for the cost of the same. Property not so
removed shall be deemed abandoned by Tenant. If the Premises are not surrendered
at such time, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises, including
without limitation, any claims made by any succeeding tenant based on such
delay, and/or Landlord's lost rental income. Tenant's obligation to observe or
perform this covenant shall survive the termination of this Lease.
b. Liquidated Damages. If Tenant shall, at the termination of this Lease,
fail to yield possession to Landlord, Landlord shall have the option to require
Tenant to pay and Tenant shall pay, as liquidated damages, for each day
possession is withheld, an amount equal to double the amount of the daily
Monthly Minimum Rent computed on the basis of a thirty (30)-day month, together
with any Percentage Rent, additional rent or other payments required under this
Lease.
c. Holding Over. Any holding over after the termination of this Lease,
with the consent of Landlord, shall be construed to be a tenancy from month to
month at a monthly rent specified by Landlord in writing and on the terms and
conditions specified in this Lease, so far as applicable.
5. MONTHLY MINIMUM AND PERCENTAGE RENT.
a. Monthly Minimum Rent. For each and every calendar month during the
term of this Lease, commencing on the Rent Commencement Date, Tenant shall pay
to Landlord, without notice, on or before the first (1st) day of each month, in
advance, at Landlord's address, the Monthly Minimum Rent set forth in the
attached Special Lease Provisions. If the beginning date for the payment of
Monthly Minimum Rent is not on the first (1st) day of the month, the Monthly
Minimum Rent for the first fractional month shall be paid prorata, together
with the first full month's Monthly Minimum Rent.
b. Percentage Rent: Radius Clause. In addition to the Monthly Minimum
Rent set forth in the attached Special Lease Provisions, the Tenant shall pay
Percentage Rent to the Landlord according to the following:
(i) Percentage Rent Determination. For each and every calendar
quarter or fraction of a quarter during the term of this Lease, the Tenant
shall pay to the Landlord, on or before the 15th day of the next month
following the quarter, as Percentage Rent, a sum of money equal to the
percentages set forth in the attached Special Lease Provisions (or, if
applicable, the percentage set forth in Paragraph 23.g below) of the box
office receipts and non-box office sales receipts, concession (food and
beverage) receipts, and promotional and special events receipts received by
the Tenant for the prior calendar quarter (or, if applicable, the calendar
quarter determined according to the provisions of Paragraph 11.a below);
provided, however, that the total quarterly rent to be paid by the Tenant
to the Landlord shall not, in any case, be less than the total Monthly
Minimum Rent for that quarter. Any Monthly Minimum Rent paid by the Tenant
to the Landlord under Paragraph 5.a above shall be credited to the Tenant's
Percentage Rent determined under this Paragraph 5.b. Within sixty (60) days
after the expiration of each calendar year during
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the term of this Lease, or within sixty (60) days after the termination of
this Lease if this Lease is terminated before the end of a calendar year,
the total Percentage Rent due, based on the amount of box office receipts
for the preceding calendar year or shorter period as reported in the annual
sales statement required under Paragraph 5.b(iv) below shall be computed.
If the total amount of Percentage Rent paid for any calendar year or
shorter period (after due credit for all Monthly Minimum Rent paid by the
Tenant) does not equal the total quarterly Percentage Rent calculated
according to the percentage formula for the same period, then the Tenant
shall pay any deficiency to the Landlord within (60) days after the
expiration of the calendar year or shorter period. If the total amount of
Percentage Rent paid for any calendar year or shorter period exceeds the
total quarterly Percentage Rent calculated according to the percentage
formula for the same period, then the Landlord will credit the excess to
the Tenant's future quarterly Percentage Rent obligations over at least the
next three (3) following quarters or, if this Lease has expired, refund the
excess to the Tenant, without interest, within thirty (30) days after the
excess is determined.
(ii) Definitions. The term "box office receipts" as used in this
Lease shall include the entire actual sales price, whether for cash or
otherwise, of all sales of theater seats and all other receipts whatsoever
of all businesses conducted at, in, from or upon the Premises, including
sales by any sublessee, concessionaire or licensee or otherwise at, in,
from or upon the Premises, but excluding, however, receipts by Tenant for
the sale of food and beverages from within the Premises. Box office
receipts shall not include, however, sales of theater seats for "90/10"
pictures, or of Tenant's equipment or fixtures not in the ordinary course
of Tenant's business. The term "non-box office safes receipts" shall
include concession (food and beverage) receipts and all promotional and
special events receipts received by Tenant. To the extent that the amount
of any tax shall be included as a separately stated amount in the sales
price charged to a customer, there shall be deducted from the gross sales
receipts any gross income, sales or excise tax, or any other tax upon or
measured by the gross receipts of Tenant or measured by the sales price of
merchandise sold in, at or from the Premises and directly imposed upon
Tenant by any duly constituted authority. Box office and non-box office
receipts shall be decreased by the amount of any cash or credit refund made
to a customer with respect to a sale from the Premises if such sale is or
has been included in the Tenants computation of such receipts as provided
herein.
(iii) Preservation and Disclosure of Records. For the purpose of
ascertaining the amount payable as Percentage Rent under this Lease, Tenant
agrees to prepare and keep within the State of Hawaii in a place accessible
to Landlord for a period of not less than two (2) years following the end
of each calendar year to which they pertain, adequate records which shall
show daily receipts from all sales and other transactions on or from the
Premises by Tenant and any other persons conducting any business upon or
from the Premises. The receipts shall include copies of checks, sales
slips, receipts or other evidences of sales furnished to all customers.
Tenant shall record at the time of sale, in the presence of the customer,
all receipts from sales or other transactions whether for cash or credit in
a cash register, cash registers, or a computer-based equivalent of a cash
register, each of which shall have a cumulative total which shall be sealed
in a manner approved by Landlord. Tenant further agrees to keep within the
State of Hawaii in a place accessible to Landlord for at least two (2)
years following the end of each calendar year to which they pertain, the
gross income, sales and occupation tax returns with respect to said
calendar years and all pertinent original sales records. Pertinent original
sales records shall
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include: (a) cash register tapes, including tapes from temporary registers,
and print-outs. magnetic tape files. magnetic disk files, and other storage
media used in a computer-based equivalent of a cash register; (b)
settlement report sheets of transactions with sub-tenants, concessionaires
and licensees; (c) such other sales records, if any, which would normally
be examined by an independent accountant pursuant to accepted auditing
standards in performing an audit of Tenant's sales; and (d) the records
specified in (a) to (c) above of subtenants, assignees, concessionaires, or
licensees. Landlord and Landlord's authorized representatives shall have
the right to examine Tenant's records as described above during regular
business hours.
With Landlord's prior written consent, Tenant may provide to Landlord
Tenant's original sales records, as defined in this Paragraph 5.b(iii), in
a magnetically recorded and computer readable form ("magnetic media") that
can be mounted and processed on a third-party's computer system based on
Microsoft software (or compatible software); Tenant shall provide any
additional necessary processing software and pay for reasonable amounts of
computer system usage by Landlord pursuant to this Paragraph 5.b(iii). Such
processing of Tenant's magnetic media shall include, without limitation,
the itemization and calculation of all receipts specified in this Paragraph
5.b(iii). Within fifteen (15) days of Landlord's written request, Tenant
shall provide to Landlord (i) such magnetic media and necessary software
and (ii) printed summaries of the sales records specified in this Paragraph
5.b(iii).
(iv) Reports of Receipts. The Tenant shall submit to the Landlord, on
or before the 30th day of each and every calendar month following a
quarterly period (including the 30th day of the month following the end of
this Lease), at the place designated for the payment of rent, together with
the remittance of the quarterly Percentage Rent as determined according to
this Paragraph 5.b, a written statement signed by the Tenant, or by a
person duly authorized by the Tenant, and certified by Tenant (or its
representative) to be true and correct, stating in reasonably accurate
detail, the amount of box office and non-box office receipts during the
preceding three calendar months (and any fractional month at the beginning
or ending of the term). Tenant shall also submit at the same time a copy of
Tenant's monthly or quarterly "General Excise and Use Tax Return" or such
form as may otherwise be designated for similar purposes, which Tenant is
required to file with the Hawaii Department of Taxation. Tenant consents to
allow Landlord to verify the authenticity of such copy with the Department
of Taxation. The Tenant shall also submit to the Landlord on or before the
30th day following the end of each calendar year or within thirty (30) days
after termination of this Lease prior to the end of a calendar year, at the
place designated for the payment of rent, an annual statement signed by the
Tenant or by a person duly authorized by the Tenant and certified by Tenant
(or its representative) to true and correct, showing in reasonably accurate
detail the amount of Tenant's receipts during the preceding calendar or
lease year. These statements shall be in such form and contain such details
as the Landlord may reasonably designate.
(v) Right to Examine Books. The acceptance by Landlord of Monthly
Minimum and/or Percentage Rent shall be without prejudice to Landlord's
right to an examination of Tenant's books and records of its gross sales
and inventories of merchandise at the Premises in order to verify the
amount of annual gross sales made by Tenant in and from the Premises.
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(vi) Audit: Termination. At its option, Landlord may cause, at any
reasonable time upon five (5) days prior written notice to Tenant, a
complete audit to be made of Tenant's entire business affairs and records
relating to the Premises for the period covered by any statement issued by
Tenant as above set forth. If such audit shall disclose a liability for
Monthly Minimum and/or Percentage Rent to the extent of five percent (5%)
or more in excess of the Rent theretofore computed and paid by Tenant for
such period, Tenant shall promptly pay to Landlord the cost of said audit
in addition to the deficiency, which deficiency shall be payable in any
event. In addition, if the deficiency is five percent (5%) or more, or if
a deficiency of three percent (3%) or more occurs more than twice during
any five consecutive years of the term of this Lease, Landlord, at its
option, may terminate this Lease upon thirty (30) days' written notice to
Tenant of Landlord's election to do so. Any information obtained by
Landlord as a result of such audit shall be held in strict confidence by
Landlord. In the event Landlord's audit should disclose any deficiency in
the payment of Percentage Rent, tenant shall have the right to obtain an
independent audit of the same records and, if such audit discloses an error
of five percent (5%) or more in Landlord's audit in Landlord's favor, then
Landlord shall promptly pay to Tenant the cost of said audit.
(vii) Radius Clause. Neither Tenant, nor any individual, firm or
corporation that controls Tenant or is controlled by Tenant, shall own,
operate or become financially interested in a business similar to the
business being operated in the Premises by Tenant, within ten (10) miles in
any direction from the Property, the mileage to be measured on a straight
line basis on a map, not following contours of the land anti streets. If
Tenant defaults in performance of its obligations under this Paragraph
5.b(vii), Landlord can elect to include the gross sales receipts (as
defined above) of such other business in the gross sales receipts of
Tenant's business in the Premises for the purpose of computing Percentage
Rent payable under this Lease, or may elect one or more of the other
remedies available to Landlord on account of any Tenant default under this
Lease, such remedies being cumulative.
c. No Adjustment. Except as otherwise provided herein, the amount of the
Monthly Minimum and Percentage Rent set forth in the attached Special Lease
Provisions are negotiated figures and shall govern whether or not the actual
square footage of the Premises is the same as the square footage set forth in
the attached Special Lease Provisions. Tenant shall have no right to withhold,
deduct or offset any amount from the Monthly Minimum or Percentage Rent even if
the actual square footage of the Premises is less than the approximate square
footage set forth in the attached Special Lease Provisions and/or the memorandum
signed by Landlord and Tenant as provided in Paragraph 3 of this Lease. In
addition, the square footage figure set forth in the memorandum signed by
Landlord and Tenant as provided in Paragraph 3 shall serve as the base figure in
determining pro rata rent reduction in the event of damage, condemnation or
other circumstance requiring such reduction, abatement or adjustment of any
rent, notwithstanding that the square footage set forth in the memorandum shall
be more or less than the actual square footage of the Premises.
6. PROPERTY MAINTENANCE AND OPERATING EXPENSES.
a. Tenant's Percentage as Additional Rent In addition to the Monthly
Minimum Rent and Percentage Rent, Tenant agrees to pay, as additional rent, a
percentage share of all
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Property maintenance and operating expenses as hereinafter defined -- which
expenses shall include certain utility charges not separately billed or metered
to Tenant (see Paragraphs 6.c(xiv) and 17.b below). Said percentage shall be in
the amount stated in the attached Special Lease Provisions or, if different, in
the amount stated in the memorandum signed by Landlord and Tenant as provided in
Paragraph 3 of these Standard Terms and Provisions. Tenant shall have no right
to withhold, deduct or offset any amount from the additional rent even if the
actual square footage of the Premises is less than the square footage of the
Premises set forth in the attached Special Lease Provisions or, if different,
the square footage of the Premises set forth in the memorandum signed by
Landlord and Tenant as provided in Paragraph 3. All additional rent will be due
and payable each month together with the Monthly Minimum Rent.
b. Computation of Additional Rent. The additional rent figure in the
attached Special Lease Provisions is based upon the estimated Property
maintenance and operating expenses as of the date of commencement of the lease
term. The maintenance and operating expenses for the Property shall be computed
on an annual basis, at the beginning of each calendar year, and, to the extent
such expenses are not fixed or known in advance, shall be estimated by the
Landlord for the ensuing year. The Tenant shall pay such expenses, as additional
rent, throughout the calendar year, in advance, with the Monthly Minimum Rent,
subject to reconciliation and adjustment as provided in Paragraph 6.d below.
Landlord shall notify Tenant of Tenant's share of the expenses for the coming
calendar year as soon as reasonably possible after the beginning of each year.
in the event Tenant's lease term shall commence or end at any other time than
the beginning or end of a calendar year, the Tenants additional rent shall be
adjusted pro rata for such shortened period. Landlord shall have the right, in
the event of unusual or extraordinary maintenance and operating expenses, to
assess and collect, as additional rent, either as a one time or continuing
charge, additional sums under this Paragraph 6 to pay such expenses without
affecting the Tenant's liability for the monthly sums hereinabove described.
c. Definition of Property Expenses. "Property maintenance and operating
expenses" shall include, without limitation:
(i) Landlord's reasonable overhead expenses pertaining to the
operation and management of the Property, its Common Areas and Common Area
funds, including payroll taxes and fringe benefits, professional building
management fees, and architectural, engineering, space planning, inspection
and consultation fees and costs required by law, and reasonable legal and
accounting fees, incurred in connection with the Property and/or the Common
Areas;
(ii) Costs of roof repairs, any other structural or non-structural
repairs, line painting, landscaping and irrigation, water, sewer,
electricity, other energy sources, maintenance of utility meters, building
supplies, bulb replacement, cleaning up, sweeping and janitorial service,
cost of garbage and refuse removal, and any repairs, improvements or
replacements required by law, not otherwise required to be paid for by any
tenant and necessary and/or appropriate for the operation, upkeep,
administration or maintenance of the Property, the Common Areas and/or the
Premises;
(iii) Costs of any repairs, alterations, modifications, amendments,
additions and/or improvements to the Property, Common Areas and/or the
Premises, not otherwise
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paid for by any tenant of the Property, necessary, required or appropriate
in order to bring the Property, the Common Areas and/or the Premises into
compliance with the requirements, policies and/or procedures of "The
Americans with Disabilities Act of 1990." 42 U.S.C. Section 12101 et.
seq., and/or any rules and/or regulations promulgated with respect thereto
subsequent to the Landlord's initial improvements to or construction of the
Property, the Common Areas and/or the Premises;
(iv) Property employees' compensation, including payroll taxes,
fringe benefits and medical, unemployment, disability and workmen's
compensation premiums and taxes;
(v) Costs of directing or controlling parking and other policing or
control of the Property and/or the Common Areas;
(vi) Costs of liability, fire, other property damage, flood, loss of
rent, business interruption and other insurance, including any deductibles
payable by the Landlord thereunder, which Landlord shall, in its sole
discretion, deem necessary and/or appropriate with respect to the Premises,
the Property, the Common Areas and/or Tenant and/or Tenant's business,
fixtures, equipment, installations and for operations in the Premises,
Common Areas and/or Property;
(vii) Real property taxes and any and all other taxes, including any
ground rent assessments or charges made under any betterment or improvement
law, attributable to the Property or the land on which it is located, the
Common Areas and/or the Premises;
(viii) Maintenance, repair and depreciation of machinery and equipment
used in operating and maintaining the Property, the Common Areas and/or the
Premises (as used herein the term "equipment" shall be taken to include
both personalty and fixtures);
(ix) Any expense attributable to costs incurred by Landlord for any
capital improvements or structural repairs to the Property required by any
change in the laws, ordinances, rules, regulations or otherwise that were
not in effect on the date Landlord obtained its building permit to improve
the Property, or required by any governmental or quasi-governmental
authority having jurisdiction over the Property, which costs will be
amortized over the useful life of the capital improvement or structural
repair as allowed under the internal Revenue Code;
(x) Any costs incurred by Landlord in making capital
improvements or other modifications to the Property or any part of the
Property that reduce the Property maintenance and operating expenses, which
costs will be amortized over the useful life of the capital improvement or
modification as allowed under the Internal Revenue Code;
(xi) All billing, auditing, security, management and legal
expenses incurred or paid by Landlord relating to the protection,
maintenance and operation of the Property, the Common Areas and/or the
Premises;
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(xii) Any expenses incurred in contesting real property assessments,
arbitrating or determining Master Lease rentals and any assessments or
charges made under any betterment or improvement law or otherwise;
(xiii) Master Lease rent and any other charges or assessments charged
to or payable by Landlord under the Master Lease, provided, however, that
any income received by Landlord on account of the real property covered by
the Master Lease shall be applied to offset any rent or other charges or
assessments which would be paid by Tenant as a Property maintenance and
operating expense under this Paragraph 6.c.(xiii);
(xiv) Any utility charges for the Property, the Common Areas and/or
the Premises not separately metered to or paid for by any tenant (see
Paragraph 17.b below);
(xv) A general overhead and administrative charge not to exceed
fifteen percent (15%) of all other Property maintenance and operating
expenses if Landlord shall elect to manage the COCONUT GROVE MARKETPLACE in
lieu of employing a third party professional management service;
(xvi) Any costs or expenses assessed to or payable by the Landlord
and/or the Property under the Declaration described in Paragraph 12.e
below; and
(xvii) Any other costs which Landlord shall conclude, in its sole
discretion, are reasonable and necessary for maintaining and operating the
Property, the Common Areas and/or the Premises, provided, however, that
such other costs shall not include:
(1) Attorneys' fees and other costs relating to negotiations
and/or disputes with tenants and prospective tenants;
(2) Compensation to principals or affiliates of Landlord in
excess of compensation that would be payable to a third party for
similar services under a bona fide contract negotiated at arm's
length.
