SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20559
FORM 10-KSB
(Mark One)
(x) Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
or
( ) Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 000-22845
CREATIVE HOST SERVICES, INC.
(Exact name of registrant as specified in its charter)
California 33-1069494
(State of Incorporation) (I.R.S. Employer Identification No.)
6335 Ferris Square, Suites G-H, San Diego, California 92126
(Address of principal executive offices) (Zip Code)
(619) 587-7300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On Which
Title of Each Class Registered
Common Stock NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Revenues for fiscal year 1997 were $9,802,529
The aggregate market value of voting stock held by non-affiliates of
the registrant was $5,406,168 as of March 26, 1998 (computed by reference to the
last sale price of a share of the registrant's Common Stock on that date as
reported by NASDAQ).
There were 3,098,492 shares outstanding of the registrant's Common
Stock as of March 26, 1998.
<PAGE>
PART I
ITEM 1. BUSINESS
The Concession Business
The Company is primarily engaged in the business of acquiring and
operating food, beverage and other concessions at airports throughout the United
States. The Company currently has 30 operating concession facilities at 16
airports, 29 of which are Company owned and one of which is franchised,
including concessions at Los Angeles International Airport, Denver International
Airport, Portland International Airport, and the airports in Aspen, Colorado;
Orange County, California; Madison and Appleton, Wisconsin; Lexington, Kentucky;
Asheville and Greensborough (Piedmont Triad), North Carolina; Allentown,
Pennsylvania; Roanoke, Virginia; Columbia, South Carolina; Sioux Falls, South
Dakota; and Cedar Rapids and Des Moines, Iowa. In addition, the Company has been
awarded contracts for the construction of six additional concession facilities,
including two locations at Ontario, California; one location at John F. Kennedy
International Airport, in New York City; one location at Midland, Texas; and two
additional locations at Des Moines, Iowa. The Company expects to commence
operations at each of these six additional facilities in 1998. The airport
contracts include concessions that range from a concession to operate single and
multiple food and beverage outlets to a master concession to operate all food
and beverage, as well as news and gift and merchandise, locations at an airport.
The Company's airport concession business is complemented by inflight catering
contracts awarded to it by major airlines at certain airports. The Company
currently utilizes its existing facilities at airports to provide fresh meals to
airlines.
Concessions to operate food and beverage and other retail operations at
domestic airports are generally granted by an airport authority pursuant to a
request for proposal process. Proposals generally contain schematic drawings for
the concession layout, a commitment to make capital improvements at the
concession location, and sample menus. Rent is paid to the airport authority on
the basis of a percentage of sales, with a minimum amount of rent guaranteed by
the concessionaire. For airport locations with a history of operations, the
Company evaluates information concerning historical revenues for the location in
determining the amount to bid for both percentage and minimum rent. For
locations which are newly constructed, the Company evaluates projections for the
number of passengers expected to use the airport and amounts to be spent per
person at airport concessions in forming a projection for revenues. As a result
of the requirement to make capital improvements, the Company makes large capital
outlays at the beginning of a concession term, which it seeks to recover during
the remaining term. Concessions are usually awarded for a ten year period.
Generally concessions are resubmitted for proposals at the end of the term and
the Company would have to resubmit a bid to secure an additional ten year term.
The Company has secured nearly all of its existing airport concessions
through the request for proposal process. The Company believes its success in
securing concessions through this process is attributable to tailoring its bids
to a specific airport's needs, offering a unique selection of quality food and
beverages, and a distinctive decor. In its proprietary menu items the Company
strives to provide foods which are healthy and higher quality than typical fast
food or cafeteria style products, while maintaining value pricing. The Company's
Bakery/Deli style restaurants feature a selection of croissant sandwiches and a
selection of vegetable, fruit and pasta salads. At locations which are
anticipated to have higher revenues, the Company's strategy is to secure
franchise relationships with nationally recognized food and beverage companies
as part of its proposals. The Company has entered into agreements with several
such companies, including Carl's Jr., Little Caesar's Pizza and TCBY Yogurt.
Under these arrangements, the Company owns the concession rights from the
airport authority and the Company's employees operate the location. The Company
then pays franchise fees under a franchise agreement. The Company's strategy is
to continue to develop relationships with a number of national and regional food
and beverage companies, which it expects will provide it the flexibility to
tailor product offerings to meet a particular airport's desires.
While the Company has seriously pursued the submission of proposals
only since 1995, it has been successful in a significant number of the proposals
it has submitted. Management attributes this success in winning airport
proposals principally to its efforts to customize each bid, striving to make
creative proposals that address local preferences and distinguish the Company
from its competitors in its offering of decor as well as food products. The
following are examples of the Company's approaches to the concession business:
2
<PAGE>
Master Concession: The Company will generally seek to become the master
concessionaire for all airport services, including food and beverage, lounge and
bar, specialty retail, news and gifts, and other services at airports with at
least 400,000 enplanements per year. The Company currently serves as the master
concessionaire at the Cedar Rapids, Iowa airport.
Cafe and Spirits: If the opportunity for a master concession is not
available, then the Company submits bids utilizing specific food and beverage
concepts, or other service concepts depending on the nature of the concession.
One such concept is "cafe and spirits" featuring various branded and nonbranded
food and beverages, such as TCBY Yogurt and Creative Croissants, along with a
bar, lounge and mini library. The Company currently operates Cafe and Spirts
formats at all Creative Croissants locations serving liquor with the exception
of Los Angeles International Airport and Portland International Airport.
Creative Croissants(R) Bakery Deli: Depending on the preference of the
airport authority and the available concession category, the Company can submit
proposals for the bakery/deli concept either on a stand alone basis or in a food
court. The Company currently operates Creative Croissants, either stand alone or
a part of a food court at every airport it currently services.
"Panache Coffees": For smaller areas on a more dispersed basis, the
Company has entered into an agreement with Panache Coffees to meet the growing
demand for coffee beverages at airports. The Company has presented this concept
in a kiosk format and as part of other food and beverage facilities. The Company
currently has four Panache Coffee outlets at four airports with plans to add
additional locations at four existing airport concession locations.
"Creative Juices": Fresh fruit juices and fruit smoothies seem to be
growing in popularity, resulting in the demand for small areas with juice bars
at airports. The Company has successfully implemented its Creative Juice concept
at its airport facilities at Denver International Airport and plans to add
additional facilities at Des Moines and Piedmont Triad airports.
"Haute Dogma": The Company has developed a concept for gourmet hot dogs
which can be implemented in a built-out concession, as part of a food court or
as a free-standing cart. The Company operates a built-out concession at the
Denver International Airport under the "Haute Dogma" concept, and plans to open
additional facilities at Des Moines, Piedmont Triad, Asheville and Sioux Falls
airports.
The Company has also sought to expand its physical presence at airports
by acquiring existing concessionaires with one or more airport locations.
Generally, the airport authority overseeing the operations at the airport will
have the right under the existing concession agreement to approve of the change
in control. As a result, the strengths the Company demonstrates in the RFP
process are used to secure the consent of an airport authority to a transfer of
concession rights in an acquisition of an existing location. The Company has
typically negotiated for an extension of the concession term in exchange for
additional capital improvements or additional facilities or menu items to be
offered at the concession location as part of securing the airport authority's
consent to the transfer.
The Company's strategy is to expand its concession business to more
airports in the United States, and eventually to other public venues. The
Company also intends to seek to expand the types of concession services which it
provides, and to be awarded more multiple and master concession contracts such
as the one it has been awarded for the Cedar Rapids, Iowa airport. While the
Company has historically focused on the food and beverage segment, it intends to
seek concession awards to provide news stands, gift shops, specialty stores and
other services to augment the Company's food and beverage business at airports
and other venues.
In analyzing a concession opportunity, particularly in the airport
industry, the Company evaluates the following factors, among others: (1) the
estimated rate of return on the investment in the facilities, (2) the historical
performance of the location, (3) the historical and estimated future number of
annual enplanements at the airport, (4) the competition in the vicinity of the
proposed facility, (5) the rent and common area maintenance charges for the
proposed facilities and (6) the
3
<PAGE>
length of the proposed concession term. In customizing the design proposal and
theme for a concession opportunity, the Company analyzes the character of the
community and the expected preferences of the patrons (for example, whether they
are primarily tourists or business persons) to determine the most attractive
facility. The scope of the contract and the size and shape of the site are other
elements considered in the analysis.
Once the Company has been awarded a concession contract at an airport,
it is generally scheduled to assume the management of the existing facilities
within 90 to 120 days of the award, or to commence construction of an entirely
new facility within three to six months of the award. The Company is generally
required to place three types of bonds with an airport authority before it may
take over operations at a concession. In connection with its bid, it is required
to post a bond for the amount of capital improvements it is committed to make at
the airport. During commencement of construction for any specific construction
project, the Company is required to post a construction bond for the specific
facilities to be constructed. This bond terminates upon completion of each
specific project and the bond for all of the capital improvements expires upon
completion of all capital improvements for the airport. In addition, the Company
is required to post a performance bond to cover some specified percentage of the
Company's minimum rent obligations. This bond remains in place during the term
of the concession. To date the Company has not experienced significant
difficulty in securing bonds for its obligations to various airport authorities.
The Company's bonding capacity is limited by its size, and has therefore limited
the projects on which it could bid. If the Company continues to grow, it
anticipates increasing its bonding capacity and the ability to bid for larger
projects at the largest domestic airports.
Typically the Company operates an existing facility for two to three
months before beginning the remodeling of the site according to the
specifications in its airport bid proposal. During the remodeling phase of an
existing facility, which usually takes 45 to 60 days, the facility will either
be closed or will serve at minimal levels. Once the remodeling is completed, the
facility opens for full service business, generally for most hours during which
the airport is actively operating.
Inflight catering has traditionally generated higher gross profit
margins than the Company's airport concession business. Consequently, management
intends to expand its inflight catering services. The Company currently has
inflight catering contracts with several major airlines at specific airports,
including Delta Airlines, U.S. Air, United Airlines and Northwest Airlines. The
Company also provides inflight catering services for charter flights. The
potential for direct sales of bakery items from the Company's food preparation
center to the major airlines is also being pursued. The Company intends to
continue to bid on direct inflight catering contracts with airlines as it
expands into new airport locations. There can be no assurance that the Company
will be successful in this market.
Concession Locations
The following table identifies the Company's existing airport
concessions and those which have been awarded and are expected to being
operations in 1998:
4
<PAGE>
Existing and Awarded Concession Locations
<TABLE>
Date of
Completion
or Expected Year Ended
Date Commenced Completion of Expiration Date December 31
Name/Location of Concession Description of Concession Operations Remodeling of Contract 1997 Revenue(7)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Midland, Texas Food and Beverage (one location) Not Yet Opened October 1998 September 2007 N.A.
Ontario, California Food and Beverage (two locations) Not Yet Opened October 1998 July 2008 N.A.
John F. Kennedy International Food and Beverage (one location) Not Yet Opened September 1998 May 2008(2) N.A.
Greensborough (Piedmont Triad) Food and Beverage (three December 1997 July 1998 May 2008 $123,349
North Carolina locations)
Asheville, North Carolina Food and Beverage (one location); November 1997 June 1998 November 1997 72,408
News & Gift (one location)
Sioux Falls, South Dakota Food and Beverage (two August 1997 July 1998 August 2007 358,077
locations); Inflight Catering
Des Moines, Iowa Food and Beverage (four locations July 1997 Two in April 1998; July 2007(3) 545,110
-- two existing and two to be newly two in June 1998
constructed)
Allentown, Pennsylvania Food and Beverage (one location); July 1996 January 1998 July 2006 1,119,926
Inflight Catering
Columbia, South Carolina(1) Food and Beverage (two October 1996 October 1997 October 2006(4) 944,344
locations); Inflight Catering
Cedar Rapids, Iowa(1) Master Concession, Food and November 1996 October 1997 March 2004(5) 1,191,285
Beverage (two locations), News &
Gifts (one location), Specialty
Stores (one location); Inflight
Catering
Lexington, Kentucky(1) Food and Beverage (two July 1996 February 1997 July 2006 699,939
locations); Inflight Catering
Roanoke, Virginia(1) Food and Beverage (two June 1996 January 1997 June 2006 489,035
locations); Inflight Catering
Appleton, Wisconsin(1) Food and Beverage (one location) January 1996 January 1996 July 2005 238,095
Madison, Wisconsin(1) Food and Beverage (two locations) January 1996 July 1996 January 2006 735,716
Portland International Food and Beverage (one location) October 1995 October 1995 June 2005 468,225
Los Angeles International Food and Beverage (one location) June 1995 September 1995 June 2005(6) 1,419,629
Aspen, Colorado(1) Food and Beverage (one location) May 1994 May 1994 September 1999 345,118
</TABLE>
5
<PAGE>
<TABLE>
Date of
Completion of
Expected Year Ended
Date Commenced Completion of Expiration Date December 31
Name/Location of Concession Description of Concession Operations Remodeling of Contract 1997 Revenue (7)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Denver International Food and Beverage (four February 1995 One completed February June 2003 and 171,153
locations) 1995; one completed November 2006
December 1997; third
expected to open June
1998; one completed and
anticipated to open upon
terminal opening
Orange County Food and Beverage September 1990 Completed - Franchisee February 2001(5) N.A.
(one location) Renewed Owned
February 1996 ________________
TOTAL 8,921,409
</TABLE>
- -----------
(1) The Company is currently the sole food and beverage concessionaire at
this airport.
(2) Delta Airlines, the owner of the airport terminal, has reserved the
right under its concession agreement with the Company to recapture the
premises upon 30 days notice and payment for the Company's
improvements.
(3) The airport retains the right under the concession to recapture the
premises upon payment for the Company's improvements.
(4) After the initial year of the term, the airport authority has the
right to terminate the concession upon payment to the Company of its
"remaining business interest" in the concession.
(5) Can be terminated by the airport on 90 days notice.
(6) After June 2001 can be terminated by the airport upon 90 days notice.
(7) Does not include discontinued operations at the Los Angeles Library.
6
<PAGE>
The following table shows location sales for each airport concession
location operated by the Company in fiscal 1997. The total pro forma annual
concession revenues as represented below for 1997, consist of the sum of (i) the
actual Company revenues for each location and, (ii) the historical revenues
(unaudited) at each of those locations for the portion of 1997 in which the
location was under previous ownership.
<TABLE>
Year Ended December 31, 1997 Revenue
--------------------------------------------------------------
Previous The Company Total Pro Forma
Location Operator(1) Owned(10) Revenue
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allentown, PA...................................... -- 1,119,926 1,119,926
Appleton, WI....................................... -- 238,095 238,095
Asheville, NC(2)................................... 441,308 72,408 513,716
Aspen, CO.......................................... -- 345,118 345,118
Cedar Rapids, IA................................... -- 1,191,285 1,191,285
Columbia, SC....................................... -- 944,344 944,344
Denver, CO(3)...................................... 771,516 171,153 942,669
Des Moines, IA(4).................................. 562,438 545,110 1,107,548
New York (JFK), NY(5).............................. - -- --
Greensborough (Piedmont Triad), NC(6).............. 1,680,170 123,349 1,803,519
Los Angeles, CA.................................... -- 1,419,629 1,419,629
Lexington, KY...................................... -- 699,939 699,939
Madison, WI........................................ -- 735,716 735,716
Midland, TX(7)..................................... -- -- --
Ontario, CA(8)..................................... -- -- --
Portland, OR....................................... -- 468,225 468,225
Roanoke, VA........................................ -- 489,035 489,035
Sioux Falls, SD(9)................................. 545,729 358,077 903,806
--------------------------------------------------------------
TOTAL 4,001,161 8,921,409 12,922,570
</TABLE>
- -------------------
(1) These figures represent the estimated, unaudited revenues of the
previous operator of the location for the portion of the 1997 year
prior to acquisition of the location by the Company. The information
concerning revenues received by prior operators of the concession
location has been provided by airport authorities or the prior
operator for the concession location. While the Company has no reason
to believe there are any inaccuracies in such information, the Company
has not independently verified the information provided to it.
(2) The Company began operations in November 1997.
(3) The Company began operations at one location in November 1997; and one
location in December 1997 and expects to open one more location in
June 1998 and one more location to open upon terminal opening.
(4) The Company began operations in July 1997.
(5) The Company expects to open the location in September 1998.
(6) The Company began operation in December 1997.
(7) The Company expects to open the location in October 1998.
(8) The Company expects to open the location in October 1998.
(9) The Company began operations in August 1997.
(10) Does not include discontinued operations at the Los Angeles Public
Library.
7
<PAGE>
Food Preparation Center
The Company operates a 4,635 square foot food preparation center
located at 6335 Ferris Square, Suites G-H, San Diego, California which is
adjacent to its corporate headquarters. The center is currently operating at
approximately 35% capacity. Using its proprietary recipes, the Company prepares
several bakery items sold at the Creative Host concessions and at franchise
restaurants (described below), including regular croissants, croissants filled
with meat, cheeses and vegetables, pastries, muffins and other bakery foods. The
bakery foods are prepared, frozen in dough form and regularly shipped to
concessions and franchisees where they are baked and served on a daily basis.
In addition to supplying the airport concessions, inflight catering and
franchise restaurant business, the Company also sells finished bakery foods
produced at its food preparation center to restaurants and other food outlets in
the San Diego area. These outside customers include hotels, institutions and
mobile food carriers. The Company may establish and operate additional food
preparation centers in the future to the extent that it expands geographically
and increases the number of concessions. There is no assurance that the
Company's sales to outside customers will maintain their present levels or grow
in the future.
The Company has entered into an agreement with Sysco Food Services
Corporation ("Sysco"), to provide distribution services. Under the arrangement,
Sysco picks the food items produced at the food preparation center and stores
them in Sysco's facilities. Sysco then distributes those food items as well as
certain other food and related supplies to each of the Company's airport
concession locations. All of the purchasing for the concession locations, except
for certain perishable items such as dairy and produce, is done through Sysco
resulting in uniform cost of goods and centralized costs controls.
Franchise Operations
From 1986 through 1994, the Company was actively engaged in the
business of franchising restaurants under the "Creative Croissant" name. The
Company's restaurant franchise business was not successful, and in 1990, the
Company began the transition to company-owned airport concessions that is the
major focus of its current business plan. The Company continues to have
franchise relationships with 9 restaurant franchisees, excluding the Orange
County airport concession which is operated by a franchisee.
Creative Croissant franchise restaurants are generally located in
regional malls, specialty centers, high rise office buildings and other areas
with heavy pedestrian traffic. All of the Company's franchise operated
restaurants are located in California, in the following cities: San Diego,
Laguna Niguel, Mission Viejo, Orange, Laguna Hills, Martinez, Torrance, San
Francisco, and Walnut Creek. Although all franchisees remain current in their
purchase of food products, currently 8 of 9 franchises are in default on their
monthly royalty payment obligations to the Company. This default amounts to
approximately $3,500 per month in lost royalties.
The Company expects the revenues from franchising (approximately 1% of
total revenues for the nine month period ended December 31, 1997) to remain
unchanged or decline over time as the Company concentrates on expanding its
concession business and establishing more Company owned facilities at airports
and other public venues. If the Company is able to establish a greater national
brand name presence, through its airport and other concession business, then it
may devote some resources to the development of the franchising segment of its
business. In the meantime, it may continue to sell franchises in special
situations when a franchise would be more advantageous to the Company than a
Company owned facility, when financing is not otherwise available, or generally
in situations that do not involve concession contracts.
8
<PAGE>
Marketing and Sales
The Company's marketing strategy involves two fundamental components:
(i) securing the concession and (ii) increasing sales once the concession has
been granted. The Company plans to continue to concentrate its marketing and
sales efforts on acquiring high volume concessions at airports and to evaluate
other public venues with high, captive pedestrian traffic such as sports
stadiums, public libraries, zoos and theme parks throughout the United States.
For the near future, the Company intends to focus on the approximately 123
airports in the United States with over 400,000 enplanements per year. In those
smaller regional airports, the Company, whenever possible, will seek to be the
master concessionaire for all concession operations conducted at such airports.
The Company targets the airport concession business through its
presence at airport authority association meetings and trade shows, its network
of existing relationships in the airport business community, and its submission
of bids in response to requests for proposals ("RFPs") by airports. By
continually monitoring the availability of RFPs at airports throughout the
nation, the Company seeks to be involved in every RFP that is economically
feasible for it. In bidding for concessions, the Company focuses on those
airports with locations indicating that the concession will earn annual gross
revenues of from $500,000 to $2,000,000. Once a concession has been targeted,
the Company develops a customized bid tailored to address a theme or culture
specific to the concession location. Management is currently working with
airport managers to design unique and exciting food court areas with a variety
of food choices, comfortable seating and self serve options without the
inconveniences of traditional restaurants. The Company's proposals for airports
include children's play areas, reading areas, mini-libraries and computer
services.
The Company has developed several marketing techniques for the Creative
Host concession locations to encourage sales at concessions and to provide
additional sources of revenues. To compete within an airport, the Creative Host
approach is to combine aroma and showmanship with high quality fresh and
nutritious foods at value prices to attract customers. The Company's food and
beverage facilities have traditionally been designed with a European flair for
fresh, healthy and nutritious gourmet and specialty foods, served quickly and at
value prices. The desired atmosphere has been one of a European sidewalk cafe
with carved wood display cases and the use of brass, wood, marble and glass.
Depending on their size, the facilities feature European style hot meal
croissants filled with meats, cheeses and vegetables, gourmet coffees, fresh
salads, nondairy fresh fruit shakes and other foods and beverages. Low fat, low
cholesterol ingredients are utilized whenever possible, consistent with
maximizing flavor. No artificial flavors or preservatives are used in any of the
baked goods. A large bakery oven and brass eagle domed espresso machine creates
an inviting, aromatic atmosphere. Several of the concession facilities have an
espresso bar, a variety of coffee selections or a juice bar. While maintaining
its philosophy of offering healthy foods, value pricing and quick service, the
Company is diversifying into agreements with renowned food and beverage
suppliers such as Carls Jr., Little Ceasar's Pizza and TCBY Yogurt. The food and
beverage concessions sell gourmet coffee beans as gift packages, colorful sports
bottles and thermal coffee mugs featuring the "Creative Croissants(R)" logo and
key menu items, custom gift baskets and other promotional merchandise. Currently
the Company is test marketing fresh fruit juice bars operated under the name
"Creative Juices", which it recently introduced at the Los Angeles International
Airport.
Competition
The concession industry is extremely competitive and there are numerous
competitors with greater resources and more experience than the Company. The
dominant competitors in the airport concession market are Host Marriott Services
Corporation and CA One Services, Inc., which have been serving the airport
concession market for decades. Host Marriott and CA One Services have
established a marketing strategy of offering comprehensive concession services
to airport authorities in which they submit a bid on an entire airport or
terminal complex, and often provide a well known franchise such as McDonalds or
Burger King as part of their package. They generally operate large airport
master concessions with annual sales in excess of $2.2 million.
Other formidable competitors in the concession business, especially
food and beverage, are Service America Corporation, Anton Food, Concession
International, Air Host, Inc., ARA Services, Canteen Corporation, Morrison's
Hospitality Group, Gardner Merchant Food Services, Seiler Corporation, Service
Master Food Management Services and
9
<PAGE>
others. Other competitors such as Fine Host, Inc., Paradies and W.H. Smith
compete in the market for providing retail concession services to airports.
Dobbs International and Sky Chefs, LSG dominate the inflight catering business.
The Company is focusing initially on the smaller airport concessions
where competition from large competitors is less intense. However, there are a
limited number of concession opportunities domestically. If the Company achieves
greater penetration in the regional airports, it will be required to enter into
larger domestic airports, or other venues to sustain its growth. Entry into
larger domestic airports will necessarily involve direct competition with Host
Marriott and CA One Services.
The Company differentiates itself in all markets in the design and
product mix it offers to a particular airport. The Company designs its
concession bids and facilities around unique themes or concepts that it develops
for each location. In this manner, the Company seeks to appeal to airport
authorities that are seeking individual bidders with interesting and creative
food concepts, both to boost the airport's income from percentage rents and to
enhance the look and reputation of the airport and the cities it serves. The
Company also offers a variety of food concepts with an emphasis on fresh foods
and high quality, while maintaining a value-oriented price.
Government Regulation
The airport concession business is subject to the review and approval
of government or quasi government agencies with respect to awarding concession
contracts. In addition, food and beverage concessions are subject to the same
rigorous health, safety and labor regulations that apply to all restaurants and
food manufacturing facilities. Concession businesses are also subject to labor
and safety regulations at the local, state and federal level. Concessions
granted by airport authorities and other public agencies may also be subject to
the special rules and regulations of that agency, including rules relating to
architecture, design, signage, operating hours, staffing and other matters.
Failure to comply with any of these regulations could result in fines or the
loss of a concession agreement.
The Federal Aviation Administration requires airports receiving federal
funds to award contracts for concession facilities producing at least 10% of
total airport concession revenue to certain designated categories of entities
that qualify as a Disadvantaged Business Enterprise ("DBE"). The federal
requirements do not specify the nature or manner in which the DBE must
participate. Historically, companies in the industry have relied on hiring DBE
employees, purchasing provisions from DBE suppliers, contracting for services
from DBEs or subcontracting a portion of the concession to a DBE in order to
meet this requirement. When the Company entered the airport concession business,
its Common Stock was owned entirely by Mr. Sayed Ali, a native of Pakistan. As a
result, the Company qualified as a DBE. The Company's status as a DBE assisted
it in securing concession awards with several airports, and some of the
Company's concession agreements specify that it will retain its DBE status. As a
result of the Company's recent initial public offering, Mr. Ali's ownership in
the Company decreased to approximately 30%. It is unclear what impact this will
have on the Company's status as a DBE. The Company has succeeded in securing
airport concession contracts at 7 additional locations since its initial public
offering, although the Company is not aware of the extent to which the Company's
DBE status, or lack thereof, was a factor in the airport authorities' decisions
to award such contracts to the Company. The federal rules do not specify a
required percentage ownership for DBE status, so the Company will have to
address the issue on an airport by airport basis. If necessary, the Company will
comply with a particular airport's request for additional DBE participation
through the industry practice of hiring or contracting with other DBEs. The
Company believes that it will retain its existing locations and can continue to
secure new concessions on the basis of the products and services it offers and
its industry reputation. To the extent the Company's historic rate of success in
securing airport concessions is attributable to its clear status as a DBE, its
growth rate may decline.
The restaurant industry and food manufacturing businesses are highly
regulated by federal, state and local governmental agencies. Restaurants must
comply with health and sanitation regulations, and are periodically inspected
for compliance. Labor laws apply to the employment of restaurant workers,
including such matters as minimum wage requirements, overtime and working
conditions. The Americans With Disabilities Act applies to the Company's
facilities prohibiting discrimination on the basis of disability with respect to
accommodations and employment. Food preparation
10
<PAGE>
facilities must comply with the regulations of the United States Department of
Agriculture, as well as state and local health standards.
Franchising is regulated by the Federal Trade Commission and by certain
state agencies, including the California Department of Corporations. In
addition, the California Franchising Law contains specific restrictions and
limitations on the relationship between franchisors and franchisees. Franchisors
such as the Company must file an annual Franchise Offering Circular with the
Federal Trade Commission and certain states (many states do not regulate the
offer and sale of franchises) every year. The Company believes that its
franchise agreement is consistent with California law. The Company is currently
registered as a franchisor in California, Arizona and Colorado, and sells in
certain other states such as Nevada which do not require franchise registration.
Employees
The Company has over 300 employees, including 15 in food preparations,
12 in administration and 275 in operations. As the Company expands and opens
more concessions, the Company anticipates hiring additional personnel including
administrative personnel commensurate with growth. The Company does not have a
collective bargaining agreement with its employees and is not aware of any
material labor disputes.
Trademarks
The Company has one registered trademark with the United States Patent
and Trademark Office on the Principal Register, registered as "Creative
Croissants(R)." In addition, the Company is in the process of filing trademark
applications to register the names "Creative Host Services, Inc." and "Haute
Dogma," and as its business develops, the Company plans to continue to develop
merchandising of trademark products, such as clothing, drinking bottles, mugs
and other similar products, utilizing its service marks and trademarks in order
to generate additional revenues. The Company's policy is to pursue registrations
of its marks wherever possible. The Company is not aware of any infringing uses
that could materially affect its business or any prior claim to the trademarks
that would prevent the Company from using such trademarks in its business.
ITEM 2. PROPERTIES
The Company's executive offices and food preparation center are located
in a 8,334 square foot facility at 6335 Ferris Square, Suites G-H, San Diego,
California. The combined facility is covered by a five-year lease terminating
April 15, 2002 with monthly payments of $4,506 plus common area maintenance
charges. The Company has one option to extend the term for an additional
five-year period. The Company believes its new facilities will be adequate to
accommodate production of two to three times its current levels.
The Company also leases space as part of its airports concession
operations. In addition, the Company occasionally leases restaurant space which
it assigns to operators in connection with franchise operations.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings to which the Company or any of
its subsidiaries was a party in the fiscal year ended December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of securityholders during the
fourth quarter of Fiscal 1997.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on the NASDAQ Market under the symbol
CHST. The Company completed its initial public offering on July 22, 1997 and its
stock began trading on the Exchange at that time. The number of recordholders of
the Common Stock was 130 on March 30, 1998. The Company believes that there are
a significant number of beneficial owners of its Common Stock whose shares are
held in "street name." The closing sales price of the Common Stock on March 26,
1998 was $2.50 per share.
The high and low stock closing sales prices for quarter since the
Company's initial public offering as follows:
Low High
-------------------------------
September 30, 1997 $ 3.81 $ 4.75
December 31, 1997 $ 1.81 $ 2.37
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
With the exception of historical matters, the matters discussed in this
commentary are forward looking statements that involve risks and uncertainties.
Forward looking statements include, but are not limited to, statements
concerning anticipated trends in revenues, the future mix of Company revenues,
the ability of the Company to reduce certain operating expenses as a percentage
of total revenues, the ability of the Company to reduce General and
Administrative Expenses as a percentage of total sales, and the potential
increase in net income and cash flow The Company's actual results could differ
materially from the results discussed in such forward looking statements.
Factors that could cause or contribute to such differences include the inability
to obtain the substantial additional capital necessary to complete construction
of capital improvements awarded under existing concession agreements, possible
early termination of existing concession contracts, possible delay in the
commencement of concession operations at newly awarded concession facilities,
the need and ability to attract and retain qualified management to manage
operations, the need to obtain continuing approvals from government regulatory
authorities, the term and conditions of any potential merger or acquisition of
existing airport concession operations.
Overview
The Company commenced business in 1987 as an owner, operator and
franchisor of French style cafes featuring hot meal croissants, fresh roasted
gourmet coffee, fresh salads and pastas, fruit filled pastries, muffins and
other bakery products. The Company currently has 9 restaurant franchises which
operate independently from its airport concession business. The restaurant
franchise business has never been profitable for the Company. Although the
Company maintains a current offering circular on file with the FTC and various
state authorities, the Company has not sold a new franchise since 1994.
In 1990, the Company entered the airport food and beverage concession
market when it was awarded a concession to operate a food and beverage location
for John Wayne Airport in Orange County, California, which is currently operated
by a franchisee. In 1994, the Company was awarded its first multiple concession
contract for the Denver International Airport, where it was awarded a second
concession in 1994 and two subsequent concessions in 1996. The success of the
franchisees operating the Orange County and Denver International Airport
concessions prompted the Company to enter into the airport concession business.