(3) Depreciation, improvements, equipment replacements,
repairs and other items not required by law that constitute capital
expenses under generally accepted accounting principles (except to the
extent that reasonable amortization of any such item for any year does
not exceed the resulting Property maintenance and operating expenses
savings for such year;
(4) Costs resulting from violations by Landlord and/or other
tenants of laws, leases and other contracts;
(5) Interest, amortization, fees and charges relating to
indebtedness;
(6) Rent and other leasing costs for capital items (other than
equipment not affixed to the Property that is used for janitorial or
similar services);
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(7) Losses covered by insurance to the extent of such insurance
or losses which were required to be covered and could be covered by
insurance under any lease of space in the Property or the Master
Lease;
(8) Any capital expenditures in connection with the original
construction of the Common Areas, or the installation of equipment or
fixtures on the Common Areas, or capital expenditures for improvements
or additions to the Common Areas other than replacements, advertising
and promotion costs and capital expenditures for improvements or
additions to the Common Areas required by law;
(9) Costs relating to artworks other than reasonable costs
incurred for cleaning and minor maintenance;
(10) Costs relating to the correction of law violations existing
prior to the execution of this Lease;
(11) Costs paid or required to be paid by other tenants and all
costs not reasonably related to or reasonably allocable to the
operation of the Common Areas; and
(12) No ground rent other than the Master Lease rent.
Landlord may, but shall not be obligated to, maintain a shuttle bus
service, a refuse collection service, and such other common services which
Landlord in its sole discretion believes will benefit tenants of the COCONUT
GROVE MARKETPLACE and Tenant shall pay a prorata share of the cost of such
services pursuant to the terms of this Paragraph 6.
It is the intent of the parties under this Lease that the Property, the
Common Areas and the Premises shall be maintained in a Class-A, neat, clean and
fully serviceable manner and that the expenditures therefor shall be
commensurate with such purpose, the amount of such expenditures to be determined
by Landlord in its reasonable discretion.
d. Breakdown of Property Expenses. A breakdown of Property maintenance
and operating expenses shall be provided annually to Tenant within sixty (60)
days of each calendar year end. If the maintenance and operating expenses
according to such breakdown shall differ from the expenses estimated by Land-
lord pursuant to Paragraph 6.b, the expenses according to such breakdown shall
be deemed correct and an appropriate adjustment shall be made in the additional
rent by prompt payment by Tenant of any deficiency or, in the event of an
excess, subject to Paragraph 7 below, an adjustment of additional rent
thereafter due to Landlord to provide Tenant with reimbursement over a period of
time not to exceed twelve (12) months. Tenant shall have the right, at its sole
cost, to conduct an audit of the Property maintenance and operating expenses.
e. Tenant Charges. As provided in Paragraph 17 below, Tenant shall,
during the term of this Lease, pay for, prior to delinquency, all telephone,
water and other utility services, and all other materials and services, (i)
separately metered, furnished or delivered to, or used in,
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the Premises, and (ii) which may be furnished to or used in, on, or about the
Premises and not expressly required to be paid for by Landlord hereunder,
whether as a Property maintenance and operating expenses or otherwise.
7. MAINTENANCE RESERVE ACCOUNT. Notwithstanding anything to the
contrary contained in this Lease, Landlord shall have the option of establishing
and maintaining a "Maintenance Reserve Account" for the purpose of accumulating
funds for the payment of extraordinary maintenance and operating expenses as
defined in Paragraph 6 above. The Landlord shall have the option of depositing
any excess additional rent received from Tenant into the Account in lieu of an
adjustment in rent as provided in Paragraph 6.d above. All funds in the account
become the property of the Landlord for the purposes herein described and
Tenant, whether during the term of this Lease or upon termination, shall have no
right or claim to any such funds whether by way of offset, reimbursement, refund
or credit.
8. GENERAL EXCISE/CONVEYANCE TAXES.
a. Landlord's General Excise Tax. In addition to Monthly Minimum Rent,
Percentage Rent and additional rent herein provided, Tenant shall also pay over
and reimburse Landlord, on each rental payment date during the term hereof, an
amount equal to that portion of the State of Hawaii general excise or gross
income tax assessed to Landlord and attributable to the rent and other payments
made by or on behalf of Tenant under the terms of this Lease, and Tenant shall
also pay all and any increases in said taxes from time to time and any and all
other taxes or duties levied or assessed by the United States, the State of
Hawaii, the County of Hawaii, or any other political subdivision of the State of
Hawaii now or hereafter having power to levy taxes or duties which are
attributable to the rent or other payments made by or on behalf of Tenant under
the terms of this Lease. It is the intent of this provision and of the other
provisions of this Lease to insure that the rent herein provided to be paid to
Landlord by Tenant will be received by Landlord without diminution by any tax,
assessment, charge or levy of any nature whatever, except United States and
State of Hawaii net income taxes and taxes on the sale of property, and the
terms and conditions of this Lease shall be liberally construed to effect such
purpose.
b. Conveyance Tax. Any conveyance tax imposed pursuant to Chapter 247,
Hawaii Revised Statues, or any rules and regulations promulgated thereto, shall
be payable by Tenant. Landlord shall advise Tenant of the amount of said tax and
said tax shall be due and payable at the time of execution of this Lease.
Further, Tenant shall be responsible for and shall pay before delinquency, all
municipal, state or county taxes assessed during the term of this Lease against
it by reason of the conduct of its business in the Premises or with respect to
personal property of any kind, owned by or placed in, upon or about the Premises
by and/or at the expense of Tenant.
9. SECURITY DEPOSIT. SEE SPECIAL CONDITIONS ADDENDUM.
10. INSURANCE.
a. Liability Insurance. Tenant shall take out and keep in force during
the term of this Lease, at Tenant's expense, comprehensive general liability
insurance on an "occurrence"
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not "claims made" basis, with coverage in the minimum amount of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) for property damage and in the amount of ONE
MILLION AND NO/100 DOLLARS ($1,000,000.00) for personal injury or death to one
or more persons or a single limit policy of not less than TWO MILLION AND NO/100
DOLLARS ($2,000,000.00) naming Landlord and Landlord's agent, if any, as
additional insureds. If Tenant's use of the Premises shall include the sale or
service of alcoholic beverages, Tenant's liability insurance shall include a
liquor liability endorsement naming Landlord and Landlord's agent, if any, as
additional insureds.
b. Property/Business Insurance. Tenant shall at its own expense and at
all times during the term of this Lease keep all buildings, other improvements
and fixtures, by whomsoever installed or constructed, existing on the Premises
on the Effective Date or at any time thereafter, insured against (a) all of the
risks covered by a standard "Special Form" endorsement, with additional
coverage for risk of loss by earthquake and flood, (b) such other hazards or
risks which a prudent businessman would insure against, and (c) in time of war
against war damage, if available at reasonable cost. This coverage shall be in
an amount equal to the full replacement cost of such buildings, improvements and
fixtures without deduction for depreciation, shall be written on an "Agreed
Value" basis, and shall have a further endorsement showing coverage for the loss
of rental income and extra expenses incurred after an insured-against occurrence
during the period of restoration of the Premises and shall be placed with an
insurance company or companies approved by Landlord. The limits of liability
with respect to this endorsement for loss of rental income shall be for a period
of restoration of not less than two (2) years after the insured against
occurrence and this endorsement shall be written on an "Agreed Value" basis.
Tenant shall also take out and maintain during the term of this Lease, at
Tenant's expense, "Basic Cause of Loss" form insurance, in an amount equal to
the full replacement value of all "Business Personal Property" in the Premises
and the Common Areas installed by or at the expense of Tenant. It is the
intention of the parties that the insurance required hereunder shall fully
protect the Premises from loss or damage and will further provide Tenant with a
source of income to meet its obligations under this Lease should Tenant suffer
an interruption of its business for which insurance protection can be obtained.
c. Interests in Insurance Proceeds. Every policy of insurance described
in Paragraph 10.b above shall be issued to cover and insure all the several
interests in the buildings, improvements, fixtures and rent required to be
insured in Paragraph 10.b above, of Landlord, Tenant and any mortgagees under
any mortgage of this Lease, as their respective interests are defined in this
Paragraph below. The respective interests of Landlord, Tenant and any mortgagees
in any proceeds of the insurance required in Paragraph 10.b above payable for
insured loss or damage shall be fixed and determined as of the date of such loss
or damage as follows:
(i) Landlord's Interest. The interest of Landlord in such proceeds
shall be a proportionate amount of such insurance proceeds in the ratio
which (a) the expired portion of the term, from the date of the initial
completion of the buildings, improvements or fixtures lost or damaged to
the date of such loss or damage, bears to (b) the portion of the term from
the date of completion of such buildings, improvements or fixtures to the
date of expiration of the term; provided, however, that Landlord's interest
in any rental loss insurance payments shall be one hundred percent (100%).
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(ii) Tenant's Interest. The interest of Tenant shall be the balance
of such insurance proceeds after first deducting the amount of the interest
of Landlord determined as set forth in Paragraph 10.c(i) above.
(iii) Mortgagee's Interest. The interest of any mortgagees in such
proceeds shall be limited to the amount of, and encumber only, the interest
of Tenant in such insurance proceeds as defined in Paragraph 10.c(ii)
above, to the extent of the then outstanding principal and accrued interest
secured under the mortgages of such mortgagees; provided, however, that if
the interest of Tenant in such insurance proceeds is insufficient to repay
the then outstanding principal and accrued interest secured under the
mortgages of such mortgagees, the interest of such mortgagees shall include
Landlord's interest as defined in Paragraph 10.c(i) above to the extent
necessary to repay such outstanding principal and accrued interest. Any
portion of Landlord's interest remaining after the outstanding principal
and accrued interest secured by such mortgages is repaid shall remain the
sole property of Landlord. The respective interests and rights of two or
more mortgagees in and to such interests of Tenant shall be determined
between them in accordance with the priority of their respective mortgages
of this Lease.
d. Use of Insurance Proceeds. In case the buildings, improvements or
fixtures required to be insured in Paragraph 10.b above or any part thereof
shall be destroyed or damaged by fire or such other casualty required to be
insured against, then and as often as the same shall happen, but except as
provided in Paragraph 19.a below, all proceeds of such insurance, including the
interest therein of Landlord and the balance of the interest therein of Tenant
after deducting such amount of the interest of any mortgagees in Tenant's
insurance proceeds as provided in Paragraph 10.c(iii) above and excluding the
proceeds of any rental value, or use and occupancy insurance of Tenant, shall be
available for and used with all reasonable dispatch by Tenant in rebuilding,
repairing, replacing or otherwise reinstating the buildings, improvements or
fixtures so destroyed or damaged in a good and substantial manner according to
the plan and elevation thereof, or according to such modified plan for the same
or substitute buildings, improvements or fixtures as shall be approved in
writing by the Landlord in accordance with Paragraph 1.b above. If the
available insurance proceeds shall be insufficient for rebuilding, repairing,
replacing or otherwise reinstating such buildings, improvements or fixtures in
the manner provided in this paragraph above, then Tenant shall provide the
balance of all funds required to completely rebuild, repair, replace or
otherwise reinstate such buildings, improvements or fixtures. If Landlord elects
not to have the buildings, improvements or fixtures rebuilt, repaired, replaced
or otherwise reinstated as provided in Paragraph 19.a below, the insurance
proceeds shall be paid to the Landlord, Tenant and any mortgagees as their
interests may appear as provided in Paragraph 10.c above.
e. Approval of Insurer Copies of Policies and Additional Insureds.
Whenever Tenant is required to insure against any risk under the terms of this
Lease, said insurance shall be in form and with coverage and in an insurance
company with a general policy holder's rating of not less than A and a Financial
Rating of Triple A as listed in the most current "Best Insurance Report" and a
copy of said policy or a certificate of insurance shall be delivered to Landlord
promptly after receipt with a commitment from the insurance carrier endorsed
thereon providing that said policy shall remain in full force and effect as to
Landlord's interest until Landlord has been notified in writing thirty (30) days
before the effective date of any change, cancellation or reduction in
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coverage or limits. Landlord and Landlord's agent, if any, shall be added as
additional insureds on all of Tenant's policies, including worker's compensation
and employer's liability. Tenant shall waive subrogation in favor of Landlord in
connection with such worker's compensation and employer's liability policy.
f. Increase in Insurance. Landlord shall have the option to require
Tenant, upon thirty (30) days' written notice, to increase the amount and type
of insurance required under this Paragraph 10 consistent with prudent and
customary practices in the State of Hawaii for businesses similar to Tenant's
business.
g. Tenant's Liability for Increased Cost of Property Insurance. If Tenant
shall do, fail to do or permit to be done anything which shall increase the cost
of the insurance to be acquired by Landlord on the Premises, or the COCONUT
GROVE MARKETPLACE of which they are a part, or the Common Areas or the Property,
Tenant shall pay, as additional rent, in addition to Tenant's pro rata share of
the insurance costs of Landlord under Paragraph 6 above, the amount of such
increases attributable to such act or omissions or operations of Tenant.
h. Reciprocal Waiver. Each of the parties hereto on its own behalf and on
behalf of any insurer in any policy insuring it, hereby waives any right of
recovery, claim or cause of action against the other party for destruction of or
injury or damage to the Property, Common Areas and/or the Premises, including
all fixtures and other improvements therein or thereon, and for destruction of
or injury or damage to personal property, arising out of or caused by any risk
which is or can be insured against under a standard form of fire insurance
policy with extended coverage endorsement or similar coverage, provided that
such waiver does not reduce or prejudice the protection under such insurance or
prejudice the party's ability to obtain or renew any such insurance, it being
agreed that such insurance or waiver shall not be effective if the insurer shall
require as a result thereof or as a condition thereto, any payment of any
additional premium or any other conditions which would not be required if such
waiver were not to be effective. The provisions hereof shall apply whether such
destruction, injury or damage is caused by or results from the negligence or
fault of the other party or from any other cause, and whether the same may
happen during the term hereof or thereafter, and while Tenant remains in
possession of all or a part of the Premises. Nothing in this Paragraph 10.h
shall be construed as relieving Tenant of the obligation to maintain insurance
and/or restore the Premises as may be set forth elsewhere in this Lease, nor as
relieving Tenant from any liability for damages in the event of failure to so
maintain insurance and/or restore the Premises.
11. USE OF PREMISES.
a. Specific Use/Continuous Operations. The Premises may be used and
occupied only for the purpose of carrying on the business described in the
attached Special Lease Provisions and for no other purpose or purposes. Tenant
shall not permit any business to be operated in or from the Premises by any
concessionaire or licensee without the prior written consent of Landlord, which
consent may be given or withheld in Landlord's sole and absolute discretion.
Tenant acknowledges and agrees that Tenant's observance and performance of its
obligations and agreements under this Paragraph 11.a is a substantial and
material element of this Lease and in the event Tenant shall fail to so observe
and perform its obligations and agreements
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under this Paragraph 11.a, Landlord may suffer substantial and irreparable
injury and damage on account of Landlord's undertakings with other tenants
within the COCONUT GROVE MARKETPLACE or other persons under the Declaration
described in Paragraph 12.e below. All operations by Tenant in the conduct of
its business shall be performed within the demised Premises and in no other
areas of the Properly without the written consent of Landlord. Tenant shall
conduct its business in the Premises for a minimum of ten (10) hours per day,
365 days per year commencing at 12:00 o'clock noon daily. If the Premises are
destroyed or partially condemned and this Lease remains in full force and
effect, Tenant shall continue operation of its business at the Premises to the
extent reasonably practical from the standpoint of good business judgment during
any period of reconstruction. Tenant shall adequately provide goods and services
at a competitive price and shall maintain adequate personnel for the efficient
serving of its customers. Tenant shall operate the business on the Premises in a
manner that will produce the maximum volume of box office receipts. Tenant shall
use only such space in the Premises for office, clerical and other nonselling
purposes as reasonably required for Tenant's business on the Premises. For the
purpose of computing Percentage Rent, the box office receipts for any period
during which Tenant does not conduct its business as required by this Lease
shall be deemed to be the greater of the box office receipts generated on the
Premises during that period or the box office receipts generated during the
corresponding period of the preceding calendar year, provided, however, that
such receipts shall be reduced in proportion to the amount of space that is
damaged and not usable.
b. Generally. Tenant shall not permit the Premises to be used for any
improper, offensive, or unlawful purpose or for any purpose which will increase
the existing rate of insurance on the Property. Tenant will, at Tenant's sole
cost and expense, keep the Premises in a strictly clean, safe, neat and sanitary
condition. Tenant recognizes and acknowledges that the appearance of the
Premises are of considerable import to Landlord and agrees to maintain the
Premises with particular attention being paid to their orderliness, cleanliness,
and quality. Tenant shall not be allowed to use the name of Landlord, the
Property or the COCONUT GROVE MARKETPLACE, or words to that effect, in
connection with any business carried on in the Premises, except as Tenant's
address, without the prior written consent of Landlord.
c. Compliance with Law. In Tenant's use of the Premises and Property,
Tenant shall, at Tenant's sole cost and expense, observe, perform and comply
with all laws, statutes, ordinances, rules and regulations of the health and
other government authorities applicable to the Premises and the Property,
including, but not limited to, the removal, alteration and refurbishing
requirements and standards imposed by "The Americans with Disabilities Act of
1990", 42 U.S.C. Section 12101 et. seq., and of all insurance policies at any
time duly issued or in force which are applicable to the conduct of Tenant's
business in or about the Premises or the Property, or any part thereof, and
will indemnify Landlord against all actions, suits, damages and claims by
whomsoever brought or made by reason of the nonperformance or nonobservance of
such laws, statutes, ordinances, rules and regulations or of this covenant,
such indemnification to include not only the award of any Court, but also
Landlord's court costs and attorney's fees.
d. Signs. Without the prior written consent of Landlord, Tenant shall not
place or permit to be placed any sign, advertising material or lettering upon
the exterior of the Premises. Upon request of Landlord, Tenant will immediately
remove any sign, advertising material or
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lettering that Tenant has placed or permitted to be placed in violation of this
Paragraph 11.d, and if Tenant fails so to do, Landlord may enter the Premises
and remove such sign, advertising material or lettering at Tenant's expense.
Provided such signs shall in all respects conform to the specifications, rules
and regulations promulgated by Landlord with respect thereto, Tenant shall have
the right to install on or in the Premises such signs as desired by Tenant.
Tenant's signs shall be installed at Tenant's own risk and expense, and Tenant
agrees to maintain said signs in good state of repair and to save Landlord
harmless from any loss, cost or damage which may have been caused by the
erection, existence, maintenance or removal of such signs. Upon the termination
of this Lease, Tenant shall remove all of Tenant's signs at Tenant's own expense
and repair all damage resulting from the placement or removal of the signs.
Landlord shall have sole authority and discretion with regard to any
off-Premises or centralized signs or directories within the COCONUT GROVE
MARKETPLACE or the Property, the costs of which shall be considered a Property
operating expense.
e. Security. Tenant shall, at its sole cost and expense, be responsible
for providing security services for the Premises and Tenant shall take such
steps as may reasonably be necessary to control its employees, agents, customers
and others in the Premises so as not to present security problems for any other
tenants of the Property or the Property. Landlord shall not be, in any way,
responsible for providing any security services within the Premises or for the
benefit of Tenant, Tenant's agents, employees or customers. Landlord makes no
warranties, either expressed or implied, as to the security of Premises.
Landlord shall provide security for the Property as a Property maintenance and
operating expense.
f. Refuse Collection. Landlord may, at its sole option, either
(1) require a uniform system of refuse collection to be followed by all
tenants in the COCONUT GROVE MARKETPLACE, in which case Tenant shall comply
with all requirements with respect thereto set by Landlord including the
color, size and placement of trash collection bins; or (2) arrange for refuse
collection services to be rendered by an independent contractor. If Landlord
elects to do either (1) or (2) above, Landlord shall have the further option
to assess the cost of such refuse collection to Tenant as either a Property
maintenance and operating expense under Paragraph 6 above or bill Tenant
separately for its prorata portion.
g. Off Premises Food Sales. In addition to Landlord's rights under this
Lease with respect to Property maintenance and operating expenses and other
costs and charges to be paid by Tenant hereunder, if Tenant shall use the
Premises to sell or serve food for consumption on or off of the Premises,
Landlord shall have the right to allocate additional cleaning and maintenance
resources and services to the Premises and the adjoining Common Areas to
maintain the Premises and the Common Areas in a neat, clean, well kept and
sanitary condition. Such resources and services may include, but not necessarily
be limited to, more frequent and/or increased capacity refuse collection, Common
Area and/or storefront cleaning, pest control treatment, drain cleaning, etc.
Landlord, in Landlord's sole discretion, shall have the right to charge Tenant
the costs and expense of such additional resources and services and, if
appropriate, to allocate the same among the restaurant and/or food
service/selling tenants within the COCONUT GROVE MARKETPLACE.
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12. USE OF PROPERTY. It is understood and agreed by Landlord and Tenant
that the Premises being leased hereunder are located in a Class-A shopping
center and that accordingly, Tenant, in the operation of its business, both with
regard to the services provided and the products offered for sale, must conduct
itself in a manner which is compatible with the COCONUT GROVE MARKETPLACE and
the other tenants located therein. In order to facilitate the implementation of
the foregoing understanding and agreement, Landlord and Tenant agree to the
following terms and conditions regulating the use of the Property:
a. Nuisance. Tenant shall not perform any acts or carry on any
practices which may be injurious to the Property or any improvements
thereon, or be a nuisance or menace to other tenants of the Property.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises or the Property or maintain any public or private nuisance or any
other action which may interfere with or disturb the quiet enjoyment of any
other tenant of the Property.
b. Solicitation. Tenant agrees not to place or cause to be placed on
the Property any notices, advertisements, written solicitations, or
writings of any nature for the purpose of soliciting or originating any
business with the other tenants of the Property.
c. Storage. Tenant shall not maintain, place or store any
products, equipment goods, materials, vehicles, boats, trailers, containers
or other items in any Common Areas of the Property, including parking
areas, without the specific written consent of Landlord.
d. Auctions. Tenant shall not conduct any auction, "going out of
business" sales or bankruptcy sales from the Premises or the Property
without Landlord's prior written consent.
e. Master Lease. This Lease is made subject to that certain General
Lease No. S-5188 dated April 18, 1990, made by and between the STATE OF
HAWAII, as Lessor, and LANIHAU PARTNERS L.P., a Delaware Limited
Partnership, as Lessee, a Short Form of which is recorded in the Bureau of
Conveyances of the State of Hawaii as Document No.________, as the same may
be amended from time to time, herein referred to in this Lease as "the
Master Lease". If there is any conflict between the provisions of this
Lease and the provisions of the Master Lease, then, in every such event,
the provisions of the Master Lease shall control, to the exclusion of any
inconsistent provisions of this Lease. Tenant covenants and agrees that it
will not violate any term, covenant or condition contained in the Master
Lease and on the part of Landlord to be observed and performed.
f. Compliance with Laws. Tenant, Tenant's employees, agents and
sublessees shall observe and comply with all rules, regulations, ordinances
and/or laws made by the Building Department, the Board of Health and/or any
other division of the municipal, county, State or federal governments
applicable to any activity or business of Tenant on the Property or use
thereof. Tenant shall procure at its sole expense any permits and licenses
required for the use of the Premises as permitted herein.
g. Signs, Awnings and Audio Systems. Tenant shall not place or
suffer to be placed or maintained on any door, wall or window within the
interior of the Premises but visible from
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the exterior of the Premises, or in any of the Common Areas of the
Property, any sign, awning or canopy, video or television equipment, or
advertising matter, flashing lights or search lights or any other object of
any kind, or install any sound system or speakers or other audible
advertising which can be heard outside the Premises, without first
obtaining the written approval and consent of Landlord, which approval and
consent may be withheld by Landlord in its sole discretion for any reason.
Tenant shall not, without the prior written consent of Landlord, keep,
display or sell any merchandise or any object outside the interior of the
Premises, or in any portion of the Common Areas.
i. Use of Exterior Walls. Landlord expressly reserves the exclusive
right to the use the exterior walls of the Premises.
13. RULES AND REGULATIONS. Landlord shall have the right to promulgate
reasonable rules and regulations to police, regulate traffic in and control
parking and Common Area use (including controlled access and employee parking),
restrict Tenant advertising and displays within the COCONUT GROVE MARKETPLACE
and otherwise regulate and control the Property, and amend the same from time to
time, with respect to the use and operation of the Property which shall be
binding upon Tenant on notice to Tenant. In enforcing these rules and
regulations, Landlord shall have all remedies provided in this Lease for a
breach of a term of this Lease, and all other legal and equitable remedies,
Landlord shall not be liable to Tenant or any other person for any nonobservance
or nonperformance of these rules and regulations nor shall Landlord be liable to
Tenant or any other person on account of Landlord's enforcement or
nonenforcement of these rules and regulations. Landlord shall also have the
right to enact and enforce reasonable monetary fines and penalties for any
violation of the rules and regulations promulgated by Landlord and Tenant shall
be liable to Landlord for such fines and penalties incurred by Tenant or
Tenant's employees, contractors or suppliers as additional rent under this
Lease.
14. ADVERTISING.
a. Generally. Tenant throughout the entire term of this Lease shall be
solely responsible for all advertising and promotional costs pertaining to the
advertising and promotion of its business operated in the Premises and shall not
change the advertised name of such business except as approved by Landlord.
Every mention of Tenant's business name in any public medium, including, but not
limited to, advertisements in print and broadcast media, and materials printed
for use within the COCONUT GROVE MARKETPLACE such as signs, brochures,
advertising bills, menus, etc., shall be accompanied by the mention of the
COCONUT GROVE MARKETPLACE in a prominent and aesthetic manner. Wherever
possible, Tenant shall use in all such printed materials the script; typeface,
and logo of the COCONUT GROVE MARKETPLACE as promulgated by Landlord. All
advertising shall conform to the image established by Landlord for the COCONUT
GROVE MARKETPLACE. Without limiting the generality of the foregoing, Tenant
shall not use any depiction, rendition or photograph of the COCONUT GROVE
MARKETPLACE or the COCONUT GROVE MARKETPLACE logo in any advertising medium
without Landlord's express consent, which consent may be given or withheld in
Landlord's sole discretion, nor shall Tenant use or create a new COCONUT GROVE
MARKETPLACE logo or sell any merchandise bearing the COCONUT GROVE MARKETPLACE
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logo without the express consent of Landlord which consent may be given or
withheld in Landlord's sole discretion.
b. Common Fund. INTENTIONALLY LEFT BLANK.
c. Tenant Advertising. INTENTIONALLY LEFT BLANK.
15. TRADEMARKS.
a. Landlord is Owner. Tenant acknowledges that Landlord is the owner of
all right, title and interest in the trade name "COCONUT GROVE MARKETPLACE" and
any trade or service marks created with respect thereto. The above trade names
and any trade or service marks created with respect thereto, together with any
changes or modifications thereof, are hereinafter collectively called the
"Trademarks". Tenant agrees never to contest Landlord's title thereto or the
validity of any Trademark application or registration therefor filed or
obtained by Landlord.
b. Use of Trademarks. Tenant shall not use the Trademarks in any manner
or for any purpose whatsoever without obtaining Landlord's prior written
consent, and if Landlord requests, Tenant shall execute a Trademark licensing
agreement. Tenant shall use such Trademarks subject to such restrictions and
conditions as Landlord may from time to time specify in writing. If Landlord
determines in its discretion that the nature or quality of any of the goods or
services offered under any of its Trademarks by Tenant is unsatisfactory,
Landlord will so notify Tenant and, at Landlord's request, Tenant will
immediately cease and desist from any further use of the Trademarks on or in
connection with the unsatisfactory goods or services. Tenant acknowledges that
Landlord shall be entitled to immediate injunctive relief against any misuse or
infringement of the Trademarks by Tenant, and Tenant agrees to pay all
attorneys' fees of Landlord resulting from any action taken by Landlord to
terminate such misuse, infringement or other violation of this Paragraph 15.b.
Tenant acknowledges and agrees that its right to use the Trademarks is
non-exclusive. Tenant shall not, either during or after the term of this Lease,
contest the rights of Landlord in the Trademarks or in any other way attempt to
infringe on diminish the value of or otherwise damage the Trademarks or
Landlord's rights therein. Tenant acknowledges that all goodwill which may
arise from Tenant's use of the Trademarks is and shall at all times remain the
sole and exclusive property of Landlord and shall inure to the sole benefit of
Landlord.
c. Trademark Infringement. Landlord shall have the exclusive right to
determine the existence of infringement of the Trademarks. Landlord makes no
warranties or representations regarding the validity or the ownership of the
Trademarks by Landlord.
d. Changes to Trademarks. In the event that Landlord changes or modifies
any of the Trademarks, Landlord shall not be liable to Tenant for any cost,
loss or expense whatsoever incurred by Tenant with respect thereto and Landlord
shall have no obligation to purchase from Tenant any inventory, advertising
materials or other property of Tenant which utilized the changed Trademark.
16. ALTERATIONS AND IMPROVEMENTS.
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a. Installations by Tenant. All improvements, fixtures and equipment
installed by Tenant in the Premises and any Common Areas shall be new or
completely reconditioned and acceptable in all respects to Landlord for use in
the Premises and Common Areas. Tenant will not make or cause to be made any
alterations or improvements or install or cause to be installed any trade
fixtures, exterior signs, interior or exterior lighting, plumbing fixtures,
shades, awnings, advertising matter or lettering, including, without limitation,
any sign, decoration, advertising matter or lettering which is visible outside
of the Premises and any sign, decoration, advertising matter or lettering which
is painted on or affixed to any exterior wall, window or door of the Premises,
floor covering, colored or tinted glass or make any changes to the Premises or
the Common Areas without the prior written consent of Landlord, which consent
may be given, withheld or made subject to such conditions as Landlord deems
appropriate, all in Landlord's sole and absolute discretion. Tenant shall
present to the Landlord plans and specifications for such work at the time
consent is sought, and shall comply with all terms and conditions contained in
Paragraph 1.b, this Paragraph 16 and in Exhibit C attached hereto. Landlord
shall require no further payment from Tenant for such consent except the costs,
if any, of legal and architectural review of such plans and specifications. In
no case shall Tenant make any changes to the exterior of the Premises, including
the painting of or the installation of any coverings on such exterior, without
Landlord's prior written consent as provided in this Paragraph 16.a. All
installations, alterations or improvements installed in the Premises or any
Common Area by Tenant shall remain for the benefit of Landlord and shall not be
removed unless otherwise expressly agreed in writing and shall be presumed to
become an integral part of the Premises and/or the Property. Notwithstanding the
fact that all such alterations and improvements shall become an integral part of
the Premises and/or the Property, such alterations and improvements shall not be
deemed a rent substitute or any other payment to or for the benefit of Landlord.
Tenant shall not install any paintings, murals, sculptures, mosaics or other
works of visual art in the Premises that cannot be removed without destroying,
damaging or modifying such art without Landlord's prior consent, which may be
withheld for any reason including, without limitation, Tenant's failure to
provide Landlord with written waivers under 17 U.S.C. section 113(d) by the
creators of such art of their rights thereto.
b. Permits and Payment. Tenant shall obtain all permits, licenses and
approvals required for any alterations or improvements in the Premises or any
Common Area and promptly pay all contractors and materialmen so as to minimize
the possibility of a lien attaching to the Premises or to the Property. Should
any such lien be made or filed, Tenant shall bond against or discharge the same
within ten (10) days after written request by Landlord. Prior to commencing any
interior construction, or any alterations, remodeling or other construction in
the Premises or any Common Area, Tenant shall furnish evidence satisfactory to
Landlord that Tenant has obtained all permits, licenses and approvals and is
financially able to pay the contractor, and shall furnish a copy of a bond in an
amount, in a form and with a surety acceptable to Landlord naming Landlord and
Tenant as obligees, and ensuring completion of the proposed work free and clear
of liens.
c. Americans with Disabilities Act. Notwithstanding any other term,
provision, covenant or agreement contained in this Lease, Landlord shall not be
under any obligation to Tenant, or any employee or invitee of Tenant, to
improve, alter, modify and/or repair any part or portion of the Property or the
Premises to bring the same into compliance with any requirement, policy or
procedure of "The Americans with Disabilities Act of 1990", U.S.C. Section
12101
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et. seq., or any rule, regulation or standard promulgated pursuant thereto
subsequent to the Landlord's initial improvements to or construction of the
Property, the Common Areas and/or the Premises.
17. UTILITIES.
a. Utility Facilities. Landlord shall provide and, except as provided in
Paragraph 17.c below, maintain the mains and conduits necessary to supply
utility services to the Premises, such provision and maintenance to be a
Property maintenance and operating expense. Landlord shall have the right to
locate within the Premises and the Common Areas utility mains and other
facilities serving other premises and areas within the Property, when such
location is dictated by necessities of engineering design, good practice and/or
code requirements. Such mains and other facilities shall be located, insofar as
is reasonably possible, so as to cause a minimum of interference with Tenant and
to be unobtrusive in appearance. If Tenant desires any additional mains,
conduits or other facilities for utility services beyond those provided by
Landlord in accordance with the original plans and specifications for the
Property, Tenant shall pay the cost of any such additional lines or equipment.
b. Utility Charges. Tenant shall be responsible for the payment of all
rates and charges for electricity, air conditioning, telephone and all other
utility services to the Premises which are metered or billed separately to
Tenant by Landlord or the provider of such services. Any meters recording the
amount of electricity, water and gas furnished to the Premises shall be
installed by Tenant at its expense and shall be subject to Landlord's prior
approval and Landlord's decision as to the proper location thereof. At
Landlord's option, Tenant will pay either directly to Landlord or to an
independent contractor, if so directed by Landlord, all electricity, water,
telephone, refuse removal, gas, sewer, other utilities and all other charges
incurred by Tenant in connection with its use and enjoyment of the Premises, on
or before the dates upon which such utility and other charges become delinquent.
If required by Landlord, Tenant shall, at Tenant's expense, install a check
meter for Tenant's utility services. Tenant shall pay its percentage share of
all utility services for the Property which are not metered or billed separately
to Tenant as a Property maintenance and operating expense. Notwithstanding any
other term, provision, covenant or condition of this Lease, Tenant agrees that
the utility services provided to the Premises which may be separately billed,
but not separately metered, by Landlord will be based upon the estimated
standard use for premises similar to the Premises and located in buildings
similar to the COCONUT GROVE MARKETPLACE as determined by Landlord in its sole
discretion. In the event Landlord shall determine that because of the nature of
Tenant's business, operating hours, fixtures, equipment, personal preferences or
any other cause or reason, Tenant's use of any one or more of the utility
services supplied to Tenant by Landlord is excessive and beyond the standard use
of such services, then in such event Landlord, at its option, shall have the
right to (i) separately meter and bill Tenant for such service(s), and/or (ii)
assess a surcharge to Tenant for the reasonable cost of such excess usage by
Tenant. Any such separate bill or surcharge to Tenant as provided for in this
Paragraph 17.b shall be paid by Tenant within ten (10) days of Tenant's receipt
thereof, and any failure by Tenant to pay such bill or surcharge as required in
this Paragraph 17.b shall be deemed a material default by Tenant under this
Lease and Landlord shall have all of its rights and remedies with respect to
such default as provided in Paragraph 23 below.