Since 1994, the Company has opened 28 concession locations at 13 airports. In
1996, the Company was awarded its first master concession contract for the
airport in Cedar Rapids, Iowa, where it has the right to install and manage all
food, beverage, news, gift and other services.
As a result of this transition in its business, the Company's
historical revenues have been derived from three principal sources: airport
concession revenues, restaurant franchise royalties and wholesale sales from its
food preparation
12
<PAGE>
center. These revenue categories comprise a fluctuating percentage of total
revenues from year to year. Over the past three years, revenues from concession
operations have grown from 59% of total revenues in 1995 to 92% of total
revenues in 1997.
As of December 31, 1996, the Company had working capital of $(938,224).
As of December 31, 1997, the Company had working capital of $178,285. Capital
improvement costs incurred to meet the requirements of new airport concession
contracts have placed substantial demands on the Company's working capital. In
February 1997, the Company completed a private placement of Convertible
Preferred Stock and private warrants, which raised proceeds of approximately
$2,031,000 from these offerings. In July 1997, the Company completed an initial
public offering of its Common Stock, raising gross proceeds of approximately
$5.2 million. Nearly all of the proceeds were used to redeem the reconvertable
Preferred Stock and to complete capital improvements at awarded concession
locations.
The Company expects to continue to have significant capital
requirements in 1997 to finance the construction of new airport concessions,
restaurants and other concession related businesses such as news & gifts,
specialty, inflight catering and other services, including the ones already
awarded in New York, Pennsylvania, South Carolina, Iowa, South Dakota and
Colorado. Furthermore, the Company will have additional capital requirements to
the extent that it wins additional contracts from its current and future airport
concession bids.
Results of Operations
The following table sets forth for the period indicated selected items
of the Company's statement of operations as a percentage of its total revenues.
Fiscal Year Ended December 31,
---------------------------------------
1995 1996 1997
---------------------------------------
Revenues:
Concessions 59% 85% 92%
Food Preparation Center Sales 33 13 7
8 2 1
Franchise Royalties ---------------------------------------
Total Revenues 100% 100% 100%
31 31 32
Cost of Goods Sold ---------------------------------------
Gross Profit 69 69 68
Operating Costs and Expenses:
Payroll and Employee Benefits 33 31 36
Occupancy 20 19 18
General and Administrative 22 12 11
Interest Expense 3 2 2
19 0 0
Other (Income) Loss ---------------------------------------
Net Income (Loss) (28)% 4% 0%
---------------------------------------
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended
December 31, 1996
Revenues. The Company's gross revenues for the fiscal year ended December 31,
1997 were $9,802,529, compared to $5,691,645, for the fiscal year ended December
31, 1996. Revenues from concession activities increased $4,212,003 ($9,035,807
compared to $4,822,804) and food preparation center sales decreased $83,426
(from $742,434 to $659,008) while franchise royalties declined $18,693 (from
$126,407 to $107,714). Substantially all of the increase in concession
activities is attributable to full year operations for the concession locations
opened during fiscal 1996 and partial year operations for an additional 7
concession locations which opened during fiscal 1997.
Cost of Goods Sold. The cost of goods sold for the fiscal year ending December
31, 1997 was $3,126,711 compared to $1,752,541 for the fiscal year ending
December 31, 1996. As a percentage of total revenues, the cost of goods sold was
31%
13
<PAGE>
in 1996 and 32% 1997. Costs of goods sold is typically high for a newly opened
concession facility as the Company gathers information concerning requirements
for the specific location. Since the product is perishable, adjustments to
production level effects both sales and costs of sales. As the Company improves
accuracy of production and reduces the waste problem created by training, cost
of sales will improve. As a result, the Company expects costs of goods sold to
decline slightly as a percentage of sales as newly added stores obtain operating
data.
Operating Costs and Expenses. Operating costs and expenses for the fiscal year
ended December 31, 1997 were $6,438,863, compared to $3,556,410 for the fiscal
year ended December 31, 1996. Payroll expenses increased from $1,771,720 in 1996
to $3,524,001 in 1997. As a percentage of total revenues, payroll expense was
31% in 1996 and increased to 36% in 1997. Management believes that increased
training costs and other inefficiencies as a result of the opening of a number
of new concession locations contributed to the higher payroll costs, the Company
expects payroll expenses to increase in total dollar amounts with the addition
of new concession facilities, but to decrease modestly as a percent of revenues
as newly opened facilities operate more efficiently and the Company reaps the
benefits of recently implemented cost control measures. General and
administrative expenses increased from $683,097 in 1996 to $1,124,556 in 1997,
but decreased as a percentage of total revenues from 12% in 1996 to 11% in 1997.
The increase was attributable primarily to increases in administrative salaries.
The Company will continue to add additional administrative staff commensurate
with its growth but expected general and administrative expenses to continue to
decline as a percentage of total revenues.
Interest Expense. Interest expense for the fiscal year ended December 31, 1996
was $195,120 compared to $205,965 for the fiscal year ended December 31, 1997.
As a percentage of total revenues, interest expenses remained the same at 2%.
Net Income (Loss). Net income for the fiscal year ended December 31, 1997 was
$37,631 compared to $187,574 for the fiscal year ended December 31, 1996.
Operating income decreased from $382,694 in 1996 to $236,955 in 1997. Management
attributes the decline in net income to the increase in operating expenses
attributable to opening seven new concessions locations during fiscal 1997.
Same Store Sales. The Company operated three locations during both the full
fiscal years ended December 31, 1996 and December 31, 1997. Sales for those
locations were $2,098,015 for the fiscal year ended December 31, 1996 and
$2,232,972 for the fiscal year ended December 31, 1997, for an increase of
$134,957 or 6%.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended
December 31, 1995
Revenues. The Company's gross revenues for the fiscal year ended December 31,
1996 were $5,691,645, compared to $2,059,607 for the fiscal year ended December
31, 1995. Revenues from concession activities increased $3,595,943 ($4,822,804
as compared to $1,226,861), and food preparation center sales increased $72,527
(from $669,907 to $742,434) while franchise royalties declined $36,432 (from
$162,839 to $126,407). Substantially all of the increase in concession sales is
attributable to the increase in concession revenues as a result of the opening
of a significant number of new concessions at airports in the United States
during the year, and a full year's operation of Company and franchise owned
airport concessions which had opened during fiscal 1995. At the beginning of
1995, the Company operated only the Aspen Airport concession. Consequently the
1995 figures reflect operations from the Aspen Airport for a full year as well
as partial year operations of the Los Angeles and Portland concessions. The
revenue figures for 1996 include eleven additional concessions which opened
during the fiscal year.
Cost of Goods Sold. The cost of goods sold for the fiscal year ending December
31, 1996 was $1,752,541 compared to $639,091 for the fiscal year ending December
31, 1995. As a percentage of total revenues, the cost of goods sold remained
consistent at 31% in 1995 and 1996.
Operating Costs and Expenses. Operating costs and expenses for the fiscal year
ended December 31, 1996 were $3,536,410, compared to $1,534,919 for the fiscal
year ended December 31, 1995. Payroll expenses increased from $670,049 in 1995
to $1,771,720 in 1996. As a percentage of total revenues, payroll expense was
33% in 1995 and 31% in 1996, representing a modest decrease. The Company expects
payroll expenses to increase in total dollar amounts with
14
<PAGE>
the addition of new concession facilities, and to decrease modestly as a percent
of revenues as the Company implements certain control measures. General and
administrative expenses increased from $462,960 in 1995 to $683,097 in 1996,
decreased as a percentage of total revenues from 22% in 1995 to 12% in 1996. The
decline in the general and administrative expenses from 1995 to 1996, as a
percentage of total revenues, results from an increase of gross revenues while
administrative expenses were held relatively constant.
Interest Expense. Interest expense for the fiscal year ended December 31, 1996
was $195,120 compared to $63,548 for the fiscal year ended December 31, 1995. As
a percentage of total revenues, interest expenses decreased from 3% to 2%.
Net Income (Loss). Net income for the fiscal year ended December 31, 1996 was
$187,574 compared to a net loss of $(578,962) for the fiscal year ended December
31, 1995. Operating losses declined from $(114,403) in 1995 to an operating
income of $382,694 in 1996. The improvement of the operating performance in 1996
reflects the Company's operating cost control measures, increased sales at
Company owned airport concessions, and royalty and fee income from the Denver
International Airport franchise concession. The Company incurred a nonrecurring
loss of $(403,738) in 1995 for costs of a private placement and an attempted
public offering of the Company's stock during 1995 which caused the overall net
loss of the Company to be significantly greater in 1995 than its operating loss.
Same Store Sales. The Company operated only one location during both the fiscal
years ended December 31, 1995 and December 31, 1996, at Aspen, Colorado. Sales
for the Aspen location were $333,062 for the fiscal year ended December 31, 1995
and $327,651 for the fiscal year ended December 31, 1996, for a decrease of
$5,411 or 1.6%.
Liquidity and Capital Resources
Since its inception, the Company's capital needs have primarily been
met from the proceeds of (i) capital contributions of $1,300,000 made by Sayed
Ali, the principal shareholder, Chairman and Chief Executive Officer of the
Company, (ii) a Small Business Administration loan obtained by the Company in
September 1992 in the original principal amount of $220,000, guaranteed by Mr.
Ali and secured by certain of his personal assets and a key man life insurance
policy, (iii) a private placement of 9% Convertible Redeemable Preferred Stock
made by the Company in 1994 which raised gross proceeds of approximately
$722,000, (iv) equipment lease financing on specific airport facilities which
are guaranteed by Mr. Ali, (v) certain short term borrowings, (vi) a private
placement of 8% Convertible Preferred Stock which raised net proceeds of $2.0
million in February 1997, and (vii) an initial public offering of Common Stock
which raised net proceeds of $5.3 million in July 1997.
The loan guaranteed by Mr. Ali consists of the SBA loan made by North
County Bank to the Company in September 1992 in the original principal amount of
$220,000 with an outstanding balance of $134,261 as of December 31, 1997. The
SBA loan bears interest at the rate of prime plus 2.75% per annum and is payable
in monthly installments of principal and interest equal to $2,770, with all
principal and accrued but unpaid interest due on October 5, 2002. The SBA loan
is secured by all of the Company's machinery, equipment, furniture, fixtures and
inventory, and junior deeds of trust on two residential properties owned by Mr.
Ali. The lender must approve any redemption of securities or the declaration and
payment of dividends by the Company. The Company is current on its debt service
of the SBA loan. The leases guaranteed by Mr. Ali are the equipment leases for
the Company's food and beverage facilities at Los Angeles International Airport
(approximately $200,000), Portland International Airport (approximately
$180,000), the airport at Lexington, Kentucky (approximately $150,000), and the
airports in Madison and Appleton, Wisconsin (approximately $300,000). The
equipment leases each have a term of 60 months, are payable in equal monthly
installments and have an interest rate of approximately 17.5%. Upon payment of
the last installment on each lease, the Company will own the equipment.
When the Company is awarded a new concession facility, it is generally
committed to expend a negotiated amount for capital improvements to the
facility. In addition, the Company is responsible for acquiring equipment
necessary to conduct its operations. As a result, the Company incurs substantial
expenses for capital improvements at the commencement of a concession term.
Generally, however, the term of the concession grant will be for a period of ten
years, providing the Company an opportunity to recover its capital expenditures.
Substantially all of the Company's concession locations have been obtained in
the past two years, which has resulted in significant capital needs. As a
result, the Company has been
15
<PAGE>
required to seek capital, and to apply capital from operations, for the
construction of capital improvements at newly awarded concession locations. The
Company intends to continue to bid for concession locations, including bidding
on larger proposals. Anticipated cash flows from operations will not be
sufficient to finance new acquisitions at the level of growth that the Company
has experienced over the past two years. Accordingly, to the extent the Company
is successful in securing new concession contracts, the Company will continue to
need additional capital, in addition to cash flow from operations, in order to
finance the construction of capital improvements.
As of December 31, 1997, the Company had working capital of $178,285.
The Company expects to continue to have significant capital requirements in 1998
and 1999 to finance the construction of new airport food and beverage
concessions and other concessions related businesses (i.e., news & gifts,
inflight catering and other services). The Company anticipates capital
requirements of approximately $4.9 million in Fiscal 1998 to complete the
construction of improvements at concession facilities which it has already been
awarded in California, Iowa, New York, North Carolina, South Dakota and Texas.
The Company has an immediate need for additional capital to fund the
construction of capital improvements at several of those airports. The Company
is actively evaluating potential financing arrangements with a number of
commercial banks as well as possible placements of debt or equity, or some
combination of those financings in order to meet its capital needs. On March 13,
1998, the Company borrowed $250,000 from an unaffiliated third party to fund
construction of capital improvements under the terms of a Promissory Note. The
Note is due the earlier of December 15, 1998, or the date on which the Company
completes the sale of debt or equity. The Company estimates that existing
capital and cash flow will be sufficient to continue construction scheduled for
the next four to six weeks. While management believes, based on the status of
discussions with various commercial banks and investment bankers, that it has
several financing alternatives available to it, the Company has not yet secured
a commitment for such funding, and neither the ultimate amount of any such
financing nor the terms of such financing are known at this time. If the Company
fails to secure additional funding it will have to delay construction and may
lose airport concessions previously awarded to it.
The Company will have additional capital requirements during 1998 and
1999 if the Company wins additional bids or acquires additional airport
concession facilities. The Company is continually evaluating other airport
concession opportunities, including submitting bid proposals and acquiring
existing concession owners and operators. The level of its capital requirements
will depend upon the number of airport concession facilities which are subject
to bid, as well as the number and size of any potential acquisition candidates
which arise. There is no assurance that the Company will have sufficient capital
to finance its growth and business operations or that such capital will be
available on terms that are favorable to the Company or at all.
Application of Proceeds from Initial Public Offering
The Company completed an intitial public offering of Common Stock and
Warrants in July 1997. The net proceeds received by the Company from the sale of
securities pursuant to its initial public offering were $4,177,250, after
deducting the underwriter's discounts and nonaccountable expense allowance, and
the other offering expenses paid by the Company. The table below sets forth the
Companys anticipated and actual use of proceeds from that offering.
Estimated Use of Actual Use of
Application of Proceeds Proceeds Proceeds
- -------------------------------------------------------------------------------
Acquisition of Concession Facilities
Denver International Airport . . . . . . . 250,000 250,000
Sioux Falls Airport . . . . . . . . . . . 120,000 153,706
Capital Improvements
Allentown Airport. . . . . . . . . . . . . 300,000 277,094
16
<PAGE>
Columbia Airport . . . . . . . . . . . . . 150,000 382,800(1)
Cedar Rapids Airport. . . . . . . . . . . . 150,000 197,201
Denver International Airport. . . . . . . . . .600,000 275,457
Ashville Airport . . . . . . . . . . . . . . 0 100,165
Des Moines Airport . . . . . . . . . . . . . 0 81,810
Greensborough Airport . . . . . . . . . . . 0 150,491
Redemption of 8% Preferred Stock . . . 1,096,200 1,096,200
Redemption of 9% Preferred Stock . . . . . 917,135 917,135
Repayment of SBA Loan . . . . . . . . .. . 150,000 0
Working Capital. . . . . . . . . . . . . . . 443,915 295,191
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . 4,177,250 4,177,250
- -----------
(1) Up to $289,000 spent on capital improvements at the Columbia Airport
are subject to reimbursement by the Airport Authority.
ITEM 7. FINANCIAL STATEMENTS
17
<PAGE>
CREATIVE HOST SERVICES, INC.
(FORMERLY KNOWN AS
ST. CLAIR DEVELOPMENT CORPORATION)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
CONTENTS
Page
Independent Auditors' Report 20
Financial Statements:
Balance Sheet 21
Statements of Income and Operations 22
Statement of Shareholder's Equity 23
Statements of Cash Flows 24
Notes to Financial Statements 25-31
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Creative Host Services, Inc.
San Diego, California
We have audited the accompanying balance sheet of Creative Host Services, Inc.,
as of December 31, 1997, and the related statements of income and operations,
shareholder's equity and cash flows for each of the years ended December 31,
1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Creative Host Services, Inc.,
at December 31, 1997, and the results of its operations and cash flows for the
years ended December 31, 1996 and 1997, in conformity with generally accepted
accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
February 20, 1998
19
<PAGE>
CREATIVE HOST SERVICES, INC.
BALANCE SHEET - DECEMBER 31, 1997
<TABLE>
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,109,229
Receivables, net of allowance of $8,807 424,177
Inventory 327,404
Prepaid expenses and other current assets 29,510
----------
Total current assets $ 1,890,320
Property and equipment, net of accumulated depreciation and
amortization 5,056,100
Deposits and other assets 138,984
Intangible assets, less accumulated amortization 24,417
-----------
$ 7,109,821
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,297,877
Current maturities of notes payable 33,686
Current maturities of leases payable 380,472
-----------
Total current liabilities $ 1,712,035
Notes payable, less current maturities 144,317
Leases payable, less current maturities 763,634
Shareholder's equity:
Common stock; no par value, 20,000,000 shares authorized,
3,098,492 shares issued and outstanding 5,820,514
Additional paid-in capital 857,537
Deficiency (2,188,216)
------------
Total shareholder's equity 4,489,835
------------
$ 7,109,821
============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
20
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENTS OF INCOME AND OPERATIONS
<TABLE>
Year ended Year ended
December 31, 1996 December 31, 1997
-----------------------------------------
<S> <C> <C>
Revenues:
Concessions $4,822,804 $9,035,807
Food preparation center sales 742,434 659,008
Franchise royalties 126,407 107,714
-----------------------------------------
Total revenues 5,691,645 9,802,529
Cost of goods sold 1,752,541 3,126,711
-----------------------------------------
Gross profit 3,939,104 6,675,818
Operating costs and expenses:
Payroll and other employee benefits 1,771,720 3,524,001
Occupancy 1,101,593 1,790,306
General, administrative and selling expenses 683,097 1,124,556
----------------------------------------
Total operating costs and expenses 3,556,410 6,438,863
----------------------------------------
Income from operations 382,694 236,955
----------------------------------------
Interest expense (195,120) (205,965)
Other income -- 6,641
----------------------------------------
(195,120) (199,324)
----------------------------------------
Net income $187,574 $37,631
----------------------------------------
Net income (lose) applicable to common stock $121,574 $(41,869)
----------------------------------------
Net income (loss) per share $.10 $(.02)
----------------------------------------
Weighted average number of shares outstanding 1,200,000 2,004,596
========================================
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
21
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
8% convertible Total
Common stock Additional preferred stock Shareholder's
------------ paid-in Accumulated equity
Shares Amount capital Shares Amount deficit (deficit)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 1,200,000 $ 621,875 $ 857,537 $ $(2,191,921) $ (712,509)
Net income for the year ended 187,574 187,574
December 31, 1996
Dividends payable to preferred
shareholders (142,000) (142,000)
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 1,200,000 621,875 857,537 (2,146,347) (666,935)
Net income for the year ended
December 31, 1997 37,631 37,631
Dividends payable to preferred
shareholders (79,500) (79,500)
Net proceeds from issuance of 8%
redeemable convertible preferred
stock 800,000 2,030,762 2,030,762
Redemption of preferred stock (800,000) (2,030,762) (2,030,762)
Net proceeds from issuance
of common stock and effect of
redemption of 9% preferred stock
and conversion of 8% convertible
preferred shares 1,898,492 5,198,639 5,198,639
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,098,492 $ 5,820.514 $ 857.537 -- $ -- $(2,188,216) $ 4,489,835
===========================================================================================
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
22
<PAGE>
CREATIVE HOST SERVICES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
Year ended Year ended
December 31, 1996 December 31, 1997
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income $ 187,574 $ 37,631
------------- --------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 157,383 291,372
Provision for doubtful accounts 17,722 6,000
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (273,766) (60,136)
Inventory (130,083) (113,117)
Prepaid expenses and other current assets 2,921 (11,247)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 320,078 622,352
Deferred income - (17,500)
------------------- ---------------
Total adjustments 94,255 718,075
-------------- --------------
Net cash provided by operating activities 281,829 755,706
------------- --------------
Cash flows provided by (used for) investing activities:
Intangible assets (4,294) -
Property and equipment (1,413,302) (3,343,709)
Deposits and other assets - 57,642
Other assets (200,803) -
-------------- ---------------------
Net cash used for investing activities (1,618,399) (3,286,067)
--------------- --------------
Cash flows provided by (used for) financing activities:
Net proceeds from leases payable 871,954 90,687
(Proceeds from notes payable 334,566 27,133
Issuance of capital stock - 5,198,639
Proceeds from redemption of preferred stock - (724,933)
Repayment of notes payable - (417,004)
Repayment of leases payable - (319,436)
Cash dividends on preferred stock - (216,496)
--------------------- ----------------
Net cash provided by financing activities 1,206,520 3,638,590
-------------- ---------------
Net increase (decrease) in cash (130,050) 1,108,229
Cash, beginning of year 131,050 1,000
-------------- -----------------
Cash, end of year $ 1,000 $ 1,109,229
=============== =============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
23
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
(1) Summary of Significant Accounting Policies:
Organization and Basis of Presentations:
Creative Host Services, Inc. formerly known as St. Clair Development
Corporation) was formed in 1986 to acquire the operating assets of
Creative Croissants, Inc., which consisted of a food preparation center
in San Diego and two French-style cafes featuring hot meal croissants,
muffins, pastas and salads. The cafes were acquired in May 1987 and the
food preparation center was acquired in April 1988 in transactions
accounted for using the purchase method of accounting. In 1989, the
Company commenced franchising operations, licensing its trademarks to
third parties, who agreed to purchase baked goods from the Company's
food preparation center under franchise arrangements with the Company,
and earned an initial franchise fee, a royalty based upon sales, and in
some cases, advertising and marketing fees as a percentage of gross
sales. In 1995, the Company began operating company owned food and
beverage concessions at airports and commenced certain in-flight
catering sales. The Company also sells baked goods from its food
preparation center, directly to restaurants, hospitals and other
institutional clients in the San Diego area. The accompanying financial
statements include the operations of Company-owned concessions (mainly
at various airports across the United States), revenues earned from
franchisees, and operations from its wholesale food preparation
activities.
Revenue Recognition:
Concession revenues are recorded as the sales are made; sales from the
food preparation center are recorded upon shipment and revenues from
in-flight catering are recorded upon delivery. Revenues from the
initial sale of individual franchises are recognized, net of an
allowance for uncollectible amounts and any commissions to outside
brokers, when substantially all significant services to be provided by
the Company have been performed.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value:
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are
held for trading purposes) approximate the carrying values of such
amounts.
Inventory:
Inventory, consisting principally of foodstuffs and supplies, is valued
at the lower of cost (first-in, first-out) or market.
24
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
Property and Equipment:
Property and equipment are recorded at cost. Intangible assets arose
from the excess of purchase price over the underlying fair value of
assets acquired, and from the repurchase of marketing rights within
certain geographic territories that had previously been sold to third
parties. For financial statement purposes, depreciation and
amortization is computed primarily by the straight-line method over the
estimated useful lives of the assets, as follows:
Office equipment 10 years
Restaurant concession and commissary equipment 10 years
Excess of cost over fair value assigned to net assets 5 years
Marketing rights 5 years
Leasehold improvements are amortized over the useful lives of the
improvements, or terms of the leases, whichever is shorter.
Income Taxes:
Deferred income taxes arise from temporary differences in the basis of
assets and liabilities reported for financial statement and income tax
purposes.
Earnings Per Share:
Earnings per share is computed based upon the weighted average number
of shares of common stock outstanding during each period, adjusted to
reflect an approximate 1.7 to 1 stock split in 1996. Common stock
equivalents have been excluded from the earnings per share calculation
because their effect is either antidilutive or immaterial.
In February 1997, the Company sold 800,000 units of 8% preferred shares
and common stock purchase warrants in a private placement. In August
1997, the Company sold 1,150,000 shares of common stock from an initial
public offering, raising net proceeds to approximately $5,200,000.
242,461 shares of preferred stock were redeemed and the remaining
553,539 shares were converted into 553,539 shares of common stock.
The Company issued 265,000 common shares to two individuals in 1996 in
exchange for services rendered primarily in 1995 and prior. Such shares
are treated as outstanding for all reporting periods for earnings per
share purposes.
Management has adopted Financial Accounting Standards Board statement
No. 128, which requires companies to report "basic" earnings per share,
which will exclude options, warrants and other convertible securities.
The accounting and disclose requirements of this statement are
effective for financial statements for fiscal years beginning after
December 15, 1997, with earlier adoption encouraged. The effect of the
adoption of this pronouncement was not material to the Company's
financial statements.
25
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents include
all highly liquid debt instruments with original maturities of three
months or less which are not securing any corporate obligations.
Concentration of Credit Risk:
The Company sells its bakery products to food distributors, retailers,
franchisees and various airlines throughout the United States primarily
through its own concession operations and does not require collateral.
Over 90% of the Company's sales are on a cash basis. No single location
accounts for more than 10% of the Company's revenues. Allowances have
been provided for uncollectible amounts, which have historically been
within management's expectations.
(2) Property and Equipment:
A summary at December 31, 1997 is as follows:
Food and beverage concession equipment $ 5,333,071
Food preparation equipment 352,932
Leasehold improvements 133,198
Office equipment 30,490
------------
5,849,691
Less accumulated deprecation and amortization 793,591
------------
$ 5,056,100
============
26
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
(3) Intangible Assets:
A summary at December 31, 1997 is as follows:
Marketing rights $ 77,174
Franchise costs 85,296
--------
162,470
Less accumulated amortization 138,053
--------
$ 24,417
========
(4) Notes Payable:
A summary is as follows:
Note payable, bank, interest at
prime plus 2.75%, due in monthly
installments of $2,770 through 2002,
secured by all of the assets of
the Company, personally guaranteed
by the president and major
shareholder including a second and
third trust deed on personal
residences $134,261
Note payable to landlord of former
franchisee, interest at the greater
of 10% or bank prime rate plus 1%,
due in monthly installments of
$1,264 through 2001 43,742
--------
178,003
Less current portion 33,686
--------
$144,317
========
The following is a summary of the principal amounts payable over the
next five years and thereafter.
1998 $ 33,686
1999 36,908
2000 40,441
2001 35,240
2002 31,728
-----------
$178,003
===========
Interest paid for all corporate borrowings (including leases) totaled
approximately $206,000 and $195,000 for 1997 and 1996, respectively.
27
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
(5) Leases Payable:
A summary is as follows:
Equipment leases payable, finance
company, approximate average
interest at 17.5%, due in monthly
installments through the year 2001,
secured by food and beverage concession
equipment $1,144,106
Less current portion 380,472
----------
$763,634
==========
The following is a summary of the principal amounts payable over the
next four years:
1998 $ 380,472
1999 411,227
2000 276,226
2001 76,181
-----------
$1,144,106
===========
(6) Income Taxes:
For federal income tax return purposes, the Company has available net
operating loss carryforwards of approximately $1,936,000 which expire
through 2008 and are available to offset further income tax
liabilities. Due to the completion of an initial public offering, there
are significant limitations on the Company's ability to utilize this
operating loss carryforward.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The effect
of adopting SFAS 109 was not material to the Company's financial
statements.
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1997 are as follows:
Allowance for doubtful accounts $ 3,500
Net Operating loss carryforwards 774,400
--------
777,900
Valuation allowance (777,900)
--------
Net deferred taxes $ --
--------
28
<PAGE>
CREATIVE HOST SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
(7) Commitments and Contingencies:
The Company leases its office facility, food preparation center and
concession locations under various lease agreements expiring through
2006. Rental expense under operating leases totaled $1,501,057 and
$929,444 for 1997 and 1996, respectively. As of December 31, 1997,
future minimum rental payments required under operating leases ,
exclusive of additional rental payments based on concession sales and
numbers of enplanements, are as follows:
Year ending December 31,
1998 $1,578,275
1999 1,586,805
2000 1,635,409
2001 1,640,409
2002 1,557,455
Thereafter 5,336,917
----------
$13,335,270
===========
In connection with its franchising operations, the Company has
guaranteed the lease obligations of two franchisees. Based upon
historical operations of the franchisees and the remaining terms of the
lease guarantees, management does not believe that any lease
assumptions will result therefrom.
In connection with the concessionnaire agreements with various airport
authorities, the Company has obtained surety bond coverage for the
guarantee of lease payments in the event of non-performance under the
agreements, in the aggregate amount of approximately $425,000. The
insurer may seek indemnification from the Company for any amounts paid
under these bonds.
(8) Common Stock:
In February 1997, the Company sold 800,000 units of 8% preferred shares
and common stock purchase warrants in a private placement. In August
1997, the Company sold 1,150,000 shares of common stock from an initial
public offering, raising net proceeds of approximately $5,200,000. All
of the Company's 9% convertible preferred stock and 246,461 shares of
the 8% preferred stock were redeemed. The remaining 553,539 8%
preferred shares were converted into 553,539 shares of common stock.
(9) Stock Options:
During 1996, the Company granted options for the purchase of 35,000 of
its shares at $1.00 per share, to an individual who had rendered
services in 1995 and prior in connection with an initial public
offering that was discontinued.
The Company has adopted the 1997 Stock Option Plan (the "1997 Plan").
The 1997 Plan authorizes the issuance of an additional 280,000 shares
of the Company's common stock pursuant to the exercise of options
granted thereunder. The Compensation Committee of the Board of
Directors administers the Plan, selects recipients to whom options are
granted and determines the number of shares to be awarded. Options
granted under the 1997
29
<PAGE>
Plan are exercisable at a price determined by the Compensation
Committee at the time of grant, but in no event less than fair market
value.
The number and weighted average exercise prices of options both granted
during 1996 and granted under the 1997 plan, for the years ended
December 31, 1996 and 1997 are as follows:
<TABLE>
1996 1997
---------------------------------------------
Average Average
Exercise Exercise
Number Price Number Price
<S> <C> <C> <C> <C>
Outstanding at beginning of the year -- $-- 35,000 $ 1.00
Outstanding at end of the year 35,000 1.00 161,500 4.05
Exercisable at end of the year 35,000 1.00 119,000 3.89
Granted during the year 35,000 1.00 161,500 4.05
Exercised during the year -- -- 35,000 1.00
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Proforma information regarding net income and earnings per share under
the fair value method has not been presented as the amounts are
immaterial.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
30
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
NAME AGE POSITION
Sayed Ali 50 Chairman of the Board of Directors,
President and Chief Financial Officer
Booker T. Graves(1) 59 Director
John P. Donohue, Jr.(1)(2) 67 Director
Paul A. Karas(2) 45 Director
(1) Member of Compensation Committee
(2) Member of Audit Committee
Sayed Ali is the founder, Chairman of the Board of Directors, President
and Chief Financial Officer of the Company. Mr. Ali has served as Chairman of
the Board of Directors and President since 1986. Mr. Ali served as Chief
Financial Officer from December 1986 to February 1997, and since August 1997.
Mr. Ali served as the Secretary of the Company from 1986 to December 1996. Prior
to founding the Company, Mr. Ali was the Director of Operations of Steffa
Control Systems, a manufacturer of energy management systems from May 1985 to
September 1987, which had annual sales of $30 to $35 million. From March 1980
until May 1985, Mr. Ali was the Director of Operations for Oak Industries, Inc.,
a telecommunications equipment manufacturer.
Booker T. Graves has been a director of the Company since March 1997.