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c. Maintenance of Utilities. Tenant shall maintain all utilities,
equipment and electrical facilities within the Premises, and all of Tenant's
utilities, equipment and electrical facilities within the Common Areas,
including revamping, and Tenant shall maintain the sewer lines, if any, from the
Premises to the main sewer trunk. Tenant shall provide normal maintenance of the
air-conditioning system which serves the Premises, on a schedule and with a
maintenance company acceptable to Landlord. Janitorial services for the Premises
shall be provided by Tenant. Tenant shall also maintain all flues and exhaust
fans from the Premises, if any. If Tenant is permitted under this Lease to
operate a kitchen in the Premises, Tenant shall install at Tenant's expense and
maintain on a daily basis (i) a grease trap in the kitchen waste water lines,
(ii) an exhaust hood duct system for each stove or other cooking element, and
(iii) an automatic kitchen fire suppression system. In addition, Tenant shall
have the foregoing facilities serviced and cleaned by an independent contractor
acceptable to Landlord on a schedule acceptable to Landlord.
d. Interrupted Service. Landlord shall use reasonable efforts to
maintain electrical, plumbing, and other utility services to and in the Property
in good working order. If, however, any of these services shall fail or be
interrupted for any reason, Landlord shall not be liable to Tenant or any other
person for any damage or injury which may be sustained as a result thereof.
18. REPAIRS AND MAINTENANCE.
a. Repairs By Tenant. Tenant shall at all times keep the Premises
(including entrances, all interior glass and window moldings), and the roof of
the Premises and all partitions, doors, fixtures, equipment and appurtenances
therein and in the adjacent and overhead Common Areas (including lighting,
plumbing and other utility fixtures installed therein by or for the benefit of
Tenant, and any air conditioning system, but excluding structural portions of
the Premises and the Common Areas) in good order, condition, repair (including
reasonably periodic painting of the interior), free from waste and noxious
odors.
b. Landlord's Right To Cure Tenant's Default. If Tenant refuses or
neglects to repair and maintain any part of the Premises or any Common Area, or
any fixtures, equipment or other improvements or installations therein or
thereon, as required under this Lease to the reasonable satisfaction of Landlord
as soon as reasonably possible after written demand, Landlord may perform such
repairs or maintenance without liability to Tenant for any loss or damage that
may occur to Tenant's property or to Tenant's business, and upon completion
thereof, Tenant shall pay Landlord's costs for making such repairs upon a
presentation of the bills therefor, as additional rent.
c. Repairs, Modifications. etc. By Landlord. Except as may be provided in
Paragraphs 18.a above and 19.a below, Landlord shall keep all structural
portions of the Premises and Property, other than the roof of the Premises, in
good condition and repair during the term of this Lease. In this connection,
structural portions of the Premises shall mean the foundation, columns, girders,
supports and load-bearing walls (but excluding the roof of the Premises). The
cost of maintenance of such structural portions of the Premises and Property,
and the cost of repairs and/or replacement of such structural portions of the
Premises and Property shall be a maintenance and operating expense of the
Property. Notwithstanding anything to the contrary
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herein, Landlord shall not be required to make any repairs occasioned by the act
or negligence of Tenant, its agents, employees, subtenants, licensees and
concessionaires. Tenant waives the provisions of any law permitting Tenant to
make repairs at Landlord's expense. If Landlord is required to make
alterations, improvements, additions, modifications and/or repairs to structural
or nonstructural portions of the Property or the Premises by reason of Tenant's
negligent acts or omissions to act, or Tenant's failure to comply with or
perform any covenant, condition, term or agreement contained in this Lease,
including Tenant's obligation to comply with the requirements and standards of
"The Americans with Disabilities Act of 1990." Landlord may add the cost of such
alterations, improvements, additions, modifications and/or repairs to the rent
which shall thereafter become due, and Tenant shall pay the same as additional
rental.
19. DAMAGE TO OR DESTRUCTION OF PREMISES OR PROPERTY.
a. Repairs by Landlord. Except as may otherwise be required by the Master
Lease or any mortgage on the Property, if (i) the Premises or the Property
should be wholly damaged or destroyed during the term of this Lease by any
casualty, (ii), during the term of this Lease, the Property is damaged to an
extent of forty percent (40%) or more of the then tax assessed value
thereof--whether the Premises are damaged or not, (iii), at any time during the
term of this Lease, the Premises are destroyed or damaged to any extent
whatsoever as a result of any casualty or event not insured against by Landlord
and not required to be insured against by Tenant or (iv), at any time during the
last twelve (12) months of the term of this Lease, the Premises are destroyed or
damaged by any casualty such that the estimated cost of repair to Landlord
exceeds ten percent of the average Monthly Minimum Rent received by Landlord
from Tenant, then, in every such case, Landlord may either terminate this Lease
or elect to repair or restore or where required under this Lease, require Tenant
to repair or restore, said damage or destruction, in which latter event Landlord
or Tenant shall repair and/or rebuild the same as provided for below and the
Monthly Minimum Rent shall be abated proportionately as provided in Paragraph
19.d. Landlord shall advise Tenant in writing whether it elects to have the
Premises or Property rebuilt or repaired within ninety (90) days after the
casualty. If Landlord elects not to have the Premises or Property repaired or
rebuilt, this Lease shall terminate without further notice, in which event all
further obligations of either party shall cease, effective as of the date Tenant
shall cease business in the Premises and Tenant will at its own expense promptly
remove from the Premises all buildings, improvements and trade fixtures
constructed or installed thereon or therein by Tenant and restore the real
property to a good, orderly and sanitary condition and even grade. Any insurance
proceeds payable on account of the damage or destruction shall be paid as
provided in Paragraph 10.c above. If such damage or destruction occurs and this
Lease is not so terminated by Landlord, this Lease shall remain in full force
and effect and Landlord and Tenant shall undertake promptly to reinstate the
Premises and/or Property, or portions thereof, so destroyed or damaged according
to the original plans and elevations thereof (or according to such modified plan
as shall be approved in writing by Landlord) and according to the parties'
original obligations therefor as provided in Paragraphs 1.b and 1.c above.
Neither Landlord's nor Tenant's obligations under this Paragraph 19.a shall
exceed the scope of the work done by Landlord or Tenant in the original
construction of the Property and/or the Premises.
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b. Continuation of Business. Tenant agrees during any period of
reconstruction or repair of the Premises and/or of the Property to continue the
operation of its business in the Premises to the extent reasonably practicable
from the standpoint of good business practice.
c. Repairs by Tenant. Tenant shall, in the event of any damage or
destruction affecting the Premises, unless this Lease shall be terminated as
provided in Paragraph 19.a, promptly replace or fully repair all furniture,
improvements, trade fixtures, equipment, and other fixtures originally installed
by Tenant Landlord shall have no interest in the proceeds of any insurance
carried by Tenant on Tenant's interest in this Lease, and Tenant shall have no
interest in the proceeds of any insurance carried by Landlord on the Premises
and/or the Property.
d. Abatement of Monthly Minimum Rent. Except in those cases where damage
or destruction to the Premises shall have been caused by the fault of Tenant,
the Monthly Minimum Rent shall be abated proportionately during any period
during which, by reason of any damage or destruction to the Premises which
Landlord is obligated to repair or reconstruct, there is a substantial
interference with the operation of the business of Tenant in the Premises, and
such abatement shall continue for the period commencing with such destruction or
damage and ending with the completion by Landlord of such work of repair and/or
reconstruction as Landlord is obligated to do. Nothing in this Paragraph 19
shall be construed to abate or diminish Percentage Rent or additional rent or
abate Monthly Minimum Rent where interference with the operation of Tenant's
business shall have been a result of Tenant's acts, omissions or other fault.
20. HAZARDOUS MATERIALS.
a. Compliance. Tenant is expressly required at all times during the term
of this Lease to observe and perform the requirements of all "Hazardous
Materials Laws." This term means and includes all federal, state or local laws,
ordinances, or regulations, or other requirements, now or hereafter in effect,
relating to environmental conditions, industrial hygiene, occupational safety or
health, or hazardous materials in, on or under the Premises, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C., Section 9601, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C., Section 6901, et seq., the Hazardous
Materials Transportation Act, 49 U.S.C., Section 1801, et seq., the Clean Water
Act, 33 U.S.C., Section 1251, et seq., the Clean Air Act, 42 U.S.C., Section
7401, et seq., the Toxic Substances Control Act, 15 U.S.C., Sections 2601-2629,
the Safe Drinking Water Act, 42 U.S.C., Sections 300f-300j, Chapters 342B, 342C,
342D, 342H, 342I, 342J, 342L and 342N of the Hawaii Revised Statutes, and any
similar federal, state or local laws or ordinances and the regulations or other
requirements now or hereafter adopted, published or promulgated pursuant
thereto.
(i) As used herein, the term "hazardous material" means and includes
any and all radioactive materials, asbestos, polychlorinated biphenyls
("PCBs"), petroleum, crude oil, or any fraction thereof, chemicals known to
cause cancer or reproductive toxicity, pollutants, contaminants, toxic
substances and any and all other substances or materials defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials" or "toxic substances" under, or for the purposes of,
the Hazardous Materials Laws.
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(ii) As used herein, the term "Hazardous Discharge" means any event
involving the use, deposit, disposal, spill, release or discharge of any
Hazardous Material in, on or under the Premises.
(iii) As used in this Lease, the phrase "in the Premises" shall mean
in, on, within or under the Premises.
(iv) If the requirements imposed by any of said laws, ordinances,
rules, regulations, covenants, conditions, restrictions or standards shall
be inconsistent with each other, Tenant shall comply with the most
stringent requirement.
b. Maintenance of Records. Tenant shall maintain and make available to
Landlord, during reasonable business hours, all records pertaining to Tenant's
improvements and alterations and all records required by Hazardous Materials
Laws and laws pertaining to underground storage tanks, including, but not
limited to, records of the size, type, location, use and monitoring of any such
storage tanks placed in the Premises. Any records required to be kept or filed
with any governmental authority regarding cessation of use of such storage tanks
or the investigation or remediation of any release from such tanks shall also be
furnished to Landlord.
c. Governmental Approval Tenant shall, before commencing operation of its
business or any construction or alteration of any improvements in the Premises,
seek and secure all approvals and permits therefor which may be required from
any governmental authority having jurisdiction thereof, including without
limitation, requirements regarding land, air and water use, emissions and noise
emissions, hazardous waste materials and underground storage tanks from time to
time in effect. Where a plan for operation of closure is required, Tenant shall
not commence operations or construction until such closure plan has been
approved by appropriate governmental authorities and by Landlord, and Tenant has
provided evidence satisfactory to Landlord of its ability to fund the estimated
cost of implementing such closure plan. All costs of attaining necessary
approvals and permits shall be at Tenant's sole cost and expense. Tenant agrees
to undertake to consult with supervising governmental authorities and to comply
with the directions and design requirements of such authorities for the
operation of its business and the construction or alteration of any improvements
in the Premises.
d. Approval by Landlord. Any approval by Landlord of such applications
shall be without any warranty of the adequacy or accuracy of the statements and
materials contained therein. Tenant shall provide Landlord with copies of all
permits received by Tenant from time to time upon Landlord's written request.
e. Tenant "Waste". With respect to these provisions, any noncompliance
with applicable governmental environmental standards, regulations,
administrative requirements or the requirements of hazardous material and
underground storage tank management shall constitute "waste." Tenant agrees that
anything produced or brought onto the Premises which is or becomes a hazardous
material shall only be handled, kept, utilized, stored, and disposed of in
accordance with all applicable laws. Tenant further agrees, at its sole cost and
expense, to dispose of all waste, whether hazardous or nonhazardous, solid,
liquid or gaseous, in accordance with the requirements of all applicable laws.
Tenant shall not burn any rubbish, including cuttings, weeds,
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brush or other waste material from the planting or growing of crops, on the
Premises. Tenant shall take all such measures as shall be necessary to preclude
the burial or disposal or release on the Premises, by Tenant, or the discharge
or disposal or release by Tenant into the sea, surface waters, underlying
aquifer or the air, or any other part of the environment, of any hazardous
material, whether liquid, gaseous, solid, radioactive or otherwise in
contravention of any applicable law. Tenant shall not permit any noise, smoke
or vibration to emanate from the Premises which materially interferes with the
use and enjoyment of the Premises or the Property. If any hazardous material is
buried in the Premises or the Property, or discharged into the sea, surface
waters, underlying aquifer or the air, or released into the environment, either
intentionally or inadvertently, by Tenant or anyone claiming by or through
Tenant, Tenant shall promptly investigate, remediate and remove all such
hazardous material as may remain and so much of any portion of the environment
as shall have become contaminated in accordance with all applicable government
requirements and replace any removed portion of the environment (such as soil)
with uncontaminated material of the same character as existed prior to
contamination.
f. Inspection by Landlord. Upon twenty-four (24) hours advance written
notice by Landlord to Tenant, Tenant will permit Landlord and Landlord's agents
at all reasonable times during the term of this Lease to enter the Premises to
inspect and examine the same and determine the state of repair and condition
thereof, including, without limitation, the right to inspect Tenant's records
regarding compliance with all governmental requirements and to make such
samplings, corings and other forms of testing as may be reasonably necessary to
determine or verify such compliance. Such inspection shall be at Landlord's cost
and expense, all without any rebate of rent or liability to Tenant for any loss
of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant
shall build, maintain and repair at its own expense all structures and remedy
all defects required by the provisions of this Lease to be built, maintained,
made, remedies, and repaired by Tenant of which notice shall be given by
Landlord, Landlord's agent, or any governmental authority, within thirty (30)
days after the giving of such notice, or within such shorter period as required
by governmental order or other form of directive.
g. Indemnity of Landlord. With respect to the obligations of this
Paragraph 20, Tenant shall defend with counsel selected by Landlord, indemnify
and save harmless Landlord, and Landlord's officers, directors, employees,
agents, successors and assigns, against and from all liabilities, obligations,
damages, penalties, claims, cross-claims, charges, loss, cost, investigation and
remediation expenses including reasonable attorneys' and consultants' fees,
which may be imposed upon, brought against, reasonably incurred by Landlord by
reason of any cause whatsoever arising out of or in connection with the use,
occupancy and enjoyment of the Premises by Tenant or any other person thereon
claiming under Tenant, including, without limitation, any harm or contamination
resulting therefrom to Landlord, persons claiming under Tenant, other tenants of
Landlord, third parties, the aquifer underlying the Premises, the Property, the
sea, surface waters, the soil of the Premises and surrounding lands and the air,
or any accident, fire or nuisance in the Premises or any other adjacent area not
caused by any facilities of others, or any failure by Tenant to keep the
Premises and sidewalks in safe condition.
h. Remediation. Upon termination of this Lease, Tenant shall remove all
improvements, all trade fixtures and underground storage tanks in, on or under
the Premises, shall promptly investigate and remediate any release of hazardous
materials to the environment caused
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or reasonably suspected to be caused by such fixtures or tanks, and shall
promptly repair to Landlord's satisfaction all damages caused by such removal.
All such removals, repairs, investigation and remediation shall be at Tenant's
sole cost and expense. Tenant shall also, at Tenant's sole cost and expense,
provide Landlord with evidence satisfactory to Landlord that Tenant has fully
complied with all authority having jurisdiction over the Premises or any acts
or activities of Tenant therein, including, without limitation, full compliance
with any closure plan filed or required to be filed with any governmental
authority with respect to the removal of all Hazardous Material and underground
storage tanks from the Premises.
i. Landlord's Right to Cure. If Tenant fails to provide evidence to
Landlord of Tenant's compliance with the requirements of Paragraph 20.h above
within thirty (30) days after the termination of this Lease, Landlord may effect
such full compliance with the requirements of governmental authorities. All
costs incurred by Landlord in effecting such compliance shall be at Tenant's
expense and Tenant will, within thirty (30) days from Tenant's receipt of demand
by Landlord, reimburse Landlord for such cost, together with interest at the
rate of twelve percent (12%) per annum. Until such full compliance is complete,
either by Landlord or Tenant, and all costs therefor have been paid by Tenant or
reimbursed by Tenant to Landlord, together with interest thereon, if any, the
Premises and this Lease shall not be deemed surrendered and Tenant shall
continue to pay rent for the Premises in an amount equal to the rent paid by
Tenant during the month preceding termination, prorated for the period of time
from termination to surrender.
j. No Release of Tenant. Tenant shall not be relieved of its obligations
under this Lease until surrender is completed in accordance with these
provisions. Final inspection or release of the Premises by any interested
governmental agencies and by Landlord shall be a condition precedent to
completion of surrender and termination of Tenants obligations hereunder.
Nothing herein shall be deemed to relieve Tenant of any obligation, such as the
obligation to indemnify Landlord, which by the specific terms of this Lease
survives termination of this Lease.
k. Notice to Landlord. If Tenant at any time becomes aware of any
Hazardous Discharge or of any Hazardous Materials Claim in respect of the
Premises or the Property, Tenant will immediately so notify Landlord and provide
to Landlord such detailed reports of any such event as may be reasonably
requested by Landlord. Landlord shall have the right to join and participate, as
a party if it so elects, in any settlements, remedial actions, legal proceedings
or actions initiated in respect of any Hazardous Materials Claims.
21. ASSIGNMENT AND SUBLETTING.
a. Restriction on Assignment and Subletting. Except as may be provided in
the Special Conditions Addendum, Tenant shall not assign or mortgage this Lease,
or any interest therein, nor sublet the Premises or any part thereof or any
right or privilege appurtenant thereto, nor suffer any other person (the agents
and employees of Tenant excepted) to occupy or use the Premises, or any portion
thereof, without the prior written consent of Landlord, which consent Landlord
shall not unreasonably withhold. Landlord shall in all cases have the right to
determine that any proposed assignee or sublessee shall be of sound financial
condition and shall use the Premises only for suitable purposes. A consent by
Landlord to one assignment, mortgage, subletting, occupation or use by any other
person, shall not be deemed to be a consent to any
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subsequent assignment, mortgage, subletting, occupation or use by another
person. Any such assignment or subletting without Landlord's consent shall be
void, and shall, at the option of Landlord, terminate this Lease. Except as
provided herein, this Lease shall not, nor shall any interest therein, be
assignable, as to the interest of Tenant, by operation of law, without the
written consent of Landlord, which consent Landlord shall not unreasonably
withhold.
b. Consent Fee and Rent Adjustment. Landlord shall have the right to
impose, as a condition of any consent to an assignment or mortgage of this Lease
or a subletting of the Premises, a fee of $500.00 to be paid by Tenant to
Landlord for the costs of processing and reviewing the proposed assignment or
subletting.
c. Transfer of Ownership Interest. Except as may be provided in the
Special Conditions Addendum, prior to any proposed merger or transfer of stock
of a corporate tenant, or any sale or transfer of any partnership interest of a
partnership tenant, Tenant shall obtain Landlord's consent therefor. Any change
in the present ownership or management of Tenant or Tenant's business, whether
as a result of any sale of assets, transfer of stock or partnership interest,
merger, consolidation or otherwise, shall be deemed an assignment of this Lease
within the meaning of this Paragraph 21, whether or not such change of ownership
results in a change of control of Tenant. Any transfer of the beneficial
ownership of any stock of a corporate tenant, or the transfer of the beneficial
ownership of any partnership interest of a partnership tenant, or any transfer
of voting rights (whether to a voting trust or otherwise) in any stock of a
corporate tenant or in any partnership interest of a partnership tenant shall be
deemed a "change of ownership" for purposes of this Lease. Upon any such change
in the ownership of Tenant or Tenants business without Landlord's prior consent,
Landlord shall have all the rights and remedies provided in Paragraph 23 below.
Without limiting the generality of Landlord's right to withhold consent pursuant
to Paragraph 21.a above, Tenant acknowledges that Landlord will not consent to
any change in ownership unless it is satisfied with all particulars, including
but not limited to the amount of capital in any corporation or partnership
assuming any rights herein, the number and identity of other stockholders or
partners, the management structure, the financial status and place of
incorporation or organization of said corporation or partnership, and the
financial, personnel, management and experience qualifications of the
corporation, partnership and/or individuals to be assuming an ownership interest
in Tenant. Landlord may cause an investigation into the particulars of any
merged or transformed entity which is to operate Tenant's business and into the
particulars relating to any person to whom an ownership interest in Tenant's
business is proposed to be conveyed for the purpose of enabling Landlord to make
an informed decision as to whether to consent to such merger, transfer or change
in ownership. Despite the foregoing, if Tenant is a corporation or partnership,
a change in ownership of the corporate stock or a partnership interest of Tenant
resulting from the death of a stockholder or partner shall not be deemed a
default hereunder if the decedent's shares or interest in Tenant pass to the
surviving spouse and/or issue or to a trust for the primary benefit of such
spouse and/or issue.
d. Continuing Liability of Tenant. No assignment, mortgage or subletting
of Tenant's interest permitted under this Paragraph 21, or consented to by
Landlord, shall in any way release Tenant of any liability, obligation or
responsibility under the terms of this Lease.
e. Procedure to Sublet or Assign.
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(i) If Tenant desires Landlord's consent to a sublease. license,
concession or assignment of this Lease, or to a change of ownership of
Tenant, or the mortgaging or other hypothecating or encumbering of this
Lease, Tenant shall give Landlord thirty (30) days' prior written notice
thereof, setting forth all of the terms and conditions thereof, together
with the name and address of the proposed assignee, subtenant, new owner or
mortgagee, the nature of the business of the proposed assignee or subtenant
and its proposed use of the Premises and the authorization required under
Paragraph 21.e(iii) below. Tenant shall also include with such notice a
copy of any proposed documents to effect the proposed transaction and any
other information reasonably requested by Landlord. If Tenant notifies
Landlord of a proposed sublease, assignment, mortgage, change of ownership
or other hypothecation or other transaction, whether or not in connection
with a sale of Tenant's business, then at any time within the thirty (30)
day period following Tenant's notice to Landlord, Landlord may, by written
notice to Tenant, consent to the proposed transaction or withhold consent
to the proposed transaction. Landlord's failure to notify Tenant in
writing of Landlord's consent within the thirty (30) day period as herein
provided shall be deemed a denial of such consent by Landlord.
(ii) If Landlord consents to a mortgage, sublease, assignment or
other transaction by Tenant as provided in Paragraph 21.e(i) above,
Tenant may, within sixty (60) days after Landlord's consent but not later
than the expiration of such sixty (60) day period, enter into such
mortgage, assignment, sublease or other transaction and any attendant
sale of Tenant's business, on the terms and conditions set forth in
Tenant's written notice to Landlord.
(iii) Tenant, at the time of its request for Landlord's consent,
shall furnish Landlord with a written authorization, signed by the proposed
assignee, sublessee, new owner or other person and notarized, authorizing
Landlord to investigate the financial condition, business reputation,
credit standing, performance history and other relevant aspects relating to
the background, business ability and reliability of the proposed assignee,
sublessee, new owner or other person.
f. Landlord's Continuing Options. Landlord's options under this Paragraph
21 shall be continuing ones, i.e., Landlord shall have each of the foregoing
options available to it under Paragraphs 21.a, 21.b, 21.c, 21.d and 21.e above
each time that Tenant or any successor-in-interest to Tenant desires to sublet,
license or concession the Premises or any part thereof, assign this Lease,
change ownership or mortgage or otherwise hypothecate or encumber this Lease.
g. Assignment by Landlord. If Landlord transfers or assigns its
interest in this Lease or in the Property to any person, Landlord shall
thereby be released from any further obligations hereunder, and Tenant agrees
to look solely to such successor-in-interest of Landlord for performance of
such obligations. If any security given by Tenant to secure the performance of
Tenant's obligations hereunder is assigned or transferred by Landlord to any
such successor-in-interest, then Landlord shall thereby be discharged of any
further obligation relating thereto. For the purposes of this Paragraph 21.g,
any holder of a mortgage that affects the Premises or the Property at any
time, and any landlord in any Master Lease to which this Lease is subordinate
at any time, will be a successor-in-interest to Landlord as to the Premises
and the Property when it succeeds to the interest of the Landlord or any
successor-in-interest, whether by voluntary sale, assignment or transfer or
by way of foreclosure or dispossession of Landlord. Tenant agrees to
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attorn to the assignee, transferee, or purchaser of Landlord's interest from and
after the date of notice to Tenant of any such assignment, transfer or sate, in
the same manner and with the same force and effect as though this Lease were
made, in the first instance, by and between Tenant and such assignee, transferee
or purchaser. If any proceedings are instituted for foreclosure, or in the event
of the exercise of the power of sale under any mortgage made by Landlord
covering the Premises or the Property, or in the event the Master Lease shall be
terminated, Tenant shall, upon Landlord's request, attorn to the transferee or
successor-in-interest upon any such foreclosure, sale or termination and
recognize such transferee or successor-in-interest as the Landlord under this
Lease.
22. LIENS AND INSOLVENCY. Tenant shall keep the Premises and the Property
free from any liens or encumbrances arising out of any work performed by Tenant,
materials furnished by Tenant, or obligation incurred by Tenant. Upon the
occurrence of any of the following events and the Tenant's failure to pay any
rent, additional rent or other charges due to Landlord under this Lease,
Landlord may terminate this Lease forthwith by giving Tenant notice of its
election to do so: (i) if Tenant files a voluntary petition in bankruptcy, or
for reorganization under the bankruptcy laws, or is adjudged a bankrupt by a
court of competent jurisdiction; or (ii) if Tenant makes an assignment for the
benefit of creditors; or (iii) if a receiver is appointed by a court of
competent jurisdiction for Tenant's business and it is established in the
receivership proceedings that Tenant is insolvent.
23. DEFAULT.
a. Right to Re-enter. In the event of;
(i) Any failure of Tenant to pay any Monthly Minimum Rent,
Percentage Rent, additional rent or other sum due hereunder within five (5)
days of when it is due; or
(ii) The Tenant's failure to pay any Monthly Minimum Rent, Percentage
Rent, additional rent or other sum due hereunder within five (5) days of
when it is due and the occurrence of any event described in Paragraph 22
above; or
(iii) An abandonment of the Premises by Tenant or any taking of the
Premises or this Lease under any writ of execution, or Tenant's violation
of any of the use restrictions or other provisions contained in Paragraphs
11,12 and/or 13 above, or any failure of Tenant to perform any other of the
terms, conditions, or covenants of this Lease to be observed or performed
by Tenant (except for any default as described in Paragraphs 23.a.(i) and
23.a.(ii) above) for more than thirty (30) days after written notice of
such default shall have been mailed to Tenant;
then, in any such event, the same shall be considered a default by Tenant, and
Landlord, besides any other rights or remedies it may have, shall have the
immediate right, with or without termination, of re-entry and may remove all
persons and property from the Premises and such property may be removed and
stored in a public warehouse or elsewhere at the cost of, and for the account of
Tenant, all without service of notice or resort to legal process and without
Landlord being deemed guilty of trespass, or becoming liable for any loss or
damage which may be
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occasioned thereby; provided, however, that if Tenants default shall not consist
of any failure to pay any Monthly Minimum Rent, Percentage Rent, additional rent
or other sum due hereunder to Landlord when it is due and the nature of Tenant's
default is such that more than thirty (30) days are reasonably required to cure
such default, then Tenant shall not be in default if Tenant commences its cure
of such default within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
b. Right to Re-let. Should Landlord elect to re-enter under Paragraph
23.a, or should it take possession pursuant to legal proceedings or pursuant to
any notice provided for by law, it may either terminate this Lease or it may
from time to time without terminating this Lease, make such alterations and
repairs as may be necessary in order to re-let the Premises, and re-let the
Premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rent and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable. All
rents received by Landlord from such re-letting shall be applied (i) to the
payment of any indebtedness (other than rent due hereunder) from Tenant to
Landlord, (ii) to the payment of any costs and expenses of such re-letting and
of such alterations and repairs, (iii) to the payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. If the
rent received from such re-letting during any month is less than that to be paid
during that month by Tenant hereunder, Tenant shall pay any such deficiency
(which shall be calculated and paid monthly) to Landlord.
c. Termination. Upon any uncured default by Tenant, as that term is
defined in Paragraph 23.a above, Landlord may terminate this Lease by giving
written notice to Tenant of its intention to do so, specifying a day not earlier
than five (5) days thereafter, and the term of this Lease and all right, title
and interest of Tenant hereunder shall expire as fully and completely on the day
so specified as if that day were the date fixed in this Lease for the expiration
of the term. No re-entry or taking possession of the Premises by Landlord shall
be deemed its election to terminate this Lease unless a written notice of
termination is given to Tenant or unless the termination is decreed by a court
of competent jurisdiction. Landlord may at any time after reletting the Premises
without terminating this Lease, elect to terminate this Lease for Tenant's
previous default.
d. Waiver of Jury Trial and Venue. The parties each hereby waive trial by
jury in any action, proceeding or counterclaim brought by either against the
other on any matter whatsoever arising out of or in any way connected with this
Lease or Tenant's use or occupancy of the Premises, including any claim of
injury or damage, and any emergency and other statutory remedy with respect
thereto. The parties also agree that the venue of any such action, proceeding or
counterclaim shall be in the Kona Division of the District or Circuit Court of
the Third Circuit, as appropriate.
e. Summary Possession. Tenant acknowledges that in the event of any
default or breach by Tenant, if the Landlord shall choose to obtain possession
of the Premises and terminate Tenant's possession, then Tenant hereby agrees to
submit irrevocably to the jurisdiction of the District Court of the Circuit
within the State of Hawaii wherein the Premises are situated, said District
Court to have exclusive jurisdiction to decide, under the provisions of Chapter
666, Hawaii
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Revised Statutes, Landlord's action for summary possession as well as any
counterclaims by Tenant.
f. Damages to Landlord. If Landlord terminates this Lease because of a
default by Tenant, in addition to any other remedies Landlord may have, it may
recover from Tenant all damages it may incur by reason of such default,
including the cost of recovering the Premises, reasonable attorney's fees, and
the worth at the time of such termination of the excess, if any, of the amount
of rent and additional rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Premises for the
remainder of the stated term, all of which amounts shall be immediately due and
payable from Tenant to Landlord.
g. Determination of Percentage Rental on Default.
(i) For the purpose of determining the rents and other payments which
would be payable to Landlord by Tenant under this Lease subsequent to
Tenant's default, the rent and other payments for each year of the
unexpired term of this Lease shall deemed to be an amount equal to the
average, computed on and adjusted to an annual basis, of the total Monthly
Minimum Rent, Percentage Rent, and other charges paid or payable by Tenant
to Landlord under this Lease annually during the three (3) full lease years
immediately preceding the date of default.
(ii) It is agreed that, if there shall not have been three (3) full
lease years immediately preceding the date of default, it would be
impracticable or extremely difficult from the nature of the case to prove
what amount of Percentage Rent hereunder would have been paid or payable
hereunder by Tenant throughout the balance of the term of this Lease if
Tenant had not defaulted, and no other remedy would be adequate, convenient
or feasible. Accordingly, the parties agree that, in such event, the
amount of the Percentage Rent which would have been paid or payable by
Tenant each year throughout the term of this Lease if Tenant had not
defaulted shall be equal to the total Percentage Rent paid by Tenant for
the twelve (12) calender months immediately preceding the calender month of
default.
h. Separate Suits. Landlord shall have the privilege of splitting its
cause of action for rent so as to permit institution of a separate suit or
proceeding for the base and additional rent due Landlord under this Lease and a
separate suit or proceeding for any other payment required under this Lease and
neither the institution of any such suit or proceeding nor the entering of
judgment therein, shall bar Landlord from bringing a subsequent suit or
proceeding for the Monthly Minimum Rent, Percentage Rent, additional rent, or
for any other payments required hereunder.
i. Non-waiver. The waiver by Landlord of any breach of any term,
covenant or condition of this Lease shall not be deemed a waiver of such term,
covenant or condition for any subsequent breach of any term, covenant or
condition. The subsequent acceptance of rent by Landlord shall not be deemed a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of such acceptance.
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j. No Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent herein stipulated shall be deemed to
be other than on account of the rent claimed by Landlord, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease.
k. Late Fee and Interest on Past Due Amounts. Tenant hereby acknowledges
that late payment by Tenant of rent and other sums due under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of the Master Lease or any mortgage covering
the Premises and/or the Property. Therefore, in the event any amount due
hereunder shall not be received by the tenth (10th) day following the day it is
due, a late fee computed at the rate of two percent (2%) of the overdue amount
shall be automatically charged. Any amounts owing by Tenant to Landlord under
the terms of this Lease shall also carry interest from the date the same become
due until paid at the rate of ten percent (10%) per annum. Said interest shall
be considered as a part of the rent payable under this Lease.
l. Assignment of Rent. If the Premises or any part thereof are sublet or
Tenant is entitled to receive any payments of any kind whatsoever by reason of
his status as Tenant of the Premises, then, in the event of default by Tenant,
with or without penalty, Landlord shall have the immediate right to receive and
collect all rents, income and profits from the Premises due or accrued or to
become due, and said rents and profits are hereby assigned to Landlord and
Landlord is hereby irrevocably appointed the attorney-in-fact of Tenant in the
name of the Tenant or in Landlord's own name to demand, sue for, collect, or
recover and receive all such rents and profits, and to compromise and settle
claims for rents or profits upon such terms and conditions as Landlord may deem
proper, and to enter into, renew or terminate leases or tenancies.
m. Landlord's Right to Cure. If Tenant defaults in any of its obligations
under the terms of this Lease, other than the payment of rent or other charges
payable by Tenant hereunder, and Tenant fails to perform same promptly after
thirty (30) days written notice of default and demand to cure such default,
Landlord shall also have the right, but not the obligation, to cure such
defaults and the cost of same shall be immediately due and payable as additional
rent, provided, however, that if the nature of such default is such that the
same cannot be reasonably cured within such thirty (30) day period, Landlord
shall not have the right to cure such default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion.
n. Landlord's Contractual Security Interest. In addition to any
statutory Landlord's lien, Landlord shall have at all times a valid security
interest to secure payment of all rent 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,
upon all goods, wares, fixtures and other personal property of Tenant presently,
or which may hereafter be, situated in the Premises or the Common Areas, and all
proceeds therefrom, and such property shall not be removed without the consent
of Landlord until all
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arrearages and rent as well as any and all other sums of money then due Landlord
or to become due to Landlord hereunder shall first have been paid and discharged
and all of the covenants, agreements and conditions hereof have been fully
complied with and performed by Tenant. Upon the occurrence of any default by
Tenant, Landlord may, in addition to any other remedies provided herein, enter
upon the Premises and take possession of any and all goods, wares, fixtures, and
other personal property of Tenant situated in the Premises or the Common Areas,
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
at which any private sale is to be made, at which sale the Landlord or its
assigns may purchase 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 a reasonable notice shall be met if
such notice is given in the manner prescribed in this Lease, at least thirty
(30) days prior to the time of sale. Any sale made pursuant to the provision of
this Paragraph shall be deemed to have been a public safe conducted in a
commercially reasonable manner if held in the Premises or where the property is
located after the time, place and method of sale and general description of the
types of property to be sold have been advertised in a daily newspaper published
in the County of Hawaii, for any five (5) of the seven (7) calendar days
immediately before the date of the sale. The proceeds from any such disposition,
less any and all expenses connected with the taking of the 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 or as otherwise
required by law; Tenant shall pay any deficiencies forthwith. Upon request by
Landlord, Tenant agrees to execute and deliver to Landlord any financing
statements or other instruments in form sufficient to perfect the security
interest of Landlord in the aforementioned property and the proceeds thereof
under the provisions of the Hawaii Uniform Commercial Code.