Since 1993, Mr. Graves has been president of Graves Airport Concession
Consultants, a consulting company located in Denver, Colorado, which provides
consulting services to airports and other businesses. From 1993 to 1996, Mr.
Graves was the principal food and beverage consultant to the Denver
International Airport. From 1990 through 1993, Mr. Graves was General Manager of
CA One Services, Inc. (formerly Sky Chefs) at Denver Stapleton International
Airport. From 1980 until 1990, Mr. Graves was the General Manager of CA One
Services, Inc. of Phoenix Sky Harbor Airport.
John P. Donohue, Jr. has been a director of the Company since March
1997. From 1990 to the present, Mr. Donohue has been a private investor. Prior
to that time for 25 years, Mr. Donohue was employed by Oak Industries, Inc., a
NYSE listed company, in various capacities. From 1985 to 1990, Mr. Donohue
served as President of Oak Communications, Inc., a division of Oak Industries,
Inc. which manufactured communications equipment for the cable television
industry. From 1982 to 1985, he served as Vice President of Manufacturing
overseeing up to 6,000 manufacturing employees. From 1977 to 1982, Mr. Donohue
served as Vice President of Operations for the Oak Switch division of Oak
Industries, Inc.
Paul A. Karas has been a director of the Company since March 1997. From
1993 to the present, Mr. Karas has been President and Founder of Grove
Management Company, an infrastructure management consulting firm. He has
consulted on the $6 billion airport in Hong Kong, and the $375 million
renovation and expansion of the Cleveland Public Power Electric Distribution
System among other projects. From 1991 to 1993, Mr. Karas was Senior Vice
President and Director of Public Works Sector for Morse-Diesel/Amec whose
business activities included consulting for a proposed third airport for
Chicago, program management for the British Airways terminal at the JFK Airport,
and program management for the United Airlines Terminal at La Guardia Airport.
From 1988 to 1991, Mr. Karas worked for the Port Authority of New York and New
Jersey and was director of the John F. Kennedy International Airport
Redevelopment Program responsible for program management, design and
construction of the $3.2 billion renovation of the JFK Airport. From 1985 to
1988, Mr. Karas was Commissioner of Public Works for the City of Chicago with
responsibilities for the design and construction of major public projects
including projects affecting O'Hare, Midway and Meigs Airport. From 1980 to
1985, Mr. Karas was Corporate Development Projects Manager for Santa Fe Southern
Pacific Corporation, a $7 billion enterprise engaged in the transportation,
national resources, real estate, construction and financial service businesses.
31
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors. In addition, each
outside director is entitled to receive options as approved by the Board of
Directors under the Company's 1997 Stock Option Plan. During Fiscal 1997, each
outside director was issued an aggregate of 15,000 options, of which 2,500 are
now vested and the balance of 12,500 will vest over the next two years, provided
the director remains a director of the Company.
EXECUTIVE OFFICER COMPENSATION
The compensation and benefits program of the Company is designed to
attract, retain and motivate employees to operate and manage the Company for the
best interests of its constituents. Executive compensation is designed to
provide incentives for those senior members of management who bear
responsibility for the Company's goals and achievements. The compensation
philosophy is based on a base salary, with opportunity for significant bonuses
to reward outstanding performance, and a stock option program. The Compensation
Committee is responsible for setting base compensation, awarding bonuses and
setting the number and terms of options for the executive officers. None of the
current Committee members are employees of the Company. The Committee currently
consists of Messrs. Donohue and Graves.
The following table and notes set forth the annual cash compensation
paid to Sayed Ali, Chairman of the Board and President of the Company. No other
person's compensation exceeded $100,000 per annum during the Company's fiscal
year ended December 31, 1997.
Summary Compensation Table
<TABLE>
Annual Compensation Long Term Compensation
---------------------------------------------------------------------------------------------------------
Awards Payouts
------------------------------------------------------------------
Securities
Other Restricted Underlying All Other
Annual Stock Options/ LTIP Compen-
Name/Title Salary Bonus Comp. Awards SARs Payouts sation
Year $ $ $ $ #(1) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sayed Ali
President 96,000 -- -- -- 75,000 -- --
1997 71,000 -- -- -- -- -- --
1996
</TABLE>
- -----------
(1) Consists of options granted under the Company's 1997 Stock Option Plan.
32
<PAGE>
The following table sets forth the options granted to Mr. Ali during
the Company's fiscal year ended December 31, 1997.
Option/SAR Grants in Last Fiscal Year
<TABLE>
Individual Grants
- --------------------------------------------------------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number of Options/SARs Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees in or Base Option Term
Options/SARs Fiscal Price Expiration ---------------------------
Name Granted (#) Year(%) ($/Sh) Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sayed Ali 60,000 51.5 3.30 1/1/02 31,730.68 91,891.80
15,000 12.9 4.26 11/1/02 10,246.36 29,673.39
</TABLE>
The following table summarizes the number and value of all unexercised
options granted to and held by Mr. Ali at the end of 1997. No options were
exercised by Mr. Ali during 1997.
Fiscal Year-End Option Values
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Option at FY-End (#) at FY-End ($)(1)
-----------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sayed Ali 5,000 70,000 0 0
- -----------------------
</TABLE>
(1) Based on the closing bid price for the Company's Common Stock at the
close of market on December 31, 1997 as reported by NASDAQ
EMPLOYMENT AGREEMENT
The Company has entered into a five year employment agreement with
Sayed Ali, the Company's President. The term of the agreement commenced January
1, 1997 and provides for annual base compensation of $96,000 and $108,000 over
each of the calendar years 1997 and 1998 and $120,000 thereafter. The agreement
also calls for Mr. Ali to receive 60,000 options to purchase Common Stock under
the Company's 1996 Stock Option Plan, exercisable at $3.30 per share, which vest
20,000 per year over the first three anniversaries of the date of grant. In
addition, Mr. Ali is eligible to receive annual cash bonuses as well as
additional option grants at the discretion of the Board of Directors. Finally,
the agreement provides that upon a termination of employment, Mr. Ali will be
entitled to a severance payment equal to his annual base compensation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 15, 1998 by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors and executive officers, and (iii) all
33
<PAGE>
officers and directors of the Company as a group. Except as otherwise listed
below, the address of each person is c/o Creative Host Services, Inc. 6335
Ferris Square, Suites G-H, San Diego, California 92126.
Name and Address of Owner Shares Beneficially Owned(1)
- ------------------------------------------------------------------------------
Number Percent(2)
-------------------------------
Sayed Ali 960,000(3) 30.2%
David H. Sugerman 155,000 5.0%
17408 Superior Avenue
Northridge, CA 91325
Booker T. Graves 3,525(4) *
John P. Donahue, Jr. 2,500(5) *
Paul A. Karas 2,500(5) *
Tasneem Vakharia 25,000(6) *
All officers and directors as a group (6 persons) 993,525(7) 30.5%
- --------------------
* Less than one percent.
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of January 15, 1998, are
deemed outstanding for computing the percentage of the person holding
such option or warrant but are not deemed outstanding for computing
the percentage of any other person. Except as pursuant to applicable
community property laws, the persons named in the table having sole
voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) Does not include (i) 577,500 shares of Common Stock issuable upon
exercise of outstanding warrants, or (ii) the 100,000 shares of Common
Stock issuable in connection with the repurchase of certain concession
rights at the Denver International Airport.
(3) Includes 25,000 shares issuable upon the exercise of options
outstanding under the Company's 1997 Stock Option Plan. Does not
include 50,000 shares issuable upon exercise of invested options which
vest over the two year period subsequent to January 15, 1998.
(4) Includes 2,500 shares issuable upon the exercise of options
outstanding under the Company's 1997 Stock Option Plan. Does not
include 12,500 shares issuable upon exercise of invested options which
vest over the two year period subsequent to January 15, 1998.
(5) Consists solely of shares issuable upon the exercise of options
outstanding under the Company's 1997 Stock Option Plan. Does not
include 12,500 shares issuable upon exercise of invested options which
vest over the next two years.
(6) Consists solely of shares issuable upon the exercise of options
outstanding under the Company's 1997 Stock Option Plan. Does not
include 10,000 shares issuable upon exercise of invested options which
vest January, 1999.
(7) Includes 57,500 shares issuable upon the exercise of options
outstanding under the Company's 1997 Stock Option Plan. Does not
include 97,500 shares issuable upon exercise of unvested stock options
which vest over the two year period subsequent to January 15, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
34
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
4.1 Specimen Certificate for Common Stock*
4.3 Warrant Agreement (including form of Warrant Certificate)*
10.1 1997 Stock Option Plan*
10.2 Employment Agreement between the Company and Sayed Ali*
10.3 Lease Space In The Cedar Rapids Municipal Airport Terminal For
The Purpose of Operating Food/Beverage, News/Gift, And Airline
Catering Concessions dated as of September 16, 1996 between the
Company and Cedar Rapids Airport Commission.*
10.4 Food And Beverage Concession Agreement And Lease dated as of
October 4, 1996 between the Company and Richland -Lexington
Airport District.*
10.5 Agreement between the Company and Delta Airlines.*
10.6 Concession And Lease Agreement dated as of May 24, 1996 between
the Company and Lehigh-Northhampton Airport Authority.*
10.7 Food And Beverage Concession Agreement And Lease Bluegrass
Airport between the Company and Lexington-Fayette Urban County
Airport Board.*
10.8 Food And Beverage Concession Agreement dated as of July 26, 1995
between the Company and Outagamie County.*
10.9 Food And Beverage Lease And Concession Agreement dated as of May
17, 1996 between the Company and Roanoke Regional Airport
Commission.*
10.10 Food And Beverage Concession Agreement dated as of October 24,
1995 between the Company and the County of Dane.*
10.11 Food And Beverage Concession Lease Agreement dated as of June 10,
1994 between the Company and the Port of Portland.*
10.12 Concession Agreement dated as of March 25, 1995 between the
Company and City of Los Angeles.*
10.13 License And Use Agreement Food/Beverage Service Aspen/Pitkin
County Airport 1994 Through 1999 dated as of April 1994 between
the Company and Board of County Commissions of Pitkin County
Colorado.*
10.14 Food Court Agreement dated as of November 14, 1996 between the
Company and City and County of Denver.*
10.15 Agreement between the Company and the City and County of Denver
as of November 19, 1996.*
10.16 Agreement dated as of February 8, 1996 between the Company and
the County of Orange.*
10.17 Concession Agreement for Food and Beverage Operations at the Des
Moines International Airport between the Company and the City of
Des Moines, Iowa dated as of June 2, 1997.
10.18 Concession Agreement and Lease between the Piedmont Triad Airport
Authority and the Company.
10.20 Form of Franchise Agreement.*
10.21 TCBY Franchise Agreement dated October 29, 1996 between TCBY
Systems, Inc., and St. Clair Development Corporation.*
35
<PAGE>
Exhibit No. Description
10.22 Industrial Real Estate Lease between the Company and WHPX-S Real
Estate Limited Partnership.*
23.2 Consent of Stonefield Josephson, independent accountants
27. Financial Data Schedule
- -------------
* Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 333-6722) on Form SB-2 filed with the SEC on
April 3, 1997.
(b) The following is a list of Current Reports on Form 8-K filed by the
Company during or subsequent to the last quarter of the fiscal year ended
December 31, 1997.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1998 CREATIVE HOST SERVICES, INC.
By: /s/ Sayed Ali
--------------------------
Sayed Ali, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Sayed Ali Chairman of the Board and President March 31, 1998
- ------------------------
Sayed Ali
/s/ Booker T. Graves Director March 31, 1998
- ------------------------
Booker T. Graves
/s/ John P. Donohue, Jr. Director March 31, 1998
- ------------------------
John P. Donohue, Jr.
/s/ Paul A. Karas Director March 31, 1998
- ------------------------
Paul A. Karas
36
CONCESSION AGREEMENT
FOR
FOOD AND BEVERAGE OPERATIONS
AT THE
DES MOINES INTERNATIONAL AIRPORT
BETWEEN
ST. CLAIR DEVELOPMENT CORPORATION
d/b/a CREATIVE CROISSANTS
AND
THE CITY OF DES MOINES, IOWA
(DES MOINES INTERNATIONAL AIRPORT)
CITY OF DES MOINES
DEPARTMENT OF AVIATION
DES MOINES INTERNATIONAL AIRPORT
5800 FLEUR DRIVE, SUITE 201
DES MOINES, IOWA 50321-2854
------------------------------------
1
<PAGE>
------------------------------------
CONCESSION AGREEMENT
FOOD/BEVERAGE/VENDING OPERATIONS
ST. CLAIR DEVELOPMENT CORPORATION
d/b/a CREATIVE CROISSANTS
DES MOINES INTERNATIONAL AIRPORT
DES MOINES, IOWA
THIS CONCESSION AGREEMENT, made and entered into this 2nd day of June 1997, by
and between the CITY OF DES MOINES, IOWA, a municipal corporation organized and
existing under and by virtue of the laws of the State of Iowa (hereinafter
referred to as "City") and St. Clair Development Corporation d/b/a Creative
Croissants, a corporation organized and existing under the laws of the State of
California, (hereinafter called "Concessionaire"), having its principal offices
at 6335 Ferris Square, Suite G, San Diego, CA 92121.
W I T N E S E T H T H A T:
WHEREAS, City currently owns and operates an airport known as the Des Moines
International Airport (hereinafter called the "Airport"), located in Des Moines,
Polk County, Iowa, and
WHEREAS, City deems it advantageous to itself and to its operation of the
Airport to lease unto Concessionaire certain premises and to grant unto
Concessionaire certain rights, privileges, and uses therein, as necessary to
provide food/beverage/vending service within the Terminal Building at the
Airport;
NOW, THEREFORE, for and in consideration of payment of the fees and charges
hereinafter provided, and of the covenants and conditions hereinafter contained
to be kept and performed, do hereby agree as follows:
ARTICLE 1
TERM OF AGREEMENT
Section 1.1 Term. Subject to earlier termination and cancellation as hereinafter
provided, the term of this Agreement shall be for a period of ten (10) years,
commencing on the expiration of the Interim Term as stipulated in Section 1.2.
Section 1.2 Interim Term. The full term of this Agreement shall be comprised of
an interim term and a regular term. The interim term of the Agreement shall
commence on July 1, 1997, and shall
1
<PAGE>
end 60 days following final approval by City of architectural plans for the
"Last Operating Facility" to be constructed. "Last Operating Facility" shall be
defined either the landside operation or the airside operation as depicted
within Exhibit C and Exhibit G attached hereto. The regular term of the
agreement commences 60 days following final approval by City of architectural
plans for the last operating facility to be constructed and ends exactly ten
(10) years from the date of commencement of the full term, unless sooner
terminated as herein provided. Architectural plans must be submitted by
Concessionaire in accordance with all provisions described in Article 8 of this
Agreement.
Section 1.3 Option Periods. City, at its sole discretion, may elect to extend
the term of the Agreement, under the same terms and conditions for five
individual twelve (12) month periods upon written notice to Concessionaire. Said
notice shall occur no later than 90 days prior to the expiration of the then
current term of the Agreement. Concessionaire may accept or decline the
extension within 30 days of the offer to extend. Failure of the Concessionaire
to respond to the offer within 30 days shall be considered a declination of the
offer.
ARTICLE 2
PREMISES
Section 2.1 Premises. Concessionaire shall operate the Concession granted within
the premises indicated in the Request for Proposal document (Exhibit G) and on
applicable pages of Exhibit "C" attached hereto and forming a part hereof. The
Premises include areas designated for storage and support as indicated in the
Requests for Proposal document (Exhibit G) and in Exhibits "D" and "E" attached
hereto and forming a part thereof.
Section 2.2 Square Footage. The square footage figures appearing throughout
Exhibits "C", "D", and "E" attached hereto are approximate only and are subject
to on-site measurements to be performed after completion of development. City
hereby provides to Concessionaire certain space in the Terminal Building
hereinafter described together with certain attendant rights and privileges
specifically set forth.
ARTICLE 3
CONCESSION RIGHTS AND PRIVILEGES
Section 3.1 Rights Granted. Concessionaire shall have the right to sell to the
public those food and beverage items submitted in its proposal dated March 24,
1997, and such other Food and Beverage items as may be approved herein.
Section 3.2 Right to Operate. City hereby grants to Concessionaire the exclusive
right and obligation to occupy, equip, furnish, operate and maintain food and
beverage facilities in those portions of existing buildings at Airport shown in
the Request for Proposal document (Exhibit G) and in Exhibit "C", attached
hereto, and made a part hereof. The rights granted shall be carried on solely
and exclusively within the limits and confines of said areas, subject, however,
to the expansion, reduction or relocation of any such area specified in Article
10 hereof and its sections. However, the
2
<PAGE>
City reserves the right to develop specialty retail concessions in the future as
business conditions warrant and in order to fulfill the Airport's DBE program
requirements.
Section 3.3 General Obligation to Operate. At the locations indicated herein,
Concessionaire shall provide food and beverage service for passengers, every day
of the term hereof, without exception. In addition, Concessionaire shall install
and maintain food and beverage vending machines in a location(s) designated by
City. Concessionaire shall take all reasonable measures, in every proper manner,
to develop, maintain and increase the business conducted by it under this
Agreement. Concessionaire shall actively operate each food and beverage facility
so as to best serve public needs.
Section 3.4 Right to Advertise/Promote Products. Concessionaire shall have the
right to advertise brand-name products on its packaging and within the premises
only upon the written approval of City.
Section 3.5 Quiet Enjoyment. Concessionaire, upon payment of fees and charges as
described in Article 5 hereof, and its sections, and upon observing and keeping
the conditions and covenants of this Agreement on its part to be observed and
kept, shall lawfully and quietly hold, use and enjoy the concession premises
during the term of this Agreement.
Section 3.6 Ingress and Egress. Concessionaire shall have the full and free
right of ingress to and egress from the Leased Premises. City agrees to use its
best efforts to keep the routes of ingress and egress to the Leased Premises
free from obstruction including the removal of snow, ice, vegetation, stones,
and other foreign matter. City has the fight to alter or change the routes of
ingress and egress upon giving reasonable notice to Concessionaire and upon
providing other reasonably adequate means of ingress and egress.
Section 3.7 Parking Facilities. Concessionaire's employees shall have the fight
to utilize reasonable adequate vehicular parking facilities in common with other
tenant employees . Such facilities shall be located in an area designated by the
City. City reserves the fight to assess a reasonable charge to such
concessionaire employees for such employee parking facilities at a rate not more
than that being charged to other tenant employees for use of the same
facilities.
Section 3.8 Exclusivity. The concession rights herein granted to the
Concessionaire shall be exclusive within the premises covered by this Concession
Agreement, but non-exclusive at the Airport. Specifically, certain food and
beverage items, tenant employee dining, special event catering and in-flight
catering are non-exclusive. Items which will be exclusive to Concessionaire
within the Terminal are listed in Exhibit "B". City may enter into Concession
Agreements with other food and beverage Concessionaires at Airport, some of
which will be located in the terminal covered by this Concession Agreement. Said
Agreements may not grant any Concessionaire the rights to sell those items
identified as "exclusive" in Exhibit "B", but may permit the sale of other food
and beverage items.
Section 3.9 Tenant Employee Dining. City's other tenants may, at City's option,
be granted the right to operate dining facilities for their employees and/or
their First Class passengers, but not for
3
<PAGE>
the general public, and not in locations to which the general public has access.
Such right may include the right to sell food and beverages, either directly or
through a contractor. Concessionaire shall not have the exclusive or first right
to provide such services to said tenants.
Section 3.10 Dispute on Services or Products. In the event of a dispute between
Concessionaire and City or any other Airport tenant as to the services to be
offered or products to be sold, Concessionaire shall meet and confer with
Aviation Director and. if any parties to said dispute continue to disagree with
the recommendation of Aviation Director, City shall determine the services to be
offered or products to be sold by each, and Concessionaire shall be bound by
said determination.
Section 3.11 No Other Uses. Concessionaire shall not use nor permit the
concession premises to be used for any purpose other than as hereinabove set
forth except with the prior written consent of City, nor for any use in
violation of any applicable present or future law, ordinance, rule or regulation
of any Governmental authority, agency, department or officer thereof.
ARTICLE 4
FEES AND TIME OF PAYMENT
Section 4.1 Monthly Rental Payments
A. Monthly Rental Payments During the Interim Term of the Concession
Agreement. As the monthly rent during the interim term, as defined in
this Agreement, Concessionaire shall pay the percentage fee applicable
to each category of gross receipts as defined herein.
B. Monthly Rental Payments During the Regular Term of the Concession
Agreement. As the monthly rent during the regular term, as defined in
this Agreement, Concessionaire shall pay the greater of (1) the
percentage fee applicable to each category of gross receipts as defined
herein, or (2) 1/12 of the minimum annual Guaranteed rent as defined
herein.
C. Percentage Fee. The Percentage Fee shall be the sum of (1) Nineteen
and one-half (19.5%) of the gross revenues earned from the sale of
alcoholic beverages, (2) Fourteen percent (14%) of the gross revenues
earned from all other food and beverage sales and (3) Eleven percent
(11%) of the gross revenues earned from all vending machine sales in
the terminal covered by this Concession Agreement.
D. Minimum Annual Fee. The minimum annual fee for the first full year
of operation during which all facilities under the agreement are in
operation, as defined in Section 1.2. shall be equal to Twenty-one
cents (.21(cent)) per enplaned passenger . For each year after the
first full year of operation, as defined in Section 1.2, the minimum
annual guarantee shall be the greater of the minimum established for
the first full year of operations, as defined in Section 1.2, or
eighty-five percent (85%) of the previous years actual rent payments
(Percentage Fee).
4
<PAGE>
E. Adjustment to Minimum Annual Fee. In the event that enplaning
passengers, in the terminal, increase or decrease by an amount greater
than twenty percent (20%) from one contract year to the immediately
following contract year, City will adjust the minimum annual fee for
that year by the amount of the percentage increase or decrease in
enplaning passengers. Within 90 days after each contract year, City
will compare the actual number of enplaning passengers for that
contract year to the immediately preceding contract year. If enplaning
passengers have increased or decreased by an amount greater than twenty
percent (20%), City will adjust the minimum annual guarantee. If a
greater amount is due, City will invoice Concessionaire for the
difference. If a smaller amount is due, City will issue a rent credit
to the Concessionaire which the Concessionaire may deduct from a future
rent payment.
F. Enplaning Passenger Defined. The term "Enplaning Passengers" refers
to the aggregate number of passengers departing from the terminal
covered by this Concession Agreement. It excludes everyone else who may
be in the terminal, such as arriving passengers, persons coming into
the terminal to greet arriving passengers, airport employees, and the
employees of airport tenants. These other persons may be a source of
revenue for the Concessionaire, but City will only report the number of
enplaning passengers for the purposes of this Concession Agreement.
G. No Abatement. City and/or Federal government shall retain the right
to restrict access to areas "airside" of security checkpoints to
ticketed passengers and Airport/airline personnel. City shall retain
the right to restrict access for purposes of construction of
City-approved improvements. During such actions, Concessionaire shall
not be entitled to any minimum annual guarantee abatement or percentage
adjustment, other than the reductions defined in Section 4. 1.(E)
Adjustment to Minimum Annual Guarantee herein.
H. Annual Adjustment. At the end of each twelve (12) month period
during the term hereof, City shall prepare and submit to Concessionaire
a statement showing the total percentage rent charge for the said
twelve months. If the sums paid by Concessionaire during said 12 month
period exceed the greater of the minimum annual Guarantee or the actual
percentage rent payment, such overpayment shall be credited to the fees
and charges next thereafter due from Concessionaire. If
Concessionaire's aggregate payments are less than the total due,
Concessionaire shall, within ten (10) calendar days, pay City the
difference.
Section 4.2 Utilities. Utilities, including but not limited to electricity, gas
and water, may be separately metered as appropriate at Concessionaire's expense,
and shall be invoiced directly to Concessionaire.
Section 4.3 Refuse Removal. Concessionaire shall comply with the provisions of
Section 5.9 herein with regard to the disposition of trash and garbage. City
shall maintain garbage or refuse disposal areas for use by Concessionaire.
Concessionaire shall pay to City a pro-rata amount of the cost for removal of
garbage and refuse from designated garbage or refuse disposal areas.
5
<PAGE>
Section 4.4 Other Fees and Charges. If City has paid any sum or sums or has
incurred any obligations or expense which Concessionaire had agreed to pay or
reimburse City for, or if City is required or elects to pay sum(s) or ensure
obligation(s) or expense(s) by reason of the failure, neglect or refusal of
Concessionaire to perform or fulfill any of the conditions, covenants or
agreements contained in the Agreement, or as a result of an act or omission of
Concessionaire contrary to said conditions, covenants and agreements,
Concessionaire shall pay the sum(s) so paid or the expense(s) so incurred,
including all interest, costs, damages and penalties, and the same may be added
to any installment of the fees and charges thereafter due hereunder, and each
and every part of the same shall be and become additional fees and charges,
recoverable by City in the same manner and with like remedies as if it were
originally a part of the basic fees and charges.
Section 4.5 Method of Payment. The procedure for the payment of the fees and
charges shall be as follows:
A. Payment Location. All fees and charges payable hereunder shall be
made payable to the City of Des Moines - Aviation Department, and
mailed or delivered to the Department of Aviation Office at the address
contained within Section 15.29, unless and until City designates some
other party to receive or place for the payment of said fees and
charges.
B. Monthly Rental Payments. The rental fees and charges to be paid by
Concessionaire to City hereunder shall be payable in monthly
installments throughout the term of this Agreement. Within fifteen (15)
calendar days after the end of each calendar month, Concessionaire
shall pay City, as the fees and charges for such prior calendar month,
one twelfth (1/12) of the guaranteed minimum annual guarantee or the
actual percentage rent charge, whichever sum is greater.
C. Monthly Rental Report. Concessionaire shall submit a monthly
accounting of the cross receipts received at each location and under
each category as referenced in Section 4.1.C operated by Concessionaire
under this Concession Agreement. Each facility shall be reported as a
separate location, Each monthly accounting shall be in such manner and
detail and upon such forms as are prescribed by City. Each monthly
report shall be due on the same date and at the same address as the
payment for that month is due. City reserves the right to make
modifications to said reporting form at any time under this Agreement.
Section 4.6 Late Payment. Any payment not received by the due date shall accrue
interest payable at the rate of 1.5% per month from the due date until paid in
full.
Section 4.7 Pro Rata Payment. If the commencement or termination of this
Agreement falls upon any date other than the first or last day of any calendar
month, the applicable fees and charges for said month shall be in the same
proportion that the number of days the Agreement is in effect for that month
bears to the total number of days in that month. Should this Agreement terminate
or be terminated in accordance with Article 2 at any time other than at the end
of the agreement year, the
6
<PAGE>
minimum fees for the agreement year in which such termination occurs shall be in
the same proportion that the number of days the Agreement is in effect for that
year bears to the total number of days in the year.
Section 4.8 Audit Reports. Concessionaire agrees to keep true and accurate
accounts, records, books and data which will show in a standard acceptable form
the income, including taxes, surcharges, and gross receipts as herein defined,
as separate line items of said business operated at and upon the Leased Premises
of the Airport, which books and records shall be open for inspection by
authorized representatives of City at all reasonable times during normal
business hours. City reserves the right, either directly, or through an agent,
to make necessary detailed audits as required at any time during the agreement
period and for twelve (12) months after the termination of the Agreement. In
addition, Concessionaire agrees to furnish to City annually a certified copy of
an audit thereof by Concessionaire's certified public accountant. Such audit
shall be in a form acceptable to the auditors of City and shall be due to City
at the office of City's Aviation Director no later than ninety (90) days after
the end of each Agreement year.
Section 4.9 Gross Receipts Defined. "Gross Receipts" shall include all receipts,
whether by coin or currency, on account, by check or credit card, collected or
uncollected, whether conducted on or off airport, derived by Concessionaire as a
result of its operation of the concession rights herein granted, without any
exclusion whatever, except those expressly permitted under Sections 4.9.A.
through 4.9.1. Gross receipts shall include the sales revenues received or
billed by Concessionaire from the sale of any item, including but not limited
to, dispensing and serving of food, food products and beverages including
alcoholic beverages, and other related services and products. Goods, work or
services furnished by any person or firm in lieu of payment in exchange for
value received shall be deemed to be Cash Sales. Gross Receipts shall exclude
revenues from the following:
A. Taxes On Sales. Retail sales taxes, excise taxes or related direct
taxes on the consumer which are collected by Concessionaire on such
sales for remittance to the city, county, state, or federal
government, provided all such taxes are properly accounted for and
recorded;
B. Sale of Scrap, Equipment, or Uniforms. Receipts from the sale of
waste or scrap materials resulting from the operation of
Concessionaire's business on Airport; receipts from the sale of or the
trade-in value of furniture, fixtures or equipment used on the
concession premises, and owned by Concessionaire; receipts from the
sale at cost of uniforms/clothing to Concessionaire's employees where
such uniforms/clothing are required to be worn by said employees;
C. Exchanges and Refunds from Suppliers. The value of any merchandise,
supplies or equipment exchanged or transferred from or to other
business locations of Concessionaire, where such exchanges or transfers
are not made for the purpose of avoiding a sale by Concessionaire which
would otherwise be made from or at the concession premises; receipts
7
<PAGE>
in the form of refunds from or the value of merchandise, supplies or
equipment returned to shippers, suppliers or manufacturers;
D. Refunded Receipts. Receipts with respect to any sale where the
subject of such sale, or some part thereof, is thereafter returned by
the purchaser to and accepted by Concessionaire, to the extent of any
refund actually granted or adjustment actually made, either in the
form of cash or credit;
E. Employee Meals and Employee Discounts. The cost or value of free
meals given to employees of Concessionaire pursuant to such employees'
employment contracts; the amount of a discount on all items except
alcoholic beverages which Concessionaire may give to those employees of
Airport tenants of City and Airport employees of City who have been
issued Airport Security Identification badges by City;
F. Supplier Discounts. The amount of any cash or quantity discounts
received from sellers, suppliers or manufacturers;
G. Tips. The amount of any gratuity paid or given by patrons or
customers to employees of Concessionaire. Said Concessionaire's
employee shall not, at any time while on Airport property, solicit
tips; and
H. Reimbursements. Receipts in the form of reimbursements from
Concessionaire's subcontractor(s) for any taxes, loan payments and/or
license fees paid by Concessionaire for or on behalf of such
subcontractor.
ARTICLE 5
OPERATING STANDARDS
Section 5.1 Concession Personnel. Concessionaire shall, at its cost, furnish
prompt, courteous and efficient service and shall ensure polite and inoffensive
conduct and demeanor on the part of its representatives, agents and employees,
collectively referred to herein as "personnel". Concessionaire shall employ or
permit the employment of only such personnel as will assure a high standard of
service to the public. All such personnel, while on or about the Airport
premises, shall be clean, neat in appearance and courteous at all times and
shall be appropriately attired, with badges or other suitable means of
identification, in such instances as are appropriate. No personnel, while on or
about the Airport premises, shall use improper language, act in loud, boisterous
or otherwise improper way or be permitted to solicit business in an
inappropriate manner.
Section 5.2 Manager. Concessionaire shall select and appoint, subject to
approval by the Aviation Director, a Manager of Concessionaire's operations at
the Airport. Such person must be an outstanding, highly qualified and
experienced manager or supervisor of comparable Food and Beverage operations,
vested with full power and authority to accept service of all notices provided
for herein and regarding operation of the concession business herein authorized,
including the quality
8
<PAGE>
and prices of foods and beverages and the appearance, conduct and demeanor of
Concessionaire's agents, servants and employees. Said Manager shall be assigned
to a duty station or office at the Airport, where he or she shall ordinarily be
available during regular business hours and where, at all times during the
manager's or other absences, a responsible subordinate shall be in charge and
available.