o. Additional Remedies. The rights and remedies of Landlord set forth in
this Paragraph 23 shall be in addition to any other right and remedy now and
hereafter provided by law or otherwise provided in this Lease. All rights and
remedies shall be cumulative and non-exclusive of each other.
p. Default by Landlord. Landlord shall not be in default under this Lease
unless Landlord fails to perform obligations required of Landlord within thirty
(30) days after written notice by Tenant to Landlord; provided, however, that if
the nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
24. CONDEMNATION.
a. Automatic Termination of Lease. Except as may otherwise be required by
the Master Lease or any mortgage on the Property, if the whole of the Premises
shall be taken by any public authority under the power of eminent domain, then
the term of this Lease shall cease as of the day possession is taken by such
public authority, and all rent shall be paid up to that date. If only a part of
the Premises shall be taken under eminent domain, this Lease shall terminate as
to the portion taken, and, unless this Lease shall be terminated as hereinafter
provided, it shall
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continue in full force and effect as to the remainder of the Premises, and the
Monthly Minimum Rent shall be reduced in the proportion the floor area taken
bears to the total floor area leased, and Tenant, at its own cost and expense,
shall make all necessary repairs and alterations to the Premises required by
such taking.
b. Option to Cancel. If the remainder of the Premises cannot be made
tenantable for the purposes for which Tenant has been using the Premises, Tenant
shall have the option, to be exercised within thirty (30) days after the filing
of such eminent domain action, of canceling this Lease effective as of the date
the condemning authority shall take possession; provided, however, that if more
than fifty percent (50%) of the square footage of the Premises shall be taken
under power of eminent domain, either party, by written notice to the other
delivered on or before the date of surrendering possession to the public
authority, may terminate this Lease, effective as of such surrender of
possession. All compensation and damages of any type awarded for any taking,
whole or partial, shall belong to and be the property of Landlord except as
hereinafter provided and except for Tenant's furnishings, fixtures and
equipment.
c. Tenant's Damages. Tenant shall have the right to claim and recover
from the condemning authority, but not from Landlord, such compensation as may
be separately awarded or recoverable by Tenant in Tenant's own right on account
of any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture, fixtures and equipment.
d. Temporary Taking. In the event of a condemnation of a leasehold
interest, i.e., a temporary taking, in all or a portion of the Premises without
the condemnation of the whole leasehold or the fee simple title also, this Lease
shall not terminate and such condemnation shall not excuse Tenant from full
performance of all of its covenants hereunder, including the payment of rent,
but Tenant in such event shall be entitled to present or pursue against the
condemning authority its claim for and to receive all compensation or damages
sustained by it by reason of such condemnation, and Landlord's right to recover
compensation or damages shall be limited to compensation for and damages, if
any, to its reversionary interest; it being understood, however, that during the
time Tenant shall be out of possession of the Premises by reason of such
condemnation, this Lease shall not be subject to forfeiture for failure to
observe and perform those covenants not calling for the payment of money. If the
condemning authority shall fail to keep the Premises in the state of repair
required hereunder, or to perform any other covenant not calling for the payment
of money, Tenant shall have ninety (90) days after the restoration of possession
to it within which to carry out its obligations under such covenant or
covenants. At any time after such condemnation proceedings are commenced,
Landlord shall have the right, at its option, to require Tenant to assign all
compensation and damages payable by the condemner to Tenant to Landlord, to be
held without liability for interest thereon, as security for the full
performance of Tenant's covenants hereunder, such compensation and damages
received pursuant to said assignment to be applied first to the payment of
rents, taxes, assessments, insurance premiums and all other sums from time to
time payable by Tenant pursuant to the terms of this Lease as such sums fall
due, and the remainder, if any, to be payable to Tenant, it being understood and
agreed that such assignment shall not relieve Tenant of any of its obligations
under this Lease with respect to such rents, taxes, assessments, insurance
premiums and other sums except as the same shall be actually received by
Landlord.
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25. NON-LIABILITY OF LANDLORD. (i) Landlord and its agent, if any, shall
not be liable to Tenant for any damage or loss, including loss or interruption
to Tenant's business or services, occasioned by any service provided by Landlord
or its agent under this Lease or electricity, plumbing, gas, water, air
conditioning, sprinkler or other pipes and sewage systems, or the loss,
interruption or stoppage thereof, or by the bursting, leaking, overflowing or
running over of any tank, washstand, closet, waste or other pipes in or about
the Premises or the Property, nor for any damage occasioned by water coming into
the Premises from any source whatsoever, or for any damage or injury arising
from any acts or neglect of the other tenants of, or any other persons on, the
Property or of any adjacent property, or of the public, unless such damage or
loss shall result from a wanton and willful act of Landlord or Landlord's gross
negligence. All property of Tenant kept or stored on the Premises or in any
Common Area shall be kept or stored at the risk of Tenant only, and Tenant shall
hold Landlord harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carriers unless such damage
shall be caused by the wanton and willful act or gross negligence of Landlord.
In no event shall Landlord or any of its agents, employees, or principals be
liable to Tenant, its principals, agents or employees for lost profits or any
other consequential damages suffered by Tenant, its principals, agents or
employees from any cause, unless such losses or damages shall result from a
wanton and willful act of Landlord or Landlord's gross negligence.
26. INDEMNITY OF LANDLORD. Tenant shall indemnify and save Landlord, and
its agents, employees and principals, harmless against and from any and all
claims, damages, costs and expenses, including reasonable attorney's fees,
arising from the operation of the business conducted by Tenant in the Premises
or arising from any default by Tenant in the performance of any of the
covenants, conditions or terms of this Lease, or from any act or negligence or
omission to act of Tenant, its agents, contractors, servants, employees,
sublessees, concessionaires or licensees, in or about the Premises or the
Property or in connection with this Lease or any sublease. If any action or
proceeding is brought against Landlord, or its agents, employees and/or
principals, by reason of any such claim, even though such claim is based on the
alleged fault of Landlord, or its agents, employees and/or principals, Tenant
agrees to pay the reasonable costs and expenses thereof, including attorney's
fees, and any judgments or settlement of claims secured against Landlord, or its
agents, employees and/or principals, by reason of such action or proceedings.
27. ATTORNEY'S, ARCHITECT'S, ETC. FEES. If Landlord and/or its agent
shall, without fault, be made a party to any litigation by or against Tenant
arising out of Tenant's occupancy of the Premises or the Property, or any act of
Tenant concerning the Premises, the Property or this Lease, or if litigation
shall be brought for recovery of possession of the Premises, for the recovery of
rent or any other amount due under the provisions of this Lease, or because of
the breach of any covenant in this Lease to be kept or performed by Tenant, and
a breach shall be established, Tenant shall pay to Landlord and/or its agent all
expenses incurred in connection therewith, including attorney's fees. Tenant
shall also pay any and all costs and fees incurred or paid by Landlord,
including attorney's fees and the fees of architects or other professionals
employed by Landlord, to review, revise or prepare any document, plan or other
writing of any nature presented by or on behalf of Tenant to Landlord for review
or approval in connection with Tenant or any action by Tenant under this Lease,
including, without limitation, requests for consents to assignments, subleases,
mortgages or other similar items, or certificates, approvals, opinions, or other
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agreements with respect thereto, which such items in the opinion of Landlord
require the employment of an attorney or other professional on behalf of
Landlord. Any failure of Tenant to pay such costs or fees upon demand of
Landlord shall be deemed a default under this Lease and Landlord shall be
entitled to exercise its rights on account of such default as provided in
Paragraph 23 above. Landlord shall not be obligated to consider, review, execute
or deliver any consent, approval, certificate or other item until the costs and
fees herein required to be paid by Tenant have been paid.
28. ACCESS TO AND INSPECTION OF PREMISES. Landlord reserves and shall at
any and all times have the right to enter the Premises and the Common Areas to
inspect the same, to supply janitorial service and any other service to be
provided by Landlord to tenants of the Property, to exhibit the Premises to
prospective purchasers or tenants, to post notices of non-responsibility and
"for lease" signs, and to alter, improve or repair the Premises or any portion
of the Common Areas without abatement of rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing that the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of Tenant shall not be interfered with unreasonably. Tenant hereby waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby to the degree the interference is not
substantial. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and about
the Premises, excluding Tenant's vaults and safes, and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said doors
in an emergency, in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or any eviction of Tenant from the
Premises or any portion thereof.
29. SUBORDINATION OF LEASE. This Lease shall automatically be subordinate
to any mortgage, encumbrance or deed of trust heretofore or hereafter placed
upon the Property or the Premises by Landlord, to any and all advances made or
to be made thereunder, to the interest on the obligations secured thereby, and
to all renewals, replacements and extensions thereof; provided, however, that in
the event of foreclosure of any such mortgage or deed of trust or exercise of
the power of sale thereunder, Tenant shall attorn to the purchaser at such
foreclosure or sale, and recognize such purchaser as Landlord under this Lease
if so requested by such purchaser. Said encumbrances shall include, without
limitation, the lien of a mortgage executed in part to secure a loan to pay for
the construction of improvements in, on or to the Property and/or the Premises.
Within ten (10) days after request therefor by Landlord, or, in the event that
upon Landlord's sale, assignment or hypothecation of the land or improvements
which comprise the Property, an estoppel or offset statement shall be required
from Tenant, Tenant shall deliver in recordable form a certificate to any
purchaser, mortgagee under such mortgage, or to Landlord, certifying (if such be
the case) that this Lease is in full force and effect and that there are no
defenses or offsets thereto, or stating those claimed by Tenant, and stating
such other facts and conditions as may be reasonably required by Tenant. If any
mortgagee or beneficiary elects to have this Lease superior to its mortgage or
deed of trust and gives notice of its election to Tenant, then this Lease shall
thereupon become superior to the lien of such mortgage or deed of trust,
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whether this Lease is dated or recorded before or after the mortgage or deed or
trust. Tenant shall execute promptly after demand, without charge, all forms,
documents and instruments required by Landlord to carry out the terms of this
Paragraph 29.
30. ESTOPPEL CERTIFICATE: FINANCIAL STATEMENTS.
a. Estoppel Certificate. Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Premises. At Landlord's
option, Tenant's failure to deliver such statement within such time shall be a
material breach of this Lease or shall be conclusive upon Tenant (i) that this
Lease is in full force and effect, without modification except as may be
represented by Landlord, (ii) that there are no uncured defaults in Landlord's
performance, and (iii) that not more than one (1) month's rent has been paid in
advance.
b. Financial Statements. If Landlord desires to finance, refinance, or
sell the Premises, the Property, or any part thereof, Tenant hereby agrees to
deliver to any lender or purchaser designated by Landlord such financial
statements of Tenant as may be reasonably required by such lender or purchaser.
Such statements shall include the past three (3) years' financial statements of
Tenant. All such financial statements shall be received by Landlord and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
31. ADDITIONAL IMPROVEMENTS UPON PROPERTY. Landlord reserves the right at
any time and from time to time, to add to, change, relocate, improve, or
demolish all or any portion of the Property, buildings, Common Areas and parking
areas (including, without limitation, the right to add additional floors to the
buildings, to build new improvements adjoining the buildings, and to change,
relocate, remove, or designate those parties who may use the lobbies, corridors,
elevators, stairways and service areas), and to construct controlled or elevated
parking facilities. Landlord's exercise of these rights will not require
Landlord to compensate Tenant in any way, nor will it result in any liability by
Landlord to Tenant or in any way affect Tenant's obligations under this Lease.
32. SUBMISSION TO CONDOMINIUM PROPERTY REGIME. Landlord shall also have
the right, without the consent of Tenant to submit all or a part of the Property
of which the Premises are a portion to a Condominium Property Regime under
Chapter 514A of the Hawaii Revised Statutes or any successor statute and to
execute and record a Declaration of Condominium Property Regime and any
amendments thereto, as deemed appropriate or necessary by Landlord; provided,
however, that any such submission to a Condominium Property Regime shall be
subject to the Tenant's rights under this Lease. Landlord shall have the right
to add, delete, relocate, realign, reserve and grant all easements and rights of
way over, under and on the Common Areas, the Property and the Premises as may be
necessary or desirable in connection with such
41
<PAGE> 51
submission of the Property; provided, however, that such easements and
rights-of-way shall not materially impair the use of the Premises by Tenant.
To the extent that the joinder of Tenant shall be required in order to
validate any Declaration of Condominium Property Regime or amendment
contemplated therein, Tenant hereby agrees to join in and to execute the same,
and for purposes of further securing the foregoing covenant, Tenant hereby
irrevocably appoints Landlord as its attorney-in-fact, coupled with an interest,
for purposes of executing, recording and acknowledging any such Declaration or
amendment for and on behalf of Tenant.
33. LANDLORD'S CONSENT. In any case in which the Landlord's consent or
approval is required hereunder, then unless otherwise expressly provided herein,
Landlord shall not unreasonably withhold its consent or approval. In any case in
which Landlord does not respond to Tenant's request for consent or approval,
Landlord shall be deemed to have withheld consent or to have disapproved, as the
case may be.
34. FORCE MAJEURE. In the event that either Landlord or Tenant shall be
delayed or hindered in or prevented from the performance from any act required
under this Lease by reason of strikes, lockouts, labor troubles, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, unforeseeable delays in obtaining governmental permits, approvals
or consents, or riots, insurrection, war, or other reason of a like nature, not
the fault of the party delayed in performing the work or doing the acts required
under the terms of this Lease, then performance of such act shall be excused for
the period of the delay and the period for the performance of any such act shall
be extended for a period equivalent to the period of such delay. The provisions
of this Paragraph 34 shall not operate to excuse Tenant from the prompt payment
of rent or any other sums required by the terms of this Lease.
35. NOTICES.
a. Notices to Tenant. All notices to be given to Tenant may be given in
writing personally to Tenant, if Tenant is an individual, or to an officer,
partner or manager of Tenant, if Tenant is a corporation, partnership or
otherwise not available to Landlord, or by depositing the same in the United
States mail, registered or certified and postage prepaid, and addressed to
Tenant at the Premises, whether or not Tenant has departed from, abandoned or
vacated the Premises.
b. Notice to Landlord. Notice to Landlord shall be given in writing
personally to an agent or employee of Landlord or by depositing the same in the
United States mail, registered or certified and postage prepaid, and addressed
to Landlord at the address set forth in the attached Special Lease Provisions,
or at such other addresses as Landlord may give to Tenant in writing from time
to time.
c. Time of Service. Any written notice sent by registered or certified
mail shall be deemed to have been served as of the date it is mailed in
accordance with the foregoing provisions.
42
<PAGE> 52
36. MISCELLANEOUS.
a. No Representations by Landlord. Tenant acknowledges and agrees that
Landlord has not made and Tenant is not relying on any representations as to the
quality, marketing, or advertising of the Property or as to the amount of
traffic or customers expected.
b. Corporate Representations. If Tenant hereunder shall be a
corporation, the parties executing this Lease on behalf of the Tenant hereby
represent and warrant that (i) Tenant is a duly qualified corporation licensed
to do business in the State of Hawaii, (ii) all franchise and corporate taxes
have been paid to date, and that all future forms, reports, fees and other
documents necessary to comply with all applicable laws will be filed when due,
and (iii) Tenant has full power and authority to enter into this Lease. Tenant
shall provide Landlord with such evidence of the foregoing as Landlord may
reasonably require.
c. No Offer without Signature. The submission of this Lease document for
examination and negotiation does not constitute an offer to lease, or
reservation of, or option for the Premises, and this document becomes effective
and binding only upon execution and delivery hereof by Tenant and by Landlord,
or by a duly authorized representative of Landlord. No act or omission of any
employee or agent of Landlord or Landlord's broker, if any, shall alter, change
or modify any of the provisions thereof.
d. Further Assurances. The parties hereto shall, whether before or after
the date hereof, execute and deliver such further instruments and do such
further acts and things as may be reasonably required to carry out the intent
and purposes of this Lease.
e. Obligations Joint and Several. In any case, where there is more than
one Tenant, the obligation of Tenants hereunder shall be joint and several and
any notice given by Landlord to any one of the Tenants shall be construed as
notice to all.
f. No Partnership. Nothing herein contained, whether in the method of
computing rent or otherwise, shall create between the parties hereto, or be
relied upon by others as creating, any relationship of partnership,
association, joint venture or otherwise. The sole relationship of the parties
hereto shall be that of landlord and tenant.
g. No Transfer of Interest in Land or Air Rights. Nothing in this Lease
shall be construed as creating or transferring to Tenant any interest in the
land upon which the Premises are located or in the air space above the Premises
or the Common Areas, except as otherwise specifically provided in this Lease.
h. Diminution of Light and Air. No diminution or shutting off of light or
air by any structure which may be erected in the vicinity of the COCONUT GROVE
MARKETPLACE or the Property shall affect the rights or obligations of Landlord
or Tenant under this Lease or operate to impose any liability on the Landlord.
i. Counterparts. This Lease may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall constitute one
agreement and the
43
<PAGE> 53
signature of any party in counterpart shall be deemed as a signature to and may
be appended to any other counterpart.
j. Short-Form Counterpart. Upon request by either party, the other party
will execute and deliver to the party requesting the same a recordable
short-form counterpart of this Lease, stating the names of the parties, the
term, the description of the Premises, and the nature of any options for
renewal. Landlord will supply the form for the short-form counterpart. The party
requesting recordation shall pay any costs, taxes or assessments incurred in
connection with the recordation of any short-form counterpart.
k. Captions. Captions at the beginning of each Paragraph are for
convenience only and shall not be deemed to be a part of any contents of this
Lease.
l. Binding Effect. Except as otherwise provided herein, this Lease and
each and every provision hereof shall be binding on and shall, subject to the
required consent of Landlord, inure to the benefit of the parties hereto, their
respective personal representatives, successors, heirs, and permitted assigns,
and to each and every successor-in-interest of any party hereto, whether such
successor acquires any such interest by way of gift, purchase, foreclosure,
merger, or by any other method.
m. Severability. If any provision of this Lease or the application
thereto to any person or circumstances shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Lease and the application or
such provision to the other persons or circumstances shall not be affected
thereby.
n. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Hawaii.
o. Time of the Essence. Time is of the essence of this Lease.