Section 5.3 Hours of Operation. In each location and on each day, Concessionaire
shall operate during those hours as are necessary to adequately serve the public
demand, as said demand may be determined and re-determined by the Aviation
Director. Concessionaire may advise the Aviation Director regarding optimum
hours of operation at each location.
A. Minimum Hours of Operation. Concessionaire shall be obligated to
operate the facilities for the hours which are defined in this Section
until such time as the Aviation Director requests that hours be
extended or authorizes hours to be altered . The initial minimum hours
each day shall be as follows:
Facilities shall open one hour prior to the departure of the
first scheduled flight of the day and shall remain open until
at least one hour subsequent to the departure of the last
scheduled flight of the day
B. Curtailment of Hours Beyond Control. Concessionaire shall be excused
from its obligations as set forth in Section 5.3.A. in the event that
its operations are closed or curtailed, in whole or in part, by reason
of a strike, lockout or a cause beyond its control as determined by the
Aviation Director.
C. Aviation Director May Alter Hours. Aviation Director may, on 24
hours notice to Concessionaire require earlier opening times or later
closing times for any location. Concessionaire shall comply with said
hours. Aviation Director may, from time to time, authorize a later
opening or earlier closing time for any location, provided it first
finds that Concessionaire has submitted adequate justification
therefore.
Section 5.4 Food Services Plan and Menu. Concessionaire's food services plan,
prices and menu shall be as contained within Concessionaire's proposal attached
as part of this Agreement for each facility. By attachment and reference herein,
Concessionaires marketing and merchandise plan as contained within their
proposal is hereby deemed approved. During the term of this Agreement,
Concessionaire shall make no changes to the food services plan, menu or prices
of any item on the approved menu without first obtaining the prior written
approval of the Aviation Director. The Aviation Director shall require the same
information, and apply the same criteria to each proposed chance as is described
in Section 5.4 and its subsections.
A. Menu. Concessionaire's proposed menu and all subsequent menus shall
include a description of each item, including the weight of each
portion and the Government grade of
9
<PAGE>
government quality (if any) for its component item(s). No menu shall
misrepresent quality, grade, or weight of any item.
B. Publicly Displayed Menu. Prices for each item sold in each facility
shall be conspicuously displayed to the satisfaction of the Aviation
Director as to information given, design, type, size, style, color, and
all other specifics. Said prices shall not exceed the approved prices
for said items.
C. Amendments May Be Required. The Aviation Director may, re-evaluate
the selection of items during the term. The Aviation Director's
determination that the selection offered is inadequate (in general or
at any particular location), or that any price is excessive, or that
the quality or quantity of any item is deficient, shall be conclusive.
Concessionaire may meet and confer with the Aviation Director regarding
such matters.
D. Quality of Foods and Beverages. All foods and beverages offered for
sale by Concessionaire shall be of high quality, and comparable to
first class food and beverage facilities of a similar type in the Des
Moines area.
E. Prices. All food and beverage products offered for sale by
Concessionaire shall be priced reasonably in comparison to like
facilities serving similar products to the general public in the Des
Moines area. What constitutes "like facilities" and "comparability of
prices" shall be determined solely by City but generally in accordance
with the following guidelines: Like facilities shall generally mean
casual dining establishments located within a 15 mile radius of the
airport. Prices no more than ten percent (10%) over the average of a
minimum of three (3) like facilities for similar menu items of similar
portions and presentations shall be deemed to be reasonable.
Section 5.5 Cash and Record Handling Requirements. Concessionaire shall prepare
a description of its cash handling and sales recording systems and equipment
which shall be submitted to the Aviation Director for approval. When approved by
the Aviation Director, such systems and equipment, including any revisions
thereto approved by Aviation Director, shall be utilized by Concessionaire in
its operations at Airport.
A. Cash Registers. Concessionaire shall accurately record each sale on
a point of sale resister acceptable to the Aviation Director. Such
register shall be non-resetable and sufficient to supply an accurate
record of all sales, refunds, taxes, etc. on tape or otherwise as
directed by the Aviation Director. Such register shall have a sale item
display visible to the purchaser.
Section 5.6 Credit Cards. Customers shall be permitted to utilize at a minimum
the following credit cards in payment for the purchase of food and beverages:
Visa, Mastercard and American Express.
10
<PAGE>
Section 5.7 Prohibited Acts. Concessionaire shall not do or permit to be done
anything specified in Sections 5.7.A. through 5.7.F. Specifically, it shall not:
A. Interfere with Access. Concessionaire or its employees, agents or
representatives, shall not do anything which may interfere with free
access and passage in the concession premises or the areas adjacent
thereto, or in the elevators, escalators, streets or sidewalks of the
Airports, or hinder police, fire fighting or other emergency personnel
in the discharge of their duties, or hinder access to utility, heating,
ventilating or air-conditioning systems, or portions thereof, on or
adjoining the concession premises;
B. Interfere with Systems. Concessionaire or its employees, agents or
representatives, shall not do anything which may interfere with the
effectiveness of utility, heating, ventilating or air-conditioning
systems or portions thereof on or adjoining the concession premises
(including lines, pipes, wires, conduits and equipment connected with
or appurtenant thereto) or interfere with the effectiveness of
elevators or escalators in or adjoining the concession premises, or
overload any floor in the concession premises;
C. Permit Smoking Where Prohibited. Concessionaire or its employees,
agents or representatives, shall not do anything contrary to State,
County, or City policy, ordinance, regulation, or signs prohibiting
smoking. At the present time, said restriction prohibits smoking in the
terminal building, including all food and beverage areas;
D. Install Unauthorized Locks. Concessionaire or its employees, agents
or representatives, shall not place any additional lock of any kind
upon any window or interior or exterior door in the concession
premises, or make any change in any existing door or window lock or the
mechanism thereof, unless a key therefore is maintained on the
concession premises, nor refuse, upon the expiration or sooner
termination of this Agreement, to surrender to Aviation Director any
and all keys to the interior or exterior doors on the concession
premises, whether said keys were furnished to or otherwise procured by
Concessionaire, and in the event of the loss of any keys furnished by
Aviation Director, Concessionaire shall pay City, on demand, the cost
for replacement thereof, and the cost of re-keying City's locks. City
shall maintain, and appropriately secure, keys which afford access to
the premises assigned under this agreement;
E. Increase Liability. Concessionaire or its employees, agents or
representatives, shall not do any act or thing upon the concession
premises which will invalidate, suspend or increase the rate of any
fire insurance policy required under this Agreement, or carried by
City, covering the concession premises, or the buildings in which the
same are located or which, in the opinion of the Aviation Director, may
constitute a hazardous condition that will increase the risks normally
attendant upon the operations contemplated under this Agreement. If, by
reason of any failure on the part of Concessionaire after receipt of
notice In writing from City to comply with the provisions of this
paragraph, any fire insurance rate on the concession premises, or any
part thereof, or on the buildings in which the same are located,
11
<PAGE>
shall at any time be higher than it normally would be, then
Concessionaire shall pay City, on demand, that part of all fire
insurance premiums paid by City which have been charged because of such
violation or failure of Concessionaire; provided, however, that nothing
contained herein shall preclude Concessionaire from bringing, keeping
or using on or about the concession premises such materials, supplies,
equipment and machinery as are appropriate or customary in carrying on
its business, or from carrying on said business in all respects as is
customary;
F. No Loitering or Lodging. Concessionaire or its employees, agents or
representatives, shall not permit undue loitering on or about the
concession premises or use the concession premises, or any part
thereof, for loitering or sleeping purposes.
Section 5.8 Signs, Advertising, & Displays. Concessionaire shall not erect,
construct or place any sign, advertisement or display upon any portion of the
premises without first obtaining the prior written approval of City.
Concessionaire shall not erect, construct or place any sign, advertisement or
display outside the premises.
A. Removal of Signs. Upon the termination, cancellation or expiration
of this Agreement, Concessionaire shall remove, obliterate or paint
out, any and all of its signs, advertising and displays as the Aviation
Director may direct. If Concessionaire falls to do so, City may cause
said work to be done at the expense of Concessionaire.
Section 5.9 Removal of Garbage and Refuse. Concessionaire shall strictly comply
with all Airport and other rules and regulations regarding the disposition of
trash and garbage, shall regularly remove from all concession premises to the
garbage or refuse disposal area all rubbish, refuse and garbage and shall remove
the accumulation of all such material in said garbage or refuse disposal area at
frequent intervals. Accumulation of trash, boxes, cartons, barrels or other
similar items shall not be permitted in any public area at Airport.
Concessionaire shall not remove trash or garbage through public or common areas
(including concourses and sidewalks).
ARTICLE 6
OBLIGATIONS OF CITY
Section 6.1 Maintenance of Public Areas. City shall maintain the public areas of
the Terminal Building;
Section 6.2 Maintenance of Electric Service. City shall, at its sole expense,
provide and maintain to the Leased Premises electric power lines and service
needed by Concessionaire in the conduct of its business. Concessionaire shall be
responsible for distribution of said service within the referenced leaseholds;
12
<PAGE>
Section 6.3 Employee Parking Facilities. City shall provide employee automobile
parking in accordance with Section 3.7 and toilet facilities for employees of
Concessionaire in such manner similar to or equal that provided for employees of
other Airport agencies; and
Section 6.4 City Shall Cooperate. City shall cooperate with Concessionaire as
reasonably necessary to facilitate Concessionaire's activities in providing food
and beverage service.
ARTICLE 7
DISADVANTAGED BUSINESS ENTERPRISE PROGRAM
Section 7.1 Disadvantaged Business Enterprise Program. It is the policy of City
of Des Moines that Disadvantaged Business Enterprises (DBEs) shall have the
maximum opportunity to share in the benefits from airport concession leasing
through substantial and meaningful participation. As stated in its proposal,
Concessionaire agrees to maintain certified DBE status with a level of DBE
participation at the Airport acceptable to the City and the FAA for the entire
term of the Agreement. Should Concessionaire propose to operate a cart or kiosk
with a qualified DBE firm, the City reserves the right of review and approval of
operation and any subconcession agreement prior to the start of any operation.
Section 7.2 Replacement/Substitutions of DBE(s). The Concessionaire is required
to have a valid arrangement with the DBE(s) designated to fulfill the contract
goal. The Concessionaire will be allowed to substitute the originally designated
DBE(s) only if it is demonstrated to City that the DBE(s) is unwilling or unable
to perform. The Concessionaires ability to negotiate a more advantageous
contract with another DBE firm will not be considered a valid basis for
substitution. If a DBE is unwilling or unable to perform, the Concessionaire
shall inform City in writing and include documentation to justify the
substitution, including a statement from the DBE to be replaced acknowledging
the substitution. The Concessionaire will identify a replacement DBE or document
good faith efforts to replace the DBE with another DBE. If the Concessionaire or
a non-DBE firm performs the work originally committed to a DBE, the
Concessionaire shall submit a revised DBE plan to the Aviation Director
detailing how the DBE goal will be met or will supply documentation detailing
good faith efforts which have been made to meet the goal.
Section 7.3 DBE Reports. Concessionaire shall submit, in the format required by
the Aviation Director, a monthly report of DBE utilization. Said report shall be
submitted with the monthly report of gross receipts as required in Section 4.5
herein.
Section 7.4 Disadvantaged Business Enterprise (DBE) Discrimination. This
Agreement is subject to the requirements of the U. S. Department of
Transportation's regulations, 49 CFR Part 23, Subpart F. Concessionaire agrees
that it will not discriminate against any business owner because of the owner's
race, color, national origin, or sex in connection with the award or performance
of any concession agreement covered by 49 CFR Part 23, Subpart F.
13
<PAGE>
Section 7.5 Provision Inclusion. Concessionaire agrees to include the above
section in any subsequent concession agreements that it enters and cause those
businesses to similarly include the statements in further agreements.
ARTICLE 8
IMPROVEMENTS
Section 8.1 Improvement Proposal. Concessionaire shall redesign the existing
premises as proposed by Concessionaire within the proposal dated March 24, 1997
which is attached herewith. In accordance with Proposal and contract documents,
City shall have and possess final rights of approval of all plans,
specifications, concepts and build out within assigned premises.
Section 8.2 Condition Of Premises, City shall deliver the concession areas
specified herein to the Concessionaire as they are currently improved, except
for furniture, furnishings, equipment, removable fixtures and supplies owned by
the incumbent Concessionaire. The improvements owned by City include interior
walls, ceilings, floor covering, carpeting, finished flooring, electrical
wiring, air-conditioning ducts and equipment, and may include specific
concession furniture, equipment and furnishings which cannot be removed without
structural damage to the premises, interior decoration and finishing erected or
installed upon said premises, and connections for electrical power and
telephones. The Concessionaire shall accept such premises "as is". Future
improvements to the concourse food and beverage location may be completed by
City. If City elects to complete said improvements, the concession area will a
basic shell with unfinished (drywall) walls and ceilings and unfinished floor.
Utilities will be delivered to the premises.
Section 8.3 Improvements Required of Concessionaire. Concessionaire shall
provide all improvements which are necessary to operate said concession to the
satisfaction of City: including all improvements proposed to be provided in its
proposal to City and accepted by City in accordance with proposal documents.
Section 8.4 Improvement Financial Obligation. Concessionaire guarantees that it
will make capital investments for said concession, exclusive of any capital
improvements made by City, in an amount of not less than $1,300,000 . Said
amount shall be expended on the initial improvements constructed and in
accordance with Concessionaires proposal dated March 24, 1997. Concessionaire
shall provide the City with receipts and other suitable documentation of the
aforementioned required expenditure as furthered referenced in Section 8-19.
Concessionaire shall pay to City an amount equal to the shortfall, if any,
between its total proposed investment and its actual investment as of the first
day of the third month of operation of the last facility constructed. Said
payment shall be made on or before the sixtieth (60th) day after the first day
of the third month of operation of the last facility constructed. Should the
costs to make the referenced improvements exceed the minimum required amount as
stated above, said costs shall be the sole responsibility of the Concessionaire.
Section 8.5 Mid-Term Refurbishment. After the commencement of the fifth year,
and before the end of the sixth year of the term hereof, Concessionaire shall
refurbish the facilities. Said refurbishing
14
<PAGE>
shall include, but shall not be limited to, all refinishing, repair,
replacement, redecorating and painting necessary to keep said areas in first
class condition. Concessionaire shall not expend less than $209,750 for the
required mid-term refurbishment. Concessionaire shall provide the City with
receipts and other suitable documentation of the aforementioned required
expenditure as furthered referenced in Section 8.19. Concessionaire shall pay to
City an amount equal to the shortfall, if any, between said refurbishment amount
and its actual investment as of the last day of the sixth year hereof Said
payment shall be made on or before the thirtieth day of the seventh year hereof
The amount spent for mid-term refurbishment shall be exclusive of any amount
spent for normal repair and maintenance as determined in the sole discretion of
the Aviation Director. Should the costs to make the referenced improvements
exceed the minimum required amount as stated above, said costs shall be the sole
responsibility of the Concessionaire.
Section 8.6 No Liens. All construction work done, equipment supplied and
installed and interior design and decor furnished by Concessionaire pursuant to
this Section shall be at its sole cost and expense, free and clear of liens for
labor and material and Concessionaire shall hold City harmless from any
liability in respect thereto. Concessionaire shall ensure that no liens are
placed on the improvements, premises or City property.
Section 8.7 Construction & Payment Bond. Within thirty (30) days after award of
this Agreement, Concessionaire shall furnish, at its sole cost and expense, a
Construction and Payment Performance Bond in the principal sum of the amount
proposed by Concessionaire in Section 8.4 herein, to Guarantee compliance with
this Section. This Bond shall be in a form acceptable to City and be issued by a
surety company authorized and licensed to transact business in the State of Iowa
and be for the full amount stated above with City of Des Moines as obligee
conditioned upon full, faithful and satisfactory performance by Concessionaire
of its obligations to construct and install the aforementioned facilities and
improvements and full payment to its contractor(s). The above-stated principal
amount of said Bond or other security deposit, however, may be reduced during
the term hereof as Concessionaire completes the improvements contemplated
thereby. The Bond shall remain in place for one year after the City's acceptance
of the improvements or other period as agreed to by the Aviation Director and
City's legal counsel.
Section 8.8 City Approval of Improvements. Prior to any work being done.,
Concessionaire shall obtain City's written approval of all plans and
specifications. The construction, including permits and approvals, of any and
all areas included under this Agreement shall be formalized through a Private
Construction Agreement between Concessionaire and a contractor of
Concessionaire's choice. Said Private Construction Agreement shall be approved
by City.
Section 8.9 Overall Construction Program. Prior to the construction and
installation of improvements including furniture, furnishings, and equipment,
Concessionaire shall first prepare an overall program including a time schedule
for same, which shall be subject to approval of City. Such schedule shall
include as a minimum the following milestones (1) Conceptual Design; (2) Design
Development; (3) Construction Documents; (4) Plan Check and Permit; (5) Bid; (6)
Construction; and (7) Date of Beneficial Occupancy (DBO).
15
<PAGE>
Section 8.10 Utilities - Installation. City shall provide utilities to a point
within each Lease Premises area. Concessionaire shall provide distribution of
utilities within the Leased Premises.
Section 8.11 Plans and Specifications. Concessionaire shall, at its own cost and
expense, employ 'competent architects, engineers and interior designers who will
prepare architectural, interior and engineering designs, including detailed
plans, specifications, and cost estimates of all concession improvements, decor
and equipment to be installed in the concession areas. Concessionaire shall at
its own cost and expense and prior to the start of construction. obtain all
necessary permits and licenses. As required by City, Concessionaire shall submit
sets of plans, specifications, and cost estimates for review and approval by
City in accordance with a time schedule furnished by Concessionaire and in
accordance with American Institute of Architects (AIA) Standard Deliverables.
However, schedule dates shall not exceed the following unless a time extension
is approved by City:
Overall Program: 30 days after Notice to Proceed
Conceptual Design: 45 days after Notice to Proceed
Design Development: 30 days after approval of Concept Design
Construction Documents: 60 days after approval of Design Development
"Notice to Proceed", as referenced above, shall be defined as the date of
written notice by the Aviation Director that the Concessionaire may begin the
facility development process.
All such plans, specifications, equipment, interior design and decor and cost
estimates shall be first submitted to City for written approval before
Concessionaire awards or lets any contract for the construction of said
concession improvements, enters into contracts for the purchase of any equipment
to be installed in the concession areas or enters into any contracts for the
installation of the interior decor and design therefore.
Section 8.12 Design Approval. City shall review and approve each design
submitted and may reject any such submittal and require Concessionaire to
resubmit design proposals until they meet with City's approval. Concessionaire
shall include in its project schedule the following review time:
Concepts/Schematic Design.............................10 Calendar Days
Design Development....................................10 Calendar Days
Construction Documents... ............................40 Calendar Days
One set of plans and specifications shall be returned to Concessionaire with
written comments within the above timeframe. Concessionaire shall incorporate
these comments. Concessionaire shall obtain written approval from City and shall
obtain approvals from applicable City agencies before letting of contracts for
the construction of said concession improvements.
Section 8.13 Adherence to Plans and Specifications. Upon approval by City of the
detailed plans, specifications, equipment, cost estimates and the interior
design and decor of the concession
16
<PAGE>
improvements, Concessionaire shall forthwith cause said work to be commenced and
completed with reasonable dispatch. No substantial change, addition or
alteration shall be made in the scope of the work so approved without first
obtaining City's writing. No structural or other improvements, decor or
equipment, other than as contemplated herein shall be made in or upon the
concession areas without the written consent of City being first had and
obtained, and any conditions relating thereto then stated by City shall become
conditions hereof as if they had been originally stated herein.
Section 8.14 Future Work. After completion of the structural or other
improvements and installation of equipment and interior design and decor, as
above provided, Concessionaire shall not make any structural alterations to the
ceilings, walls or floors of any permanent improvements which it constructs or
installs in the concession areas without first obtaining City's written consent;
provided, however, that Concessionaire may make nonstructural alterations which
the exigencies of the operation of its concession demand in order to promote
efficiency in the operation thereof.
Section 8.15 Building Codes. All structural or other improvements, equipment and
interior design and decor constructed or installed by Concessionaire in the
concession areas, including the plans and specifications therefore, shall in all
respects conform to and comply with the applicable statutes, ordinances,
building codes, rules and regulations of City and such other authorities as may
have jurisdiction over the concession areas or Concessionaire's operations
therein, The approval by City provided above shall not constitute a
representation or warranty as to such conformity or compliance, but
responsibility therefore shall at all times remain in Concessionaire.
Section 8.16 Other Permits. Concessionaire, at its sole cost and expense, shall
also procure all building, fire, safety, and other permits necessary for the
construction of the structural add other improvements, installation of the
equipment and the interior design and decor.
Section 8.17 Contractor's Insurance . Concessionaire shall ensure that the
contractor hired to construct the improvements shall secure the insurance
required by the City prior to the commencement of construction. Concessionaire
shall further ensure that its contractor maintains the required insurance
throughout construction.
Section 8.18 Regulatory Requirements. Concessionaire shall require by any
contract that it awards in connection with the structural or other improvements,
the installation of any and all equipment and the interior designing and decor,
that the contractor doing, performing or furnishing the same shall comply with
all applicable statutes, ordinances, codes, rules and regulations, submit to
City evidence of required insurance coverage and comply With all applicable
provisions of the Civil Code of the State of Iowa.
Section 8.19 As-Builts. Upon completion of the concession improvements,
Concessionaire shall, within a reasonable time thereafter, furnish City, at no
charged (1) a certificate certifying that the improvements have been constructed
in accordance with the approved plans and specifications and in strict
compliance with all laws, rules, ordinance and governmental rules, regulations
and orders; (2) two complete, reproducible sets of as-built drawings covering
the structural and other
17
<PAGE>
improvements installed by Concessionaire in the concession areas plus the
location and details of installation of all equipment, utility lines, heating,
ventilating, air-condition ducts and related matters. Concessionaire shall keep
said drawings current by updating the same in order to reflect thereon any
changes or modifications which may be made in or to the premises; and (3) as
installation of the foregoing structural and equipment items, including
counters, partitions and furnishing and the interior design and decor is
completed, duplicated receipted invoices on all materials and labor costs
incurred in their installation which Concessionaire enters on its records as
representing its capital expenditures in the concession areas.
Section 8.20 Ownership of Improvements. At the completion of the term of the
agreement, City shall take ownership of all non-inventory and fixed improvements
associated with the development and build out of the referenced concession
delivery area. Concessionaire shall have the rights to the ownership of all
other installed as part of this Agreement, subject to the conditions provided in
Section 8.20.A. through C.
A. Installation Costs. All of the foregoing improvements, decor and
equipment shall be furnished, supplied, installed and constructed by
Concessionaire at its sole cost and expense.
B. Ownership During Term. Ownership of improvements paid for by
Concessionaire shall remain with the Concessionaire over the full term
of this agreement (subject to early termination) with any/all federal
investment tax credits applicable to concession improvements accruing
to Concessionaire.
C. Ownership Upon Termination. Title to all leasehold improvements and
furniture, fixtures and equipment which cannot be removed without
causing any damage shall vest in City upon termination of the contract.
If the Concessionaire's occupancy of a given facility is terminated
pursuant to Sections 10.1 or 11.2 herein and their subsections, City
will reimburse Concessionaire for the unamortized Net Book Value of its
existing structural improvements (and improvements which cannot be
removed without doing damage) based upon a 10-year straight-line
depreciation, with no residual value, provided the Concessionaire has
obtained all necessary approvals for their constriction, and also
provided the Concessionaire has reported each improvement, its costs,
and the date upon which its depreciation began, and also provided that
architectural and design costs do not exceed 10% of the cost of the
improvements and all said costs are properly documented and supported
by receipts and made available for audit. All said costs must be direct
costs 'd by Concessionaire to independent contractors and suppliers for
work actually performed on said premises, materials furnished or
professional services rendered. Costs associated with Concessionaire's
employees shall not be included in the calculation of these costs. To
become reimbursable the Concessionaire shall at its expense provide
City with "as-built" drawings and paid invoices, showing material and
labor costs involved in the construction of the approved structural
improvement within 90 days of the date that the improvement was put
into service. The straight line depreciation shall begin on the first
day of the month in which the improvement was placed in service. City
may require Concessionaire to remove any or all of
18
<PAGE>
its removable improvements. Title to all improvements for which
Concessionaire is reimbursed or which have been depreciated shall
thereupon vest in City.
ARTICLE 9
MAINTENANCE AND REPAIR
Section 9.1 Maintenance and Repair. Concessionaire shall, at all times and at
its expense, keep and maintain the concession premises, including all structural
and other improvements installed on the premises together with all of its
fixtures, plate and mirror glass, equipment and personal property therein, in
good repair and in a clean and orderly condition and appearance and shall keep
the areas immediately adjacent to the exits and entrances to the concession
premises clean and orderly and free of obstructions.
Section 9.2 Maintenance Program. Concessionaire shall maintain and repair all
interior areas and surfaces of the premises, including sweeping, washing,
servicing, repairing, replacing cleaning and interior painting that may be
required to properly maintain the premises in a safe, clean, wholesome,
sanitary, orderly and attractive condition. Concessionaire shall establish an
adequate preventive maintenance program and the provisions of same shall be
subject to periodic review by City. Said program shall include, without
limitation, the cleaning and repair of all floors, interior walls, ceilings,
lighting, decor and equipment. Regardless of Concessionaire's compliance with
its preventive maintenance program, Concessionaire shall clean such surfaces and
equipment immediately upon being instructed to do so by City or by other
Governmental agencies having such authority.
Section 9.3 Maintenance of Plumbing. Concessionaire shall be responsible for the
repair and maintenance of all plumbing within the leasehold area. Concessionaire
is responsible for all material that is deposited in the plumbing system from
their leasehold and for cleaning the crease traps within their leasehold. Repair
and maintenance of all piping within the leasehold is the responsibility of
Concessionaire. Concessionaire is responsible for the repair and maintenance of
all sewer lines from the leasehold to the point that the line connects to an
Airports main sewer line. Concessionaire is responsible for the repair and
maintenance of all domestic water lines, hot and cold, from the point of
connection of the Airports water meter throughout the leasehold. If
Concessionaire fails to maintain the plumbing system or places liquid, crease,
debris, etc. that results in stoppage or damage to Airports maintained plumbing.
Concessionaire will be billed for the cost thereof, plus fifteen (15%) percent
for administrative overhead, to be paid by Concessionaire to City on demand.
Section 9.4 City May Repair. In the event Concessionaire fails to accomplish
such nonstructural repairs, replacements, rebuilding, redecorating or painting
required hereunder within a period of ten (10) days after written notice from
City so to do, or fails to diligently repair, replace, rebuild, redecorate or
paint all the premises required to be repaired, replaced, rebuilt, redecorated
or painted by Concessionaire pursuant to said schedule, City may, at its option,
and in addition to all other remedies which may be available to it, repair,
replace, rebuild, redecorate or paint any such premises included in said notice,
the cost thereof, plus fifteen (15%) percent for administrative overhead, to be
paid by Concessionaire to City on demand.
19
<PAGE>
Section 9.5 Right to Enter Premises. City shall have the right to enter upon the
concession premises at all reasonable times to make such repairs, alterations
and replacements as may, in the opinion of the Aviation Director, be deemed
necessary or advisable and, from time to time, to construct or install over, in,
under or through the concession premises new lines, pipes, mains, wires,
conduits and equipment; provided, however, that such repair, alteration,
replacement or construction shall not unreasonably interfere with the use of the
concession premises by Concessionaire and provided rather, that nothing herein
shall be so construed as relieving Concessionaire of any obligation imposed upon
it herein to maintain the concession areas and the improvement and utility
facilities therein. City shall have the right to enter the premises at any time
to maintain or repair emergency systems when loss of life or damage to property
may result.
Section 9.6 Pest Control. Concessionaire shall be solely responsible for a pest
free environment within its leasehold area by maintaining its own pest control
services, in accordance with the most modem and effective control procedures.
All materials used in pest control shall conform to Federal, State and local
laws and ordinances. All control substances utilized shall be used with all
precautions to obviate the possibility of accidents to humans, domestic animals
and pets. Pests referenced above include, but are not limited to, cockroaches,
ants, rodents, silverfish, earwigs, spiders, weevils and crickets. Whenever City
deems that pest control services must be provided to a building or area that
includes premises under this Agreement, Concessionaire shall pay for the costs
of services provided for its premises under this Agreement.
ARTICLE 10
EXPANSION, REDUCTION, RELOCATION
Section 10.1 Reduction of Premises. City may, by appropriate Resolution fully
setting forth the reasons therefore, require Concessionaire to surrender any
portion of the concession premises at any time. City will use its best efforts
to provide substitute space of equal size, with equal frontage in an area
accessible to the public.
Section 10.2 Relocation of Premises. City may, by appropriate Resolution,
require Concessionaire to relocate a given operation to a new location.
Section 10.3 Finding is Required. Sections 10.1 and 10.2 shall only be
implemented upon a finding by City that such reduction/relocation is necessary
to its operation of the airport or to meet the demands of the public.
Section 10.4 Buy-Out. In the event that Concessionaire is required to surrender
in whole or relocate any of its operating premises, City will reimburse
Concessionaire for the unamortized Net Book Value of its existing structural
improvements (and improvements which cannot be removed without doing structural
damage) for that facility or portion thereof, based upon a 10-year straight-line
depreciation, with no residual value, provided the Concessionaire has obtained
all necessary approvals for their construction, and also provided the
Concessionaire has reported each
20
<PAGE>
improvement, its costs, and the date upon which its depreciation began, and also
provided that architectural and design costs do not exceed 10% of the cost of
the improvements and all of said costs are properly supported and made available
for audit. All said costs must be direct costs paid by Concessionaire to
independent contractors and suppliers for work actually performed on said
premises, materials furnished or professional services rendered. Costs
associated with Concessionaire's employees shall not be included in the
calculation of these costs. To become reimbursable the Concessionaire shall at
its expense provide City with "as-built" drawings and paid invoices, showing
material and labor costs involved in the construction of the approved structural
improvement within 90 days of the date that the improvement was put into
service, The straight line depreciation shall begin on the first day of the
month in which the improvement was placed in service. The Aviation Director may
require Concessionaire to remove any or all of its removable improvements. City
shall enter into good faith negotiations with Concessionaire relating to the
impact of the change in Premises upon Concessionaires financial investment as
well as Concessionaires Minimum Annual Fee.
ARTICLE 11
TERMINATION/CANCELLATION
Section 11.1 Cancellation or Termination by City. City shall have the right to
cancel or terminate this Agreement in its entirety and all rights ensuing
therefrom at any time upon giving a thirty (30) day written notice to
Concessionaire if any one or more of the events appearing in Subsections 11.1.A.
through 11.1.O. occur:
A. Delinquent Payments/Reports. Concessionaire fails to pay the fees
and charges or to make any other payments required hereunder or fails
to file gross receipts reports or other financial reports when due to
City within ten (10 days after receipt of written notice from City of
delinquency therefore;
B. Recurring Disputes. Concessionaire disputes deficiency assessments
repeatedly or is assessed liquidated damages of more than $5,000
annually;
C. Incomplete Records. Concessionaire falls to maintain adequate
records and accounts reflecting its business and gross receipts;
D. Revocation of Licenses. An act occurs which results in the
suspension or revocation of the rights, powers, licenses, permits and
authorities necessary for the conduct and operation of the business
authorized herein for a period of more than thirty (30) days,
E. Transfer of Interest. The interest of Concessionaire under this
Agreement is transferred, passes to or devolves upon, by operation of
law or otherwise, any other person, firm or corporation without the
written consent of Board,
21
<PAGE>
F. Consolidation or Dissolution. Concessionaire becomes, without the
prior written approval of City, a successor or merged corporation in a
merger, a constituent corporation in a consolidation or a corporation
in dissolution,
G. Performance. Concessionaire falls to keep, perform and observe any
one or more promise, covenant and condition set forth in this Agreement
on its part to be kept, performed or observed after receipt of written
notice of default from City. However, Concessionaire shall have ten
(10) days after receipt of such notice to correct the deficiency;
H. Attachment. An attachment or execution is levied, or a receiver is
appointed or of any other process of any court of competent
jurisdiction is executed which is not vacated, dismissed or set aside
within a period of ninety (90) days and which does, or as a direct
consequence of such process will, interfere with Concessionaire's use
of the concession premises or with its operations under this Agreement;
I. Insolvency. Concessionaire becomes insolvent, or takes the benefit
of any present or future insolvency statute, or makes a general
assignment for the benefit of creditors, or files a voluntary petition
in bankruptcy, or a petition or answer seeking an arrangement for its
reorganization, or the readjustment of its indebtedness under the
federal bankruptcy laws or under any other law or statute of the United
States, or of any state law, or consents to the appointment of a
receiver, trustee or liquidator of all or substantially all of its
property or its property located within the concession areas;
J. Bankruptcy. By order or decree of court, Concessionaire is adjudged
bankrupt, or an order is made approving a petition filed by any of the
creditors or stockholders of Concessionaire seeking its reorganization
or the readjustment of its indebtedness under the federal bankruptcy
laws, or under any law or statute of the United States, or any state
thereof,
K. Petition for Bankruptcy. A petition under any part of the federal
bankruptcy laws, or an action under any present or future solvency
laws or statute is filed against Concessionaire and is not dismissed
within one hundred twenty (120) days;
L. Control by Receiver. By or pursuant to, or under authority of, any
legislative act, resolution or rule, order or decree of any court,
governmental board, agency or officer having jurisdiction, a receiver,
trustee or liquidator takes possession or control of all or
substantially all of the property of Concessionaire, and such
possession or control continues in effect for a period of one hundred
twenty (120) days;
M. Adverse Operation. Service ceases or deteriorates for any period
which, in the opinion of City materially and adversely affects the
operation of service required to be performed by Concessionaire under
this Agreement
22
<PAGE>
N. Lien. Any lien is filed against the concession premises because of
any act or omission of Concessionaire and such lien is not removed or
enjoined; or
O. Abandonment. Concessionaire voluntarily abandons, deserts, vacates
or discontinues its operation of the business herein authorized.
Section 11.2 Cancellation/Termination by City for Other Reasons. City shall have
the right to cancel or terminate this Agreement in its entirety and all rights
ensuing therefrom anytime after the commencement of the sixth contract year upon
giving a thirty (30) day written notice to Concessionaire.
A. Finding is Required. Section 11.2 shall only be implemented upon a
finding by the Airport Board that Concessionaire's performance as
measured by customer satisfaction surveys, gross revenue performance,
or other performance criteria as established by the Airport Board is
substandard and that such cancellation or termination is in the best
interests of City. However, Concessionaire shall be granted 30 days to
correct any performance deficiency as identified by the City.
B. Buy-Out. In the event that City cancels or terminates the Concession
Agreement in accordance with the provisions of Section 11.2, City will
reimburse Concessionaire for the unamortized Net Book Value of its
existing improvements (including furniture, fixtures and equipment
purchased by Concessionaire) based upon a 10-year straight-line
depreciation for structural improvements and applicable schedules for
other improvements, with no residual value, provided the Concessionaire
has obtained all necessary approvals, and also provided the
Concessionaire has reported each improvement, its costs, and the date
upon which its depreciation began, and also provided that architectural
and design costs do not exceed IO% of the cost of the improvements and
all said costs are properly documented and supported by receipts and
made available for audit. Costs associated with Concessionaire's
employees shall not be included in the calculation of these costs. To
become reimbursable the Concessionaire shall at its expense provide
City with "as-built" drawings and paid invoices, showing material and
labor costs involved in the construction of the approved structural
improvement within 90 days of the date that the improvement was put
into service. The straight line depreciation shall begin on the first
day of the month in which the improvement was placed in service. All
improvements included in the buy-out under this section shall become
the property of City upon payment of the buy-out.
In the event, and only in the event, that City cancels or terminates
the Concession Agreement in accordance with the provisions of Section
11.2 and only Section 11.2, City will also pay Concessionaire an amount
equal to the unamortized portion of the Concessionaires pre-opening
expenses as approved by the City and calculated in accordance with
Generally Accepted Accounting Principles.
23
<PAGE>
Pre-opening expenses are limited to those expenses incurred directly by
operations under this contract and shall be limited to legal fees
incurred for obtaining required licenses for said facilities,
reasonable corporate travel, and other items deemed reasonable by the
Aviation Director. Said expenses shall not include any cost associated
with the development of the proposal for this operation, including any
associated travel and outside fees.
Section 11.3 City's Rights of Reentry. City shall, as an additional remedy, upon
the giving of written notice of cancellation or termination as above provided in
Sections 11.1 and 11.2, have the right to reenter the premises and every part
thereof on the effective date of cancellation or termination without further
notice of any kind, remove any and all persons therefrom and regain and resume
possession either with or without the institution of summary or legal
proceedings otherwise. Such reentry, however, shall not in any manner affect,
alter or diminish any of the obligations of Concessionaire under this Agreement.
Section 11.4 Surrender of Possession. Concessionaire covenants and agrees to
yield and deliver possession of the concession premises to City on the date of
the termination, cancellation or expiration of this Agreement promptly,
peaceably, quietly and in as good order and condition as the same now are or may
be hereafter improved by Concessionaire of City, reasonable use and wear and
tear thereof excepted.
Section 11.5 Right to Remove Equipment. Subject to the provisions of Article 8
and its subsections herein, Concessionaire shall have the right to remove its
non-fixed equipment, supplies, readily movable furnishings, inventories,
removable fixtures and other trade fixtures and personal property from the
concession premises if said removal will not cause any damage to the facility.
If Concessionaire fails to remove said property, said property shall be
considered abandoned and City may dispose of same as it sees fit.
Section 11.6 Acceptance is Not a Waiver. No acceptance by City of the fees and
charges for other payments specified herein, in whole or in part, and for any
period or periods, after a default of any of the terms, covenants and conditions
to be performed, kept or observed by Concessionaire, other than the default in
the payment thereof, shall be deemed a waiver of any right on the part of City
to cancel or terminate this Agreement on Account of such default.
Section 11.7 Waiver is Not Continuous. No waiver by City at any time of any
default on the part of Concessionaire in the performance of any of the terms,
covenants or conditions hereof to be performed, kept or observed by
Concessionaire shall be or be construed to be a waiver at any time thereafter by
City of any other or subsequent default in performance of any of said terms,
covenants or conditions, and no notice by City shall be required to restore or
revive time as of the essence hereof after waiver by City of default in one or
more instances.
Section 11.8 Survival of Concessionaire's Obligations. In the event this
Agreement is terminated or canceled by City, or in the event City reenters,
regains or resumes possession of the concession
24
<PAGE>
premises, all of the obligations of Concessionaire hereunder shall survive and
shall remain in full force and effect for the full term of this Agreement unless
otherwise agreed to by the City in writing.
Section 11.9 Exercising City's Right of Cancellation. City may exercise such
rights of termination and cancellation as provided herein by written notice to
Concessionaire after passage of the thirty (30) day time period provided herein
and this Agreement shall terminate the thirtieth (30th) day calculated from the
date of receipt of said notice by Concessionaire or ninety-six (96) hours after
deposit in mail, whichever is first. Any fees due hereunder shall be payable
only to said date of termination and cancellation and thereafter all of
Concessionaire's rights and privileges and City's obligations shall cease and
all improvements made by Concessionaire upon the Leased Premises shall remain in
or upon the Leased Premises and shall become the property of City. It is agreed
that failure of City to declare this Agreement terminated or canceled upon the
default of Concessionaire for any of the reasons set forth herein shall not
operate to bar or stop City from declaring this Agreement terminated or canceled
by reason of any subsequent violation of the terms of this Agreement.
Section 11.10 Cancellation or Termination By Concessionaire. This Agreement may
be canceled or terminated by Concessionaire by giving a thirty (30) day written
notice to City upon the happening of one or more of the occurrences specified in
Sections 11.10.A. through 11.10.E.
A. Permanent Abandonment. The permanent abandonment of Airport's
passenger terminals for use by airlines or the permanent removal of
all certificated passenger airline service from Airport,
B. Material Restriction of Operation. The lawful assumption by the
United States government, or any authorized agency thereof, of the
operation, control or use of Airport, or any substantial part thereof,
in such manner as to materially restrict Concessionaire from operating
thereon for a period of at least ninety (90) consecutive days;
C. Major Destruction of Premises. The complete destruction of one third
or more of the concession premises from a cause other than the
negligence or omission-to-act of Concessionaire, its subcontractors,
agents or employees, and the subsequent failure of City to repair or
reconstruct said premises within twelve (12) months after such
destruction,
D. Federally-Required Amendments. Any exercise of authority as provided
in Section 15.25 hereof which shall so interfere with Concessionaire's
use and enjoyment of the concession premises as to constitute a
termination, in whole or in part, of this Agreement by operation of law
in accordance with the laws of the United States; or
E. Default by City. The default by City in the performance of any
covenant or agreement herein required to be performed by City and the
failure of City to remedy such default for a period of sixty (60) days
after receipt from Concessionaire of written notice to do so.
25
<PAGE>
Section 11.11 Exercising Concessionaire's Right of Cancellation. Concessionaire
may exercise such fights of cancellation and termination by written notice to
City at any time after the passage of the thirty (30) day period provided herein
and this Agreement shall terminate the thirtieth (30th) day calculated from the
date of receipt of said notice by City or ninety-six (96) hours after deposit in
mail, whichever is first, provided herein and the fees due under this Agreement
shall be payable only to the date of said termination or cancellation and
thereafter all of Concessionaire's rights and privileges and City's obligations
shall cease, and all improvements mad ' e by Concessionaire upon the Leased
Premises shall remain in or upon the Leased Premises and shall become the
property of City. It is agreed that the failure of Concessionaire to declare
this Agreement terminated or canceled upon the default of City for any of the
reasons set forth herein shall not operate to bar or stop Concessionaire from
declaring this Agreement terminated or canceled by reason of any subsequent
violation of the terms of this Agreement by City.
Section 11.12 Removal of Improvements. Concessionaire shall have the rights to
the removal of :.the improvements, installed as part of this agreement, in the
following circumstances set out in Section 11.12A. and B. as follows.
A. Damaged Improvements. In the event that the structural or other
improvements or furnishings and supplies constructed or installed by
Concessionaire in any on or all of the various concession premises are
damaged or destroyed, in whole or in part, from any cause whatsoever,
Concessionaire shall forthwith proceed with the removal of the debris
and damaged or destroyed structural or other improvements, equipment,
furnishings and supplies and thereafter shall proceed with all dispatch
with the reconstruction work necessary to restore the damaged or
destroyed concession premises to the condition they were in prior to
the occurrence of such damage or destruction and all costs and expense
incurred in connection therewith shall be paid by Concessionaire.
B. City May Renovate. If, during the last month of this Agreement,
Concessionaire has removed all or substantially all of its property
from the concession premises, City may enter said premises and alter,
renovate or redecorate the same.
ARTICLE 12
DAMAGE OR DESTRUCTION OF PREMISES
Section 12.1 Damage or Destruction to Premises. In the event of Damage or
Destruction to Premises, Sections 12.1.A. through 12.1.D. shall apply.
A. Partial Damage. If all or a portion of the concession premises are
partially damaged by fire, explosion, the elements, public enemy or
other casualty, but not rendered unin habitable, the same will be
repaired with due diligence by City at its own cost and expense,
subject to the limitations as hereinafter provided, however, that if
said damage is caused by the negligence or omission to act of
Concessionaire, its subcontractors, agents or employees,
26
<PAGE>
Concessionaire shall be responsible for reimbursing City for the cost
and expenses incurred in such repair.
B. Extensive Damage. If the damages are so extensive as to render the
concession premises or a portion thereof uninhabitable, but are capable
of being repaired within thirty ('30) days, the same shall be repaired
with due diligence by City at its own cost and expense, subject to the
limitations as hereinafter provided, and an appropriate portion of the
fees and charges payable herein shall abate from the time of the damage
until such time as the premises are fully restored and certified by
City as again ready for use; provided, however, that if said damage is
caused by the negligence or omission to act of Concessionaire, its
subcontractors, agents or employees, said fees and charges will not
abate and Concessionaire shall be responsible for reimbursing City for
the cost and expenses incurred in such repair.
C. Complete Destruction. In the event all or a substantial portion of
the concession premises are completely destroyed by fire, explosion,
the elements, public enemy or other casualty, or are so damaged that
they are uninhabitable and cannot be replaced except after more than
thirty (30) days, City, at its discretion, shall not be obligated to
repair, replace or reconstruct said premises, and a proportionate
portion of the fees and charges payable hereunder shall abate as of the
time of such damage or destruction and shall henceforth cease until
such time as the said premises are fully restored. If within twelve
(12) months after the time of such damage or destruction said premises
have not been repaired or reconstructed, Concessionaire may cancel this
Agreement in its entirety as of the date of such damage or destruction.
D. Destruction due to Negligence. Notwithstanding the foregoing, if the
said premises, or a substantial portion thereof, are completely
destroyed as a result of the negligence or omission to act of
Concessionaire, its subcontractors, agents or employees, said fees and
charges shall not abate and City may, in its discretion, require
Concessionaire to repair and reconstruct said premises within twelve
(12) months of such destruction and may pay the cost therefore, or City
may repair and reconstruct the same within twelve (12) months of such
destruction and Concessionaire shall be responsible for reimbursing
City for the cost and expenses incurred in such repair.
Section 12.2 Limits of City's Obligations. In the application of the foregoing
provisions, City's obligations shall be limited to repair or reconstruction of
the concession premises to the same extent and of equal quality as obtained by
Concessionaire at the commencement of its operations hereunder. Redecoration and
replacement of furniture, equipment and supplies shall be the responsibility of
Concessionaire and any such redecoration and refurnishing/reequipping shall be
equivalent in quality to that originally installed.
27
<PAGE>
ARTICLE 13
INDEMNIFICATION, PERFORMANCE BOND, AND INSURANCE
Section 13.1 Liability. Concessionaire shall comply with the Indemnification,
Faithful Performance Bond & Insurance provisions which follow.
Section 13.2 Indemnification. To the fullest extent permitted by law
Concessionaire agrees to defend, pay on behalf of, indemnify, and hold harmless
City, its elected and appointed officials, employees and volunteers and others
working on behalf of City against any and all claims, demands, suits, or loss,
including all costs connected therewith, and for any damages which may be
asserted, claimed or recovered against or from City, its elected and appointed
officials, employees, volunteers or others working on behalf of City, by reason
of personal injury, including bodily injury or death, and/or property damage,
including loss of use thereof, which arises out of or is in any way connected or
associated with this contract and Concessionaire's activities pursuant to this
Agreement. It is the intention of the parties that City, its elected and
appointed officials, employees, volunteers or others working on behalf of City
shall not be liable or in any way responsible for injury, damage, liability,
loss or expense resulting to Concessionaire and those it brings onto City
premises or on Concessionaire's leasehold due to accidents, mishaps, misconduct,
negligence or injuries either in person or property.
Concessionaire expressly assumes full responsibility for any and all damages or
injuries which may result to any person or property by reason of or in
connection with the use of the concession pursuant to this Agreement, and agrees
to pay City for all damages caused to City facilities resulting from
Concessionaire activities hereunder.
Concessionaire represents that its activities pursuant to this agreement will be
supervised by adequately trained personnel, and Concessionaire will observe all
safety rules for the facility and this activity. Concessionaire acknowledges
that the City has no duty to and will not provide supervision of the activity.
Section 13.3 Faithful Performance Bond. Within thirty (30) days after award of
this Agreement, Concessionaire shall furnish to City, at Concessionaire's sole
cost and expense, and shall keep in full force and effect during the complete
term of this Agreement and for thirty (30) days thereafter, a Faithful
Performance Bond in the continuing penal sum of not less than one fourth of the
minimum annual proposal amount inserted by proposer in Section 4.1.4 herein,
guaranteeing full performance by Concessionaire of all of the terms, covenants
and conditions herein, including, but not limited to, payment of the
compensation specified herein.
Section 13.4 Bond Requirements. Said Bond shall be issued by a surety company
authorized and licensed to transact business in the State of Iowa, be for the
amount stated above with City of Des Moines, as obligee and shall not be subject
to cancellation or non-renewal except after the expiration of thirty (30) day
written notice by certified mail, return receipt requested, to City of Des
Moines.
28
<PAGE>
Section 13.5 Insurance. Concessionaire shall procure at its expense, and keep in
effect at all times during the term of this Agreement, the following forms of
insurances
A. Commercial General Liability. Commercial general liability
insurance, on an "Occurrence Basis" with limits of liability not less
than $1,000,000.00 per occurrence and $2,000,000.00 aggregate combined
single limit, Personal Injury, Bodily and Property Damage. Coverage
shall include the following extensions: (a) Contractual Liability; (b)
Products and Completed Operations; (c) Independent Contractors
Coverage, (d) Deletion of all Explosion, Collapse and Underground;
(XCU) Exclusions, if applicable; (e) Per contract aggregate.
B. Motor Vehicle Liability Insurance. Concessionaire shall procure and
maintain during the life of this contract/agreement, Motor Vehicle
Liability Insurance with limits of liability of not less than
$1,000,000.00 per occurrence combined single limit Bodily Injury and
Property Damage. Coverage shall include all owned vehicles, all
non-owned vehicles, and all hired vehicles.
C. Liquor Liability. Liquor Liability and General Liability Insurance
Coverage in a minimum amount of $1,000,000. 00 combined single limit
including bodily injury, property damage and injury to means of
support.
D. Workers Compensation. Workers Compensation Insurance, including
Employers Liability Coverage, in accordance with all applicable
statutes of the State of Iowa.
E. Fire. Fire and lightning, extended coverage, vandalism and malicious
mischief and "all risk" insurance, excluding earthquake and flood but
including debris removal, in a form at least as broad as the standard
insurance services office special extended coverage endorsement,
covering all structural or other improvements installed by
Concessionaire in the concession premises , and all fixtures,
furnishings, equipment, merchandise, inventory, and decorations kept,
furnished or installed by Concessionaire. City shall be responsible for
providing fire insurance on the structural shell of the Leased Premises
c
Section 13.6 Increase in Coverage. If during the term of this Agreement, the
Aviation Director reasonably determines that such minimum coverage is
inadequate, the Concessionaire shall be notified of the inadequacy of the
coverage and shall be required to increase said coverage immediately.
Section 13.7 Additional Insured. Insofar as said insurance provides protection
against liability for damages to third parties for personal injury, death, and
property damage, City shall be included as an additional insured; provided such
liability insurance coverage shall also extend to damage, destruction, and
injury to City-owned or City-leased property and City personnel, and caused by,
or resulting from negligent, work, acts, operations, or omissions of
Concessionaire, its officers, agents, employees, invitees, and independent
contractors on the Airport. In addition to providing a policy endorsement, the
following shall be specified to be Additional Insureds. The City of Des Moines,
29
<PAGE>
Iowa, and including all elected and appointed officials, all employees and
volunteers, all boards, commissions, and/or authorities and their board members,
employees, and volunteers. This coverage shall be primary to the Additional
Insureds, and not contributing with any other insurance or similar protection
available to the Additional Insureds, whether other available coverage be
primary, contributing or excess. City shall have no liability for any premiums
charged for such coverage, and the inclusion of City as an additional insured is
not intended to, and shall not, make City a partner or joint venturer with
Concessionaire in its operations at the Airport.
Section 13.8 Proof of Insurance. Concessionaire shall provide to: Aviation
Director, Department of Aviation, Room 201, Des Moines International Airport,
5800 Fleur Drive, Des Moines, Iowa 50321, at least fourteen (14) days prior to
the date the agreement is to be executed, Certificates of Insurance (ACORD form)
and/or insurance coverage policies acceptable to City showing all coverage and
endorsements as set forth in this Section. If so requested, Certified Copies of
all policies will be furnished. Concessionaire shall maintain such insurance
with insurance underwriters authorized to do business in the State of Iowa.
Section 13.9 Continuation of Coverage. If any of the above coverages expire
during the term of this contract/agreement, the Insurance Coverage Vendor shall
deliver renewal certificates and/or policies to: Aviation Director, Department
of Aviation, Room 201, Des Moines International Airport, 5800 Fleur Drive, Des
Moines, Iowa 50321, at least ten (10) days prior to the expiration date.
Section 13.10 Cancellation Notice. Workers Compensation Insurance, Commercial
General Liability Insurance and Motor Vehicle Liability Insurance, as described
above, shall include an endorsement stating the following: "Thirty (30) days
Advance Written Notice of Cancellation, Non-Renewal, Reduction and/or material
Change shall be sent to: Aviation Director, Department of Aviation, Room 201,
Des Moines International Airport, 5800 Fleur Drive, Des Moines, Iowa 50321.
Section 13.11 Waiver of Subrogation. To the extent permitted by law,
Concessionaire hereby releases City, elected and appointed officials, employees
and volunteers and others working on behalf of City from any and all liability
or responsibility to Concessionaire or anyone claiming through or under
Concessionaire by way of subrogation or otherwise, for any loss or damage to
property caused by fire or any other casualty, even if such fire or other
casualty shall have been caused by the fault or negligence of City, its elected
and appointed officials, employees or volunteers or others working on behalf of
City. This section shall be applicable and in full force and effect only with
respect to loss or damage occurring during the time of Concessionaire's
occupancy or use, and Concessionaire's policies of insurance shall contain a
clause or endorsement to the effect that such release shall not adversely affect
or impair such policies or prejudice the right of Concessionaire cover
thereunder. Concessionaire agrees that it's policies will include such a clause
or endorsement.
Section 13.12 Code Of Iowa Chapter 670 Governmental Immunities Endorsement. City
reserves the following insurance rights under the Code of Iowa:
30
<PAGE>
A. Nonwaiver of Government Immunity. The insurance carrier expressly
agrees and states that the purchase of this policy and the naming of
City as an Additional Insured does not waive any of the defenses of
government immunity available to City under the Code of Iowa Section
670.4 as it now exists and as it may be amended from time to time.
B. Claims Coverage. The insurance carrier further agrees that this
policy of insurance shall cover only those claims not subject to the
defense of government immunity under the Code of Iowa Section 670.4 as
it now exists and as it may be amended from time to time.
C. Assertion of Government Immunity . City shall be responsible for
asserting any defense of government immunity, and may do so at any time
and shall do so upon the timely Written request of the insurance
carrier.
D. Non-Denial of Coverage. The insurance carrier shall not deny
coverage under this policy and the insurance carrier shall not deny any
of the right and benefits accruing to City under this policy for
reasons of governmental immunity unless and until a court of competent
jurisdiction has ruled in favor of the defense(s) of Governmental
immunity asserted by City.
ARTICLE 14
FAA PROVISIONS
Section 14.1 Non-Discrimination. During the term of this Agreement
Concessionaire shall comply with the following;
Concessionaire, for itself, its heirs, personal representatives,
successors in interest, and assigns, as a part of the consideration
hereof, does hereby covenant and agree as a covenant running with the
land that in the event facilities are constructed, maintained, or
otherwise operated on the said property described in this Agreement,
for a purpose for which a Department of Transportation program or
activity is extended or for another purpose involving the provision of
similar services or benefits, Concessionaire shall maintain and operate
such facilities and services in compliance with all other requirements
imposed pursuant to 49 CFR, Part 2 1, Non-Discrimination in Federally
Assisted Programs of the Department of Transportation, and as said
Regulations may be amended.
Concessionaire, for itself, its heirs, personal representatives,
successors in interest, and assigns, as a part of the consideration
hereof, does hereby covenant and agree as a covenant running with the
land that: (1) no person on the grounds of race, color, or national
origin shall be excluded from participation in, denied the benefits of,
or be otherwise subjected to discrimination in the use of said
facilities, (2) that in the construction of any improvements on, over,
or under such land and the furnishing of services thereon, no person on
the grounds of race, color, or national origin shall be excluded from
participation in, denied the benefits of, or otherwise be subjected to
discrimination, that Concessionaire shall use the premises in
compliance with all other requirements imposed by or pursuant to 49
CFR, Part 21, Nondiscrimination in Federally Assisted Programs or the
Department of Transportation, and as said Regulations may be amended.
Section 14.2 Civil Rights. Concessionaire assures that it will comply with
pertinent statutes, Executive Orders and such rules as are promulgated to assure
that no person shall, on the grounds of race, creed, color, national origin,
sex, age, or handicap be excluded from participating in any activity conducted
with or benefiting from Federal assistance. This Provision obligates
Concessionaire or its transferee for the period which Federal assistance is
extended to the airport program, except where Federal assistance is to provide,
or Is in the form of personal property or real property or interest therein or
structures or improvements thereon. In these cases, the Provision obligates the
party or any transferee for the longer of the following periods: (1) the period
during which the property is used by the sponsor or any transferee for a purpose
for which Federal assistance is extended, or for another purpose involving the
provision of similar services or benefits; or (2) the period during which the
airport sponsor or any transferee retains ownership or possession of the
property. In the case of contractors, this Provision binds the contractors from
the bid solicitation period through the completion of the contract.
Section 14.3 Just Services. Concessionaire agrees to furnish service on a fair,
equal and not unjustly discriminatory basis to all users thereof, and to charge
fair, reasonable and not unjustly discriminatory prices for each unit of
service, PROVIDED, that Concessionaire may make reasonable and
non-discriminatory discounts, rebates, or other similar types of price
reductions to volume purchasers.
Section 14.4 Subordination to Agreements. This Agreement is subject and
subordinate to the provisions of any agreements heretofore or hereafter made
between City and the United States and/or the State of Iowa relative to the
operation, maintenance, development, or administration of the Airport, the
execution of which has been required as a condition precedent to the transfer of
Federal rights or property to City for Airport purposes, or to the expenditure
of Federal or State of Iowa funds for the improvement or development of the
Airport, including the expenditure of Federal funds for the development of the
Airport in accordance with the provisions of the Federal Aviation Act of 1958,
and as said act may be amended from time to time.
ARTICLE 15
GENERAL PROVISIONS
The appearance of any provision in this section shall not diminish its
importance.
Section 15.1 Assignment and Transfer Prohibited. Concessionaire shall not
mortgage, pledge hypothecate or otherwise encumber nor sell, assign, transfer,
or permit the use by any other, in whole or in part, this Agreement or any of
the concession rights herein granted without the prior written consent of City.
Any attempt to do so shall be voidable at City's option and shall confer no
right, title, or interest in or to this Concession Agreement, or right of use of
the whole or any portion of the
31
<PAGE>
concession facilities upon any such purchaser, assignee, mortgagee,
encumbrancer, pledgee, or other lien holder, successor, or purchaser.
Section 15.2 Agreement Binding Upon Successors. This Agreement shall be binding
upon and shall inure to the benefit of the successors, heirs and assigns of the
parties hereto. The term concessionaire" shall include any assignee of
Concessionaire on any assignment permitted and approved by City.
Section 15.3 City's Right of Access and Inspection. City, by its officers,
employees, agents, representatives and contractors, shall have the right at all
reasonable times to enter upon the con cession premises for the purpose of
inspecting the same, for observing the performance by Concessionaire of its
obligations under this Agreement or for doing any act or thing which City may be
obligated or have the right to do under this Agreement, or otherwise, and no
abatement of fees and charges shall be claimed by or allowed to Concessionaire
by reason of the exercise of such right. City shall not be obliged to inform
Concessionaire that an inspection or observation is planned, or in progress.
Section 15.4 Attorney's Fees. If City shall, without any fault, be made a party
to any litigation commenced by or against Concessionaire arising out of
Concessionaire's use or employment of the concession premises and as result of
which Concessionaire is finally adjudicated to be liable, then Concessionaire
shall pay all costs and reasonable attorney's fees incurred by or imposed upon
City in connection with such litigation. In any action by City or Concessionaire
for recovery of any sum due under this Agreement, or to enforce any of their
terms, covenants or conditions contained herein, the prevailing party shall be
entitled to reasonable attorney's fees in addition to cost and necessary
disbursements incurred in such action. Each party shall give prompt notice to
the other of any claim or suite instituted against it that may effect the other
party.
Section 15.5 Rules, Regulations, and Ordinances. City shall adopt and enforce
reasonable rules, regulations, and ordinances, which Concessionaire agrees to
observe and obey, with respect to the use of the Airport, which shall provide
for the safety of those using the same; provided that such rules, regulations,
and ordinances shall be consistent with safety and with rules, regulations and
orders of the FAA with respect to aircraft operations at the Airport; and
provided further, that such rules and regulations shall not be inconsistent with
the provisions of this Agreement or the procedures prescribed or approved from
time to time by the FAA. Concessionaire shall not violate, or knowingly permit
its agents, contractors, or employees acting Concessionaire'S behalf to violate
any such Rules and Regulations.
Section 15.6 Compliance with Law. Concessionaire shall comply, at all times
during the term of this Agreement, at its own cost and expense, with all
applicable present and future ordinances and laws of City, county, or state
government or of the United States Government, and of any political division or
subdivision or agency, authority or commission thereof which may have
jurisdiction to pass laws or ordinances with respect to the uses hereunder or
the Leased Premises. In addition,
32
<PAGE>
Concessionaire shall not allow any improper, immoral, unlawful, or objectionable
activity to be conducted, to be operated, or to occur on any Airport area leased
or assigned to Concessionaire.
Section 15.7 Reservation of Rights. Any and all rights and privileges not
granted to Concessionaire by this Agreement are hereby reserved for and to City.
Section 15.8 Governing Law. This Agreement and all disputes arising hereunder
shall be governed by the laws of the State of Iowa.
Section 15.9 Nonwaiver of Rights. No waiver of default by either party of any of
the terms, covenants, and conditions hereof to be performed, kept, and observed
by the other party shall be construed as, or shall operate as, a waiver of any
subsequent default of any of the terms, covenants, or conditions herein
contained, to be performed, kept, and observed by the other party.
Section 15.10 Severability. If one or more clauses, sections, or provisions of
this Agreement, or the application thereof, shall be held to be unlawful,
invalid, or unenforceable, the remainder and application hereof of such
provision shall not be affected thereby.
Section 15.11 Paragraph Headings. The paragraph headings contained herein are
for convenience in reference and are not intended to define or limit the scope
of any provision of this Agreement.