37. ENTIRE AGREEMENT. This Lease contains the entire agreement between the
parties, and any agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of the Lease in whole or in part
unless such agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought. It
is expressly understood and agreed (i) that each and all of the provisions of
this Lease are conditions precedent to be faithfully and fully performed and
observed by Tenant to entitle Tenant to continue in possession of the Premises
hereunder, (ii) that said conditions are also covenants on the part of Tenant,
and (iii) that time of performance of each is of the essence of this Lease.
44
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date and year set forth in the attached Special Lease Provisions.
<TABLE>
<S> <C>
CINEMASTAR LUXURY THEATERS, INC.,
a California corporation
Brian Anderson
- ---------------------------------
Brian Anderson By: Alan Grossberg
---------------------------------
Alan Grossberg
Melvin Shapiro
- --------------------------------- Its: ---------------------------------
Melvin Shapiro
LANDLORD TENANT
</TABLE>
45
<PAGE> 55
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
Date: July 18, 1996
PERSONAL GUARANTY OF LEASE ADDENDUM
PERSONAL GUARANTY by the undersigned Guarantor(s) with respect to the
Sublease between BRIAN ANDERSON and MELVIN SHAPIRO, Landlord, and CINEMASTAR
LUXURY THEATERS, INC., Tenant, dated the 18th day of July, 1996, for certain
Premises in the COCONUT GROVE MARKETPLACE situated in Kailua-Kona, Hawaii (the
"Lease"):
THE UNDERSIGNED GUARANTOR(S), do hereby unconditionally guarantee to
Landlord and its successors and assigns, the full and timely payment of the rent
and all other amounts provided to be paid under the Lease and do also guarantee
the full and timely observance and performance of all the other covenants, terms
and conditions of the Lease on the part of Tenant to be observed and performed,
and do hereby waive any and all notices of default, nonpayment, demand,
presentment or protest and agree that any extensions, modifications or
amendments of the Lease shall not in any manner release the undersigned
Guarantor(s), and that Landlord may at any time, with or without notice, release
any person, corporation or entity other than Tenant liable for observance or
performance of any covenants required to be observed or performed under the
Lease, and may extend the time for payment or modify or extend the time for
compliance with any covenant of the Lease, or in any other way amend, change or
modify the Lease without in any way releasing the undersigned Guarantor(s).
The liability of Guarantor(s) hereunder shall be primary. If at any time,
default shall be made by Tenant in the performance or observance of any of the
terms, covenants or conditions of the Lease on Tenants part to be kept,
performed or observed, Guarantor(s) will keep, perform and observe the same, as
the case may be, in place and stead of Tenant. If any right of action shall
accrue to Landlord under the Lease, Landlord may, at Landlord's option, proceed
against Guarantor(s) without having commenced any action or having obtained any
judgment against Tenant.
The liability of Guarantor(s) hereunder shall in no way be affected by (a)
the release or discharge of Tenant in any creditors', receivership, bankruptcy
or other proceedings, (b) the impairment, limitation or modification of the
liability of Tenant or the estate of Tenant in bankruptcy, or any remedy for the
enforcement of Tenants said liability under the Lease, resulting from the
operation of any present or future provision of the Federal Bankruptcy Code or
other federal and state statutes or from the decision in any court, (c) the
rejection or disaffirmance of the Lease in any such proceedings, (d) the
assignment or transfer of the Lease by Tenant or (e) any disability of Tenant.
Until all of the covenants and conditions of the Lease on Tenant's part to
be performed and observed are fully performed and observed, Guarantor(s) (a)
shall have no right of subrogation
<PAGE> 56
against Tenant by reason of any payments or acts or performance by Guarantor(s),
in compliance with the obligation of Guarantor(s) hereunder, (b) waive any right
to enforce any remedy which Guarantor(s) now or hereafter shall have against
Tenant by reason of any one or more payments or acts of performance in
compliance with the obligations of Guarantor(s) hereunder, and (c) subordinate
any liability or indebtedness of Tenant now or hereafter held by Guarantor(s) to
the obligation of Tenant to the Landlord under the Lease.
The undersigned Guarantor(s) further agree to pay all costs of enforcement
of the Lease and this guaranty, including reasonable attorneys' fees in the
event that counsel is retained or suit is instituted to enforce this guaranty.
As a further inducement to Landlord to make this Lease and in consideration
thereof, Landlord and the undersigned Guarantor(s) covenant and agree that in
any action or proceeding brought by either Landlord or the undersigned
Guarantor(s) against the other on any matters whatsoever arising out of, under
or by virtue of the terms of the Lease or this Guaranty, that Landlord and the
undersigned Guarantor(s) shall and do hereby waive trial by jury.
This instrument may not be changed, modified, discharged or terminated
orally or any manner other than by agreement in writing signed by Guarantor(s)
and Landlord.
IN WITNESS WHEREOF, the undersigned have executed this Personal Guaranty as
of the 15 day of July, 1996.
JOHN ELLISON, JR.
--------------------------------
JOHN ELLISON, JR.
SSAN: ###-##-####
ALAN GROSSBERG
--------------------------------
ALAN GROSSBERG
SSAN: ###-##-####
RUSSELL SEHEULT
--------------------------------
RUSSELL SEHEULT
SSAN: ###-##-####
JERRY WILLITS
--------------------------------
JERRY WILLITS
SSAN: ###-##-####
2
<PAGE> 57
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
Date: July 18, 1996
SPECIAL CONDITIONS ADDENDUM
Landlord and Tenant agree that the following special provisions shall be a
part of the attached Lease only for the initial term set forth in the attached
Special Lease Provisions and shall not apply to any extended term of the Lease,
if any, unless Landlord and Tenant specifically agree in writing to such
application.
1. Throughout the term of this Lease and any extensions of the term under
the Option Addendum, Tenant may assign or sublease the Lease, in whole or in
part, without the express written consent of Landlord to:
a. Any corporation for which or with which Tenant merges or
consolidates;
b. Any parent, subsidiary or affiliate corporation of Tenant
(controlling, controlled by, or common control with Tenant (control of a
corporation shall be defined to mean fifty-one percent (51%) or more
ownership of each class of the outstanding capital stock of such
corporation]);
c. Any corporation which acquires all or substantially all of the
assets or issued and outstanding shares of capital stock of Tenant; or
d. Any partnership, the majority interest of which shalt be owned
by the parent of Tenant, if such parent is the general partner
subject, however, to the Tenant's and Guarantors' continuing liability under
this Lease as provided in Paragraph 21.d. of this Lease and the Personal
Guaranty of Lease Addendum.
2. Notwithstanding any other term or provision of this Lease, during the
first thirty-six months following the Rent Commencement Date, the Tenant's
percentage share of the Property maintenance and operating expenses shall not
exceed an amount equal to forty-four cents ($.44) per square foot per month.
3. During the entire term of this Lease, and provided the Tenant shall
not be in default under this Lease, Tenant shall have the exclusive right to
operate a movie theater on the Property.
4. Landlord and Tenant agree that the obligations, duties and liabilities
of Landlord and Tenant under this Lease are subject to Landlord's obtaining of a
construction loan for the construction of Landlord's intended improvements to
the Property, including Landlord's contribution to Tenant's improvements as
described in Paragraph 5 below, in an amount not less than $5,500,000.00 within
270 days of Landlord's and Tenant's execution of this Lease. To
<PAGE> 58
facilitate such loan, Tenant agrees that Tenant and the Guarantors named in the
Personal Guaranty of Lease Addendum attached to this Lease will join in and
execute the Loan Documents requested by the lender, provided, however that the
liability of Tenant and the Guarantors with respect to such loan shall not
exceed the total sum of $1,000,000.00. If Landlord is unable to obtain the
construction as described above, this Lease shall be terminated and Landlord and
Tenant shall be released and discharged from any and all of the their
obligations, duties and liabilities under the Lease unless such 270 day period
shall have been extended by mutual agreement of Landlord and Tenant.
5. Landlord shall contribute the sum of $85.00 per square foot of the
Premises toward Tenant's building costs for completion of Tenant's Work as
described in Exhibits C and E attached hereto. This contribution shall be paid
from the construction loan to be obtained by Landlord as described in Paragraph
4 above and Tenant agrees that it shall cooperate in respects necessary to allow
the Landlord to make its draws on such loan for the purpose of Landlord's
contributions to Tenant under this Paragraph S and Tenant's cooperation with
Landlord and Landlord's lender shall be a precondition to Tenant's receipt and
use of Landlord's contribution described above. As used herein, the term
"building costs" shall mean the actual out of pocket costs incurred or paid by
Tenant for labor, materials and services actually rendered, including
architectural and engineering plans and project management, for Tenant's Work as
described in Exhibits C and E attached hereto and the costs of the tenant
improvements and appurtenances thereto, in compliance with all applicable
governmental codes, ordinances, and regulations, including, without limitation,
fire sprinkler system, detector check valves and vaults, and all utility
services, related to the theater construction. Building costs shall not include
so-called "soft costs" including, without limitation, any loan fees, points,
principal and interest payments, Tenant employee salaries and expenses,
marketing and sales costs, attorneys fees, etc., incurred by Tenant with respect
to Tenant's Work, all of which shall be borne by Tenant. Landlord, however,
shall be responsible for any mitigation fees related to the Property. Tenant
shall provide Landlord with copies of all invoices, statements, budgets,
summaries ,journals, etc., obtained or maintained by Tenant with respect to
Tenant's work and Tenant's providing of such copies to Landlord shall be a
precondition to Tenant's receipt and use of Landlord's contribution described
above. For purposes of this Paragraph 5, the square footage of the Premises
shall, in no event, be deemed to exceed 25,000 square feet; in the event the
square footage of the Premises as determined in accordance with Paragraph
1.a.(i) of the Standard Terms and Provisions be less than 25,000 square feet,
Tenant shall have the option to fix the square footage of the Premises at 25,000
square feet provided such square footage shall also be deemed to be the square
footage of the Premises for the purpose of calculating the Tenant's obligation
to pay Monthly Minimum Rent and Property maintenance and operating expenses
under this Lease and Exhibit B attached to this Lease.
6. Landlord and Tenant agree that the obligations, duties and liabilities
of Landlord and Tenant under this Lease are subject to the estimated building
costs of Tenant's improvements to the Premises being in an amount less than
$85.00 per square foot of the Premises. In the event the estimated building
costs of Tenant's improvements shall exceed $85.00 per square foot of the
Premises, either Landlord or Tenant may terminate this Lease upon 30 days prior
written notice to the other, provided, however, that during such 30 day period,
the nonterminating party shall have the right to void such termination if it
agrees to pay the full cost and expense of the building costs in excess of
$85.00 per square foot and so notifies the other party in writing. If this
Lease is
2
<PAGE> 59
terminated by either Landlord or Tenant as provided in this Paragraph 6, and the
non-terminating party does not elect to void the termination as provided above,
then this Lease shall be terminated and Landlord and Tenant shalt be released
and discharged from any and all of the their obligations, duties and liabilities
under the Lease.
7. Notwithstanding any other term or provision of this Lease, for the
initial term of this Lease and any extension term under the Option Addendum, for
all purposes of calculating the square footage of the Premises, including the
calculation of Monthly Minimum Rent and Landlord's contribution toward Tenant's
building costs, the square footage of any mezzanine constructed in the Premises
shall be excluded and the square footage set forth in the Memorandum described
in Paragraph 1.a.(i) of the Standard Terms and Provisions shall control.
8. Notwithstanding any other term or provision of this Lease, for the
initial term of this Lease and any extension term under the Option Addendum,
Landlord and Tenant agree that, in lieu of any security deposit under this
Lease, Tenant shall install and place furniture, fixtures and equipment within
and on the Premises having a value of not less than $1,000,000.00 and free and
clear of any and all liens, claims and encumbrances of any third person and
record a UCC-1 Financing Statement in the Bureau of Conveyances of the State of
Hawaii perfecting the Landlord's security interest under Paragraph 23.n. of this
Lease therein.
9. Notwithstanding any other term or provision of this Lease, for the
initial term of this Lease and any extension term under the Option Addendum,
Landlord shall retain the right to enact a system of "validated" parking for the
Property, provided, however, that any such system shall allow the Tenant to
validate parking for its customers at no additional cost.
10. Landlord agrees that in the event it shall grant any tenant in the
COCONUT GROVE MARKETPLACE a credit against any the Property maintenance and
operating expenses (as that term is defined in Paragraph 6 of this Lease), the
amount of such credit shall not be charged back against the Tenant under
Paragraph 6, or any other provision, of this Lease.
CINEMASTAR LUXURY THEATERS, INC.,
a California corporation
BRIAN ANDERSON
- ---------------------------------
BRIAN ANDERSON
By Alan Grossberg
---------------------------------
MELVIN SHAPIRO ---------------------------------
- --------------------------------- Its: ____________________________
MELVIN SHAPIRO
LANDLORD TENANT
3
<PAGE> 60
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
Date July 18, 1996
OPTION ADDENDUM
Option to Extend Term: If Tenant at all times during the term of this Lease
shall have promptly paid the rent and observed and performed all of the terms
and conditions contained in the Lease, and Tenant shall not have assigned this
Lease or sublet the Premises, Tenant shall have the right to extend the term for
two (2) additional five (5) year terms and for one (1) additional four (4) year
and eleven (11) month term by giving Landlord written notice of such extension
on or before one hundred eighty (180) days prior to the end of the term of the
Lease or the preceding extension term. Any assignment of this Lease or
subletting of the Premises by Tenant requiring Landlord's consent shall void
this Option Addendum unless otherwise specifically agreed by Landlord. Such
extension shall be upon the same terms and conditions of the Lease, excepting
for this option, the Monthly Minimum Rent and the Percentage Rent. Monthly
Minimum Rent and Percentage Rent for each additional year of the extension term
shall, except as provided in Exhibit B for the first five year extended term, be
in such amount as may be agreed upon by the parties or the then-fair market
rental value of the Premises as may be established by arbitration if the parties
fail to agree by the end of the term of the Lease. The "then-fair market rental
value of the Premises shall include all improvements made to the Premises by
Tenant but exclude all trade furnishings or fixtures which Tenant has the right
to remove at the end of the term, if any, and shall mean what a landlord under
no compulsion to lease the Premises, and a tenant under no compulsion to lease
the Premises, would determine as the Monthly Minimum Rent (including any Monthly
Minimum Rent increases during the extension term) and Percentage Rent for the
extension term, as of the commencement of the extension term, taking into
consideration the uses permitted under this Lease, the characteristics, location
and quality of the Property, the quality, size, construction, design, and
location of the Premises, and the Monthly Minimum Rent and percentage rent for
comparable premises located in the vicinity of the COCONUT GROVE MARKETPLACE.
The then-fair market rental value of the Premises during any month of the
extension term as determined by arbitration (the Monthly Minimum Rent and
Percentage Rent), and the increases in the Monthly Minimum Rent, if any, during
the extension term, shall, in no case, be less than the Monthly Minimum Rent and
Percentage Rent during the immediately preceding month. Arbitration shall be by
three (3) arbitrators who shall be recognized real estate appraisers. Each
party shall name an arbitrator and notify the other in writing and, in case of
the failure of either to appoint an arbitrator within ten (10) days after
notification of appointment of an arbitrator, the party appointing the first
arbitrator may apply to the Circuit Court of the Third Circuit, State of Hawaii,
for the appointment of a second arbitrator; the two (2) arbitrators shall
appoint a third arbitrator and, in case of their failure to do so within ten
(10) days after the appointment of the second arbitrator, either party may have
such third arbitrator appointed by the Court. The three (3) arbitrators so
appointed shall proceed to determine the matter in question and the decision of
a majority of them shall be final, conclusive and binding upon the parties. In
no event, however, shall the Monthly Minimum Rent and Percentage Rent per month
during any extension term be less
<PAGE> 61
than the Monthly Minimum Rent and Percentage Rent per month for the calendar
month immediately preceding the commencement of the extension term, nor shall
the additional rent be less than that as defined in Paragraphs 6 and 7 of the
Lease. The provisions herein shall be governed by the provisions of Chapter
658, Hawaii Revised Statutes as the same now is or may from time to time be
amended, and judgment may be entered upon the arbitrators' decision by the
Circuit Court of the Third Circuit as provided in said Chapter. The fee of the
arbitrators selected by each of the parties and attorney and witness fees shall
be borne by the party incurring the same; the balance of the costs of
arbitration, including the fee of the third arbitrator, shall be borne equally
by Landlord and Tenant. In the event the then-fair market rental value of the
Premises is not determined until after the beginning of the extension term,
then it shall be retroactive to the beginning of the extension term.