Section 15.12 Conditions and Covenants. Each covenant herein is a condition, and
each condition herein is as well a covenant by the parties bound thereby, unless
waived in writing by the parties hereto. The invitation for proposals,
instructions to proposers, including Concessionaire's certification form and
affirmative action plan, the basic specification, including any addenda thereto,
the affidavit of non-collusion and the bonds or other security deposits required
under said instructions are a part of this Concession Agreement, and each of the
parties hereto does hereby expressly covenant and agree to carry out and fully
perform each and all of the provisions of said documents upon its part to be
performed. Concessionaire's proposal, dated March 24, 1997, is an integral part
of this agreement and is attached hereto as Exhibit A. Should the Concessionaire
operate a franchised facility as part of any of its operations associated with
this agreement, Concessionaire shall provide a letter or other required
documentation from the franchiser granting the rights to operate the franchise
at the Airport.
Section 15.13 Americans with Disabilities Act (1990). Concessionaire agrees to
comply with the Americans with Disabilities Act (1990) and any amendments and
regulations thereto with regards to Concessionaire's operations and Leased
Premises on the Des Moines International Airport. In addition, Concessionaire
will be solely responsible for fully complying with any and all applicable
present and/or future rules, regulations, restrictions, ordinances, statutes,
laws and/or orders of any Federal, State and/or local Government entity and/or
court regarding disabled access to improvements on the leasehold including any
services, programs, or activities provided by Concessionaire. Concessionaire
will be solely responsible for any and all damages caused by and/or penalties
levied as the result of its non-compliance.
33
<PAGE>
Section 15.14 Force Majeure. Neither party hereto shall be liable to the other
for any failure, delay or interruption in the performance of any of the terms,
covenants or conditions of this Agreement due to causes beyond the control of
that party including, without limitation, strikes, boycotts, labor disputes,
embargoes, shortage of material, acts of God, acts of the public enemy, action
superior governmental authority, weather conditions, floods, riots, rebellion,
sabotage or any other circumstance for which such party is not responsible or
which is not in its power to control.
Section 15.15 Agreement Construction. Words and phrases herein shall be
construed as in the singular or plural number, and a masculine, feminine, or
neuter sender, according to the context.
Section 15.16 Entire Agreement. This Agreement, together with all exhibits
attached hereto, constitutes the entire Agreement between the parties hereto,
and all other representations or statements heretofore made, verbal, or written,
are merged herein, and this Agreement may be amended only in writing and
executed by duly authorized representatives of the parties hereto.
Concessionaire acknowledges that this Agreement supersedes and cancels any and
all previous agreements on this matter between Concessionaire and City.
Section 15.17 Copartnership Disclaimer. It is mutually understood that nothing
in this Agreement is intended or shall be construed as in any way creating or
establishing the relationship of copartners between the parties hereto, or as
constituting Concessionaire as an agent or representative of City for any
purpose or in any manner whatsoever.
Section 15.18 Development and Protection of Airport. City hereby reserves the
following rights for the Airport.
A. Airport Development. City reserves the right to further develop or
improve the Airport as it sees fit, regardless of the desires or view
of Concessionaire, and without interference or hindrance.
B. Airspace. City hereby reserves for the use and benefit of the
public, the right of aircraft to fly in the airspace overlying the land
herein leased, together with the right of said aircraft to cause such
noise as may be inherent in the operation of aircraft landing at,
taking off from, or in the vicinity of the Airport, and the right to
pursue the operations of same. City reserves the right to take any
action it considers necessary to protect the aerial approaches of the
Airport against obstructions, together with the right to prevent
Concessionaire from erecting or permitting to be erected, any building
or other structure on any Leased Premises, which, in the opinion of
City, would limit the usefulness of the Airport, or constitute a hazard
to aircraft.
Section 15.19 Amendments. All amendments to this Agreement shall be in writing
and duly executed by all parties.
34
<PAGE>
Section 15.20 License And Permits. Concessionaire shall take or obtain and pay
for all licenses and/or permits as required by Federal, State, or Local law
and/or necessary conduct of its operations under this Agreement.
Section 15.21 Taxes and Assessments. Prior to the commencement date of this
Agreement, the Leased Premises are tax exempt. Concessionaire shall be
responsible for payment of any and all real estate taxes, assessments, and
charges levied against the Leased Premises or any part thereof or any
improvements, on account of Concessionaire's use of the Leased Premises under
this Agreement, and upon any taxable interest of Concessionaire acquired in this
Agreement. Concessionaire shall also be responsible for payment of any and all
personal property taxes levied against any personal property placed upon the
Leased Premises by Concessionaire. Concessionaire shall pay all such taxes,
assessments and charges as the same become due and payable. Concessionaire shall
deliver to City duplicate receipted tax statements showing such taxes,
assessments and charges as having been paid prior to delinquency. Taxes for the
fiscal year in which this Agreement is terminated shall be paid to City upon
such termination in a prorated amount equal to one-twelfth (1/12) of the taxes
due and payable for the preceding fiscal year multiplied by the number of months
in the fiscal year of such termination which elapsed prior to and including the
month of such termination.
Section 15.22 War or National Emergency. During the time of war or national
emergency, City shall have the right to lease the landing area or any part
thereof to the United States Government for military or naval use, and, if such
lease is executed, the provisions of this instrument insofar as they are
inconsistent with the provisions of the lease to the Government, shall be
suspended.
Section 15.23 Subordination to Bond Ordinance. This Agreement shall be
subordinate to the provisions of any Airport Bond Resolution enacted by City. In
the event of any conflicts between this Agreement and the Bond Resolution, the
Bond Resolution shall govern.
Section 15.24 Representations of Concessionaire. Concessionaire represents that
it has the full power and proper authority to make and execute this agreement,
to exercise its rights, powers and privileges as described herein, and to
perform its agreements and covenants set forth herein.
Section 15.25 Right to Amend. In the event that the Federal Aviation
Administration or its successors requires modifications or changes in this
Agreement as a condition precedent to the granting of funds for the improvement
of Airport, Concessionaire agrees to consent to such amendments, modifications,
revisions, supplements or deletions or any of the terms, conditions, or
requirements of this Agreement as may be reasonably required to obtain such
funds; provided, however, that in no event will Concessionaire be required,
pursuant to this paragraph, to agree to an increase in the fees and charges
provided for herein or to a change in the use, provided it is an authorized use,
to which Concessionaire has put the concession premises.
Section 15.26 Section Headings. The section headings appearing herein are for
the convenience of City and Concessionaire, and shall not be deemed to govern,
limit, modify or in any manner affect the scope, meaning or intent of the
provisions of this Concession Agreement.
35
<PAGE>
Section 15.27 Security - General. Concessionaire shall be responsible for fully
complying with any and all applicable present and/or future rules, regulations,
restrictions, ordinances. statutes, laws and/or orders of any federal, state
and/or local Governmental entity regarding airfield security.
Section 15.28 Compliance with Federal Aviation Regulation (FAR) Part 107 & Part
l39 and Other FARs. Concessionaire shall be responsible to report any
malfunction to City of gates and doors, that are located on the Leased Premises
or controlled by Concessionaire. Concessionaire agrees to comply at all times
with Federal Aviation Regulations Part 107 and Part 139 (and Part 108 if
Concessionaire is an air carrier), City's policies, regulations and ordinances,
City's Federal Aviation Administration approved Airport Security Program, and
any other applicable rules and regulations. Concessionaire further agrees that
any fines levied upon City, its officers, employees, agents, and members of
City's boards and commissions and employees, agents or officers of City's boards
and commissions pursuant to enforcement of Federal Aviation Regulations Part 107
and Part 139 or any other regulation due to acts or omissions by Concessionaire,
Concessionaire's agents, servants, employees, independent contractors, or
patrons shall be borne by Concessionaire. Concessionaire further agrees to
indemnify and hold harmless City, its officers, employees, agents, and members
of City's boards and commissions, and employees, agents, or officers of City's
boards and commissions from any and all fines so levied and from any and all
claims, demands, liabilities, or expenses of every kind or nature related to
such levy or defense to such levy (including, but not limited to, salary of
attorneys employed by City) which City or any of its officers, employees, or
other persons set out above shall or may at any time sustain or incur by reason
of or in consequence of such acts or omissions. Further, Concessionaire shall
exercise exclusive security responsibility for the Leased Premises and, if
Concessionaire is an air carrier, do so pursuant to Concessionaire's Federal
Aviation Administration approved Air Carrier Standard Security Program used in
accordance with 14 CFR, Part 129.
Section 15.29 Notices. Notices required herein shall be given by certified mail
by depositing the same in the United States mail in the continental United
States, postage prepaid. Any such notice so mailed shall be presumed to have
been received by the addressee 96 hours after deposit of same in the mail.
Either party shall have the right, by giving written notice to the other, to
change the address at which its notices are to be received. Until any such
change is made, notices shall be delivered as follows:
City: Aviation Director
Department of Aviation, Room 201
Des Moines International Airport\
5800 Fleur Drive
Des Moines, Iowa 50321-2854
Telephone: 515-256-5100
36
<PAGE>
Concessionaire: Sayed Ali, President
St. Clair Development Corporation
d/b/a Creative Croissants
6335 Ferris Square, Suite G
San Diego, CA 92121
Telephone: 619-587-7300
If notice is given in any other manner or at any other place, it will also be
given at the place and in the manner specified above.
IN WITNESS WHEREOF, The parties hereto have executed this Agreement as of the
date first above written.
CITY OF DES MOINES, IOWA
By:
Robert D. Ray, Mayor
37
CONCESSION AGREEMENT AND LEASE
PIEDMONT TRIAD AIRPORT AUTHORITY
AND
CREATIVE HOST SERVICES, INC.
1997
<PAGE>
THIS CONCESSION AGREEMENT AND LEASE (hereinafter called "Concession
Agreement"), made and entered this the 1st day of November, 1997, by and between
the PIEDMONT TRIAD AIRPORT AUTHORITY, a body politic and corporate (hereinafter
referred to as the "Authority"), and CREATIVE HOST SERVICES, INC., a California
corporation (hereinafter called "Concessionaire");
W I T N E S S E T H:
WHEREAS, the Authority owns and operates the Piedmont Triad
International Airport in Guilford County, State of North Carolina (hereinafter
referred to as the "Airport"), and the Authority maintains at the Airport a
passenger terminal building (hereinafter referred to as the "Terminal Building")
to accommodate passengers departing from and arriving at the Airport; and
WHEREAS, the Authority wishes to provide facilities in the public areas
of the Terminal Building to serve food and beverages for the accommodation of
Airport passengers and the general public, and, pursuant to a Request for
Proposals, the Authority has solicited qualified parties to submit proposals to
construct leasehold improvements upon, and to equip and operate such facilities;
and
WHEREAS, the Authority has decided to accept the proposal submitted by
the Concessionaire in response to such Request (such proposal and the
information submitted by Concessionaire to the Authority in connection therewith
to be referred to hereinafter
- 1 -
<PAGE>
as the "Proposal"), and to award to the Concessionaire the right to serve food
and beverages in the public areas of the Terminal Building subject to the terms
and conditions of this Concession Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the parties hereto agree, for
themselves, their successors and assigns, as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined in the introduction to this Concession
Agreement, the following terms shall have the meanings indicated below when used
in this Concession Agreement:
1. "Executive Director" shall mean the Executive Director of the
Authority or, if the Authority shall adopt another title for its chief
administrative officer, then its chief administrative officer. Any authority or
discretion granted herein to the Executive Director may be exercised by his
authorized representative.
2. "Date of Beneficial Occupancy" shall mean (i) the first day of the
calendar month next following the date on which Concessionaire's Improvements to
the entire Premises are substantially completed under ARTICLE V hereof and the
entire Premises are ready for occupancy by Concessionaire or
- 2 -
<PAGE>
(ii) October 1, 1998, whichever comes first. The Authority shall notify the
Concessionaire of the date which shall constitute the Date of Beneficial
Occupancy hereunder.
3. "Landside Premises" shall mean the area on the enplaning level of
the Terminal Building, in the landside portion thereof, containing __________
square feet, more or less, which is colored in blue on Exhibit A hereof.
4. "Lease Year" shall mean a period of twelve consecutive calendar
months beginning on June 1, 1998, and on each June 1 thereafter during the Term
hereof.
5. "North Concourse Premises" shall mean the area on the enplaning
level of the Terminal Building, in the North Concourse thereof, containing
_______ square feet, more or less, which is colored in blue on Exhibit A hereof.
6. "Premises" shall mean the Landside Premises, the North Concourse
Premises, the South Concourse Premises and the Storage Premises, all as defined
in this ARTICLE I.
7. "South Concourse Premises" shall mean the area on the enplaning
level of the Terminal Building, in the South Concourse thereof, containing
_______ square feet, more or less, which is colored in blue on Exhibit A hereof.
If the Authority constructs the proposed addition to the South Concourse
Premises described in Paragraph 3 of ARTICLE V hereof, then from and after the
substantial completion of such addition, the South Concourse Premises shall also
include the portion of such addition, as
- 3 -
<PAGE>
described in said Paragraph 3, which is to be added to the South Premises.
8. "Storage Premises" shall mean the area on the service level of the
Terminal Building containing square feet, more or less, which is colored in blue
on Exhibit C hereof.
ARTICLE II
LEASE OF PREMISES TO CONCESSIONAIRE
The Authority hereby leases the Premises unto the Concessionaire, and
the Concessionaire hereby hires and takes the Premises from the Authority, for
the uses and subject to the terms, conditions and covenants hereinafter set
forth.
ARTICLE III
TERM
1. Initial Term. Unless sooner terminated under the other provisions of
this Concession Agreement, the initial Term of this Concession Agreement shall
begin on December 6, 1997 and continue to and including May 31, 2008. The period
from December 6, 1997 to May 31, 1998 shall be referred to hereinafter as the
"Transitional Term," and the period from June 1, 1998 through May 31, 2008 shall
be referred to hereinafter as the "Regular Term."
2. Extension of Term. If Concessionaire complies with all of the terms
and conditions of this Concession Agreement to be kept and performed by
Concessionaire for the entire length of the
- 4 -
<PAGE>
initial Term, and if the Authority desires to extend the Term of this Concession
Agreement for an additional five years, beginning on June 1, 2008 and continuing
until May 31, 2013, the Authority shall notify Concessionaire, on or before June
1, 2007, of the Authority's desire to extend the Term hereof for such period and
the changes, if any, which the Authority proposes to make to the terms and
conditions hereof to be applicable during such extension of the Term, including,
without limitation, such changes, if any, which the Authority desires to make in
the Minimum Annual Guarantees and percentage rents of the Concessionaire under
ARTICLE VI hereof. If the Concessionaire agrees to extend the Term hereof for
such period as proposed by the Authority, the Concessionaire shall notify the
Authority of its agreement to such extension on or before September 1, 2007, in
which case the Term of this Concession Agreement shall be extended for such
additional five year period, unless sooner terminated under the other provisions
hereof, and the terms and conditions of this Concession Agreement shall be
deemed to have been amended, effective as of the beginning of such five year
period, in the manner proposed by the Authority.
ARTICLE IV
USE OF PREMISES AND RIGHTS OF CONCESSIONAIRE
1. Use of the Premises. Concessionaire shall use the Landside Premises,
the North Concourse Premises and the South Concourse Premises for the
preparation and sale to the public of the food and beverages, both alcoholic and
non-alcoholic,
- 5 -
<PAGE>
described by Concessionaire in its Proposal, for the preparation and sale of
such other food and beverage items as shall be approved from time to time by the
Executive Director, for the sale of packaged coffee and coffee mugs, and for
storage, office and administrative functions in connection with Concessionaire's
operations hereunder. Concessionaire shall use the Storage Premises for storage
of its inventory of food and beverages, and of equipment and supplies, which are
used by Concessionaire in providing its service hereunder. Concessionaire shall
not use the Premises for any purpose other than the purposes specifically
provided for herein. Without limiting the generality of the foregoing,
Concessionaire shall not use the Premises to offer or to sell any of the
following products or services: retail merchandise (except as expressly allowed
under this ARTICLE IV), in-flight catering, telecommunication products and
services, display advertising, car rentals and other modes of ground
transportation or services connected therewith, hotel lodging or services
connected therewith, shoeshine, flowers, amusements and games, banks, automatic
teller machines or travel agencies.
2. Vending Machines. In addition to its right to sell food and beverage
items within the Premises, as set forth in Paragraph 1 hereof, Concessionaire
shall also have the right to operate vending machines at the approximate
locations on the deplaning level of the Terminal Building shown in pink on
Exhibit B hereof, for the sale of the following items only: soft
- 6 -
<PAGE>
drinks, juices, coffee, and other items approved in writing by Authority.
3. Rights Not Exclusive. The rights granted herein to Concessionaire
shall not be exclusive; provided that except as stated in Subparagraphs (A), (B)
and (C) hereof, the Authority shall notify the Concessionaire before granting a
concession to any other party to sell food or beverages in the Terminal Building
of a type which Concessionaire is permitted to sell hereunder if such concession
would continue for a period of thirty days or more during the Term hereof, and
if the sales of such food and beverages by such party within the Terminal
Building are reasonably expected by the Authority to exceed $25,000.00 per year.
If, within thirty days after such notice, Concessionaire notifies the Authority
that it objects to such other concession, and if the Authority then proceeds
with the granting of such concession notwithstanding the objection of the
Concessionaire, Concessionaire shall then have the option to terminate the Term
of this Concession Agreement by giving written notice of termination to the
Authority within thirty days after the date on which such other party begins
operations within the Terminal Building pursuant to such concession. Such
termination, if elected by Concessionaire, shall be effective ninety days after
the date of such notice of termination, and the Authority shall, within thirty
days of such effective date, pay to Concessionaire the undepreciated balance of
the costs incurred by Concessionaire in making Concessionaire's Improvements and
any
- 7 -
<PAGE>
interim refurbishment under ARTICLE V hereof, as finally settled under
Paragraphs 4 and 7 of said ARTICLE V, such balance to be calculated as to each
item included in such costs based on straightline depreciation over whichever of
the following is shorter: (i) the Term of this Concession Agreement, or (ii) the
useful life of such item. For purposes of this Paragraph and Paragraphs 4 and 7
of said ARTICLE V, the useful life of an item included in Concessionaire's
Improvements and in such interim refurbishment shall be deemed to be the useful
life which is assumed by Concessionaire in calculating its rate of depreciation
for such item on its books of account. Notwithstanding the foregoing, the
granting of any one or more of the following rights by the Authority to sell or
serve food and beverages within the Terminal Building shall not require
notification to the Concessionaire under this Paragraph 3 or create an option on
the part of the Concessionaire to terminate the Term of this Concession
Agreement:
(A) The Authority may grant to third parties the right to sell
food and beverages in areas of the Terminal Building which are not open
to the general public, to provide in- flight catering or to cater
meetings and events;
(B) The Authority may grant to third parties the right to sell
types of food and beverages defined by the Authority which are not then
being sold by Concessionaire if the Authority first notifies the
Concessionaire of the Authority's desire for such items to be sold
within the
- 8 -
<PAGE>
Terminal Building and Concessionaire fails to begin offering said items
(or a commonly accepted substitute) for sale on the Premises within
thirty days thereafter and to continue to offer said items for sale for
the balance of the Term hereof; and
(C) The Authority may grant the right to sell the following
items to a third party then having a concession to sell retail
merchandise in the Terminal Building: bottled water, bottled or canned
drinks, candy, snacks and packaged food items not to be consumed on the
premises of such retail merchandise concessionaire.
ARTICLE V
CONSTRUCTION AND UPFITTING
OF THE PREMISES
1. Plans and Specifications. Within thirty days after the execution
hereof, Concessionaire shall submit to the Authority for its approval proposed
plans and specifications for the construction of the leasehold improvements to
be made to the Premises, and for the equipment, fixtures and furnishings to be
installed in or placed upon the Premises by Concessionaire (such leasehold
improvements, and said equipment, fixtures and furnishings to be referred to
hereinafter as "Concessionaire's Improvements"). Said plans and specifications
shall conform to the description of the same which appears in the Proposal as
modified by the layout plan of the parties dated ________, 1997, said plans and
specifications shall call for first-class
- 9 -
<PAGE>
materials and construction, and said plans and specifications shall be
coordinated with the design and appearance of the new retail merchandise
facilities to be constructed in the Terminal Building. The Authority shall have
the right to require such changes, if any, in such plans and specifications, as
the Authority shall deem necessary or desirable in its reasonable judgment,
including, without limitation, changes (i) to correct errors or supply missing
information, (ii) to comply with applicable building codes, health and safety
regulations or other legal requirements or (iii) to make the proposed facilities
conform more closely with the Concessionaire's Proposal as modified in the
manner described hereinabove, or more suitable for the services which
Concessionaire is obligated to provide hereunder, or more compatible with the
remainder of the Terminal Building. The Authority shall, within thirty days
after its receipt of the proposed plans and specifications from the
Concessionaire, notify the Concessionaire of the changes thereto, if any, which
will be required by the Authority hereunder and Concessionaire shall make such
changes within thirty days thereafter and submit the revised plans and
specifications to the Authority.
2. Completion of Facilities in the Landside Premises and the North
Concourse Premises. Concessionaire shall let such contracts and take such other
action as shall be necessary to commence the construction and implementation of
Concessionaire's Improvements in the Landside Premises and in the North
Concourse
- 10 -
<PAGE>
Premises on or before January 31, 1998. Concessionaire shall cause all of
Concessionaire's Improvements in said Premises to be completed substantially in
accordance with the approved plans and specifications, and shall cause such
Premises to be ready for service to the public, as expeditiously as possible
thereafter, but no later than __________1, 1998.
3. Completion of Facilities in the South Concourse Premises.
(A) Proposed Addition to the South Concourse Premises. The
Authority is contemplating the construction of a proposed addition to
the South Concourse, adjacent to the South Concourse Premises, as shown
on Exhibit A hereof. If such addition is constructed, a portion
thereof, containing _____ square feet, more or less, as colored in
green on Exhibit A hereof, will be added to the South Concourse
Premises. Following the execution of this Concession Agreement, the
Authority shall advertise for bids for the construction of the proposed
addition to the South Concourse Premises pursuant to Article 8 of
Chapter 143 of the General Statutes of North Carolina. Within thirty
days after the opening of such bids, the Authority shall elect either
(i) to award a contract or contracts to the lowest responsible
bidder(s) and proceed with the project or (ii) to reject all bids and
cancel the project. If the Authority elects to award a contract or
contracts for the project, the Authority shall proceed diligently
thereafter
- 11 -
<PAGE>
to cause such addition to be constructed, with the completed project to
have a concrete floor and unfinished interior walls and ceiling, and
the Authority shall notify Concessionaire to proceed with
Concessionaire's Improvements to the South Concourse Premises when the
construction of the addition is substantially completed by the
Authority. If the Authority elects to reject all bids and cancel the
project, the terms and conditions of this Concession Agreement shall
remain in full force and effect notwithstanding such cancellation,
including, without limitation, the Minimum Annual Guarantees of the
Concessionaire set forth in ARTICLE VI hereof. In the event of such
cancellation, Concessionaire shall, within thirty days after being
notified thereof, submit to the Authority revised plans and
specifications for Concessionaire's Improvements to the South Concourse
Premises covering only the existing structure, such revised plans and
specifications to be subject to review and modification by the
Authority in the same manner and according to the same procedure as is
specified in Paragraph 1 of this ARTICLE V with respect to the original
plans and specifications; and, upon the completion of the revised plans
and specifications, the Authority shall notify Concessionaire to
proceed with Concessionaire's Improvements to the South Concourse
Premises in accordance therewith. Irrespective of whether the Authority
elects to proceed with the construction of the
- 12 -
<PAGE>
addition, the Authority shall install any overhead ductwork which may
be needed in the South Concourse Premises to provide HVAC service
thereto, and shall extend electrical, water and sewer lines to the
exterior walls of the Premises with sufficient capacity to supply the
utilities needed by the Concessionaire.
(B) Concessionaire's Improvements to the South Concourse
Premises. Within thirty days after the Authority gives notice to the
Concessionaire to proceed with Concessionaire's Improvements to the
South Concourse Premises (whether upon completion of the addition, or
upon completion of revised plans and specifications in the absence of
an addition), Concessionaire shall let such contracts and take such
other action as shall be necessary to commence the construction and
implementation of Concessionaire's Improvements within the South
Concourse Premises. Concessionaire shall cause all of Concessionaire's
Improvements in the South Concourse Premises to be completed
substantially in accordance with the approved plans and specifications,
and shall cause such Premises to be ready for service to the public, as
expeditiously as possible thereafter, but no later than ninety days
after the notice to proceed from the Authority.
4. Required Investment by Concessionaire. All of Improvements shall be
made by Concessionaire at its own cost and expense. Concessionaire agrees to
spend not
- 13 -
<PAGE>
less than $1,360,000.00 for Concessionaire's Improvements. The following costs
which are incurred by Concessionaire in connection with Concessionaire's
Improvements shall be credited against such amount: (i) architect's and
engineering fees for the preparation of the plans and specifications and for
construction management, (ii) payments made to contractors and suppliers for the
construction of leasehold improvements (including any addition thereto to cover
the premiums for the performance and payment bonds required hereunder), and
(iii) the purchase price for all equipment, fixtures and furnishings purchased
and installed by Concessionaire in the Premises pursuant to the plans and
specifications (other than office equipment which is to be used by
Concessionaire solely for performing office and administrative functions). The
following costs shall not be credited against such amount: (i) the purchase
price for office equipment referred to in item (iii) above, (ii) internal costs
of the Concessionaire such as overhead, administrative and travel expenses, or
compensation for its own employees, (iii) the price or value of any property
previously used by Concessionaire, or (iv) the premium for Concessionaire's
performance and payment bond(s) under Paragraph 5 of this ARTICLE IV. Within
ninety days after the Date of Beneficial Occupancy, Concessionaire shall submit
to the Authority a statement, certified by an officer of Concessionaire, of the
cost of each item to be credited against its obligation hereunder and the useful
life thereof, together with such invoices and other documentation as shall be
required
- 14 -
<PAGE>
to substantiate the information reported on such statement. Such statement and
supporting documentation shall be subject to review and audit by the Authority.
If the costs to be credited against the Concessionaire's obligation are less
than $1,360,000.00, Concessionaire shall pay the deficiency to the Authority
with the submission of such statement.
5. Concessionaire's Performance and Payment Bonds. Upon the execution
of this Agreement, Concessionaire shall submit to the Authority a surety bond or
bonds issued by an insurance company acceptable to the Authority, and in a form
satisfactory to the Authority, in the amount of $1,360,000.00 each conditioned
upon (i) the full performance by the Concessionaire of Concessionaire's
obligations under the preceding Paragraphs of this ARTICLE V, and (ii) the
payment by Concessionaire of all sums owed by the Concessionaire to its
contractors and suppliers in connection with Concessionaire's performance of
such obligations.
6. Transitional Premises. Beginning December 6, 1997, and ending on the
respective dates set forth below, Concessionaire shall have the temporary use
and occupancy of the following transitional premises within the Terminal
Building:
(A) Beginning on December 6, 1997 and ending on the date on
which Concessionaire's Improvements to the Landside Premises are
substantially completed and such Premises are ready for occupancy by
Concessionaire, but no later than July 1, 1998, Concessionaire shall
have the use and
- 15 -
<PAGE>
occupancy of an area on the enplaning level of the Terminal Building,
in the landside portion thereof, containing ______ square feet of
space, more or less, in the general location which is colored in orange
on Exhibit A hereof, the exact boundaries and dimensions of which to be
determined by the Authority in its reasonable judgment;
(B) Beginning on December 6, 1997 and ending on the date on
which Concessionaire's Improvements in the North Concourse Premises are
substantially completed and such Premises are ready for occupancy by
Concessionaire, but no later than July 1, 1998, Concessionaire shall
have the use and occupancy of the area on the enplaning level of the
Terminal Building, in the North Concourse thereof, containing
__________ square feet of space, more or less, which is colored in red
on Exhibit A hereof; and
(C) Beginning on December 6, 1997 and ending on the Date of
Beneficial Occupancy, Concessionaire shall have the use and occupancy
of the area on the enplaning level of the Terminal Building, in the
South Concourse thereof, containing square feet of space, more or less,
which is colored in red on Exhibit A hereof. During the respective
periods that Concessionaire has the use and occupancy of said
transitional premises, the same shall be regarded as part of the
Premises hereunder, and Concessionaire's tenancy of the transitional
premises shall be subject to all of the terms and conditions hereof
applicable to
- 16 -
<PAGE>
the Premises defined in ARTICLE I hereof. During the period from
December 6, 1997 through the Date of Beneficial occupancy,
Concessionaire shall use its best efforts, through use of the
transitional premises, to provide the service to the public which is
contemplated by this Concession Agreement and to meet adequately the
needs of the public for food and beverage service within the Terminal
Building.
7. Interim Capital Refurbishment. On or before June 1, 2002,
Concessionaire shall submit proposed plans and specifications to the Authority
for the interim refurbishment of the Premises. The Authority shall have the
right to require changes in such proposed plans and specifications upon the same
grounds specified in Paragraph 1 hereof with respect to the plans and
specifications for Concessionaire's Improvements, and shall notify
Concessionaire within thirty days after the Authority's receipt of the proposed
plans and specifications of the changes, if any, which are required by, the
Authority. Concessionaire shall, at its own expense, complete the interim
refurbishment of the Premises, substantially in accordance with the approved
plans and specifications, as expeditiously as possible thereafter, but no later
than May 31, 2003. Concessionaire agrees to spend not less than $250,000.00 for
the interim refurbishment of the Premises pursuant to this Paragraph 7,
including within such costs only those categories of costs which would be
credited against Concessionaire's obligation under Paragraph 4 hereof, and
Concessionaire shall submit to the Authority, upon the completion
- 17 -
<PAGE>
of such interim refurbishment, a statement, certified by an officer of
Concessionaire, of the cost of each item to be credited against Concessionaire's
obligation for the interim refurbishment and the useful life thereof, together
with such invoices and other documentation as shall be required to substantiate
the information reported on such statement. Such statement and supporting
documents shall be subject to review and audit by the Authority. If the costs to
be credited against Concessionaire's obligation under. this Paragraph 7 are less
than $250,000.00, Concessionaire shall pay the deficiency to the Authority with
the submission of such statement.
8. Additional Requirements. In the performance of its work under this
ARTICLE V, both as to Concessionaire's Improvements and as to the interim
refurbishment of the Premises, Concessionaire shall comply with the following
additional requirements:
(A) Concessionaire shall require each contractor employed
directly by Concessionaire to provide a performance bond and payment
bond, in a form satisfactory to the Authority and with sureties
acceptable to the Authority, insuring the performance by such
contractor of its contract with Concessionaire and the payment by such
contractor of its employees, subcontractors and suppliers; and
(B) Concessionaire shall use its best efforts to minimize
interference with the use of the Terminal Building by the Authority,
its other tenants, and the general public.
- 18 -
<PAGE>
9. Authority Not Responsible for Acts of Concessionaire. The Authority
shall not incur any liability for any act or omission of Concessionaire, or any
party employed by Concessionaire, in connection with the preparation of the
plans and specifications for, or the construction or installation of,
Concessionaire's Improvements or the interim refurbishment of the Premises, nor
shall the Authority be considered in any respect to have warranted the adequacy
of such plans and specifications or the quality of such construction.
10. Concessionaire Takes the Premises "As Is." Except for the proposed
addition to the South Concourse Premises (if such addition is constructed by the
Authority), Concessionaire takes the Premises without any improvement, repair or
modification by the Authority and subject to the following: (i) ordinary wear
and tear occurring between the date hereof and the date Concessionaire takes
possession of the Premises, (ii) the removal by the current tenant of the
Authority of any property belonging to such tenant, and (iii any damages to the
Premises which are reasonable and expected as a result of such removal. As part
of Concessionaire's Improvements hereunder, Concessionaire shall, at its own
cost and expense, dismantle any existing improvements or property on the
Premises which is not to be used by Concessionaire and remove any junked
materials or equipment from the Airport.
11. Title to Vest in Authority. Title to all property installed or
placed in the Terminal Building in connection with
- 19 -
<PAGE>
Concessionaire's Improvements, or the interim refurbishment of the Premises
under Paragraph 7 hereof, whether real property or personal property, and any
replacements thereof or additions thereto, shall immediately vest in the
Authority subject to the right of Concessionaire to use the same during the Term
hereof as a tenant of the Authority pursuant to the terms and conditions of this
Concession Agreement; provided that the Authority shall not acquire title
hereunder to any office equipment of the Concessionaire which is used solely in
performing office or administrative functions, nor to any personal property
installed or placed upon the Premises by Concessionaire which cannot be used by
the Authority without infringing on a valid trademark or copyright of
Concessionaire or of a third party.
ARTICLE VI
RENTALS AND FEES
For the rights, privileges and use of the Premises granted in this
Concession Agreement, Concessionaire shall pay to the Authority the rentals and
fees set forth herein, and shall comply with the record-keeping and other
obligations of the Concessionaire set forth hereinafter, as follows:
1. Rent During Transitional Term. Within twenty days after the end of
each calendar month during the Transitional Term, beginning with the month of
December, 1997, Concessionaire shall provide the Authority with a written
accounting of its Gross Revenues for such month in the same manner as is
required in Paragraph 4 of this ARTICLE VI for each month of the Regular
- 20 -
<PAGE>
Term, and Concessionaire shall pay to the Authority Percentage Rents thereon at
the same rates as are in effect for each Lease Year under Subparagraph 2(B) of
this ARTICLE VI. Concessionaire shall also, within ninety days after the end of
the Transitional Term, submit to the Authority a statement of its total Gross
Revenues for the Transitional Term in the same manner as is required for each
Lease Year under Paragraph 5 of this ARTICLE VI, with any excess amount paid or
owed by Concessionaire to be discharged as provided in said Paragraph 5. For all
such purposes, the Minimum Annual Guarantee for the Transitional Term shall be
deemed to be zero.
2. Rent During Regular Term. For each Lease Year during the Regular
Term, Concessionaire shall pay the Authority the greater of (i) the Minimum
Annual Guarantee for such Lease Year under Subparagraph (A) below (to be
referred to herein as the "Minimum Annual Guarantee"), or (ii) the share of the
Concessionaire's Gross Revenues for such Lease Year calculated under
Subparagraph (B) below (such share of such Gross Revenues to be referred to
herein as "Percentage Rents"):
(A) The Minimum Annual Guarantee of the Concessionaire for
each respective Lease Year shall be as follows:
(i) For the first Lease Year, beginning June 1, 1998,
the Minimum Annual Guarantee shall be $13,291.67 multiplied by
the number of months in such Lease Year before the Date of
Beneficial Occupancy, plus $24,166.67 multiplied by the number
of months in
- 21 -
<PAGE>
such Lease Year beginning on or after the Date of Beneficial
Occupancy.
(ii) For the second Lease Year, the Minimum Annual
Guarantee shall be $300,000.00; and
(iii) For the third and each succeeding Lease Year,
the Minimum Annual Guarantee shall be
$310,000.00.
(B) The Percentage Rents of Concessionaire for each Lease Year
shall be the sum of the following:
(i) 11% of the Gross Revenues of Concessionaire
for such Lease Year derived from Vending Machine sales;
(ii) 19.5% of the Gross Revenues of Concessionaire
for such Lease Year derived from the sale of alcoholic
beverages; and
(iii) 14.5% of all other Gross Revenues of
Concessionaire for such Lease Year.
3. Monthly Payments of Rent. On or before the first day of each and
every month during the Regular Term hereof, Concessionaire shall pay to the
Authority a monthly installment of its Minimum Annual Guarantee for the then
current Lease Year, in advance and without demand, in the following amounts:
(A) For the month of June, 1998, and for each calendar month
thereafter prior to the Date of Beneficial Occupancy, the sum of
$13,291.67.
- 22 -
<PAGE>
(B) For the month beginning on the Date of Beneficial
Occupancy, and or each calendar month thereafter during the first Lease
Year, the sum of $ 24,166.67; and
(C) For each calendar month after the first Lease Year,
one-twelfth (1/12th) of the Minimum Annual Guarantee for the then
current Lease Year.
4. Monthly Payments of Percentage Rents. Within twenty days after the
end of each calendar month during the Term hereof, Concessionaire shall provide
the Authority with an accounting of its Gross Revenues for such calendar month.
Such accounting shall be submitted on a form approved by the Authority and shall
include sufficient detail to show separately the revenues of Concessionaire for
each category of revenue identified in Subparagraph 2(B) hereinabove and to show
separately the revenues of Concessionaire from each of its facilities within the
Terminal Building. Upon the submission of such accounting, Concessionaire shall
pay the Authority the amount, if any, by which (i) Concessionaire's Percentage
Rents for such calendar month as calculated under said Subparagraph 2(B) hereof
exceed (ii) the monthly installment of the Minimum Annual Guarantee to be paid
by Concessionaire under Paragraph 3 hereof.
5. Annual Reconciliation. Within ninety days after the end of each
Lease Year, Concessionaire shall prepare and submit to the Authority a written
accounting of its total Gross Revenues for such Lease Year. Such accounting
shall be prepared in accordance with generally accepted accounting principles,
shall
- 23 -
<PAGE>
be in such detail and on such forms as-may be acceptable to the Authority, and
shall be certified to be correct by Concessionaire's chief financial officer or
by an independent Certified Public Accountant. If the total rents previously
paid by Concessionaire for such Lease Year exceed the greater of (i) the Minimum
Annual Guarantee for such Lease Year, or (ii) the amount of Percentage Rents
calculated under Subparagraph 2(B) hereof for such Lease Year, such excess shall
be credited by the Authority to any obligation of the Concessionaire which is
then due or coming due, or if the Term hereof has expired and all of
Concessionaire's obligations to the Authority have been satisfied in full, the
Authority shall pay such excess to Concessionaire. If the total rents previously
paid by Concessionaire for such Lease Year are less than the greater of (i) the
Minimum Annual Guarantee for such Lease Year, or (ii) the amount of Percentage
Rents calculated under Subparagraph 2(B) hereof for such Lease Year,
Concessionaire will remit the deficiency to the Authority with such accounting.
6. Definition of "Gross Revenues". As used in this Concession
Agreement, the term "Gross Revenues" shall mean all amounts, of every kind or
nature, charged or received by Concessionaire for business conducted by
Concessionaire at the Airport, or in connection with the operation of
Concessionaire's rights or privileges hereunder, without deduction or exclusion
except as specifically provided for in this Paragraph 6, without regard to
whether the applicable transactions are for cash,
- 24 -
<PAGE>
credit, exchange or otherwise, and without regard to whether amounts charged by
Concessionaire are actually collected. Non- cash consideration received by
Concessionaire shall be included in Gross Revenues at its cash value. Without in
any manner limiting the generality of the foregoing, the term "Gross Revenues"
shall include the gross amounts charged by Concessionaire for all food and
beverages and for any other items sold by Concessionaire at the Airport, and for
all services provided by Concessionaire at the Airport, together with the amount
of all orders taken or received by Concessionaire at the Airport and filled
elsewhere. If any part of Concessionaire's business shall be sublet by
Concessionaire or conducted by any party other than Concessionaire, there shall
be included in Concessionaire's Gross Revenues hereunder all of the Gross
Revenues of such party in the same manner and with the same effect as if such
business had been conducted by Concessionaire itself. Each charge or sale upon
installment or credit shall be treated as a receipt for the full price in the
month in which such charge or sale is made, irrespective of the time when, or
whether, Concessionaire shall receive payment therefor. The term "Gross
Revenues" shall not include:
(A) the amount of receipts from the sale of or the trade-in
value of any furniture or fixtures used on any of the Premises and
owned by Concessionaire or any sublessee of Concessionaire;
- 25 -
<PAGE>
(B) the amount of any federal, state or local excise or sales
taxes levied upon the sales of the Concessionaire or any sublessee of
Concessionaire and collected from the purchaser as a separate item;
(C) the value of any goods, wares, merchandise, or services
given by Concessionaire, or any sublessee of Concessionaire, without
charge, but not in exchange, to any other person or party;
(D) receipts with respect to any sale made at the Airport by
the Concessionaire or any sublessee of Concessionaire in which the
goods sold are thereafter returned by the purchaser and such return is
accepted, to the extent of any refund actually granted or adjustment
actually made by Concessionaire or any sublessee of Concessionaire
either in the form of cash or credit; or
(E) the amount of any tip or other gratuity given by patrons
or customers to employees of Concessionaire or any sublessee of
Concessionaire.
Nothing in this Paragraph 6 shall be construed to permit any
assignment or subletting by Concessionaire except in accordance with ARTICLE XI
hereof.
7. Record Keeping. At each of Concessionaire's facilities within the
Premises, Concessionaire shall install and use thereon all cash registers,
invoicing machines, and other automatic accounting equipment, and all sales
slips, receipts and other documentation, as are necessary or required to record
properly
- 26 -
<PAGE>
and accurately the Gross Revenues of Concessionaire. Concessionaire shall keep
and maintain for a period of three years after the end of each Lease Year (or,
in the case of the Transitional Term, for a period of three years following the
end of the Transitional Term), in accordance with generally accepted accounting
principles, all records of its Gross Revenues for such Lease Year (or
Transitional Term), whether in written or computer form, including, without
limitation, its general ledger, sales and cash receipts, journals, daily
business reports, cash register and computer terminal tapes, bank deposit slips,
credit/debit card fee statements, tax reports filed with state and federal
agencies and contractual agreements with other Airport tenants. During the Term
hereof, Concessionaire shall keep such records on the Premises, and all such
records, and the data recording equipment of the Concessionaire shall be subject
to inspection at all reasonable hours by the Authority.
8. Auditing. In addition to its right of inspection under Paragraph 7
hereof, the Authority or its representative shall have the right, upon
seventy-two hours prior notice, at any time and from time to time during the
Term hereof or within three years thereafter, to audit the records of
Concessionaire relating to its Gross Revenues, and Concessionaire, upon request,
shall make all such records available for examination at the offices of the
Authority. If delay or additional costs are incurred in connection with such
audit which are caused by Concessionaire, Concessionaire shall be responsible
for such additional costs.
- 27 -
<PAGE>
At the request of the Concessionaire, the Authority or its representative may
conduct the audit at a location other than the offices of the Authority,
provided Concessionaire shall reimburse to the Authority all additional expenses
which are incurred by the Authority for conducting such audit away from its
offices, including, but not limited to, travel expenses, travel time, and other
related expenses. If, as a result of an audit, it is established that
Concessionaire or any subconcessionaire has understated Gross Revenues for the
period covered by the audit by five percent (596) or more, the entire expense of
said audit shall be borne by Concessionaire. Any additional Percentage Rents due
as a result of such audit shall forthwith be paid by Concessionaire to the
Authority with interest thereon, from the end of the month in which the
discrepancy occurred until payment is made, at a rate of eighteen percent (18%)
per annum or the then maximum lawful rate of interest per annum, whichever is
less.
9. Medium of Payment. All payments hereunder shall be made in lawful
money of the United States.
10. Delinquencies. In the event Concessionaire is delinquent for a
period of thirty days or more in paying to the Authority any sums payable
pursuant to this Concession Agreement, the Authority shall be entitled to
collect from Concessionaire interest thereon, from the date such sum was due and
payable until paid, at the rate of eighteen percent (18%) per annum or at the
then maximum lawful rate of interest per annum, whichever is
- 28 -
<PAGE>
less, plus the reasonable attorney's fees incurred by the Authority in the
collection of such delinquency. Receipt of such interest or attorney's fees by
the Authority shall not bar the exercise of any other remedy available to the
Authority on account of such delinquency.
11. Security. As security for the payment or performance by
Concessionaire of its obligations hereunder, Concessionaire will provide to the
Authority, upon the execution hereof, a nondocumentary, irrevocable notation
Letter of Credit issued by a bank acceptable to the Authority, in a form which
is acceptable to the Authority, in the amount of $155,000.00. Said Letter of
Credit shall remain in force throughout the Term hereof and thereafter until all
the obligations of Concessionaire to the Authority have been paid in full. In
addition to any other remedies the Authority may have, the Authority may, at its
option, draw on said Letter of Credit for the payment of any amount which
Concessionaire is obligated to pay to the Authority under this Concession
Agreement, or to satisfy any other obligation of the Concessionaire hereunder,
which has not been paid or performed by Concessionaire when due. In the event
the Authority shall draw on said Letter of Credit, Concessionaire shall
immediately restore such Letter of Credit to the full amount required hereunder.
- 29 -
<PAGE>
ARTICLE VII
OBLIGATIONS OF CONCESSIONAIRE
In addition to its covenants and agreements set forth elsewhere in this
Concession Agreement, Concessionaire shall perform the following obligations
during the Term hereof:
1. Furnishing and Equipping the Premises. Concessionaire shall be
solely responsible for designing, furnishing, installing, and maintaining, at
its own cost and expense, all furnishings, fixtures, and equipment necessary to
equip the Premises and operate the same for the purposes hereinbefore set forth,
and in the manner and at the standards contemplated hereunder. Such furnishings
and fixtures shall be of high quality, safe, fire-resistant, modern in design
and attractive in appearance. Any and all furnishings, fixtures, and equipment,
and any replacements installed or placed by Concessionaire on the Premises shall
be subject to the prior approval of the Executive Director.
2. Standards of Operation.
(A) Concessionaire shall operate in a first-class manner all
of the businesses operated by Concessionaire pursuant to this
Concession Agreement, and shall keep the Premises and all other areas
in which Concessionaire operates hereunder in a safe, neat, clean,
orderly, and inviting condition at all times, reasonably satisfactory
to the Executive Director.
- 30 -
<PAGE>
(B) Concessionaire shall offer a wide variety of food and
beverages (both alcoholic and non-alcoholic) sufficient to meet the
demand of the traveling public and other persons using the Airport.
Concessionaire will, at the request of the Executive Director, add
items to its menus if the Executive Director reasonably determines that
such items are useful or desirable to the traveling public or others
using the Airport. Concessionaire will, at the beginning of the Regular
Term hereof, serve the following brand-name products:
____________________________. Concessionaire shall not voluntarily
delete any food and beverages which it is serving under a brand name of
one of its suppliers, or add any food or beverages under brand name not
previously approved by the Executive Director, without the written
consent of the Executive Director, which shall not be withheld
unreasonably.
(C) Concessionaire shall at all times maintain a standard of
quality and quantity with respect to the food and beverages sold by
Concessionaire at the Airport at least as high as the standard for like
food and beverages sold or offered for sale at restaurants serving
comparable food and beverages within a twenty-mile radius of the
Airport. The quality and quantity of all food and beverages sold by
Concessionaire shall be subject to the approval of the Executive
Reasonable Director. Concessionaire shall maintain a sanitation rating
of "Grade All for each of its
- 31 -
<PAGE>
food-serving facilities based on the sanitation ratings which are now
given, from time to time, to restaurants under the laws of the State of
North Carolina.
(D) Concessionaire's service shall be prompt and efficient,
and Concessionaire shall at all times have a sufficient number of
employees on hand, and adequate facilities, to provide such service.
Concessionaire's employees shall he clean and courteous and neat in
appearance. Concessionaire shall not permit any of its employees at the
Airport to use foul or profane language, or act in a loud or boisterous
or otherwise improper manner.
(E) Concessionaire will accept at least the following credit
cards in payment for its sales and service hereunder:
VISA, MasterCard, and American Express.
(F) All food and beverages kept for sale by Concessionaire
hereunder shall be subject to inspection by the Executive Director.
3. Hours of Operation. Concessionaire's facilities shall be open for
service to the public in each of the respective Premises hereunder seven days a
week during the hours of operation specified for such Premises on the schedule
attached hereto as Exhibit D. The Executive Director may make such changes in
such schedule, from time to time, which he reasonably believes to be necessary
to adjust to changing demand or changing flight schedules within the Airport.
Concessionaire may likewise make changes in such schedule for such-purposes with
the consent
- 32 -
<PAGE>
of the Executive Director, which shall not be withheld unreasonably.
4. Prices. The prices charged by Concessionaire for food and beverages
sold hereunder shall not exceed the average prices charged for like food and
beverages by establishments within a twenty-mile radius of the Airport. Such
average prices shall be determined by the Executive Director in his reasonable
judgment based on prices for comparable food and beverages from at least three
establishments within such radius. Comparisons shall be made on the basis of the
total price for a representative selection of items, as chosen by the Authority,
rather than on an item-by-item basis. If the Authority determines that the
prices charged by Concessionaire exceed such average prices, Concessionaire
shall make such reasonable adjustments to its prices as the Executive Director
shall demand for purposes of compliance with this Paragraph. Prices for all food
and beverages sold hereunder shall be conspicuously displayed by the
Concessionaire.
5. Solicitation. Solicitation of business at the Airport by
Concessionaire shall be confined to signs, placards, and advertising displays,
all of which shall be subject to the approval of the Executive Director prior to
installation or placement and at all times thereafter. This requirement shall
not apply to small signs, placards, and other similar items which would normally
be placed within the Premises or affixed to
- 33 -
<PAGE>
tables, counters, bars, and the like, if they refer to items offered for sale by
Concessionaire.
6. Manager. Subject to the approval of the Executive Director,
Concessionaire shall select and appoint a Manager for Concessionaire's
operations at the Airport. Such person must be an outstanding, highly qualified
and experienced manager or supervisor of comparable operations, and shall be
vested by Concessionaire with full power and authority to accept service of all
notices provided for herein and to oversee operation of the concession business
herein authorized, including the quality and prices of the food and beverages
sold by Concessionaire hereunder, and the appearance, conduct and demeanor of
Concessionaire's employees. Said Manager shall be assigned to a duty station or
office at the Airport, where he or she shall ordinarily be available during
regular business hours and where, at all times during the Manager's absence, a
responsible subordinate shall be in charge and available. The Manager appointed
by Concessionaire shall devote his or her full time and attention to the
performance of his or her duties hereunder and shall not be assigned any other
duties or responsibilities by Concessionaire.
7. Expenses. Except as provided in ARTICLE IX hereof, Concessionaire
will be responsible for the payment of all expenses in connection with the use
of the Premises and the rights and privileges granted herein, including without
limitation by reason of enumeration, the cost of installing and
- 34 -
<PAGE>
maintaining all utilities lines necessary for distribution of utilities within
the Premises, the cost of all gas, electricity, and other utilities consumed in
its operations hereunder and all taxes, permit fees, license fees, and
assessments lawfully levied or assessed upon its property at any time situated
upon the Airport, and it will secure all permits and licenses required for
construction of improvements or the operation of its business. If the cost of
the gas service for Concessionaire's operations is charged to the Authority by
the utility company, Concessionaire shall reimburse such costs to the Authority
within five days after receiving an invoice therefor.
8. Maintenance and Repair of Premises. Concessionaire shall be
responsible for maintaining the Premises, throughout the Term hereof, and
delivering the same to the Authority at the termination of this Concession
Agreement, in good condition and repair, reasonable wear and tear excepted, and
damage which the Authority is obligated to repair under ARTICLE XIII hereof also
excepted. Without limiting the generality of this obligation, Concessionaire
will, at its own expense, be responsible as follows:
(A) Concessionaire shall repair and maintain all equipment,
furniture, furnishings and installations which are used within the
Premises. Concessionaire shall be responsible, at its own expense, for
the maintenance and repair of all lighting fixtures within the
Premises,
- 35 -
<PAGE>
including the replacement of incandescent and fluorescent lamps,
starters, ballasts and other similar appurtenances.
(B) Cleaning and maintenance of the Premises shall be
conducted at a level consistent with that conducted and performed by
the Authority in comparable space and in accordance with all applicable
health and sanitation laws and regulations.
(C) Equipment storage and maintenance areas shall at all times
be kept and maintained in a clean, orderly and sanitary condition, free
of debris and oil spills. Flammable materials must be stored in
containers and in locations which are approved by the Authority. Spare
equipment not used in regular daily operations shall be stored in areas
designated by the Authority and separately leased for such storage
purposes.
(D) Concessionaire shall provide complete and proper
arrangements for handling and disposal off the Airport of all garbage,
trash, unused equipment, and other refuse resulting from
Concessionaire's operations on the Airport; and Concessionaire shall
provide and use suitable receptacles, in sufficient number, on the
Premises and other areas used by Concessionaire, for the disposal of
the same. Upon payment by Concessionaire of such charges as the
Authority may assess therefor, Concessionaire shall have the right to
use the trash compactor of the Authority located on the service level
of the Terminal Building for disposal of
- 36 -
<PAGE>
its refuse. Piling of boxes, cartons, barrels or other similar items in
an unsafe or unsightly manner is forbidden.
(E) Concessionaire shall be responsible for the repair and
maintenance of all plumbing which serves the Premises, including water
lines from the point of connection with the Authority's main water
line, and drains and waste lines to the point of connection with the
Authority's main sewer line, whether such lines and such connections
are within or outside the Premises. All drains shall be properly
installed and sealed to prevent leakage, and Concessionaire shall
install catch pans underneath all drains and waste lines where
necessary to prevent leakage. Concessionaire is responsible for all
material that is deposited in the plumbing system from the Premises and
for cleaning the grease traps within the Premises. Concessionaire shall
not deposit any drain cleaner or other chemical substances into the
plumbing system which have not been approved in advance by the
Executive Director. Concessionaire shall reimburse to the Authority
upon demand all costs of repairing any damage to the Authority's
plumbing or other property of the Authority resulting from a failure by
Lessee to maintain the plumbing system serving the Premises, or from
any failure by Concessionaire to keep such plumbing system or the
floors within the Premises in a watertight condition, or from any
liquid, grease or other debris which has been deposited in
- 37 -
<PAGE>
such plumbing system that results in stoppage or other damage.
(F) Concessionaire will at all times keep the Premises free of
insects, rodents, and other pests.
If Concessionaire fails to perform its obligations under this
Paragraph 8, the Authority may enter the Premises (without such entering being
regarded as a termination of this Concession Agreement or an interference with
the possession of the Premises by the Concessionaire) and do all things
necessary to restore said Premises to the condition required by this Concession
Agreement, charging the cost and expense to Concessionaire, and Concessionaire
shall pay to the Authority all such costs and expenses in addition to the
rentals, fees, and charges herein provided. Notwithstanding the foregoing
provisions of this Paragraph 8, the obligation of Concessionaire to maintain and
repair the Premises shall not extend to the repair of any structural damage
thereto not caused by the willful act or by the negligence of Concessionaire, or
of its agents, employees, licensees, invitees, or customers.
9. Alterations. Concessionaire shall make no alterations or changes in
the Premises without having first received the prior written approval of the
Executive Director. In the event the proposed alterations or changes are so
approved, they shall be made solely at Concessionaire's expense, and
Concessionaire shall not be reimbursed at any time by the Authority for the cost
of such work.
- 38 -
<PAGE>
10. Avoidance of Liens. In the performance of the work to be done by
Concessionaire under ARTICLE V hereof, and in the performance of any alterations
made by Concessionaire under Paragraph 9 hereinabove, Concessionaire shall keep
the Premises and all other property of the Authority free and clear of any
mechanic's or materialmen's liens of Concessionaire's contractor or material
suppliers, and Concessionaire shall indemnify the Authority and hold it harmless
against any such liens or any claims of lien of Concessionaire's contractors or
material suppliers.
11. Cooperation with Concessionaire's Successor. Upon the expiration or
earlier termination of the Term hereof, Concessionaire shall cooperate
reasonably with the party or parties selected by the Authority to operate the
food and beverage concessions at the Airport so as to cause the least disruption
of service to the public resulting from the transition to the new
concessionaire(s).
ARTICLE VIII
RIGHTS OF THE AUTHORITY
The Authority retains for itself any and all rights and powers not
expressly granted to Concessionaire; however, without limiting the generality of
the foregoing, the Authority shall have the following specific rights:
1. Rights of Entry and Inspection and Other Rights. The Authority shall
have the right to enter the Premises for the purpose of inspecting such
Premises, to check on Concessionaire's
- 39 -
<PAGE>
compliance with health and safety regulations and with the terms and conditions
of this Concession Agreement, and to do any and all things with reference to
said Premises which the Authority is obligated or authorized to do as set forth
herein. The Authority, through its employees, agents, representatives,
contractors, and furnishers of utilities and other services shall have the right
for its own benefit, for the benefit of Concessionaire, or for the benefit of
other tenants at the Airport, to maintain upon the Premises existing and future
utility, mechanical, electric and other systems and services and to enter upon
the Premises at all reasonable times to make such repairs, replacements or
alterations to such systems or services as the Authority may deem necessary or
advisable, and, from time to time, to construct or install over, in or under,
the Premises, new systems or parts thereof, and to use the Premises for access
to other parts of the Airport otherwise not conveniently accessible; provided,
however, that the exercise of such rights shall not unreasonably interfere with
the use and occupancy of the Premises by Concessionaire, and that every
reasonable effort shall be made to restore the Premises to the condition
existing prior to the exercise of such rights. Except in an emergency, any
maintenance work in, on, under or over the Premises shall be coordinated with
Concessionaire's local manager prior to being initiated. The exercise of any or
all of such rights by the Authority, or others acting in behalf of the
Authority, shall not be construed to be an eviction of the Concessionaire.
- 40 -
<PAGE>
2. Right of Oversight by Executive Director. The Executive Director
shall have the right at all times to raise objections to the condition of the
Premises, to the quality of the food and beverages offered for sale by
Concessionaire, or to the character of the service rendered by the
Concessionaire, and the Executive Director may require the Concessionaire to
make such changes, to meet his objections, as are reasonable under the
circumstances and consistent with the standards and requirements provided
herein.
3. Right to Suspend or Terminate Concession Agreement Provisions. Any
rights, privileges, or interests acquired by the Concessionaire under the terms
of this Concession Agreement may, at the option of the Authority following
written notice of thirty days, be suspended or finally terminated without any
liability on the part of the Authority, if such suspension or termination is
found by the Authority, acting in good faith, to be necessary to secure federal
financial aid for the development and improvement of the Airport, and if the
Federal Aviation Administration demands such action by the Authority for such
purpose; provided that, if the right of the Concessionaire to operate hereunder
is not terminated in its entirety, an equitable adjustment shall be made in the
Minimum Annual Guarantee to be paid thereafter by Concessionaire under ARTICLE
VI hereof.
4. Right to Restrict Access Beyond Security Checkpoints. The Authority
retains the right to restrict access to areas on the airside of security
checkpoints to persons permitted by the
- 41 -
<PAGE>
Authority, such as ticketed passengers and employees of the airlines operating
at the Airport. The Authority may also restrict public access within portions of
the Terminal Building if such restrictions are reasonably necessary while
improvements or alterations are being made to the Terminal Building. No such
restrictions authorized in this Paragraph 4 shall entitle Concessionaire to any
abatement of its Minimum Annual Guarantee or Percentage Rents.
5. Rights during National Emergency. The Authority expressly reserves
the right, during times of National Emergency declared by the President of the
United States, to lease the Airport or any part thereof to the United States
Government if said Airport facilities are required for United States Government
use. In the event such a lease is executed, the rights and privileges of this
Concession Agreement, insofar as they are inconsistent with the rights and
privileges of the lease with the United States Government, shall be temporarily
suspended and Concessionaire's Minimum Annual Guarantee shall be abated
appropriately.
6. Rights to Future Airport Development. The Authority reserves the
right to develop further or to improve or to redesign or to remodel the Airport
or the Terminal Building as the Authority sees fit regardless of the desires or
views of the Concessionaire and without interference or hindrance by
Concessionaire. If feasible, any work to be performed in the Terminal Building
in connection with any such future development
- 42 -
<PAGE>
will be done in a manner which will cause Concessionaire as little inconvenience
as practicable.
ARTICLE IX
FACILITIES TO BE FURNISHED
BY THE AUTHORITY
The Authority shall furnish, at its own expense, heat and air
conditioning for the Premises, and water in such volume as Concessionaire shall
reasonably require, with hot water to be supplied in such volume as
Concessionaire shall reasonably require at a temperature of not less than 120
degrees Fahrenheit. The Authority shall not be required to furnish any other
services or utilities, including, but not limited to, gas, electrical power, or
telephone service, replacement of lamps, or janitorial services. The Authority
shall also, at its own expense, be responsible for all structural maintenance
and structural repairs to the Premises, except for maintenance and repairs
necessitated by the willful act or by the negligence of the Concessionaire, or
of its agents, employees, invitees, licensees or customers.
ARTICLE X
DISADVANTAGED BUSINESS ENTERPRISE PROGRAM
1. DBE Status of Concessionaire. Concessionaire shall take such action
as shall be necessary to insure that, during each Lease Year during the Term
hereof, not less than 15?6 of the Gross Revenues under this Concession Agreement
shall be earned by a disadvantaged business enterprise (hereinafter called a
'IDBEII'), within the meaning of the U.S. Department of
- 43 -
<PAGE>
Transportation's Regulations 49 CFR, Part 23, Subpart F. If Concessionaire is
not itself a DBE, Concessionaire shall provide for such level of participation
by entering into a joint venture, sublease, or other direct ownership
arrangement with one or more DBE'S, under which not less than 151 of Gross
Revenues hereunder will be regarded under such regulations as having been earned
by such DBE or DBE'S, provided that any assignment or subletting undertaken by
Concessionaire to meet this requirement must have the prior written consent of
the Authority as provided in ARTICLE XI hereof. Concessionaire shall provide
such information as the Authority may reasonably request, from time to time, to
monitor the compliance of Concessionaire with the requirements of this ARTICLE
X, as well as such information as the Authority's shall require from time to
time to meet the Authority's reporting obligations to the Federal Aviation
Administration with regard to the Authority's DBE program for concessions at the
Airport.
2. Additional Requirements and Assurances. This Concession Agreement is
subject to the requirements of the U.S. Department of Transportation's
Regulations, 49 CFR, Part 23, Subpart F. Concessionaire agrees that it will not
discriminate against any business owner because of the owner's race, color,
national origin, or sex in connection with the award or performance of any
concession agreement, management contract or subcontract, purchase or lease
agreement, or other agreement covered by 49 CFR, Part 23, Subpart F.
Concessionaire agrees to include the statements set forth in the preceding
sentence in any
- 44 -
<PAGE>
subsequent concession agreements that it enters and cause those businesses to
similarly include the statement in further agreements, but all such subsequent
agreements shall be subject to the provision of ARTICLE XI hereof.
3. Constitutional Restrictions. Notwithstanding the foregoing, the
provisions of this ARTICLE X shall not apply if and to the extent the
constitutional or other legal rights of Concessionaire or any other person would
be infringed thereby.