<TABLE>
<S> <C>
CINEMASTAR LUXURY THEATERS, INC.,
a California corporation
Brian Anderson
- ---------------------------------
BRIAN ANDERSON By: Alan Grossberg
---------------------------------
ALAN GROSSBERG
Melvin Shapiro
- --------------------------------- Its: ---------------------------------
MELVIN SHAPIRO
LANDLORD TENANT
</TABLE>
2
<PAGE> 62
EXHIBIT A
SITE PLAN
<PAGE> 63
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
Date: July 18, 1996
EXHIBIT B
MONTHLY MINIMUM RENT PROVISIONS
The Monthly Minimum Rent after the period provided for in Paragraph C.1.a
of the Special Lease Provisions shall be as follows:
1. On the thirty-sixth (36th) monthly anniversary date of the Rent
Commencement Date or, if such date is not the first day of a calender month,
then on the first day of the next calender month after the month in which the
thirty-sixth (36th) monthly anniversary date of the Rent Commencement Date
falls, the Monthly Minimum Rent shall be increased for the next twenty-four (24)
months of the term to ONE AND 50/100 DOLLARS ($1.50) per square foot per month.
2. Commencing on the sixtieth (60th) monthly anniversary date of the Rent
Commencement Date or, if such date is not the first day of a calender month,
then on the first day of the next calender month after the month in which the
sixtieth (60th) monthly anniversary date of the Rent Commencement Date falls,
and on the same day of each fifth (5th) calendar year thereafter during the
remainder of the term of this Lease (the "adjustment date"), the Monthly Minimum
Rent for the ensuing sixty (60) months of the term shall be adjusted to the
greater of:
a. The Monthly Minimum Rent for the last month immediately preceding
the adjustment date increased by an amount equal to the increase in the
Consumer Price Index for the sixty (60)-month period immediately preceding
the adjustment date, provided, however, that the amount of such increase
shall not, in any event, exceed fifteen percent (15%). The Consumer Price
Index hereinabove referred to is the United States Department of Labor,
Bureau of Labor Statistics, Consumer Price Index for all Urban Consumers,
Honolulu, Hawaii, All Items--Series A. Should the Bureau discontinue
publication of its Consumer Price Index, then the computation of the
adjustment of the Monthly Minimum Rent during each period shall be based
upon the index the Bureau designates as providing the most accurate
comparison with consumer prices for each period of the term of this Lease;
or
b. (1) For the sixty-first (61st) month through the one hundred and
twentieth (120th) month, Monthly Minimum Rent calculated at the rate of ONE
AND 65/100 DOLLARS ($1.65) per square foot per month.
(2) For the one hundred and twenty first (121st) month through
the one hundred and eightieth (180th) month, Monthly Minimum Rent
calculated at the rate of ONE AND 81.5/100 DOLLARS ($1.815) per square
foot per month.
<PAGE> 64
(3) For the one hundred and eighty first (181st) month through
the two hundred and fortieth (240th) month, Monthly Minimum Rent
calculated at the rate of ONE AND 99.6/100 DOLLARS ($1.996) per
square foot per month.
(4) For the two hundred and forty-first (241st) month through
the three hundredth (300th) month -- if the Tenant exercises its
option to extend the term as provided in the Option Addendum, the
Monthly Minimum Rent as may be agreed upon by the parties or the then-
fair market rental value of the Premises as may be established by
arbitration if the parties fail to agree. The "then-fair market rental
value of the Premises" shall include all improvements made to the
Premises by Tenant but exclude all trade furnishings or fixtures which
Tenant has the right to remove at the end of the term, if any, and
shall mean what a landlord under no compulsion to lease the Premises,
and a tenant under no compulsion to lease the Premises, would
determine as the Monthly Minimum Rent as of the commencement of the
extension term, taking into consideration the uses permitted under
this Lease, the characteristics, location and quality of the Property,
the quality, size, construction, design, and location of the Premises,
and the Monthly Minimum Rent and percentage rent for comparable
premises located in the vicinity of the COCONUT GROVE MARKETPLACE.
Arbitration shall be by three (3) arbitrators who shall be selected
and who shall act in the same manner as is provided for for
arbitration in the Option Addendum.
The adjusted Monthly Minimum Rent as hereinabove determined shall become
the Monthly Minimum Rent for the next sixty (60) following-month period.
3. Within ten (10) days after any written request by Landlord, Tenant
will enter into an addendum to this Lease with Landlord setting forth and
confirming the new Monthly Minimum Rent as adjusted by the calculations in
Paragraph 2 and the date it commences.
<TABLE>
<S> <C>
CINEMASTAR LUXURY THEATERS, INC.,
a California corporation
Brian Anderson
- ---------------------------------
BRIAN ANDERSON By: Alan Grossberg
---------------------------------
ALAN GROSSBERG
Melvin Shapiro
- --------------------------------- Its: ---------------------------------
MELVIN SHAPIRO
LANDLORD TENANT
</TABLE>
2
<PAGE> 65
EXHIBIT C
CONSTRUCTION SPECIFICATIONS
I. GENERAL REQUIREMENTS
A. Design, construction and materials of Tenant improvements in the
Premises and/or the Common Areas shall be approved by Landlord prior to the
commencement of construction. Drawings and samples shall be submitted in a
timely manner and approved by Landlord prior to the commencement of
construction.
B. Landlord shall pay any fees imposed by any governmental authority to
obtain Building permits. All work performed by or on behalf of Tenant shall be
in accordance with the provisions of this Exhibit C and all applicable federal,
state and local building codes, ordinances and regulations.
C. Quality of workmanship and materials shall be approved by Landlord and
shall be in keeping with the general standards, appearance and motif of the
COCONUT GROVE MARKETPLACE.
D. Warranties for not less than one year against defects in workmanship,
material and equipment shall be provided by Tenant's contractors. On completion,
all facilities shall be in full use without defects.
E. Prior to entering into a contract with any contractor for work in the
Premises and/or the Common Areas, Tenant shall first obtain Landlord's approval
of such contractor.
F. Tenant's contractors shall carry public liability insurance in such
amounts as shall be designated by Landlord. Such insurance policy shall name
Landlord, Landlord's architect and any lender of Landlord, as designated by
notice from Landlord to Tenant, and such other parties as Landlord may specify,
as additional insureds insuring against any liability arising out of any and all
construction work in the Premises and/or the Common Areas and all areas
appurtenant thereto. Tenant's contractors also shall carry or cause to be
carried appropriate workers compensation and employers' liability insurance as
is required by (and which insurance shall be in conformity with) the laws of the
State of Hawaii for all employees and subcontractors working in or about the
Premises and/or the Common Areas. Each such insurance policy shall provide that
it cannot be canceled without at least thirty (30) days' prior notice to
Landlord. A current certificate that each such policy is in effect and, if
required by Landlord, a true copy of each such policy, shall be deposited with
Landlord prior to the commencement of any alterations, improvements or other
construction in the Premises and/or the Common Areas.
G. Tenant shall remove all debris and trash from the Property daily
during and upon completion of all work and construction. If such is not removed
by Tenant, Landlord may do the same at Tenant's cost and expense. Tenant shall
clean and repair any surfaces soiled or damaged by Tenant's construction or the
delivery of materials to the Premises.
<PAGE> 66
H. Tenant's contractors must coordinate all work, deliveries, utility
connections and trash removal with Landlord before proceeding. Tenant or
Tenant's contractors must submit a construction progress schedule for Landlord's
review and approval two (2) weeks prior to the start of Tenant's construction
work.
I. Tenant's construction shall be performed in a manner that will not
interfere with the quiet enjoyment by other tenants, Landlord, guests or
invitees of the Property. Without limiting the generality of the foregoing,
Tenant shall confine all construction activity to the Premises and the required
portions of the Common Areas and shall keep loading and service areas and areas
in front of, beneath or adjacent to the Premises free of equipment, materials,
workers and other obstructions and shall minimize the emissions of noise, dust
and other sources of interference from the Premises.
II. LANDLORD'S WORK
Unless otherwise provided in Exhibits D and/or E attached hereto, Landlord,
at Landlord's expense, shall provide the following:
A. Site Work.
1. Landscaping and planting as may be determined by Landlord.
2. Completion of sidewalks, exterior stairways and walkways.
3. Completion of loading and unloading areas.
4. A compacted and sloped pad certified by the Tenant's architect to
be in conformance with the approved plans and specifications for
the Premises.
B. Utility Distribution Systems.
1. Dry wells, seepage pits, drains, branch sanitary waste lines.
2. Electrical distribution system to Tenant distribution panel
boards. An empty conduit from the distribution panel to the
Premises.
3. An empty conduit for telephone use will be installed from the
telephone company manhole in the street to the Property terminal
boards and then an empty conduit to the Premises.
4. Underground water, sanitary sewer and drains extended to common
service locations within the Property.
5. All utility distributions shall be stubbed to within 5 feet of
the Premises' building lines.
C. Common Areas: All Common Areas shall be designed by Landlord and
constructed by Landlord as follows:
2
<PAGE> 67
1. Materials and finishes: Except as otherwise provided in this
Exhibit C or the Lease Agreement, all materials, landscaping and other
elements in the Common Areas shall be furnished by Landlord.
2. Electrical: All lighting, electrical receptacles, and fire alarm
boxes if any, in the public spaces and service areas, shall be furnished by
Landlord.
III. TENANT'S WORK
Unless otherwise provided in Exhibits D and/or E attached hereto, the
following work is to be performed by Tenant at Tenant's expense. Such work
includes all structural, mechanical and electrical work as well as interior
decoration normally designed by an interior designer or licensed architect.
A. Design Drawings, Working Drawings and Specifications.
1. All design drawings, working drawings and specifications setting
forth in detail Tenant's requirements for the Premises shall be prepared by
a licensed architect or engineer for Tenant.
2. Tenant's work shall comply with any design criteria promulgated
by the Landlord for the COCONUT GROVE MARKETPLACE generally. This criteria
represents minimum standards for all of Tenant's construction designs and
installations.
3. Any modifications and/or deviations from Landlord's criteria
shall be itemized by Tenant and shall be subject to the approval of
Landlord. All costs resulting therefrom shall be borne by Tenant.
4. There will be no changes whatsoever allowed to the exterior
facades by Tenant unless specifically approved by Landlord.
B. Mechanical.
1. Plumbing:
a. Landlord may provide sanitary lateral or stub outs, vents
and water supply stub outs to certain tenant space at location(s) to
be determined by Landlord.
b. Tenant shall do all plumbing and "roughing" work from stub
outs within the Premises. All work shall be approved by Landlord.
2. Fire Protection System. Tenant shall provide necessary piping
and sprinkler drops required for fire protection and extinguishing
equipment and cabinets required by any applicable governmental agency fire
code.
3. Air Conditioning. Tenant shall install an air conditioning system
in the Premises. An equipment layout which includes compressor, fan coil
units, location, piping, connections to fresh air intake and to condensate
drains shall be submitted to Landlord for approval.
3
<PAGE> 68
C. Electrical.
1. Tenant shall have prepared complete drawings of the electrical
system for the Premises by a registered electrical engineer. The electrical
system shall be complete with lighting fixtures, receptacles, and
connections to any special equipment including the feeders from the
distribution board and the extension of the feeder conduit within the
Premises.
2. All lighting fixtures and any special electrical displays shall
have the approval of Landlord and shall not be altered without the prior
consent of Landlord.
D. Permits. Prior to performing any work in or on the Premises or the
Property, Tenant shall obtain, at Landlord's expense, any and all governmental
permits, consents, approvals, licenses, etc. necessary to commence and complete
Tenant's work.
4
<PAGE> 69
EXHIBIT D
(Landlord's Improvements)
1. "Landlord's Work" shall be based on the engineering plans,
specifications, and drawings to be prepared by Tenant pursuant to Exhibits C and
F attached hereto and shall consist of providing Tenant with a certified
compacted pad of not more than 25,000 square feet, sloped to Tenant's
specifications, all required parking, all landscaping, all on-site paving,
parking, curbs, gutters, and sidewalks, all irrigation and all utilities stubbed
to within 5 feet of Tenant's building line.
2. The time in which Tenant and Landlord shall complete the Tenants Work
and the Landlord's Work may be extended pursuant to Paragraph 34 of the Lease.
3. Both parties shall perform their obligations under this Lease with
reasonable skill and diligence and may not intentionally interfere with or
prevent the other party's performance of its obligations under this Lease.
<PAGE> 70
EXHIBIT E
(Tenant's Improvements)
1. "Tenant's Work" shall consist of the construction of a first-class
theater building, and including, without limitation, all architecture and
engineering; all building structural costs and project management, including,
without limitation, all contingencies necessary for a first class theater
building including, a second floor mezzanine structure; concrete sloped and flat
floors; auditorium dividing walls; long span roof structure; complete fire
sprinkler system; stairways; drop ceiling; completed electrical; finished
plumbing (to include full, finished, and fixturized restroom facilities);
emergency exit-ways; all HVAC systems; storefront exit doors; all hardware; all
signage, (including a readerboard and marquee,) and all utilities, all as
provided in this Exhibit E and Exhibit C attached hereto.
2. Tenant's work shall also include all work necessary to complete
interior finishing improvements for a first-class motion picture exhibition
theater with approximately 25,000 square feet of Ground Floor Area, and in
accordance with all applicable governmental regulations which shall consist of,
without limitation, state-of-the-art screens, speakers, carpeting, auditorium
wall coverings, projection equipment, concession equipment, fixturization,
installation of seating, installing of furniture, and subject to approval of
applicable governmental entities.
3. Within forty five (45) days from the Effective Date of this Lease,
Tenant shall cause the Preliminary Plans to be prepared ("Preliminary Plans")
and thereafter submit the Preliminary Plans to Landlord for its approval or
disapproval, which approval shall not be unreasonably withheld or delayed and
which approval or disapproval shall be given within thirty (30) days following
receipt of the Preliminary Plans by Landlord. After Landlord has approved a set
of Preliminary Plans, Tenant shall cause its architect to prepare final plans
and specifications ("Final Plans") which shall be based upon and fall within the
scope of the Preliminary Plans approved by Landlord, which Final Plans shall be
submitted to Landlord for approval, (which approval shall not be unreasonably
withheld,) in the same manner and with the same procedure set forth for approval
of Preliminary Plans (the "Approved Plans"). Once approved by Landlord, Tenant
shall, within thirty (30) days submit the Approved Plans to the appropriate
governmental authorities for their approval. In connection with the governmental
approval process and subsequent construction, Tenant may, if required by any
applicable governmental agency, make any changes to the Approved Plans it may
deem reasonably necessary to obtain approvals, and may, without Landlord's
approval, make changes which are within the general scope of the Final Plans
approved by the Landlord. Otherwise, the Approved Plans shall not be modified or
amended without the prior written consent of Tenant and Landlord provided,
however, that Landlord's consent shall not be required for minor field changes
to conform to governmental requirements or the recommendations of the contractor
or architect. In the event Landlord disapproves of the Preliminary or Final
Plans ("Disapproved Plans"), Landlord shall notify Tenant in writing ("Notice of
Disapproval of Plans")
<PAGE> 71
within the above Thirty day (30-day) period and, at the same time, return to
Tenant one (1) set of the Disapproved Plans marked to show wherein the
Disapproved Plans have been disapproved. Tenant shall cause the, Disapproved
Plans to be appropriately revised, in a manner satisfactory to Landlord and
Tenant within Thirty (30) days of Tenant's receipt of Landlord's Notice of
Disapproval of Plans and submit to Landlord two (2) complete sets of the revised
Tenant's Plans for approval by Landlord. Landlord and Tenant agree to cooperate
reasonably with each other in resolving any objections to the Tenant's Plans or
requested revisions, provided that Tenant has diligently attempted, in a timely
manner, to obtain approval of the Final Plans from all governmental agencies.
Landlord or Tenant may terminate this Lease if, for any reason whatsoever,
Landlord and Tenant should fail to agree upon mutually satisfactory Preliminary
Plans within seventy-five (75) days of the date Tenant first submits the
Preliminary Plans to Landlord, or should Landlord and Tenant fail to agree upon
mutually satisfactory Final Plans within seventy (75) days of the date Tenant
first submits the Final Plans to Landlord, or in the event that all governmental
agencies have not approved and issued all necessary building permits for
Tenant's Work within Three Hundred & Sixty (360) days from the Effective Date of
this Lease.
4. Tenant shall, within Thirty (30) days of receipt of the necessary
permits and approvals from the applicable governmental agencies, commence actual
construction of Tenants Work. The time in which Tenant and Landlord shall
complete the Tenant's Work and the Landlord's Work may be extended pursuant to
Paragraph 34 of the Lease.
5. Both parties shall perform their obligations under this Lease with
reasonable skill and diligence and may not intentionally interfere with or
prevent the other party's performance of its obligations under this Lease.
<PAGE> 72
Tenant: CINEMASTAR LUXURY THEATERS, INC.,
Date: ____________________
EXHIBIT F
CONFIRMATION OF RENT COMMENCEMENT DATE
Landlord and Tenant hereby agree and confirm that the Rent Commencement
Date, as that term is defined in Tenant's Lease for the COCONUT GROVE
MARKETPLACE, was __________________, ______ and that the initial term of the
Lease shall be deemed to have begun as of this Rent Commencement Date. We also
hereby confirm that the Termination Date of the initial term of this Lease shall
be as provided in Paragraph B of the Special Lease Provisions or (if applicable)
_______________________, ______, whichever is LATER.
Landlord and Tenant further agree and confirm that:
1. The actual square footage of the Premises is _____________ sq. ft.;
and
2. Tenants percentage share of the Property maintenance and operating
expenses for purposes of Paragraph C.3 of the Special Lease Provisions
is ___________%.
<TABLE>
<S> <C>
CINEMASTAR LUXURY THEATERS, INC.,
a California corporation
_________________________________ By: __________________________________
BRIAN ANDERSON
_________________________________ Its: _____________________________
MELVIN SHAPIRO
LANDLORD TENANT
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
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