ARTICLE XI
ASSIGNMENT AND SUBLETTING
Concessionaire shall have no right to assign this Agreement, in whole
or in part, or to sublet any of the Premises, or to assign or to sublet any of
its rights, privileges or franchise under this Agreement, or to delegate any of
its duties under this Agreement, without the prior written consent of the
Authority, which consent shall not be unreasonably withheld, nor shall
Concessionaire permit any transfer by operation of law of Concessionaire's
interest created hereby, without the prior written consent of the Authority,
which consent shall not be unreasonably withheld. Any change in the identity of
the person owning the controlling interest in the Concessionaire's common stock
through one or more transactions during the Term hereof shall be deemed to
constitute an assignment requiring the Authority's prior written consent under
this ARTICLE XI. Consent by the Authority to any assignment, subletting
delegation or transfer of interest under this Agreement shall be limited to the
- 45 -
<PAGE>
instance stated in such written consent and shall not constitute a release,
waiver, or consent to any other assignment, subletting delegation or transfer of
interest, and notwithstanding any such assignment, subletting delegation or
transfer of interest, Concessionaire shall continue to be liable for the
performance of Concessionaire's obligations under this Concession Agreement.
ARTICLE XII
TERMINATION AND CANCELLATION
1. Termination and Timely Surrender. Concessionaire agrees to yield and
deliver up to the Authority possession of the Premises and the improvements,
fixtures and personal property which have vested in the Authority hereunder
promptly at the termination of this Concession Agreement, by expiration or
otherwise, in good condition, reasonable wear and tear excepted, and in
accordance with Concessionaire's express obligations hereunder. Concessionaire
shall have the right at any time during the Term, and for ten days after the
termination thereof, to remove any furniture, trade fixtures, equipment or other
property installed or placed by it at its expense in the Premises which have not
vested in the Authority; subject, however, to any claim which the Authority may
have for unpaid rents or fees and subject to the repair, at Concessionaire's
expense, of any damage to the Premises or the Airport or the property of others
caused by such removal, including all expenses of restoring the same to its
previous condition. In the event any such furniture, trade fixtures, equipment,
or other personal property of the
- 46 -
<PAGE>
Concessionaire is not removed by the Concessionaire during such ten-day period,
the Authority may remove the same, and Concessionaire agrees to pay all expenses
for removal, all costs for repair of damage to Airport property or the property
of others damaged by such removal, all storage charges, and all expenses
of-restoration. The Authority may, at its option, declare any property of the
Concessionaire which remains upon the Airport after the expiration of such
ten-day period to have been abandoned by the Concessionaire and to have become
the property of the Authority. The foregoing provisions shall not be construed
to imply that Concessionaire shall have any right whatsoever to place any
property on any part of the Airport outside the Premises, other than the right
to place vending machines at the places indicated on Exhibit B hereof.
2. Cancellation by Concessionaire. Concessionaire shall have the right
to cancel this Concession Agreement by written notice to the Authority of its
election to do so upon the happening of one or more of the following events:
(A) The permanent closure of the Airport as an Air Carrier
Airport by act of any Federal, state or local government agency having
competent jurisdiction;
(B) The issuance by any court of competent jurisdiction,
without fault on the part of Concessionaire, of an injunction, order,
or decree preventing or restraining the use by Concessionaire of all or
any substantial part of the Premises, or preventing or restraining the
use of the
- 47 -
<PAGE>
Airport for normal airport purposes or the use of any part thereof
which may be used by Concessionaire and which is necessary for
Concessionaire's operation on the Airport, which remains in force for a
period of at least ninety days;
(C) The substantial breach by the Authority of any of the
terms, covenants, commitments or conditions of this Concession
Agreement to be kept, performed, and observed by the Authority and the
failure of the Authority to remedy such breach, within a period of
thirty days after written notice from Concessionaire of the existence
of such breach, or if such event or default cannot with reasonable
diligence be removed or cured within a period of thirty days, then upon
the failure of the Authority to commence to cure or remove the same
within said thirty-day period and to proceed with due diligence to
complete the remedying of said default; or
(D) If the United States Government or any of its agencies
shall occupy the Airport or any substantial part thereof to such an
extent as to interfere materially and adversely with Concessionaire's
operation for a period of sixty consecutive days or more.
3. Cancellation by the Authority. If any one or more of the following
events (sometimes herein called "events of default") shall happen:
(A) If Concessionaire shall make a general assignment for the
benefit of creditors;
- 48 -
<PAGE>
(B) If Concessionaire shall file a voluntary petition in
bankruptcy or, if a petition seeking its reorganization or the
readjustment of its indebtedness under the federal bankruptcy laws or
similar state laws shall be filed by or against Concessionaire;
(C) If an involuntary petition in bankruptcy shall be filed
against Concessionaire and Concessionaire is thereafter adjudicated a
bankrupt thereunder;
(D) If Concessionaire shall consent to the appointment of a
receiver, trustee, or liquidator of all or substantially all of the
property of Concessionaire;
(E) If Concessionaire shall voluntarily abandon and
discontinue use of the Premises for the purpose approved herein for a
period of thirty consecutive days;
(F) If Concessionaire shall fail to pay the rental charges or
other money payments required by this Concession Agreement, or to
submit to the Authority any of the accountings required under
Paragraphs 4 or 5 of ARTICLE VI hereof, and such failure shall not be
remedied within ten days after the same became due hereunder;
(G) If Concessionaire shall default in fulfilling any of the
other terms, covenants, conditions or warranties to be fulfilled by it
hereunder and shall fail to remedy such default within thirty days
after written notice by the Authority of the-existence of such default,
or if such default cannot with reasonable diligence be cured within a
- 49 -
<PAGE>
period of thirty days, then upon the failure of Concessionaire to
commence to cure such default within said thirty-day period and to
proceed with due diligence to complete the remedying of said default;
or
(H) If Concessionaire has made any untrue statement of a
material fact in its Proposal, or if Concessionaire has omitted to
state any material fact in said Proposal which is necessary to make the
statements which were made therein not misleading;
then, upon the occurrence of such event of default, the Authority shall have the
right, without demand or notice, to re-enter and take possession of the Premises
without being guilty of trespass, and, at its election, by written notice to
Concessionaire, without prejudice to any other remedies the Authority may have
as provided by law, either (i) to terminate this Concession Agreement in its
entirety, or (ii) to terminate Concessionaire's right to possession or occupancy
of the Premises only without terminating this Concession Agreement in its
entirety.
If the Authority shall at any time elect to terminate this
Concession Agreement in its entirety as above provided, the Authority, in
addition to any other remedies it may have, may recover from Concessionaire all
damages it may incur by reason of the happening of such event of
default,'including attorneys fees and the cost of recovering the Premises and
including the worth a the time of such termination of the excess, if any, of the
amount of rent reserved in this Concession Agreement for the remainder
- 50 -
<PAGE>
of the Term over the then reasonable rental value of the Premises for the
remainder of the Term, all of which amounts shall be immediately due and payable
by Concessionaire to the Authority.
If the Authority shall at any time elect to terminate
Concessionaire's right to possession or occupancy of the Premises only without
terminating this Concession Agreement in its entirety, Concessionaire shall
remain liable for the payment of rent hereunder, except to the extent that the
Authority may receive such rent by reletting the Premises, after first having
applied any such rent so obtained from reletting the Premises to the payment of
the costs of such reletting, including the costs of brokerage fees, attorneys
fees, and the costs of any repairs, alterations, or redecorations necessary or
advisable for such reletting. If the rent collected from reletting is more than
sufficient to pay the full amount of the rent reserved hereunder, together with
the aforementioned costs, the Authority shall apply any surplus to the extent
thereof to the discharge of any obligation of Concessionaire to the Authority
under the terms of this Concession Agreement, including future installments of
rents, and any sum then remaining---shall belong to the Authority and not
Concessionaire. The Authority shall use due diligence to relet the Premises.
Such reletting may be for such term and for such rental as the Authority may
deem advisable, even though the term of any reletting may extend beyond the
unexpired portion of the term of this Concession Agreement, but the provisions
hereinabove set forth with regard to the application of rent from
- 51 -
<PAGE>
a reletting shall apply only to the rent collected from reletting for the
unexpired portion of the Term of this Concession Agreement. if the Authority
shall have elected to terminate Concessionaire's right to possession or
occupancy only, the Authority may, at any time thereafter, elect to terminate
this Concession Agreement in its entirety as provided above.
If, for any of the reasons specified above, the Authority
shall either terminate this Concession Agreement in its entirety or terminate
Concessionaire's right to possession only, the rights of the parties with
respect to the furniture, trade fixtures, equipment or other personal property
installed or placed upon the Premises shall be the same as provided in Paragraph
1 of this ARTICLE XII in the case of a termination at the end of the Term
hereof.
ARTICLE XIII
DAMAGE TO PREMISES BY CASUALTY
1. Partial Damage. If any part of the Premises or public facilities
adjacent to the Premises shall be partially damaged by fire or other casualty,
but such damage does not render the Premises untenantable for the purposes for
which the same are leased hereunder, the same shall be repaired to usable
condition with due diligence by the Authority at its own cost and expense.
2. Substantial Damage. If any part of the Premises or the public
facilities adjacent to the Premises shall be so extensively damaged by fire or
other casualty as to render said
- 52 -
<PAGE>
Premises untenantable for the purposes for which the same are leased hereunder,
but if said damage is capable of being repaired in sixty days, the same shall be
repaired and the Premises restored to usable condition with due diligence by the
Authority at its own cost and expense. In such case, the Minimum Annual
Guarantee of the Concessionaire under ARTICLE VI hereof (but not the Percentage
Rents of the Concessionaire) shall be paid up to the time of such. damage and
shall thereafter be abated equitably in proportion to the diminution of the
usefulness of the Premises until such time as such damage shall be repaired
adequately for said Premises to become tenantable for Concessionaire's purposes
as described in ARTICLE IV hereof. The Authority will use its best efforts to
provide Concessionaire with suitable alternative facilities to continue its
operations while-repairs are being completed.
3. Extensive Damage. If any part of the Premises or the public
facilities adjacent to the Premises shall be damaged by fire or other casualty
so extensively as to render said Premises untenantable for the purposes for
which the same are leased hereunder and@if said damage is incapable of being
repaired in sixty days, either the Authority or the Concessionaire may cancel
this Concession Agreement as of the date such damage occurred, by giving the
other written notice of its election to do so within ten days after such damage
occurs, but if this Concession Agreement is not canceled by either the Authority
or Concessionaire within such period, the Authority shall, at its
- 53 -
<PAGE>
own expense, repair such damage and restore the Premises to usable condition and
the Minimum Annual Guarantee of the Concessionaire under ARTICLE VI hereof (but
not the Percentage Rents of the Concessionaire) shall be paid up to the time of
such damage and shall thereafter be abated until such time as such damage shall
be repaired adequately for said Premises to become tenantable for
Concessionaire's purposes as described in ARTICLE IV hereof.
4. Damage Due to Lessee's Negligence. In the event that the Premises or
the public facilities adjacent to the Premises shall be damaged or destroyed by
fire or other casualty or otherwise due directly or indirectly to the negligence
or willful act of Concessionaire, or one-or more of its employees or agents
(acting within the course or scope of their employment), there shall be no
abatement of the Concessionaire's Minimum Annual Guarantee during the
restoration of said Premises, the foregoing provisions of this ARTICLE XIII
notwithstanding, Concessionaire shall have no option to cancel this Concession
Agreement under the provisions of Paragraph 3 of this ARTICLE XIII, and to the
extent that the cost of repairs shall exceed the amount of any insurance
proceeds payable to the Authority by reason of such damage or destruction,
Concessionaire shall pay the amount of such cost to the Authority.
5. Damage to Personal Property. If any equipment, furniture,
furnishings, trade fixtures or other personal property located on the Premises
shall be damaged by fire or other
- 54 -
<PAGE>
casualty during the Term hereof, Concessionaire shall repair or replace the same
with due diligence. The proceeds of any insurance maintained on such property by
Concessionaire pursuant to Paragraph 5 of ARTICLE XIV hereof shall be applied
against the cost of such repair and replacement as far as such proceeds shall
go, and the balance of such costs, if any, shall be borne by Concessionaire.
ARTICLE XIV
INDEMNIFICATION AND INSURANCE
1. Indemnification - Authority Held Harmless. Except where otherwise
specifically provided herein or where caused by the willful acts or negligence
of the Authority, its agents or employees, it is an express condition of this
Concession Agreement that the Authority and its directors, officers, agents and
employees shall be free from any and all claims, demands, liabilities, fines,
penalties, or causes of action of every kind or character, whether in law or in
equity, from any cause or causes whatsoever arising from the operation of
Concessionaire's business at the Airport or as the result of anything done or
omitted by Concessionaire or by Concessionaire's employees, agents, licensees,
invitees, contractors or suppliers, and Concessionaire shall indemnify and save
harmless the Authority and its directors, officers, agents and employees against
and from any and all such claims, demands, liabilities, fines, penalties or
causes of action including reimbursing the Authority
- 55 -
<PAGE>
and the other parties indemnified hereunder for all expenses, including
reasonable attorneys' fees, incurred in connection therewith. The Authority
shall give to Concessionaire prompt and reasonable written notice of any such
claim or action known to the Authority, and Concessionaire shall have the right
to investigate, compromise, and defend the same to the extent of its own
interest.
2. General Insurance Requirements. The following general provisions
shall apply to the insurance required of Concessionaire under this Concession
Agreement:
(A) Certification of Insurance. Upon the execution of this
Concession Agreement and from time to time thereafter as requested by
the Authority, Concessionaire will deliver to the Authority a
Certificate of Insurance certifying that all insurance requirements
contained in this Concession Agreement have been complied with as
outlined below. An Acord Certificate of Insurance Form or a substitute
approved by the Authority is the required form in all cases where
reference is made herein to a Certificate of Insurance.
(B) Minimum Financial Security Requirements. Any and all
companies providing insurance required by this Concession Agreement
must meet the following minimum financial security requirements: (i) a
Best's Rating not less than B+ and (ii) current Best's Financial
Category not less than Class VII. These requirements conform to the
ratings published by A. M. Best & Co. in the current Best's
- 56 -
<PAGE>
Key Rating Guide--Property-Casualty. The ratings for each company must
be indicated on the Certificate of Insurance.
(C) Insurance Required for Duration of Agreement. Any and all
insurance required by this Concession Agreement shall be maintained by
Concessionaire during the entire length of this Concession Agreement,
including any extensions thereto. The Authority shall have the right to
inquire into the adequacy of the insurance coverages set forth in this
Concession Agreement and to make such adjustments as reasonably appear
necessary.
(D) Mandatory Thirty-Day Notice of Cancellation or Material
Change. The Authority shall, without exception, be given not less than
thirty days notice prior to cancellation for other than non-payment of
premium or prior to any material change of any insurance required by
this Concession Agreement. Non-payment of premium shall require at
least ten days notice of cancellation. Confirmation of this mandatory
notice of cancellation shall appear on the Certificate of Insurance and
on all insurance policies required by this Concession Agreement.
(E) Authority as Additional Insured. The Authority shall be
covered as additional insured under any and all insurance required by
this Concession Agreement, and such insurance shall be primary with
respect to the additional insured. Confirmation of compliance with this
requirement
- 57 -
<PAGE>
shall appear on the Certificate of Insurance, and on any applicable
insurance policies.
(F) Authorization and Licensing of Agent. Each and every agent
acting as authorized representative on behalf of a Company affording
coverage shall warrant when signing the Certificate of Insurance that
specific authorization has been granted by the Companies for the agent
to bind coverage as required and to execute the Certificate of
Insurance as evidence of such coverage. In addition, each and every
agent shall warrant when signing the Certificate of Insurance that the
agent is licensed to do business in the State of North Carolina and
that the company or companies are currently approved by the North
Carolina Department of Insurance. 3. Liability Insurance Requirements.
Concessionaire shall procure the following liability insurance
coverages, each with combined single limits in the minimum amounts
indicated:
(A) General Liability Insurance - $2,000,000;
(B) Products Liability Insurance - $2,000,000;
(C) Liquor Liability Insurance - $2,000,000; and
(D) Excess Liability Insurance - $5,000,000 in
addition to the underlying coverages.
4. Workers' Compensation and Employer's Liability Insurance. In
addition to the coverages required under Paragraph 3 hereof, Concessionaire
shall procure and maintain Workers' Compensation and Employer's Liability
Insurance with minimum
- 58 -
<PAGE>
limits as follows, such insurance to cover each and every employee of
Concessionaire:
(A) Workers' Compensation Employer's Liability- Statutory;
(B) Employer's Liability:
(i) Bodily Injury by Accident/Disease--$100,000
each accident;
(ii) Bodily Injury by Accident/Disease--$100,000
each employee; and
(iii) Bodily Injury by Accident/Disease-- $500,000
policy limit.
5. Fire Insurance. The Authority shall maintain at its expense standard
fire and extended coverage as well as boiler and other vessel insurance on the
Terminal Building including, but no limited to, improvements to the real
property made by Concessionaire, title to which have vested in the Authority.
Concessionaire shall maintain at its expense standard fire and insurance
coverage satisfactory to the Authority for all items of personal property upon
the Premises, such insurance to name Concessionaire and the Authority as the
insureds, as their respective interests may appear, and Concessionaire shall
deliver a Certificate of Insurance to the Authority with respect thereto. The
insurance to be maintained by the Authority and by Concessionaire hereunder will
be to the extent of at least eighty percent (80@) of full replacement value of
the property to be insured less a standard disappearing deductible clause.
6. Waiver of Subrogation by the Authority. The Authority releases
Concessionaire, to the extent of proceeds received-by
- 59 -
<PAGE>
the Authority from its insurance coverage, from any liability for loss or damage
caused by fire or any of the extended coverage perils included in the
Authority's insurance policies even if such fire or other casualty should be
brought about by the default or negligence of Concessionaire or its subtenants
or the agents or employees of any of them; provided that this release shall be
in effect only with respect to loss or damage occurring during the time that the
Authority's policies for fire and extended coverage insurance contain a clause
to the effect that this release shall not affect the right of the Authority to
recover under such policies. The Authority will request each insurance company
writing its fire and extended coverage insurance policies to include such a
clause but only so long as it is includable without extra cost or, if extra cost
is chargeable therefor, only so long as Concessionaire pays such extra cost. If
extra cost is chargeable therefor, the Authority will advise Concessionaire of
such extra cost, and Concessionaire, at its election, may pay the same, but
shall have no obligation to do so.
7. Waiver of Subrogation by Concessionaire. Concessionaire releases the
Authority, to the extent of the proceeds received by the Concessionaire from its
insurance coverage on its property at the Airport, from any liability for loss
or damage caused by fire or any of the extended coverage perils included in
Concessionaire's insurance policies covering its property at the Airport even if
such fire or other casualty
- 60 -
<PAGE>
should be brought about by the default or negligence of the Authority, its
officers, agents or employees; provided that this release shall be in effect
only with respect to loss or damage occurring during the time that
Concessionaire's policies for fire and extended coverage insurance contain a
clause to the effect that this release shall not affect the right of
Concessionaire to recover under such policies. Concessionaire will request each
insurance company writing fire and extended coverage insurance policies covering
its property at the Airport to include such a clause but only so long as it is
includable without extra cost, or if extra cost is chargeable therefor, only so
long as the Authority pays such extra cost. if extra cost is chargeable
therefor, Concessionaire will advise the Authority of such extra cost, and the
Authority, at its election, may pay the same, but shall have no obligation to do
so.
ARTICLE XV
COMPLIANCE WITH RULES AND REGULATIONS
Concessionaire covenants and agrees to observe and comply with, and
this Concession Agreement shall be subject to, all requirements of the
constituted public authorities, all federal, state and local statutes, laws,
ordinances, rules, regulations and standards now and hereafter in force, which
may be applicable to the operation of Concessionaire's business at the Airport,
including, but not limited to, all Rules and Regulations adopted from time to
time by the Authority and laws, rules and regulations relating to the sale of
alcoholic beverages, food
- 61 -
<PAGE>
handling, sanitation, health and safety, non-discrimination and the use or
employment of socially and economically disadvantaged individuals accommodations
for handicapped persons, and Airport Security, insofar as such laws, rules and
regulations may be applicable to Concessionaire.
ARTICLE XVI
ENVIRONMENTAL CONCERNS
Concessionaire shall not cause or permit any gasoline, oil or
hazardous, toxic or dangerous waste, substance or material to be used or placed
on, under, or about the Airport in violation of any governmental laws or
regulations, or rulings, either federal or state, applicable to environmental
concerns, including, without limitation, the North Carolina Oil Pollution and
Hazardous Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Toxic Substances Control Act and the Clean Water Act. In the event
Concessionaire becomes aware that any gasoline, oil or hazardous, toxic or
dangerous waste, substance or material has been used or placed by it or its
agents, servants or employees on the Airport in violation of any such
governmental law, regulation or ruling, Concessionaire shall immediately notify
the Authority in writing of such fact, and if such occurrence results from a
breach by Concessionaire of its obligations hereunder, Concessionaire shall, at
Concessionaire's expense, take such remedial action as is necessary to correct
any such violation, remove from the Airport
- 62 -
<PAGE>
such substances and materials giving rise to any such violation, and take such
action as is necessary to prevent a recurrence of such violation.
Concessionaire shall keep and hold harmless the Authority an its
directors, officers, agents and employees from and against an and all costs of
clean up or other remedial actions, claims, demands, suits, judgments, fines,
penalties, costs and expenses for violations of any such governmental law,
regulation, or ruling resulting from Concessionaire's operations hereunder upon
the Airport; and Concessionaire shall reimburse the Authority and the other
parties indemnified hereunder for all expenses, including reasonable attorneys,
fees, incurred in connection therewith. The Authority shall give to
Concessionaire prompt and reasonable written notice of any such claim or action
known to the Authority, and Concessionaire shall have the right to investigate,
compromise, and defend the same to the extent of its own interest.
ARTICLE XVII
GENERAL PROVISIONS
1. Non-Discrimination. Concessionaire, for itself and its successors in
interest and assigns, as a part of the consideration hereof, does hereby
covenant and agree that (i) no person on the grounds of race, color or national
origin shall be excluded from participation in, denied the benefit of, or be
otherwise subject to discrimination in Concessionaire's operations under this
Concession Agreement, (ii) that in
- 63 -
<PAGE>
construction of any improvement by Concessionaire on, over or under the Airport
and the furnishing of services thereof, no person on the grounds of race, color,
or national origin shall be excluded from participation in, denied the benefits
of, or otherwise be subjected to discrimination, (iii) that Concessionaire shall
operate under this Agreement in compliance with all other requirements imposed
by or pursuant to Title 49, Code of Federal Regulations, Department of
Transportation, Subtitle A, Office of the Secretary, Part 21, Nondiscrimination
in Federally-assisted Programs of the Department of Transportation-Effectuation
of Title VI of the Civil Rights Act of 1964, and as such Regulation may be
amended. In the event of the breach of any of the above non-discriminational
covenants, the Authority shall have the right to terminate this Agreement,
provided, however, that this provision shall not be effective until the
procedures of Title 49, Code of Federal Regulations, Part 21 are followed and
completed including exercise or expiration of appeal rights.
2. Affirmative Action. Concessionaire assures that it will undertake an
affirmative action program as required by 14 CFR Par 152, Subpart E, to the
extent the same may be applicable to Concessionaire's operations under this
Concession Agreement, to insure that no person shall on the grounds of race,
creed, color, national origin, or sex, be excluded on these grounds, from
participation in or receiving the services or benefits of any program or
activity covered by said Subpart; that it will
- 64 -
<PAGE>
require that it covered subtenants or concessionaires, if any, provide
assurances to Concessionaire that they similarly will undertake affirmative
action programs and that they will require assurance from their
suborganizations, as required by 14 CFR Part 152, Subpart E, to the same effect.
3. Accessibility to the Disabled. Concessionaire shall comply in full
with all federal and state laws, rules and regulations relating to
non-discrimination against handicapped and disabled persons, and the
accessibility of Concessionaire's facilities and services to such persons,
insofar as such laws, rules and regulations shall apply to Concessionaire, to
any construction undertaken by Concessionaire hereunder, or to any of
Concessionaire's operations at the Airport, including among such laws, rules and
regulations, without limitation, Section 504 of the Rehabilitation Act of 1973
(29 USC 794), the Americans with Disabilities Act of 1990 (42 USC 12101-12213)
and regulations issued pursuant thereto, and 49 CFR Part 27, as the foregoing
may be amended from time to time.
4. Failure to Enforce. The failure by the Authority to enforce, for any
period or periods, any of the terms, covenants and conditions herein contained
shall not be deemed a waiver of any rights on the part of the Authority to
enforce said terms, covenants and conditions at a later date, nor shall any
failure by the Authority to enforce any of the terms of this Concession
Agreement be construed to be or act as a waiver by the Authority of any
subsequent rights so to enforce.
- 65 -
<PAGE>
5. Invalid Provisions. In the event any covenant, condition or
provision herein contained is held to be invalid, the invalidity of any such
covenant, condition or provision shall in no way effect any other covenant,
condition or provision herein contained; provided, however, that the invalidity
of any such covenant, condition or provision does not materially prejudice
either the Authority or Concessionaire in their respective rights and
obligations contained in the valid covenants, conditions or provisions of this
Concession Agreement.
6. Non-Waiver. The payment or acceptance of rentals and fees by the
parties hereto for any period after a default of any of the terms, covenants,
and conditions herein contained to be kept, performed and observed by said
parties shall not be deemed as a waiver of any rights on the part of either of
them to terminate this Concession Agreement for any subsequent failure or for
the continued failure by the other party so to perform, keep and observe the
terms, conditions, or covenants hereof to be performed, kept and observed by
such other party. No waiver by either party of any of the terms of this
Concession Agreement to be kept, performed, and observed by the other party
shall be construed to be or act as a waiver of any subsequent default on the
part of the other party.
7. Holding Over. In the event Concessionaire shall continue to exercise
the rights and privileges herein granted after the expiration of the Term hereof
without the written approval of the Authority, such holding over shall not be
deemed
- 66 -
<PAGE>
to operate as a renewal or extension of this Concession Agreement, but shall
only create an extension from month-to-month.
8. Subordination. This Concession Agreement shall be subject and
subordinate to the provisions of the Federal Airports Act of 1946, as amended,
or any act which replaces the Federal Airports Act of 1946 relative to the
operation, maintenance and development of the Airport and to any agreement
entered into between the Authority and the United States Government pursuant
thereto.
9. Interpretation. This Concession Agreement s hall be construed in
accordance with the laws of the State of North Carolina Nothing in this
Concession Agreement shall be construed or interpreted in any manner whatsoever
as limiting, relinquishing, or waiving any rights of ownership enjoyed by the
Authority in the Airport property or in any manner waiving or limiting its
control over the operation or maintenance of Airport property or in derogation
of such governmental rights as the Authority may possess, except as is
specifically provided for herein.
10. Successor and Assigns Bound by Covenant. All covenants,
stipulations and agreements in this Concession Agreement shall extend to and
bind the legal representatives, heirs, successors and assigns including
successors-in-interest by merger or consolidation of the respective parties
hereto.
- 67 -
<PAGE>
11. No Partnership Created. No partnership relationship between the
parties hereto or joint venture is created by this Concession Agreement, and
Concessionaire is not made the agent or representative of the Authority for any
purpose or in any manner whatsoever.
12. Concessionaire is Independent Operator. The Concessionaire is and
shall be an independent operator responsible to all parties for all of its acts
or omissions and the Authority shall be in no way responsible for the acts or
omissions of the Concessionaire.
13. Notices. Any notice required or permitted under this Concession
Agreement shall be in writing, whether or not so state in the preceding
provisions hereof, and shall be delivered by ha or by certified mail, return
receipt requested, postage prepaid, addressed to the party for whom intended at
the following address:
For Concessionaire: [
Attention:
For the Authority: PIEDMONT TRIAD AIRPORT AUTHORITY
P. 0. Box 35445
Greensboro, NC 27425
Attention: Executive Director
or to such other address as the party to receive such notice may hereafter
direct in writing by as a notice given to the other in accordance with this
Paragraph 13. Notice sent by certified mail postage prepaid, and addressed to
one of the parties as required
- 68 -
<PAGE>
in this Paragraph 13 shall be deemed to have been given to such party three (3)
days after the date it was posted in the mail.
14. No Personal Liability. No member, director, officer, agent or
employee of the Authority shall be charged personally or held to be
contractually liable by or to Concessionaire under any terms or provisions of
this Concession Agreement.
15. Headings. The article and paragraph headings are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope or intent of any provision of this Concession Agreement.
16. Construction. Each term and provision of this Concession Agreement
shall be construed to be both as a covenant and as a condition.
17. Survival of Obligations. Any obligation hereunder of either of the
parties, including the obligation to pay rents, preserve records, submit to
audits, provide indemnity, or do any other act or thing which is required to be
performed after the expiration of the Term hereof, or which by its nature is to
be performed after the expiration of the Term hereof, shall survive the
expiration of such Term and shall remain binding upon the party which is
required to keep or perform the same until such obligation has been discharged
by such party in full.
18. Entire Agreement. This instrument contains all the agreements and
conditions made between the parties hereto with respect to the matters contained
herein and may not be modified orally or in any other manner other than by
agreement in writing,
- 69 -
<PAGE>
signed by both parties hereto or their respective successors.
IN WITNESS WHEREOF, each of the parties has executed this Concession
Agreement under seal, all on the day and year first above written.
PIEDMONT TRIAD AIRPORT AUTHORITY
By
Chairman
Attest:
Secretary
CREATIVE HOST SERVICES, INC.
By
President
Attest:
Secretary
- 70 -
<PAGE>
NORTH CAROLINA
GUILFORD COUNTY
I, ____________________, as a Notary Public in and for said County and
State, certify that personally came before me this date and acknowledged that he
is Secretary of the PIEDMONT TRIAD AIRPORT AUTHORITY, as a body politic and
corporate, and that by authority duly given by said Authority, the foregoing
instrument was signed in its name by its Chairman, sealed with its corporate
seal, and attested by himself as its Secretary.
WITNESS my hand and notarial seal on this the _____ day of ___________,
1997.
________________________________________
Notary Public
My Commission Expires:
_____________________________
- 71 -
<PAGE>
STATE OF _____________
COUNTY OF ____________
I, ________________, as a Notary Public in and for said County and
State, certify that personally came before me this day and acknowledged that
he/she is the Secretary of CREATIVE HOST SERVICES, INC., as a California
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its corporate name by its President,
sealed with its corporate seal, and attested by himself/herself as its
Secretary.
WITNESS my hand and notarial seal, this _____ the day of _______, 1997.
_______________________________________
Notary Public
My Commission Expires:
_______________________________
- 72 -
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Creative Host Services, Inc.
San Diego, California
We consent to the inclusion of our Independent Auditors' report dated February
20, 1998 on the financial statements of Creative Host Services, Inc., included
in the Form 10-KSB filed with the Securities and Exchange Commission on March
30, 1998.
CERTIFIED PUBIC ACCOUNTANTS
Santa Monica, California
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,109,229
<SECURITIES> 0
<RECEIVABLES> 432,984
<ALLOWANCES> 8,807
<INVENTORY> 327,404
<CURRENT-ASSETS> 1,890,320
<PP&E> 5,056,100
<DEPRECIATION> 793,591
<TOTAL-ASSETS> 7,109,821
<CURRENT-LIABILITIES> 1,712,035
<BONDS> 0
0
0
<COMMON> 5,820,514
<OTHER-SE> 4,489,835
<TOTAL-LIABILITY-AND-EQUITY> 7,109,821
<SALES> 9,802,529
<TOTAL-REVENUES> 9,802,529
<CGS> 3,126,711
<TOTAL-COSTS> 6,438,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (205,965)
<INCOME-PRETAX> 37,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,631
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
